Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[lklundin]

Well from that we know they don't understand Power...

True.

If by "faster" they mean higher current (which determines the need for liquid cooling), then it does make some sense, since 200kW at 400V is a current of 500A, while 350kW at 800V is a current of 437.5A.

 

[DFibRL8R]

The price drops on the Model S and X give pause. One of the rules of a premium brand is to hold price points. Up to this point, Tesla has held price points and instead delivered more for that price (bigger battery, better tech, etc). Based on the last shareholder letter, it seems both vehicles are selling well and it seems like they were expecting to roughly sell the same number of both cars this year as last (or at least, growth was primarily coming from the Model 3). In light of that, why drop prices on the the flagship models? If demand is strong, you are just leaving money on the table. It seems odd to be simultaneously closing stores and laying off people and giving away margin. It's not unreasonable to interpret that as heading off a demand issue for the S/X, especially as competing models start to make their presence felt.

Or alternatively a new design on S/X is coming soon and they are trying to clear the inventory of the older style/spec at a discount so those that buy now get a price break despite "missing out" on the newest tech that's about to be revealed. Pure speculation but could explain what seems like an otherwise bizarre drop in prices as you point out.

 

[jhm]

Bloomberg - Are you a robot?

We can be thankful that the shorts have lost the cobalt argument against EVs. Will Tesla keep pushing hard on the low cobalt cell tech?

 

[neroden]

BTW, thanks for the transcript.

Eric Evarts: Hi. I was just wondering if somebody wanted to order a short range base Model 3 this evening. How long you'd expect that it would take at this point for them to get it?

Elon Musk: Well the priority is for longtime reservation holders so we would first need to assess how many of the long term reservation holders want the $35,000 car. So it really depends on on that on that and obviously this news has been embargoed until now so we first need to assess how many of the reservation holders wish to buy that car. They will get priority and then it will be new new orders. But I do. But I should say that it is very likely that someone who orders will get the car in the US by the end of June, let's say - before the before the next tax credit cliff.

I did some math and this matches with my assessment of the length of the "standard range" reservation list in the US, which should have been 80K-120K based on the original reservation count, geographic distribution, percentage buying higher-specced models, etc. March-June should be able to deliver about 110K cars, so it is "very likely" that someone who ordered immediately after announcement will get their car by the end of June. Someone who orders today, on the other hand, may be too late.

 

[StarFoxisDown!]

Or alternatively a new design on S/X is coming soon and they are trying to clear the inventory of the older style/spec at a discount so those that buy now get a price break despite "missing out" on the newest tech that's about to be revealed. Pure speculation but could explain what seems like an otherwise bizarre drop in prices as you point out.

I sure hope so. I don't really question demand for Tesla vehicles in general and of course there was going to be a need to drop the prices so with the Model 3 out in abundance now and being close to the specs of the S/X...…..but the repeated price drops and updates to pricing structure have been a bit jarring. Mostly jarring in that every time it happens it's more ammo for the media to spread for their own purposes.

 

[neroden]

I didn't see this article posted here:
Inside Tesla’s Model 3 Factory, Where Safety Violations Keep Rising

Decent article, hit-piece headline which doesn't match the article.

 

[jhm]

I don’t believe they use stores in their current model as I was been looking at used for the first time. All used cars are kept in a remote lot, if you call Tesla today and ask to view a car you see in inventory they will tell you that it’s impossible. You have to go off of pictures to make your decision on if the wear is acceptable. If you agree, you place a deposit and the car will be transports to the service center closest to the vehicle for free. If you want it transported to your home i believe it was quoted at 2k. I’m a little fuzzy on the 2k so don’t take that as gospel.

Thanks. So they pretty much have an online sales model for used inventory already.

 

[abasile]

Sorry if I missed it, but with Tesla closing down stores, how will they be selling used vehicles?

The same way they are selling new vehicles, online. The downside is that used car buyers traditionally have wanted to inspect the vehicle in person before making a final payment. If Tesla can provide full disclosure as to the vehicle condition while offering a moneyback guarantee, then an in-person inspection should not be necessary. In general, buying used cars online is becoming more common. Personally, I am quite happy with this, as I never cared for the hassle of driving around to multiple car sellers in hopes of landing a good deal. I want to be able to buy virtually everything online!

 

[KarenRei]

Decent article, hit-piece headline which doesn't match the article.

I don't see it as that at all. The latter half is okay, but the first half is all too hit-piecey. The rate of reportable injuries at Fremont is less than the US average, and way lower than it was when GM owned it. The fact that the number of citations is higher at Fremont - under CalOSHA - than other plants under less stringent regulators (CalOSHA being the strictest in the US) - is akin to saying:

"Timmy's mommy punished him five times last week. Bobby's mommy only punished him once last week. Therefore, Timmy is a very naughty boy!"

 

[Artful Dodger]

This is what Adam Jonas is hinting at when he writes 'Tesla is fundamentally overvalued but strategically undervalued.

Well, there's Adam Janus' $283 for you (few minutes ago).

Heh heh, last time I bought at $283, it bottomed out at $251. But they're not gettin' any of my shares today, though I might get some of theirs.

Cheers!

P.S. Today's silver lining: The Enbridge Line 3 Replacement pipeline has been delayed until 2020H2, pending environmental review in Minnesota.

 

[Words of HABIT]

Apologies if this has been posted...

It will take a couple of days for us, but soon we`ll have Model 3 registration data from most of Europe for February. @schonelucht has already mentioned that earlier, but we now have what I personally consider a milestone: it seems the ICE ( ) has broken in Germany. The official government data is out, but it is at brand level only - the detailed version per models will come in a few days.

However the data is already pretty clear: the Model 3 has made a stellar entry to the market. How stellar? January 2019 registration data showed 137 S/X for the country, while February came in at 1092 S/X/3. My guess would be 850-900 Model 3s given historical S/X data.

Consider this: in the entire year of 2018 Tesla has sold exactly 1900 vehicles in Germany. This month alone it did almost 1100 - and we only had ~3 weeks of Model 3 deliveries.
View attachment 382837

Mr.Db, Great find. However that chart and graph is hideously erroneous. The vertical black line on the right represents only a 100% improvement.
Here, I fixed it for them...

 

[neroden]

Implied Tesla average COGs for a $35k base car:

• 1Q18 $67.6k ($53.2k ex depreciation).
• 2Q $49.0k ($42.3k ex depreciation).
• 3Q $39.5k ($36.8k ex depreciation).
• 4Q $38.5k ($36.0k ex depreciation) despite c.$1k higher costs from Trump's tariffs.

This is from my reconciliation of Tesla's quarterly accounts and using options mix surveys and other bottom up cost estimates and modelling.

Elon disclosed a base model 3 production cost of $38k in November. I presume this is on an accounting basis (which is how Elon normally talks about margin guidance), but it is possible Elon’s number includes deferred costs (in which case cost would be $36k on my basis) and also possible it doesn’t include warranty (in which case it would be $40.1k on my basis).

I think Tesla likely finished Q4 with the base cost at $37-37.5k.

Much of the easy work on cost reduction was done in 2018, but there is still room for significant cost reduction in 2019.

Roughly I think further base model 3 COGS savings could be achieved by:

• Production ramp from 5k/week to 7/k week, which could reduce depreciation by c.$0.5k per car and staff costs by c.$1.5-2k per car through operating leverage.
• New more efficient battery module and pack designs: $0.5-1.5k per car
• $10-20/kwh reduction in Panasonic cell purchase cost: $0.5-1k per car
• Cancellation of referral program (I'm not sure how this is accounted for, but it may reduce deferred revenue by c.$0.5k)
• Cancellation of Trump's China tariffs: $0.5-1k per car.
• Other supplier cost savings with negotiations and purchasing scale: $0.5-1k
• Other car design improvements: $0.5-1k
• Better production quality to reduce scrap, rework and warranty costs: $0.5-1k

Aside from improving gross margin, Tesla can alternatively try to reduce costs by cutting SG&A. This is the reason for cutting store sales. I roughly estimate this could cut annual SG&A costs by c.$750m, or c.$1.5k per car at annual production of 500k.

So Tesla needed to reduce COGs $7-7.5k to get base model 3 costs to the target $30k or a 14.3% gross margin on the base model (likely corresponding to 25% or so average across all options). If they are now instead reducing SG&A by $1.5k per car, the COGs cost target can increase $1.5k to $31.5k while maintaining the previous operating margin target.

That leaves $5.5k to $6k COGs reduction needed from the 2018 exit rate to get to the initial targeted operating margins. I've listed measures above that i think could potentially reduce COGs $5.5k to $9.5k. Of these, i think the ramp to 7k/week, new module lines and referral cut have already likely been implemented (together $3k to $4.5k COGs savings).

So if Tesla has ramped to 7k week, i think current COGs are likely $32.5k to $34.5k. This makes current gross margins on the base model 1% to 7% per car (I would guess closer to 1% than 7%). I think Tesla should get this base gross margin to c.10% in the US with the average Model 3 margins at 20-25% this year. In China next year base margin should be higher which should increase group overall model 3 margins.

These numbers are all rough but I'll finish a full model with all of the new options pricing and my estimated options mix in the next week or so.

ReflexFunds, you are quickly becoming my new favorite analyst (Sorry, FactChecking!) This is all stuff I'd estimated but much less carefully.

 

[Hock1]

Yeah Ihor, that's because Regulation SHO means every broker is exempt from the naked short selling rule when selling to another broker.

All this means is that retail traders aren't short-selling TSLA is large amounts. But we know that short selling is high currently, so who's shorting? It's likely the brokers themselves, exploiting their exemption.
One of the most maddening and outrageous
And yeah, those 91,756 shares in the Failure-to-Deliver report by the SEC for Feb 14 is nothing, nothing at all.

It just means those same exempt brokers couldn't find the shares to cover their short sales even after the 13-day max. allowable time period had passed. No real shares coming up for sale?

Move along, move along.

One of the most maddening and outrageous results of this MM manipulation is that shorts are now being covered at this manufactured price. Bastards.

 

[SW2Fiddler]

Market is open. I stand on the duck.

And I am reading this at two hours before closing.
I was 24-48 hours behind until yesterday.

OT posters, have mercy on the daytime-employed. Literally everyone is going to read your post at a later date stamp than when you sent it, exception being whoever’s reading over your shoulder. No one is reading in real time; some are minutes behind, some are hours or more in the future.

TIA
YMMV

M O U...S...EEEEEEE!

 

[jhm]

Sorry if I missed it, but with Tesla closing down stores, how will they be selling used vehicles?

I'm not sure why asking this question would generated a "disagree." Please explain.

 

[brian45011]

What reason do you have for thinking that stores aren't such a large portion of SG&A?

Isn't most of that G&A? i.e. accounting, finance, human resources, facilities administration, public relations, investor relations, data processing, insurance, legal, executive management (From March 21, 2018, when the grant was approved by our stockholders, through December 31, 2018, we recorded stock-based compensation expense of $174.9 million related to the 2018 CEO Performance Award.) severance and litigation expenses, etc.--CEO award is non-cash, but the rest is mostly cash consumption.

 

[Artful Dodger]

True.

If by "faster" they mean higher current (which determines the need for liquid cooling), then it does make some sense, since 200kW at 400V is a current of 500A, while 350kW at 800V is a current of 437.5A.

He's clearly confusing Power and Current, and omitting Units. Bah!

 

[Cosmacelf]

I do not know much about accounting, so correct me if I'm wrong, but my understanding is that paying off a debt does not effect profitability only cash-flow. So there would have to be some other major one-time cost that affects profitability.

Quite right, paying off debt has no affect on profitability. And those people pointing out that my statement about Elon promising positive earnings going forward are completely missing the point. I am talking about TSLA stock price which is largely based on public perception. People hear “positive earnings going forward”, don’t hear the part about one time charges (which frankly are often discounted by stock watchers since “one time charges” are, in fact, real charges against earnings and calling them “one time” doesn’t mean much. Next quarter there could be a different “one time” charge), but hear mere months after that promise that Elon says, current quarter unprofitable, next quarter is touch and go, and freak out.

My point is that the freak out shall continue until the earnings show otherwise. TSLA is back in the penalty box. Wish it weren’t so since I believed Elon’s $420 tweet and bought a bunch then. Not that I’m bitter or anything...

 

[Curt Renz]

Sorry if I missed it, but with Tesla closing down stores, how will they be selling used vehicles?

I assume they will continue their long established policies. Non-Tesla trade-ins are immediately sold to wholesalers or auctioneers at the Kelly Blue Book price. Used Tesla's are kept in lots just like new inventory.

 

[TheTalkingMule]

I'm not sure why asking this question would generated a "disagree." Please explain.

It's Fanboy Freakout Day....put on your red jumpsuit or be branded a traitor! Resistance is futile.