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

[Tony73]

The launch customer for semi is Pepsi Frito lay which kind of gives me pause. Potato chips are not exactly heavy. Hopefully the Soda side of Pepsi will join in.

 

[30seconds]

Just going to toss this out there

I think the “Holy Grail” of consumer EVs is a CUV with 375m range for $50,000.

Why 375? Because after a few years of owning a 300m EV the drop in range becomes a source of anxiety / need to randomly charge somewhere for 20mins. Not road trip, just general US driving habits.

So when I look at the competition I wonder when each company could build, profitability, 1 million EVs that meet this criteria.

After Tesla I see BYD, then Hyundai, and then basically no one

 

[⚡️ELECTROMAN⚡️]

Just going to toss this out there

I think the “Holy Grail” of consumer EVs is a CUV with 375m range for $50,000.

Why 375? Because after a few years of owning a 300m EV the drop in range becomes a source of anxiety / need to randomly charge somewhere for 20mins. Not road trip, just general US driving habits.

So when I look at the competition I wonder when each company could build, profitability, 1 million EVs that meet this criteria.

After Tesla I see BYD, then Hyundai, and then basically no one

After 6 years of owning a 200m range EV I don't get where you're coming from. Me and my EV are currently a thousand miles from home and we can't relate to your problem of 300 miles of range not being enough, even considering some degradation.

 

[pitabun]

The launch customer for semi is Pepsi Frito lay which kind of gives me pause. Potato chips are not exactly heavy. Hopefully the Soda side of Pepsi will join in.

Watch out, you’ll give Gordon talking points.

 

[Xepa777]

My view of Tesla's price action is that Twitter has very little to do with it. The primary concerns are growth and margins and I don't see how the Twitter deal really influences those metrics. We're talking about the last 10 days or so spanning from right before P&D numbers to now. Elon's already sold enough stock to cover the purchase of Twitter and I doubt anyone is front running more sales from Elon.

I believe 90% of the price action is due to China demand concerns. China is a big market for Tesla and China's backlog has cratered. The implications are that growth in China will only come with margin contraction. The dollars strength makes it incredible hard for Tesla to further reduce prices in China. As is, Tesla is getting 10% less per car than earlier this year due to the USD strength. I believe Tesla will pivot to exporting from China as the primary strategy and letting China sales slightly declined. Without China in the mix as part of the growth engine, can Tesla continue to grow 50% per year? That is why we saw the 20% haircut in one week in the stock price. Currently the backlog around the world sans China is strong. Tesla will try to maintain margin if at all possible. The U.S. EV credit also makes it unlikely that Tesla will give up margins in the near term.

I am an all in never sold stock holder since early 2020 and I bought materially more every day this week. This is because I believe Tesla price will recover in the mid to long term based primarily on faith that Tesla will deliver FSD. If not at the end of this year, by summer of 2023. As Elon said, Tesla is worth essential zero without FSD (an exaggeration with some truth to it) . My belief could turn out to be disastrous for my wealth but I do believe. The big question in FSD is are there problems that can't be solved that will prevent FSD from being used for driving on the road? Can FSD be a game changer in terms of driving experience and safety? The progress so far leads me to believe problems, if not all, are solvable.

I also see ways to overcome the China problem, namely the long rumored model 2. China's car market is a different market. Tesla currently competes with Mercedes, BMW, and lately higher end EVs from Chinese manufacturers. Tesla does not compete with lowered end offering from foreign and Chinese manufacturers. In the U.S., the consumers typically have more wealth and the model 3 competes with mass brands such as Honda and Toyota. In China Tesla is in the luxury car sector. Can Tesla make a profitable lower end car to fit the China market? In 2 to 3 years, I believe we will see a China only Tesla model.

Here are the catalysts that will spur a turnaround.

1) China demand comes back. If this is the case, all problems solved. You'll see the stock shoot up immediately.
2) Q4 exceeds expectations
3) Official Fed pivot to spur growth
4) FSD summer 2023

We do have the overhang of a possible deep recession, an escalation in the war or more oil shocks. It's not an easy time to be a Tesla investor.

Lastly, it will be quite interesting to see if Tesla announces a 5th Giga factory location this year. Either way, it will give us some insight into how Tesla sees the mid term demand.

…but…but…but, I was told on TMC a few weeks ago that Tesla would have 40% gross automotive margin!

Just wanted to call that out. Fine for super bull thread, but in the main thread? Come on.

And yah, a China-primary Tesla car is definitely happening, based on what Elon musk said when the China gigafactory first opened. It’s probably ready to go but was just on hold due to the huge model 3 and y demand, and not announced early because it can osbourne the 3/y sales.

Tesla has so many levers to pull. I wouldn’t say the demand Loooks “weak”, rather it looks “ready” for the next phase of EV adoption.

 

[StealthP3D]

I understand and agree with your points. Reducing price is also reducing GM% unless BoM magic happens. Let me put some big simplifications and some big ifs on the table to try and get a grasp of the problem/opportunity here. Before I try and run a scenario in my 10-year model lets first try to agree what it might look like. Here is a first sketch as I would appreciate comment.

HISTORY
1. The relevant BEV market is split 1/3 : 1/3 : 1/3 between USA, China, and Europe. (sorry about the little'uns, but I need to simplify)
2. It was only a few years ago that Tesla really had no competition in China, and only a couple of years ago that Tesla opened the Shanghai factory.
3. During the last 2-3 years Tesla has been raising prices by $10k-$15k and in the process has gone from maybe 20% GM to maybe 30% GM.
4. During those few years Tesla BEV competition in China have gone from only being viable in non-Tesla segments to becoming viable and competitve at lower prices in Tesla-segments. So it takes 2-3 years for China to build capacity faster than Tesla does, and to play sufficient catch-up in product terms, for 1/3 of the relevant market.
5. US and European competition really aren't making a difference and so are not directly interesting to this analysis.

PROJECTION
- The Chinese continue to build capacity faster than Tesla and they progressively push harder at exports to Europe and USA. Within 2-years they either fully into Europe (or USA) or halfway into both. Within 4-years they are fully into both (i.e. they can overbuild at the rate of 1/3 in two years). Ignore incentve programs as they will come and go.

6. Competition starts to bite into Tesla margins and so Tesla cuts prices as the excess demand is run off - the GM of 30% declines to 20% over the next 5-years, and that includes income from NoA and FSD in automotive.
7. But Tesla are then able to hold BoM costs stable and to maintain a prestige brand position with GM% then steady at 20%. (so still unusually good)
8. But this also has a numerical effect on Tesla caacity build in the later years, with the max capacity build rate becoming capped at 2m/yr due to competition effects. This would mean Tesla reaches max 16m/yr in 2030, not 20m/yr, i.e. this effect starts to cut in as the GM% stabilises, likely due to internal Tesla discipline.

- One point to notice is that I assume the Chinese also in effect practice price discipline. There is however nothing to prevent them continuing to overbuild capacity and wiping out the entire market. But my guess is China would back off, likely holding about 30-40m/yr of the global market in 2030. This would leave 16m/yr for Tesla and 24m-34m/yr for everybody else (assuming constant market of 80m/yr).
- Ignore RoboTaxi completely for this examination.

Any comments on this as I might run it at the weekend to explore the share price implications. ?

I'm not convinced that other manufacturers in China can reduce the cost to build as quickly as Tesla can with local factories while the Chinese need to export and all the expenses that go along with that. And Tesla has a head start, so there is a lot of catching up to do before other manufacturers in China can cause Tesla production to slow down based on competition. There is no guarantee those other manufacturers in China will ever be able to compete head-to-head with Tesla on price (when comparing products with comparable specs).

While many people might believe Chinese can compete effectively with Tesla in the US and Europe simply because they have a history of low-cost production, the big hole in your analysis is granting "everyone else" 24-34m/year without explaining why Tesla wouldn't be able to continue eating into those sales. Legacy auto has shown beyond a reasonable doubt that they are flailing when it comes to producing EV's in high volumes and the problem is not just battery supply, it's making them cost effectively. Your analysis simply assumes they can but that doesn't seem like the most likely outcome, given what I know and see. You also assume, without any stated justification (other than the general idea that "the competition is coming"), that margins will decrease to 20% even with NoA and FSD. This appears to assume that Tesla will not solve FSD. What happens if they do?

Anyone can make assumptions and run analyses, what's difficult is having correct assumptions. And the future has a way of doing its own thing, regardless of how a "rational" person assumes things will go. What I see are some big wheels with massive momentum are already spinning up and it takes a long time for other wheels to catch up. When I say "a long time" I'm talking a decade or more.

 

[StealthP3D]

For these reasons I think it's difficult to determine right now the relative pace of production growth vs. demand growth. For the last two years, clearly demand growth has been the dominant factor, but Tesla prices are currently out of a lot of people's affordability budgets so there is at a certain point a high price elasticity of demand where a small increase in price drastically reduces the quantity demanded.

This last paragraph pretty much walks back all of your previous bullish statements about demand growth and is why I think there will be price cuts. A lot of people want a Tesla, and have for years, but either don't want to spend that much or they can't. If car prices don't retreat a bit, and I'm talking EV and ICE cars, then global sales will take forever (if ever) to get back to 80m/yr. It's not about desire, it's about affordability.

What year (if any) do you see global sales rising back to 80m, regardless of the powertrain mix?

 

[MC3OZ]

IMO this is the approximate situation:-

• Gen 0 - Original Roadster
• Gen 1 - Model S/X
• Gen 2 - Model 3/Y
• Gen 3 - Chinese designed car and others. (2025?)

How we number the Generations isn't important, what is important is each successive Gen is designed to be cheaper and made in higher volumes than the previous generation.

The Gen3 car is talking longer than many might have expected, my best guess is Tesla needed raw materials, battery production, drivetrain efficiency and some other metrics to hit the right numbers.

Even with Robotaxis, Gen3 is still needed, in fact many Robotaxis might be Gen3.

Or putting it another way, it is important for the mission to make EVs as affordable as possible, and sell in high volumes.

For pricing, we want a price gap between Model 3/Y and Gen3, making a 20-30% margin on $25,000-$30,000 Gen3 car, is a better option than reducing Model 3/Y prices and trying to make even higher volumes of Model 3/Y.

When Gen3 is released, it and similar cars will be close enough to new car price parity with ICE, the limiting factor on sales volumes will be production.

With Model S/X Tesla hasn't tried to ramp production volumes beyond the long term market. When Gen3 does happen, building an scaling Gen3 production will be the next priority. Before that happens Model 3/Y production will be fully ramped, and perhaps close to their final capacity.

The Gen3 car will also expand the number of markets in which Tesla can sell cars, in turn supporting the sales of all other models in those markets.

Expanding to other markets is also a critical part of the mission and growing the business.

 

[petit_bateau]

Tesla isn't a car company. I 100% expect margins to compress somewhat in 3-5 years once EVs are clearly crossing over 50% marketshare. I expect them to comress further after that.

I also expect Energy to be heading into the steep part of it's S-curve 3-5 years from now and blow away automotive revenues and margins by a good bit.

I looked up the Megapack earlier this week. They're about $1.9M a pop and gave a 2yr backlog for orders. Not precisely sure about the cost to manufacture these, but it's certainly<$500k. 10% marketshare of that world is TRILLIONS.

Thanks for the commentary.

If you look at the GM% on Energy (solar & storage) it is low. So either they are selling solar at a GM-loss to offset a GM-high on storage, or something else. Given that Musk is heavily against selling anything at a GM-loss I think something else. In particular I think the achieved price for storage is very different than list price. Specifically my best guess is that achieved price for Megapack is more like $1.25m rather than the $1.9m you cite as list price.

I have an S-curve and improving margin progress dialed in for energy. It is by no means as hopeful as yours, but even so it does bring Energy to be 50% the gross profit of the base case automotive by 2030. I'll hold it the same in both scenario runs and of course in the lower scenario it would become a bigger fraction of the (smaller) overall value.

As shareholders we should be demanding - and receiving - more quarterly information re non-auto aspects. I'm not holding my breath.

 

[petit_bateau]

I'm not convinced that other manufacturers in China can reduce the cost to build as quickly as Tesla can with local factories while the Chinese need to export and all the expenses that go along with that. And Tesla has a head start, so there is a lot of catching up to do before other manufacturers in China can cause Tesla production to slow down based on competition. There is no guarantee those other manufacturers in China will ever be able to compete head-to-head with Tesla on price (when comparing products with comparable specs).

While many people might believe Chinese can compete effectively with Tesla in the US and Europe simply because they have a history of low-cost production, the big hole in your analysis is granting "everyone else" 24-34m/year without explaining why Tesla wouldn't be able to continue eating into those sales. Legacy auto has shown beyond a reasonable doubt that they are flailing when it comes to producing EV's in high volumes and the problem is not just battery supply, it's making them cost effectively. Your analysis simply assumes they can but that doesn't seem like the most likely outcome, given what I know and see. You also assume, without any stated justification (other than the general idea that "the competition is coming"), that margins will decrease to 20% even with NoA and FSD. This appears to assume that Tesla will not solve FSD. What happens if they do?

Anyone can make assumptions and run analyses, what's difficult is having correct assumptions. And the future has a way of doing its own thing, regardless of how a "rational" person assumes things will go. What I see are some big wheels with massive momentum are already spinning up and it takes a long time for other wheels to catch up. When I say "a long time" I'm talking a decade or more.

Thanks for the comment.

Please go and look at the Chinese info I linked to. That info addresses each of your points which is why I don't recite it myself. The data shows the Chinese are building BEV mfg capacity faster than Tesla, no reason to think that is going to change. The data shows that China is bringing products to market that are directly comparable to 3/Y and which are very credible indeed, and being liked by Chinese buyers who historically would only consider BMW/Audi/Mercedes. The data shows that China is more than competitive on price in the 3/Y segment. The data is silent on China GM% which is why I take the trouble to explain that capex is not a problem for them to obtain. (But still I would be fascinated if someone could dig out and analyse the ChinaCo financials/etc).

Indeed anyone can dream up scenarios. That is why I try to only run something other than my base case if I see something significant that should be explored - I have had to do far to much useless scenario analysis in my life to want to repeat the exercise needlessly. However that Chinese data appears worth exploring to me, hence my asking for feedback on what that scenario should look like in modelling terms. Thank you for telling me that it is not worth the effort, but I'm not so sure when I look at the data. Considering it further I also observe that this fits the overall China national strategy, and is consistent with previous Chinese market entries into other spaces. When all the clues tend to point in the same direction it seems sensible to take a peek down that pathway.

Please go and look at that Chinese info and think it through - may I suggest the BEV Competition thread so as not to bore the main thread.

 

[MABMAB]

Pepsi, no coke!

 

[petit_bateau]

I always assumed the reasons Tesla was losing EV marketshare are not sustainable:

1) The Chinese EV companies are growing from a smaller base. As I understand it, Tesla is historically unprecedented in growing greater than 50% at their size. I would not imagine that the weighted average of all the Chinese electric vehicle companies can exceed that 50% growth rate going forward as they approach Tesla’s current scale. Some will go bankrupt and the ones who do not, will find it more and more difficult to keep that growth rate up as they get larger.

2) They are generally not cash flow positive.

Thanks for the comment.

Regarding the size matter I don't think that holds up. ChinaCos are in aggregate growing from an equivalent base to Tesla, if not larger. Yes each company has mfg plants that are smaller than Tesla but we should not assume that will remain the case, after all we know that China can build factories fast. And the annual data I gather shows they are gaining ground. And the model info shows that Chinese buyers are finding them increasingly tasty in the 3/Y segment.

I've had an open mind on the sustainability front for ChinaCos. I am beginning to tend towards thinking that it is becoming self-sustaining. Even if were not self-sustaining then I think state capex will still keep flowing in to bridge the gap and given the priority the China top team give to the transition that is a given. But I suspect they have achieved ignition for self sustained growth albeit at low net profit. Without looking at ChinaCo findata one cannot be sure and I do not have time to do that hence my asking if anyone else has an interest in that.

If nothing else CATL and BYD are involved in various ways in the ChinaCos so they have to be at scale and sustainable as Tesla will keep spilling revenue/etc in to the o/a system that way.

It was because of looking at the China info that I linked to that I myself began to doubt my previous assumptions (which were equivalent to yours) and consider this more carefully. Hence wondering how important this scenario is.

Thanks again for the comment.

 

[petit_bateau]

Even with a reduced operating profit, ability to expand would be proportional to size (exponential growth), not fixed (linear growth). Capping growth at 2m/yr implys a continually decreasing GM.

Thanks for the comment.

I did consider that point when sketching the scenario. My take on it is that there is an overlap on the buyer distributions such that quality competitor products at a lower price both affects Tesla's ability to set price (hence GM% decline) and volume. But given the pent up latent demand for BEV product I considered that it was reasonable to simplify this into a two-stage effect, rather than have both GM% and volume acting simultaneously (as that is hard to keep straight in my model).

So I figured that the ChinaCo growth rate likely brings them to an overmatch position in 4-5 years, and that during this period the latent demand is such that everybody (inc Tesla) grows volume exponentially and therefore the GM shrink is the active factor in this stage.

Then in my base case I was already coming off-exponential in my late-stage S-curve for the second 5-years, as otherwise Tesla alone would blast past 20m/yr in 2030 and oops be doing 30m/yr in 2031 and then 40m/yr in 2032 .... etc. . In other words I have a pseudo logistics curve built in to my base case that did a fairly smooth taper in the later years. So if one considers the situation that Tesla's GM% has shrunk, one can imagine that Tesla would likely be disciplined on capital allocation and start that taper earlier in the low-case. So what I am suggesting is that since Tesla has by then reached a 2m/yr expansion rate, that I simply hold at that rate earlier and for longer. This reflects the likelihood that in this scenario Tesla would not give way any further on prices (hence constant GM% in this stage) and therefore be tighter on newbuild capacity.

It is possibly I am oversimplifying by taking this two stage approach, but I could see that both GM% and volume growth would be affected and wanted to have some fairly simple way of honouring that. I hope this explains why I'm coming at it this way.

Thanks again for the comment.

 

[petit_bateau]

The counter argument is that we are in the steep part of the EV adoption curve, and there are 2 competing factors, 1. Increased EV demand, 2. Increased EV production.

When supply catches up to demand we will start to see some competition and lower margins.

I don't think Tesla can maintain 30% GMs forever, but I am unsure how long they can maintain them,
There are multiple strategies to maintain margin:-

• Lowering build costs
• Moving cars to markets with more demand.
• Opening new markets.
• Building cheaper Gen3 models.

I'm not worried about China, simply because in the short term the "work-around" solution is simply to export more cars.
I do think the Chinese market is more competitive and less able to sustain the combination of high volumes and high margins.

A cheaper designed in China Gen3 car is an important part of the solution.

Predicting the future is hard. I would l probably start with GMs of 30% in 2023 and reduce by 1-2% per year. In 2030, we might be in the 15-20% range, but I expect to have working Robotaxis, Robots and more diversified income streams.

IMO car margins will hold up well enough to build the eco-system of diversified income streams.

Thanks for the comment.

With one exception, I think each of the points you are making is either directly addressed in the answers to other comments that immediately precede this message, or is addressed by the point that the remainder of my model (Energy, Services) will be held constant and to note that this also includes the assumed future model mix that does include a wider variety of Auto product.

The exception is for me to make the point that your proposed 'work-around' of simply exporting more cars runs head-on into my observation that over the next 4-5 years that is what China will also be doing one way or another. I am pointing out that it has taken ChinCo the last few years to build sufficient capacity and models to challenge internally in the 3/Y segment at comparable scale and that they are capacity building faster than Tesla. Therefore over the next 4-5 years Tesla will run up against them in other (export) locations. It is that effect I am trying to understand as it will have consequences. I'm just trying to figure out how material those consequences might be.

Thanks for the comments. I'll tke a look at this over the weekend and see what comes out the black box.

 

[insaneoctane]

Tesla needs to triple before I can afford any coke and I don't drink sugar water so....

Especially at over $7 a 12-pack. I don't take well to price gouging and stopped buying diet soda at it's newly "inflated" prices. It's not a necessity and I will vote my disapproval with my wallet. Maybe hauling their products with the Tesla Semi will enable them to revert their prices?

 

[Artful Dodger]

I believe 90% of the price action is due to China demand concerns. China is a big market for Tesla and China's backlog has cratered.

No it hasn't. Website delivery estimate times are back up to 4-8 weeks. That was just an end-of-quarter rush with challenging logistics. Tesla chose NOT to pay extra expedite fees for what amounts to a few weeks earlier delivery. Likely made MORE money by taking the cheaper delivery route but keeping full retail prices.

This is the first time that Tesla has ever chosen to do this. That means they've ALREADY massively overperformed financially for Q3 when the decision was made. That is BULLISH.

 

[CorneliusXX]

I’m actually rather shocked Tesla hasn’t update the price of the Semi in the past year. They haven’t changed the pricing of the semi since it was launched. Not sure what is going on there

Tesla trucks are extremely cheap compared to other clean trucks. If you wanted to buy an H2 semi it would cost a quarter million minimum - and close to double that if you want it quickly.

 

[insaneoctane]

After 6 years of owning a 200m range EV I don't get where you're coming from. Me and my EV are currently a thousand miles from home and we can't relate to your problem of 300 miles of range not being enough, even considering some degradation.

After 4 years of owning a 300-mile range EV, I'd prefer more. Sure with Superchargers it's not a necessity, but 400-500 would reduce my SC usage by increasing my "not having to stop" radius to more in line with what I prefer. It's purely subjective convenience for me. Perfect example is taking my daughter to a soccer tournament that's only 120 miles away gets dicey without a brief SC stop somewhere when considering round trip, weather, Sentry mode while parked, AC/heater, starting SOC, elevation changes, freeway speeds (if you drive 80+ MPH your not even close to 300), etc...

 

[jerry33]

After 4 years of owning a 300-mile range EV, I'd prefer more. Sure with Superchargers it's not a necessity, but 400-500 would reduce my SC usage by increasing my "not having to stop" radius to more in line with what I prefer. It's purely subjective convenience for me. Perfect example is taking my daughter to a soccer tournament that's only 120 miles away gets dicey without a brief SC stop somewhere when considering round trip, weather, Sentry mode while parked, AC/heater, starting SOC, elevation changes, freeway speeds (if you drive 80+ MPH your not even close to 300), etc...

And a 500 mile EV is really 300 miles at highway speeds.

 

[insaneoctane]

For you folks with your fancy financial models....what are you using for semi GM%?