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

[Fact Checking]

Relatively simple as I have discussed before. SEC is stating black letter law that this language of an agreement stands for itself and the only time you look at what a party intends is of you can't discern the meaning from the language itself. EM is saying IF the court can't figure out what the agreement means from the language, here is some indication of what the parties were negotiating . The SECis saying that is irrelevant because the agreement is clear AND if the is any question regarding intentions, they would like to add more information. This is the end of the last word deal. All the cards are.on the table.

Probably all cards are at the table, but not necessarily:

• If Judge Nathan indeed agrees with Elon's argument that the settlement does not specify whether Elon can exercise discretion, then she has to resolve that ambiguity, and there's two main paths offered by the filings:
  • If she wants to determine "intent" then she has to rely on evidence - and (probably) has to give the SEC another round to submit more settlement negotiations evidence (to which Elon's team might want to submit more evidence, etc.)
  • Or she could determine based on the constitutional arguments that the SEC's interpretation is unconstitutional and the only reasonable interpretation is what Tesla and Elon Musk are using.

I.e. the SEC did not put all cards on the table, and they also made it easier for the judge the rule against them on constitutional grounds.

I'm wondering whether this was deliberate: if the SEC is worried about losing this case then which would be the better outcome, to lose because they in effect mislead the court about the intent of the negotiations, or lose on some abstract constitutional grounds?

If I was Sheryl Crumpton I sure as hell would prefer not to lose on "intent" grounds, which would invite uncomfortable questions: "Why did the SEC file the contempt motion if they knew it perfectly well what the intent of the parties was?"

Which is I believe why they didn't contest Elon's evidence that underlines their constitutional arguments and offered some vague "we think there's more evidence" response regarding the settlement negotiations email trail ...

Which is fine with me - Elon winning this on constitutional grounds would be the most robust outcome for Tesla and Tesla shareholders. Or if Elon wins only on immateriality, with the constitutional arguments undecided, they could almost immediately file a motion for declaratory judgement to decide the broader constitutional arguments, to remove the considerable uncertainty in interpreting the consent decree.

 

[Carl Raymond]

So you want to get some popcorn at the movies. It’s a long line but there are helpful signs ‘popcorn : only 15 minutes waiting time from here’. That doesn’t sound too bad with your movie only starting in 20. Finally you get to the front ‘one large serving of popcorn please’ ‘coming right up for you, would you like to get a coke with that’ ‘no’ ‘then I am sorry sir, but I will have to ask you to step out of line. Due to the long lines we only serve customers that order at least two menu options’ But try again in 20 minutes when there will be much less customers.

I am not saying the analogy is perfect, but I am saying than these business tactics do have a cost.

I’ll wait for the video referee before believing one article that it is as bad as that. There have been some instances where the media have been less than honest about Tesla. I kid you not.

 

[Fact Checking]

One such gap just happened withe the SR+ start of production, so the number is particularly bad now.

The Bloomberg tracker is taking VIN block gaps into account - if they didn't they'd have to estimate 115k Q1 Model 3 production just based on VIN data ...

But it's still a "model", not a direct measurement of production - so it's very sensitive to methodological errors.

The only direct measurement I'm aware of is the Alpha Hat methodology. They provide weekly updates - does anyone know what their latest U.S. data is?

 

[Fact Checking]

For the same reason VW is proposing to reduce the German EV subsidy for cars longer than 4.65 meters*: science.

*Model 3 is 4.69 meters long. What an unfortunate coincidence!

VW is playing a dangerous game there: they might end up accelerating Tesla's compact car plans. Do they really want Tesla competition for their entire product palette?

 

[Artful Dodger]

TSLA is likely in a place where additional cash infusions would not accelerate their current plans. China GF is already under construction 24/7. Only so many hours in a day.

Agreed. Tesla is also still in the "let's build it and see how it works" then "fix it faster" mode. Tesla needs iterative generations of new factories to develop the "machine that builds the machine" (that's why Elon called GF1 "Alien Dreadnaught v0.5").

Unavoidably, developing that new "factory as a product" takes time more than money. Just building multiple copies of the old, wonky factory IS a waste of money. Get the product up to a known useful performance and cost standard, THEN build those multiple factories all at once.

It's all about risk reduction. And the results will be exponential growth.

Cheers!

 

[Fact Checking]

TL;DR:

1. This is likely a wash (or close) from a COGS/GM perspective
2. It adds more to the R&D line than it could possibly save with any small cost advantages purchasing directly from a foundry.
3. The above won't matter because HW3 will enable incredibly valuable functionality.

Yeah, but note that even the CoGs argument isn't really accurate: Tesla's ASIC is 20 times faster than their Nvidia GP106 based board. The proper CoGs comparison would be either a lot more GP106's (not feasible for power envelope reasons), or one of Nvidia's next generation GPUs - which adds a zero to the price tag...

So this is significant CoG savings if we compare it to the price of a platform able to provide th computing power required by the FSD features Tesla has planned.

 

[CorneliusXX]

So, a thread that wasn't started until early March with less than a dozen people waiting and within a couple of weeks they started getting their cars is evidence of a suitable large number of complaints that points to high demand for LR Model 3?

Really? We've seen a drop-off of over 19K cars per month!

Look, I've been driving Teslas, owning Tesla stock, and participating on TMC longer than most here today. I'm not a short - I still have shares I purchased in 2011. I never worried about Model S steady state demand previously. But, I am now worried about Model 3 LR (including Perf) demand in the US.

If we look at Q4's deliveries (all US), and then look at Jan/Feb, there's a big falloff. And Feb was less than Jan! If the Jan/Feb sales are not indicative of the steady state demand for Model 3 LR variants because of pull forward demand, then Q4 is also not indicative on the other side. Somewhere between 25K cars/month and 6K cars/month (Dec and Feb) is probably the number. What steady state number would you pick? Pick a number and then it's easy to calculate the pull-forward and payback.

And to be clear, I'm NOT worried about Model 3 SR demand anywhere. But, if almost all the demand is for SR variants, then Tesla is in for a bunch of short term pain as that's not a profitable enough car for them to making right now when they need cash to fund things like Model Y factories.

I agree with your point on Q4 demand probably being high compared to steady state, however I think steady state is closer to Q4 than Q1.

Q1 has a natural decline due to low vehicle purchases in the winter months. We had the end of the high tax break in the US. We were also coming off the back of two full quarters of pure focus on high end models.

There is a natural replacement cycle for vehicles, only so many people are willing to break their lease and get a new vehicle as soon as the M3 is available. This replacement cycle is recharging this quarter.

Quite a few owners do not want the first year of production as they are waiting for the manufacturing bugs to be worked out (possibly more than average for Tesla with all the FUD around)

High end models were prioritised for overseas, who knows how many AWD versions Tesla can produce. High end models globally will continue to be solely produced in Fremont for some time - only low end models initially at GF3.

EVs are still going through an educational process with much of the public. As people see their neighbours enjoying EVs overall demand should continue to rise.

In short, Q1 high spec M3 demand in the US is likely very understated although it is difficult to know where it will end up.

Finally, what is acceptable demand in the US. If Tesla is targeting 7k M3s per week steady state production, should the AWD versions be 20%, 50% etc? I'd argue anything over 25% is pretty good.

 

[Fact Checking]

Latest guidance from Elon at the Model y reveal was more conservative: Production of Y >= S+X+3

So I believe @EinSV was talking about the capital expenditures required to build the Model Y production lines, not about absolute production capacity.

Elon said this about 'capex per vehicle':

Elon Musk:

"In terms of the new products, with Model Y, we've completed ensuring of ensign of Model Y, and the parts are - [indiscernible] for production Model Y. Three quarters of the Model Y is common with the Model 3, so it's a much lower CapEx per vehicle than Model 3. And the risk is also quite low."
​

He even gave a specific number:

Elon Musk:

Absolutely. I mean, we're confident that our CapEx per unit of production for Shanghai factory and for Model Y will be less than half of what we did for Model 3. Internally, we think it might be a quarter but that's probably too good to believe, but it's definitely less than half.
​

I.e. Model Y capex would be 25%-50% of Model 3 capex - with much lower execution and schedule risks.

So if Model 3 capex to reach 0.5m/year capacity was $2.5b, then they are expecting 0.5m/year Model Y capacity to cost maybe as little as $750m, but less than $1.25b.

A big cost was the Gigafactory assembly lines which capex went wrong - the Grohmann machines saved them, and they are much more efficient - I think 3x efficiency improvement was mentioned a couple of months ago?

About Model Y demand:

"I would expect Model Y will probably be - the [indiscernible] Model Y will be maybe 50% higher than Model 3, could be even double. The - as I understand it, the midsized SUV segment is the - worldwide is the most popular type of vehicle. So we'll probably see a higher volume of Y than 3."​

I think they'll initially shoot for Model Y capacity of 1 million units per year (maybe 50%-50% allocated to North America and Shanghai), so the capex needs would be $1-2b, well within their capex guidance of ~$5b for the relevant 2 year period.

But I'm sure the capex plans will stay flexible as long as possible, until the point of no return.

 

[Artful Dodger]

Agree as to no-braine, unless the purchase of the SR already stretches the buyer;s budget to the limit. At that point, SR vs SR+ isn’t a cost/benefit calculation. It’s a choice between SR or a less expensive alternative.

The SR will be a better Fleet/Taxi/Commercial vehicle than the SR+. Shorter routes in town, no need for luxery amenaties, more reliable (available "uptime") in a high duty cycle environment.

Yeah, the SR has its place too, and it'll sell extremely well. Value is the key for businesses.

 

[RobStark]

In fact my best move was the Solar City arbitrage discussed here and my worst moves were my personal feelings like buy at 350 for the 420 sale.

 

[Fact Checking]

After the 420 tweet, he announced, on air, he was jumping on options, and stated he knew he’d lose the money but wanted in on the resulting law suit. On.air. Recorded media. Genius that he is.

Oh wow:

• "Your Honor, I was intentionally buying these options not as a reasonable, well-informed investor, but because I expected to be harmed and wanted part of the settlement payouts."
• "Had the buyout gone through I'd have cashed in on the call options and would never have filed this lawsuit, of course!"
• "Win-win, your Honor! Want a hot tip about a planned merger that hasn't been announced yet? Just between friends."

 

[EinSV]

Latest guidance from Elon at the Model y reveal was more conservative: Production of Y >= S+X+3

But I think this is the new Elon, underpromising in public while working hard in private to overdeliver.

Cheers!

That was a comment about the volume of Model Y production not the capital needed to make the Model Y.

On the Q4 earnings call Elon estimated expected CapEx of Model Y per unit at between 1/2 and 1/4 of that needed for Model 3s produced in Fremont:

“Elon Musk -- Co-Founder and Chief Executive Officer

Absolutely. I mean, we're confident that our CAPEX per unit of production for Shanghai factory and for Model Y will be less than half of what we did for Model 3. Internally, we think it might be a quarter but that's probably too good to believe, but it's definitely less than half.” Tesla (TSLA) Q4 2018 Earnings Conference Call Transcript -- The Motley Fool

(FWIW I don’t take Elon’s comment that you mention as changing the overall Model Y volume projections either but that is another story.)

Edit: I see @Fact Checking beat me to the punch!

 

[aubreymcfato]

Fine print at the bottom says "Based on cumulative sales data Dec 2010 to Oct 2018".

The Leaf did sell a ton of cars: 52616 in Norway alone, and always in the top 5 in every country... I don't mind them advertise like that. In a quarter or two the M3 will surpass it.

 

[Fact Checking]

All they had to say in their letter was: “With the Shanghai factory now intended to produce 3k a week we have decided for now to target a steady state of 7k a week in Fremont, which can be achieved with minimal capex. The timing for this depends on many variables [discuss on call] but is targeted for between the middle and end of 2019”.

Or they could just issue this guidance:

"The future is uncertain, there's only one thing certain about it: us trying to predict anything will only result in lawsuits.

But we are confident in guiding the following about Tesla's performance this year:

1. Tesla is in the business of making more cars, and this year we'll probably make between zero and 1 billion cars.
2. We have several factories under construction and have more planned, which might or might not be built by the end of this millennium.
3. Not all of them will be on Earth.
   
4. There are a lot of idiots in politics who make our life harder, and their actions might or might not affect demand for our products and our expenses of making them.
5. As things change so will we - we are adaptable.
6. Don't buy our stock. Really.
7. If you did buy our stock, see point 6 and shut up.
   
8. So long and thanks for all the fish. Tesla out."

... and then they could just concentrate on execution, cash generation and reporting the results, quarter after quarter.

 

[schonelucht]

I’ll wait for the video referee before believing one article that it is as bad as that. There have been some instances where the media have been less than honest about Tesla. I kid you not.

Articles just source forums, so cut out the middle man and decide for yourself if you find this thread credible (there are others floating around and more on the rip-off forum of this one that I am not sure I should mention?) : SR Not Plus Waiting Room

 

[Fact Checking]

Because those are the numbers they feel have been properly verified and audited?

Model 3 isn't past 400k vehicles.

Nissan Leaf crosses 400,000 cumulative global sales

So imagine Blackberry or Nokia advertising their phones as the "most popular smartphones" ... two years after the introduction of the iPhone?

It's only "technically true" if you use a definition disconnected from the everyday meaning of "popular" - which BTW. is also intentionally disconnected, to dupe people into thinking that their products are indeed still popular.

I.e. it's the text book definition of fraud, which might or might not meet the legal definition of fraud.

 

[EVMeister]

Articles just source forums, so cut out the middle man and decide for yourself if you find this thread credible (there are others floating around and more on the rip-off forum of this one that I am not sure I should mention?) : SR Not Plus Waiting Room

Well I hope I didn't direct those FUDsters over to the right place. I imagine they scan this thread, but they aren't known for any... Deep or meaningful research. Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable

 

[cricketman]

So imagine Blackberry or Nokia advertising their phones as the "most popular smartphones" ... three years after the introduction of the iPhone?

It's only "technically true" if you use a definition disconnected from the everyday meaning of "popular" - which BTW. is also intentionally disconnected, to dupe people into thinking that their products are indeed still popular.

I.e. it's the text book definition of fraud, which might or might not meet the legal definition of fraud.

I worked as a consultant to Nokia during 2007-9 and saw the way Nokia dealt with the iPhone at first hand. At that time, Nokia was one of the most valuable companies in the world.

It was my job to look at internet discussion on Nokia models vs. competitors. As soon as the iPhone came out, it broke all records in terms of customer sentiment and intent to purchase from non-owners. Nokia ignored our advice on that people wanted a phone that could do everything. Nokia had structured their whole company based on releasing dozens of phones each year, each with a speciality e.g. music, design, internet browsing. Eventually we had to stop talking about the iPhone as it was clear we were not on message and we stopped getting inviting by Nokia to tender for projects. It didn't matter in the end because we all know that story ended...

That experience is what has made me such a strong believer in Tesla

 

[Dan Detweiler]

Just one more week. Tesla is really hurting itself by not reporting monthly figures. Even if they are fodder for FUD (they will be since FUDsters will deliberately ignore seasonality), atleast we'd be talking about concrete numbers instead of rumors.

We might be talking about concrete numbers but those looking forward to Tesla's demise would only have more to spin. I really think Tesla is at a point where less is more. Keep doing what you're doing. Report the minimum required by law and let the shorts hang themselves. We just have to stick out the ride.

Dan

 

[aubreymcfato]

So imagine Blackberry or Nokia advertising their phones as the "most popular smartphones" ... two years after the introduction of the iPhone?

It's only "technically true" if you use a definition disconnected from the everyday meaning of "popular" - which BTW. is also intentionally disconnected, to dupe people into thinking that their products are indeed still popular.

I.e. it's the text book definition of fraud, which might or might not meet the legal definition of fraud.

Fraud is a harsh word.
The question is "What's the world best-selling EV?" and the answer is "Nissan Leaf"¹.
M3 is a great car with growing demand, probably a game-changer like the iPhone was,
but the Leaf has sold thousands of cars for years, everywhere. Let them have their last moments of glory.

¹ I didn't check 'cos I can't find a global EV chart.