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

[elasalle]

I hear these comments all the time. I have spoken directly to more than 5000 EV users about their EV usage, habits, buying choices, etc. As a an EV driver for more than 15 years and a person in the industry for almost as long I find that the Tesla bubble is pretty strong in some at times. As an investor, owner and Tesla business partner I found I had to unwind myself from my Tesla biases over time. We all get caught in our circles of thinking, I spend thousands of hours unwinding misinformation as have others here I am sure.

Tesla business partner?? (care to explain)
Are you on the dark side now

 

[EVNow]

I don’t think I have ever seen a reasonable post explaining why all these legacy car makers can be making literally BILLIONS selling EVs but they have decided to let Tesla have all the profit.

Because legacy car makers think they will be losing Billions, not making billions.

This is really what they believe - I don't think it is just PR.
- Batteries are too expensive to build inexpensive EVs that can compete with ICE on price
- When the batteries come down in price enough, they can quickly ramp up and build EVs (when they say "quickly" they mean 5 years)

So, they have been just kicking the can down the road.

Also, it is interesting to see how Nissan Leaf / GM Volt panned out.
- GM thought batteries are too expensive, so lets build PHEVs. Nissan thought batteries are expensive, so lets build a "100 mile" EV, that should be enough.
- Volt didn't sell well enough, it was too expensive (nearly $40k when launched).
- Leaf was priced well (~32k before tax credits), but the effective range was too low (esp., in winter). Also the battery didn't withstand the heat - and they had decide not to use TMS to keep the cost down. Anyway, didn't sell well enough.
- So, Leaf & Volt show that at least 2 legacy OEMs seriously tried EVs but were not that successful and probably never made any money.

 

[Rarity]

So this means Toyota could not make a viable EV model? They have the weight of these issues but that does not prevent them from building one, they already did this. They have considerable EV development like other companies and if they scrapped everything to go all EV they could but of course at a significant handicap.

Toyota has integrated manufacturing (as Munro says, it looks otherwise). Different than most other OEMs.

 

[humbaba]

So this means Toyota could not make a viable EV model? They have the weight of these issues but that does not prevent them from building one, they already did this. They have considerable EV development like other companies and if they scrapped everything to go all EV they could but of course at a significant handicap.

I'm not privy to inside information at Toyota, but from the outside it appears they have completely pinned their hopes on solid state batteries. Back eight years or so ago when they started their 10-year program that was very ambitious, but I do not think it was necessarily a bad decision -- other than they should have hedged their bets and proceeded with building out a first generation of EVs. That would have allowed them to gain experience with designing an EV which could have been applied to solid state battery powered EVs. But I digress.

It isn't that Toyota could not make a viable EV, it is that they have (obviously) chosen to not even try. An obvious explanation as to why would be their stated aim of waiting for a breakthrough in solid state batteries. I suspect another aspect is the careers that are on the line for pursuing the path they did. A rigid adherence to the plan can easily result from an inability to face uncomfortable facts.

That said, if Toyota were to try and make a viable EV there is a lot of inertia in the company that would resist it. This has been witnessed in essentially every legacy automotive manufacturer. It is logical that it would apply to Toyota as well and their management has given no indication of having the flexibility and agility required to pivot, nor the willingness to endure significant financial disruption.

 

[SteveG3]

JFYI, the pre-market price drop is most likely due to JP Morgan analyst Ryan Brinkman "downgrading" Tesla:

JPMorgan analyst, Ryan Brinkman, reiterated his Underweight rating on shares of Tesla and cut his price target to $215 (from $230) after taking Martin Viecha, Director of Investor Relations, to meet with investors.

Key points from the meetings include:

The $35K standard version Model 3 will generate substantially lower margin than higher priced variants and contribute only a slightly positive variable cash. Tesla's ability to meet Model 3 margin and cash targets seems to be highly dependent on the take rates for its high-margin $3,000 and $8,000 Autopilot packages.

There have been some delays in getting Model 3s to customers in 1Q. A since resolved, customs labeling issue in China and a dockworkers strike in Europe are two key examples.

Model 3 ASPs are likely to decline sequentially in 1Q as the headwind of a higher mix of lower spec Model 3s for the US market will more than offset the tailwind of shipping high-ASP AWD and performance versions to Europe and China.​

Notes:

• The $230 price target was already out of whack with financial multiples - the $215 is just a bit more ridiculous
• The FSD package is not $8,000 but $5,000. The weird wording makes it appear as if customers would have to pay $11,000, while the real maximum cost is $8,000.
• Brinkman's fear-mongering about AutoPilot take-rates is unfounded: AutoPilot take rates are over 90% in European data, FSD take-rate up to 40%.
• As I estimated it before even the $35k generates positive cash (!) - which Brinkman tries to obfuscate as "contributes only slightly positive to variable cash".
• Brinkman also missed that fact that Tesla has a separate 6-8 weeks long waiting list for the $35k SR version, and it's entirely up to Tesla how many base versions they are selling. Tesla can rate-limit SR production as long as margins are not good enough yet.
  
• That the $35k car generates cash is actually very good news, because both SR+, color and AutoPilot/FSD take-rates are very high according to various trackers:
  • SR+ take-rate is higher than 70%,
  • non-black color take rate is around 75%,
  • AP take-rate is above 80% in the U.S., above 90% in Europe,
  • FSD take-rate has reached 40% in recent European orders.
• Potential conflicts of interest were not disclosed by Brinkman: it's unclear how large JP Morgan's and their biggest clients' net short position in TSLA is, in the shares and stock options markets.

Ryan Brinkman's TSLA ratings track record on TipRanks is awful: -10% returns, many Tesla downgrades given near lows. He has issued over 20 "sell" ratings for Tesla in the past. It seems obvious that Brinkman is just talking JP Morgan's book and is taking one for the short team ...

TL;DR: JP Morgan's Brinkman is writing nonsense about Tesla and is actively misleading about the Model 3 Standard Range's margins and take-rates.

Very helpful post. Just to clarify,

“That the $35k car generates cash is actually very good news, because both SR+, color and AutoPilot/FSD take-rates are very high according to various trackers:

• SR+ take-rate is higher than 70%”

refers to trackers suggesting that more than 70% of SR+ buyers are adding AP to their orders?

 

[Pras]

Why ICE OEMs are handicapped relative to new EV companies

• At ICE OEMs most car components and most of the production process is outsourced. This reduces share of the value chain and reduces profit per car. It also makes the company much less agile to rapid changes in technology.
• EVs only share 10%-20% of components and production process with ICEs.
• EVs will be lower margin products for ICE OEMs for several years. EV product launches will heavily cannibalize a brands equivalent higher margin ICE car creating a large disincentive for high quality EV launches. Currently all ICE OEMs sell as few EVs as possible while meeting their legal emissions mandates. This is why their cars are all low volume, sub standard offerings.
• Sales channel is outsourced to dealerships who are not incentivized to sell EVs. Dealerships make a majority of their profits from maintenance revenue, which is much lower for EVs and requires different expertise.
• ICE service networks and service technicians do not have training in electronics and battery tech and are not able to service EVs without significant investment and significant new hires.
• Key IP and barrier to entry in the auto industry has been engine design and lack of funding for car startups. Engines are now redundant and Tesla has proved the investment case for investing in EV disruptors.
• ICE OEMs have a 50 year+ culture of working towards minimal annual incremental improvements rather than rapid innovation. Not suited to the rapid change needed to follow the EV/battery & motor experience curves.
• Unionized and inflexible to automation and modernization.
• Significant historic pension and other liabilities built over 50+ years.
• Own $trns of legacy ICE assets, many of which will have to be written down as part of the EV transition.
• Mostly trying to fit EVs into their old production lines and existing designs, EV companies have flexibility to design from scratch and make full use of the potential safety and ease of manufacturing improvements.
• Own a short term loan portfolio of ICE leases and auto loans which needs to be refinanced continuously, but the underlying assets will depreciate rapidly with the EV transition
• Shareholders value short term profits, dividends and share buybacks and are not supportive of short term pain for a long term vision, or investing heavily in the future.
• Traditional brands are tarnished with a history of killing 1-4 million people per year from pollution, in some cases cheating their legal mandate for profit.

Add to this CEO and Management focus: GM and other major auto CEOs are too far away from ground zero where real innovation happens. Unlike Elon who literally tests every software on his own car, i expect Mary Barra to receive any information filtered by multiple layers of management executives.

Also even if they want to invest in EVs, the most time the management is focused on are non-technical. I still remember a scene from the video “revenge of the electric cars” how in a small garage JB Elon and other leaders were looking underneath a model S prototype and where trying to solve a nagging problem.

 

[Fact Checking]

BTW., there's a curious thing I noticed this quarter: Electrek reported no leaked Tesla production figures, at all.

In Q3 there were several leaks, very close to the actual production figures.

For example there was this article right before the delivery report:

Tesla produced a record ~80,000 vehicles in Q3 and deliveries could be even crazier

"A source familiar with the matter has told Electrek that Tesla produced a record ~80,000 vehicles this quarter."
​

Eventual Q3 production was indeed 80k vehicles: 80,142.

Electrek either had a source who hacked into the innermost networks, or had a very high level source.

This Electrek source dried up in Q1'19 AFAICS.

 

[Cherry Wine]

Whack-a-mole time?

 

[KarenRei]

Because legacy car makers think they will be losing Billions, not making billions.

This is really what they believe - I don't think it is just PR.
- Batteries are too expensive to build inexpensive EVs that can compete with ICE on price
- When the batteries come down in price enough, they can quickly ramp up and build EVs (when they say "quickly" they mean 5 years)

So, they have been just kicking the can down the road.

Also, it is interesting to see how Nissan Leaf / GM Volt panned out.
- GM thought batteries are too expensive, so lets build PHEVs. Nissan thought batteries are expensive, so lets build a "100 mile" EV, that should be enough.
- Volt didn't sell well enough, it was too expensive (nearly $40k when launched).
- Leaf was priced well (~32k before tax credits), but the effective range was too low (esp., in winter). Also the battery didn't withstand the heat - and they had decide not to use TMS to keep the cost down. Anyway, didn't sell well enough.
- So, Leaf & Volt show that at least 2 legacy OEMs seriously tried EVs but were not that successful and probably never made any money.

OEMs: "I don't believe it!"
Tesla: "That is why you failed."

 

[Tslynk67]

Ryan Brinkman also covers $F...

 

[humbaba]

Ryan Brinkman also covers $F...

View attachment 391597

he's a failure: he only managed to give a "buy" rating on some of the price peaks. And there are a couple where it was timely. /s

 

[brian45011]

Also, the concrete floor appears to have set in much of the current building - they're now driving heavy trucks on it.

Those areas with concrete on the ground look somewhat irregular to have been excavated for re-bar and formed to pour a factory floor of much load bearing strength.

 

[MarcusMaximus]

So this means Toyota could not make a viable EV model? They have the weight of these issues but that does not prevent them from building one, they already did this. They have considerable EV development like other companies and if they scrapped everything to go all EV they could but of course at a significant handicap.

They might be able to do so. However, it wouldn’t be quick and it’d be incredibly painful(and possibly fatal) to go for it all at once. Right now they seem content to die slowly of a thousand cuts, hoping against hope for a solid state battery breakthrough or for H2 to miraculously take off. Of course, even if one of those happen, they still have to scale that manufacturing, which every other manufacturer, Tesla included, has found to be harder than expected.

 

[S3XY]

Never know, maybe it passed the vetting process.

Dan

No, I think Elon was self-regulating.

 

[BioSehnsucht]

Because its COO was Tesla's VP of Sales & Service?

More seriously, I think the two companies should think about a partnership/merger: Tesla gets VIP access to the Lyft network - making the Tesla's fleet available for ride/rental - and Lyft drivers can lease Teslas at favorable rates - helping making Lyft the most ecofriendly ride hailing co.

The more time it takes for Tesla to launch its "shared fleet", the harder it will have to fight against Uber, Google & co.

I think that this concept is not necessary for Tesla to tackle. I'd be perfectly happy if "the Tesla Network" faded away and never was mentioned again, at least until it's actually a thing. While it might have some potential future value, I don't think it's anything we can count on as an investor, and it's a distraction from the very real and very undervalued segments of the company that exist already. The more such things get mentioned, the more they're used to beat down the stock by their lack and/or delay. They're just more tools for FUD. I'd rather there be fewer of those.

 

[EVDRVN]

They might be able to do so. However, it wouldn’t be quick and it’d be incredibly painful(and possibly fatal) to go for it all at once. Right now they seem content to die slowly of a thousand cuts, hoping against hope for a solid state battery breakthrough or for H2 to miraculously take off. Of course, even if one of those happen, they still have to scale that manufacturing, which every other manufacturer, Tesla included, has found to be harder than expected.

True, I do know they have had significant non-public EV development for many years and no idea what their intention or plan was or ever will be. I know a specific German maker had development on EVs but I know that they had no idea what they would do and they had almost no clue about the market. Some big companies were just disconnected and lost, even in their own substantial development they have never even ridden in an EV. This company now has a very public EV headed to "production"

 

[Singuy]

I think that's a little inside the Tesla bubble and a bit of Tesla snobbery which is not conducive to EV adoption of course. I know at least a dozen people that refuse to buy a Tesla product due to a fear of stability and some as they think Elon is a concern. My neighbor thinks he's reckless and refuses to buy any Tesla product. You can disagree with this but this is a valid concern for many buyers and also based in reality and average consumers run from these headlines. The Bolt is a pretty good EV for many people excellent as a small city car and has become very popular with some ride share companies. These cars are leased with free charging which makes them very attractive vs driving an ICE. In addition there are benefits to GM so I don't think GM is out to kill Tesla with this car and they certainly can do better if they choose to do so. Consider the nonsense around the RAV4 G2 EV, the PR was that Toyota would gain EV tech from Tesla which was utter nonsense. That was a mutual back scratching event for green washing, CARB credits, and NUMI solutions. Both parties one on paper. I always laugh when people think that Toyota could not compete in the EV space when they choose. I saw prototype EVs from the a big German automaker before there was a Model S or any production EV on the market. Many companies have had development for a long time but various reasons kept them from entering "all in".

Any popular products sold by a popular CEO has haters. All the short sellers, ICERs, and general Elon haters will never buy a Tesla. Also hipsters will only buy a Tesla right now, but not when it's too popular. So I can go on and on pointing out all the people who will refuse to buy one. The secret in investing in a company is..hopefully the product can be sold to the good portion of the population who loves the products vs the haters who buy Tesla just to set it on fire.

 

[Tslynk67]

I’m pretty sure Elon’s word will have more weight than God’s word next sunday (for Tesla employees).

Edit: I should probably say ‘sunday’ instead of ‘next sunday’. In any case, you know which sunday.

This Sunday...

(runs and hides from @AudubonB and the angry Dutch dude...)

 

[Off Shore]

A referral opportunity might have backfired because it implies you are getting something if he purchases the car. If the person is a real friend, it's different because they know that's not the motivation. Someone who's just an acquaintance does not.

Help me understand this, please. So we need a referral system that doesn't offer anything to the referer? Maybe amputate a toe for each referral given?

 

[EVDRVN]

Any popular products sold by a popular CEO has haters. All the short sellers, ICERs, and general Elon haters will never buy a Tesla. Also hipsters will only buy a Tesla right now, but not when it's too popular. So I can go on and on pointing out all the people who will refuse to buy one. The secret in investing in a company is..hopefully the product can be sold to the good portion of the population who loves the products vs the haters who buy Tesla just to set it on fire.

Very true, hates and techies, etc. The more concerning issue is a large buying group that fears a companies solvency and their large investment in a vehicle. This includes all types of buyers. I see this as a valid concern, I have owned three Tesla's and I don't mind the risk/reward.