The Accountant
Active Member
I have no experience with the Insurance Industry . . .so I am no help here. Perhaps another member may have the answer to this good question.
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Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
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Favguy
Member
Everyone should absolutely note this! It is essential advice.
Knightshade
Well-Known Member
Not to mention you can always roll it out/up in 2023 or whenever it appears to be approaching the strike and likely to keep going.
Folks who get killed playing options generally do so for one of only a few reasons:
1) They're on the wrong side- this is mainly folks who BUY short term options because they just KNOW that THIS IS THE QUARTER when "everyone" realizes what's going on, so SURELY the stock will surge in the next 2 weeks or whatever short term date they pick-- and they're usually wrong. Don't buy lottery tickets, generally speaking.
2) They fly too close to the sun.... these folks usually start out fine... doing stuff like selling weekly 20% OTM puts or distant strike covered calls-- OTM amounts that basically never hit, so they're "safe" historically. But then they think "Well, it USUALLY doesn't move by more than 10% in a week...and I can make SO MUCH MORE each week doing 15% instead of 20%...." and then they think "Well surely 12% is fine and even MOAR PREMIUM..." and eventually they hit a reversal where they are likely to be unable to dance their way out. This happened to many around Q1 delivery/earnings this year for example
3) They actually HAVE perfectly manageable positions- even when the market moves against them they have [B}every opportunity[/B] to roll without losing anything (and likely ending up profitable still) because they set up their position right... but don't actually manage it conservative enough because they're SURE it'll reverse back in their favor... and by the time they realize it's not doing that, that beautifully manageable position they set up is well past the "you can roll without losing" point.
All of these have in common the person in question got too greedy and/or felt SURE they knew what would happen short term.
If you can avoid those traps, you can (NOT FINANCIAL ADVICE) historically speaking, make small, but significant, and consistent, "extra" money in the options markets.
But a shockingly high % of people fall into those traps anyway no matter how much warning they're given.
Anyway to the guy who was asking originally-- my AGAIN NOT FINANCIAL ADVICE--Consider if you're someone who can be happy with those small but significant, consistent, gains- and have the discipline to manage to avoid loss instead of thinking you can guess short term direction or not.... if you think you can do that- then head over to the "other" thread... go through the courses linked early on to understand the basic concepts or terms--- and then read through a lot of posts in the thread. I'd especially suggest reading the stuff from start of this year to see examples of folks who got caught in bad places post Q4 ER, and how and to what degree they either got out trouble or didn't- to get some practical ideas of the issues involved.
After all that- if you STILL think you're the right kind of person who could do this relatively safely- then paper trade your ideas for a bit. If those don't change your opinion, then try opening ONE small position for a while to get used to the mechanics, how holding the position makes you feel, etc.
But if you think you're a person more likely to fall into one of the traps I mention- just keep HODLing and don't worry about it.
Knightshade
Well-Known Member
Don't forget- Q tells us the reason Tesla warranty costs are so low is they hide all the massive repair costs under goodwill instead.
I've seen a few debunkings of this getting into the why it makes so little sense for them to do that, for example:
Re: Tesla [TSLA] Has A Warranty Accounting Mystery — Exploring The Goodwill Theory - CleanTechnica
My recent article on "Tesla's Warranty Accounting Mystery" got a lot of comments, and to reply correctly, I feel as if I should share some further research. In this article, I'm going to specifically discuss the "goodwill" warranty claims that keep coming up, what I know about them, and what I...
cleantechnica.com
The Accountant
Active Member
Yes - I debunked this in the past with this post:Don't forget- Q tells us the reason Tesla warranty costs are so low is they hide all the massive repair costs under goodwill instead.
I've seen a few debunkings of this getting into the why it makes so little sense for them to do that, for example:
Re: Tesla [TSLA] Has A Warranty Accounting Mystery — Exploring The Goodwill Theory - CleanTechnica
My recent article on "Tesla's Warranty Accounting Mystery" got a lot of comments, and to reply correctly, I feel as if I should share some further research. In this article, I'm going to specifically discuss the "goodwill" warranty claims that keep coming up, what I know about them, and what I...
Debunking Warranty Fraud Allegations
My first option was a rage purchase when Telsa got down to $190/share pre-spilt and I knew it was rediculous. I find the best is when it drops a ton (i.e. got back down into the $700s not too long ago) and bought some then. Also, always do LEAPS, as far out as I can. Usual disclaimers: not financial advice, invest carefully, etc.
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That is an excellent question, in my opinion.
In the US insurance companies are regulated at a State level with near-absent Federal regulation. This quickly becomes arcane, so anybody who is Really curious can start here:
At the simplest the primary advantage of insurance companies for a pure investor is that they can manage investments largely free of taxation by managing reserves. There are, of course, many different regulatory regimes that led historically to many US insurance companies officially domiciled in Missouri. The fundamental issue is to make certain that reserves are always adequate to cover claims. Hence, many ( like Berkshire Hathaway) are fond of reinsurance because, handled well, premiums are collected long before the very infrequent claims arise. The odd catastrophe (say, Russia seizing leased aircraft) is deferred a long time by legal efforts to avoid forcing payout.
For Tesla specifically the highly unusual advantage is in risk management directly, using actual known evidence of a specific risk (i.e. driver accident probabilities) that is superior to that normally used by underwriters. While not unprecedented sustainable underwriting advantage is exceedingly rare. As for reserves management it is less likely that Tesla would have significant advantage. They could, but auto risks are shorter in duration than are more typical longotailed risk categories, so reserve management tends to be less 'active'.
Not sure about the tax benefit, but the big benefit is cash flow. All insurance companies take in a TON of money, and don't have to pay it out until much later when a claim is actually made. Kinda like if you have suppliers under net 120 day terms, but can make and sell your product in 30-60 days.
Side Topic...
I have some experience on insurance... it you wreck a Model Y, it will likely sit in your driveway for as long as it takes to get an opening at a body shop, but not quite long enough to compete with a new one. So my slot is Sept, pulled in from Oct. When I considered a shop with fewer stars, still Tesla certed... NOV. And Allstate is as confused as I am. It's probably hurting their cycle time indicators,; they tried to lowball me after the Adjuster reviewed damages by phone.
Reserve warrantee is all fine and dandy, what about reserve parts? I don't recall reading of crazy long body shop repair times on TMC. Service in general... Yes, people always chime in on that (especially on SAY every Earnings). Maybe parts shortage is what they meant.
The craziest thing it that it's even longer to buy a replacement. So my logic kicks in and says it's all related. Meanwhile, we share the 3 now, and have an X reserved on Turo for the summer show. It's all good.
Silicone parts are another story. I swear inventory was hoarded there last year, one week. That sector of the economy still seems broken. Like everyone I'm sure, I'm buying before I'm sure I need it. But I don't see that situation with Tesla. There's no buying parts for inventory in case it's needed, or to resell them at profit. Not to give out ideas.
Gigapress
Trying to be less wrong
Could another factor be that Tesla had been overestimating warranty expense forecasts by being conservative in the absence of much long term reliability data, and now that they have the have the data they can forecast more accurately?
interesting thread speculating about a possible reason Elon is buying Twitter. Basically Twitter is a powerful tool for legislatures in states that prohibit Tesla from operating stores and selling directly to consumers. This person is speculating that this is an attempt to fix those laws. I'm not sure if I buy it, but it is an interesting read. I put this here rather than the Elon & Twitter thread because I think this speculation is related to Tesla's core business.
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The Accountant
Active Member
Yes - good point; this could be part of the improving warranty trend.
Initially when Model 3 launched, they did not have enough warranty cost experience and and had to estimate likely conservatively. Now with 3 years of claim experience, they can fine tune these estimates.
Rivian R1T vs Tesla Cybertruck: Which electric truck is the one for you?
Which of these two electric trucks is the better option?
After digging deeper into Rivian, this guide comparing the Cybertruck and Rivian is interesting...especially when one considers the ramp up for production for both (2023 vs now, respectively).
With Rivian ahead in production of their truck compared to Tesla's Cybertruck and looking at the designs of both, it seems like Tesla is really committed to the singular strategy of:
1. Boring Company (redesign of transportation infrastructure)
2. FSD (driving automation)
3. the machine-that-builds-the-machine (manufacturing automation)
4. personalization of the interior experience (robotics, maybe, and apps, etc.)
5. logistics (starlink, semi, cybertruck-as-a-delivery-vehicle, robotics, etc.)
6. ...and really subsidizing (right now) on design and (likely) its automation in customization of products (think robots, vehicles, drones, etc. in the future).
Looking into this, maybe Tesla is playing big sibling to Rivian, as a little sibling, and not cannabalizing the production/sales of another very strong EV company that's basically a part of the Tesla people network?
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That is an excellent question, in my opinion.
In the US insurance companies are regulated at a State level with near-absent Federal regulation. This quickly becomes arcane, so anybody who is Really curious can start here:
There are many other sources but the Cornell piece gives a handy idea of most issues.
At the simplest the primary advantage of insurance companies for a pure investor is that they can manage investments largely free of taxation by managing reserves. There are, of course, many different regulatory regimes that led historically to many US insurance companies officially domiciled in Missouri. The fundamental issue is to make certain that reserves are always adequate to cover claims. Hence, many ( like Berkshire Hathaway) are fond of reinsurance because, handled well, premiums are collected long before the very infrequent claims arise. The odd catastrophe (say, Russia seizing leased aircraft) is deferred a long time by legal efforts to avoid forcing payout.
For Tesla specifically the highly unusual advantage is in risk management directly, using actual known evidence of a specific risk (i.e. driver accident probabilities) that is superior to that normally used by underwriters. While not unprecedented sustainable underwriting advantage is exceedingly rare. As for reserves management it is less likely that Tesla would have significant advantage. They could, but auto risks are shorter in duration than are more typical longotailed risk categories, so reserve management tends to be less 'active'.
As far as an advantage for Tesla, just remember, they really don't need to make money on it. If it helps sell cars, and they can force other insurance companies to reduce their rates (which are ridiculous, BTW), then it's a win for Tesla (improves car affordability). I expect that is what their long-term end-game is.
I'm not sure Cybertruck makes sense as a delivery vehicle. Those big meaty tires and aggressive all terrain suspension aren't conducive to efficiency. Obviously, you can surely load it up and deliver things, but even at it's cheapest price point, it isn't an optimal solution (if nothing else, the ergonomics of accessing the bed to remove items to be delivered versus purpose built vehicles).
If they actually wanted to attack the delivery / "last mile" segment of shipping logistics, it would make more sense to build something either purpose built (i.e. trucks like UPS and FedEx use) or at least more generally optimized in that direction (i.e. Sprinter van).
I would love to see something along the lines of a Sprinter van, though I'm not sure if it makes sense for Tesla to go there. Perhaps if they can do it with Cybertruck-like savings methods (simple bent metal panels rather than complex curves stamped out, and using giga castings), they could design a van platform that would be competitive for logistics. Optimizing for airflow would be probably less important than volume and cost, since such vehicles generally operate at slower speeds, and even if it's inefficient at highway speeds, the "fuel" savings should still be huge. No plaid, probably not even any dual+ motor designs (and if there is a dual motor version, it doesn't need to be high performance - can be a pair of the wimpiest Tesla motors, probably).
If they get battery volume high enough I could see them branching out from Semi to smaller commercial platforms (complete with large truck frames with front bodies but nothing on the rear frame, bring your own bed, like many trucks can be purchased today), as there is probably enough commonality among the larger truck formats that you could probably scale the Semi design pretty easily down to Class 4 or 5. Then this hypothetical logistics van/truck platform could fill in the lower classes. You'd perhaps end up with some overlap with the smaller logistics vans/trucks with Cybertruck in those terms, but realistically, while you could use it as a work truck taking stuff to a job site or a recreational truck, or even to help a friend move, it's really a bad fit for logistics, so the overlap wouldn't really exist. Logistics companies (and some laborers) buy the logistics vehicles, consumers (and some laborers) buy the Cybertruck.
Following up on this excellent post. For anybody who really is willing to delve into the arcane character of warranties here it is:
Warranty Week does not reveal secrets, as a rule, but the staff is devoted to this subject alone, so they gather all the seriously arcane footnotes and minor public data that exist about warranties.
Further to @The Accountant the Tesla warranty accrual history reflects some discrepancies for another reason, often overlooked. When Tesla first began making vehicles there was zero history for Tesla and zero history for the models and near-zero history for BEV at all (remember only the Nissan Leaf and a few trivial compliance vehicles preceded Tesla). The 'kiss of death' top an actuary is lack of history. After all, how to make a predictive model for something that has not happened before? Mark Twain comes to mind.
So, each new auto model has higher initial warranty reserves. Each new anything raises the specter of increased risk. Initial Model S (remember drive units, battery underlayer, 12V batteries etc?) and Model X (doors, and so much else) terrified those actuaries. No exaggeration, these are people whose entire lives are built on never missing risks. Then Tesla had these bizarre features as almost totally automated control systems. How to assess warranty claims for bizarre computer screens instead of totally predictable switches?
I don't want to make a long list. To understand Tesla warranty claims and warranty management all this is quite the core of the situation. The Accountant chosen actuaries made gigantic reserves for Tesla warranty. As history has accumulated (over the last 12 years since Tesla went public) warranty reserves have gradually reduced on a per-vehicle-produced basis )remember the entire reserve is placed at the time the vehicle enters service). However, Tesla actual experience has been far lower than the reserves making the reserves growth lag the company vehicle growth. That is really very hard to see when the deliveries have been rising so quickly, hence the financial warranty reserves have grown exponentially too. The warranty reserve exponent has been well below the vehicle delivery exponent.
Now, as @The Accountant so clearly shows all this is working very well.
The problem comes with FUD, in part because competitors have had BEV warranty costs that have been astoundingly high (Is it possible to get worse than the Bolt?) including Jaguar, Porsche, Nissan, Bollorė...
but, except for the Bolt those others are known mostly within warranty mavens with little public notice. Well, Bolloré is a trifle notorious just now as their new Parisian busses are catching fire. As those issues accumulate, Tesla keeps being the outlier. Actuaries are very, very nervous about outliers.
This, we need not fret so long as we are HODL. For speculators it's very different. Volatility will plague this subject as it does others. Nobody understands why Tesla crashes so little, catches fire so rarely and is so efficient in warranty treatment. Further, that discrepancy will not end soon. Why? If for no other reason it's because many OTA updates now are referred to as "recall" and that nomenclature produces a forced warranty reserve charge. So, why is warranty recall charge so low? The FUDsters scream Fraud!
This post is a trifle long, but it seems to be needed to understand how Tesla has lower warranty costs when recalls are becoming so frequent, among other things.
Thanks!
When I first saw the Cybertruck, it seemed (to me) like they had perfected the functionality of their "sled" or "drivetrain" or "platform" and slapped on a design that'd streamline the functionality rather than beautify the product...not even managing both sides of that spectrum in their product design and engineering process. Musk has been saying for years that prototyping is easy and production is hard, as an example.
Glad you see the same thing and corroborate the line of thinking I'm having about what Tesla is, potentially, trying to do. Forgot about incorporating batteries into all of this, but its a major inflection point once those new factories from CATL, LGChem, Tesla, etc. are up and running. Is there an expectation of when that happens?
e.g. CATL To Open 8 GWh Battery Cell Plant In Germany Later This Year
Found a couple of informative answers to the battery component to all of this:
www.visualcapitalist.com
Mapped: EV Battery Manufacturing Capacity, by Region
Which countries are leading the race for EV batteries?
www.visualcapitalist.com
Can you make any assessment of what the ROI is on these “corporate debt instruments “, and how that compares to overnights? As you surely are aware, the overnight market is the most straightforward - and secure - way to park cash, with the security being offset by low yield. However, if Tesla or anyone else might need the cash instantly, there is nothing more liquid than overnights.
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Gigapress
Trying to be less wrong
Cybertruck is going to outsell the Rivian many times over.Rivian R1T vs Tesla Cybertruck: Which electric truck is the one for you?
Which of these two electric trucks is the better option?www.tomsguide.com
After digging deeper into Rivian, this guide comparing the Cybertruck and Rivian is interesting...especially when one considers the ramp up for production for both (2023 vs now, respectively).
With Rivian ahead in production of their truck compared to Tesla's Cybertruck and looking at the designs of both, it seems like Tesla is really committed to the singular strategy of:
1. Boring Company (redesign of transportation infrastructure)
2. FSD (driving automation)
3. the machine-that-builds-the-machine (manufacturing automation)
4. personalization of the interior experience (robotics, maybe, and apps, etc.)
5. logistics (starlink, semi, cybertruck-as-a-delivery-vehicle, robotics, etc.)
6. ...and really subsidizing (right now) on design and (likely) its automation in customization of products (think robots, vehicles, drones, etc. in the future).
Looking into this, maybe Tesla is playing big sibling to Rivian, as a little sibling, and not cannabalizing the production/sales of another very strong EV company that's basically a part of the Tesla people network?
Todd the Cybertruck Truck Guy on YouTube has good insight on how Cybertruck satisfies all kinds of American buyers of pickup trucks and full-sized SUVs. Here’s a couple good videos on the Rivian comparison.
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