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

[Krugerrand]

When I was a teenager, I knew a guy who had a lightning strike affect their house. His computer was on a surge protector, but his stereo wasn't, and he had an audio cable connecting the two so that he could play music on his stereo. The strike managed to fry his computer via a surge on the audio connector, yet the stereo itself remained fine. Well, mostly. On rare occasions, if the sound got too loud, the stereo would shut off But otherwise, no symptoms, despite the fact that a computer-frying surge flowed through it.

Surges from the grid itself are the real permanent threat to electronics in an EMP attack.

It's nice that the fuses in the Model 3 are almost all solid-state. Virtually instant response to surges, and reset without requiring service. AFAIK, the only ones that aren't are the pack's pyro fuse, and the wire bonds that connect the individual cells to the controller.

Yeah, been there, done that. I have one property that tends to get hit by lightning with regularity. When a storm is on the way we don’t play around even a little bit despite everything having surge protectors. Everything gets straight up unplugged, even the toaster.

 

[Mader Levap]

Maybe self-driving cars will just never be self-driving in the poor rural areas.

I wouldn't say "never", but true self-driving (defined as in literally any conditions that human driver can drive) won't arrive for decades. Obviously, self-driving on real roads with actual markings and in cities will arrive sooner than that, within decade.

 

[jerry33]

Whoa if this is true does it mean that all the other ones who cheated, like VW, will have to do the same?

I doubt Tesla will be allowed to double sell.

 

[jerry33]

Indeed, Elon mentioned several times that even after they release FSD, it will require significant time (probably years) before regulators approve the car to drive itself without a responsible driver.

Umm, why? They allow plenty of cars to be driven without responsible drivers now.

 

[Creekstalker]

Elon blew the whole take private fiasco in our faces and also dragged us into a fight with the SEC. I don’t want to deal with that crap again. Yes the media has treated him unfairly; but a lot of it was also brought upon himself. I don’t want any more talks of Saudis bailing him out with a take private deal. Another take private tweet and the stock will plummet.

The fact that so many disagree with your post reminds me that yeah, TMC has some cult-like qualities.

 

[jhm]

Just some illustration below to further elaborate a few points on demand. Let's assume a typical Price Elasticity of Demand (PED) curve works the same for Tesla cars. In the chart (red dots) below, one can argue a few points. I am citing some of them below.

1) Model X and S demand issues are not related to pricing, as minor price change should have relatively less impact. So it is mostly some other factors, presumably older design resulting in lack of differentiation from model 3, or Q4 pull, etc.. However, as we know in cases of China and other global markets, Model X and S prices went down very significantly, so that should impact the demand more...this happened late in the quarter, so more to see on that.

2) Model 3 car demand equilibrium is not clearly established, as we are now at points 3, 4, and 5 of the PED curve, where very minor changes in price can generate large demand. This means that Tesla is trying to experiment with product mix to match perfectly with its production capacity, and cash flow required to increase it.

3) If we assume points 4 and 5 represent models SR+ and SR (at least from a price point), there is a big unknown on how the demand will evolve when Tesla is truly trying to tap into this market. For now Tesla is production constrained so it would like to modulate (change) prices between points 3 and 5 to adjust demand to match with production capacity. There are other levers to impact demand, e.g. FSD pricing, color, etc.

Disclaimer: this is a theoretical view, as many nuances can impact the overall story.
View attachment 394380

Theoretically a demand curve can have constant price elasticity (PED). In face, a demand curve the declines exponentially is such a curve. In such cases, you can't say that lower price car have more elasticity than higher priced one. Indeed, they would be equal. So you cant just appeal to a hypothetical demand curve and draw this conclusion. You might want to look at competitive alternatives within a price neighbor of a specific model trim to get a more localized sense of PED.

 

[Krugerrand]

Could potentially be the reason. Will be interesting to see whether the price support keeps going. That said, let's not forget that we were seeing suspiciously strong price support even before the deliveries report. Nearly took us into Sparta. Had all the characteristics of a big institutional for the couple days before the report, e.g. a solid, daily-increasing "floor" that prices only wobbled a few dollars around. This support wasn't a one-or-two day thing. Could have been someone preparing for the Fiat announcement further in advance, of course.

As for how the money is structured, given Tesla's focus on shoring up its cash position, my inclination would be to suspect that they'd negotiate for less money sooner rather than more money later.

But is Tesla the entity that gets to negotiate the terms??? Or is the EU that decides? That question needs to be answered first before people get all bent trying to speculate on the terms of the pooling deal. Tesla doesn’t get to decide on the ZEV monies and such, they only get to decide when they apply them.

 

[jerry33]

There’s a dangerous tendency on this forum for any questioning of demand to be treated as a thought crime. We know that Tesla are targeting steady state production of 10k a week. And we know there’s a long standing internal assumption that steady state ASP will be $42k. Which means there’s some steady state cap on demand for premium models that is well below 10k per week.

Q4 had an artificially elevated demand curve in North America due to tax credit pull forward, Q1 the opposite effect. European demand for premium models in Q1 (and possible Q2 also) had a pent-up demand effect that that will fade over the coming months. This can be mitigated somewhat by opening up to untapped markets but there will also be a pent up demand effect in those markets too that will fade in time.

It’s perfectly reasonable to speculate that 5k-ish per week is as much demand for LR Model 3s as we’re likely to see.

This scenario does not take into account the actual way Tesla grows. Tesla grows by people seeing their friends, relatives, neighbours, and co-workers drive Teslas. Every Tesla out there enhances this number, so growth is not a straight line projection.

 

[KarenRei]

Yeah, been there, done that. I have one property that tends to get hit by lightning with regularity. When a storm is on the way we don’t play around even a little bit despite everything having surge protectors. Everything gets straight up unplugged, even the toaster.

Exposed site? I don't generally associate California with thunderstorms; I lived in Texas back when I had to care about lightning. In Iceland, lightning it's so rare that it often makes the news It's one of the few natural disasters that's not on our problem-list (blizzards, avalanches, hail, earthquakes, volcanoes, tsunamis, landslides, rogue waves, floods (including glacial outburst superfloods), toxic gas clouds... heck, we even get the extratropical remnants of Atlantic hurricanes, and even the normal extratropical cyclones can reach "major hurricane"-strength winds - had 70+m/s gusts clocked just across the fjörd from my land :Þ)

 

[jerry33]

Yeah, I can see the bears having a field-day claiming Tesla lives on ZEV-like payment aka subsidies from other car makers.
Lutz and ilk will claim Tesla wouldnt survive without the subsidies paid by main stream manufacturers.

The bears and shorts are going to say what they're going to say regardless. Not a whole lot of point in listening to them. (Masochists can ignore. This is not advice).

 

[seldon]

Are you asking about sold systems or unsold systems?

Tesla Energy sales are always a black box until the ER.

In the last few quarters my understanding is that Tesla Energy production was constrained by a lack of cells because they were putting most of the batteries in the cars. In Q1 it seems that due to lower production of cars they may have more batteries to put into energy products. If that is the case, then it should be possible to estimate increased energy product production based on the cell capacity that did not go into cars in Q1

 

[KarenRei]

In the last few quarters my understanding is that Tesla Energy production was constrained by a lack of cells because they were putting most of the batteries in the cars. In Q1 it seems that due to lower production of cars they may have more batteries to put into energy products. If that is the case, then it should be possible to estimate increased energy product production based on the cell capacity that did not go into cars in Q1

Yes, but production is not sales. It's sales that's really critical.

What we really want to see from Tesla Energy is to start getting revenue from those really big powerpack / megapack projects. Those will be devouring cells en masse.

 

[seldon]

In past quarters Tesla Energy production was constrained by a lack of batteries. Since they did not produce cars at full capacity in Q1, could those cells go into Energy products, resulting in a major increase in sales? How would that impact earnings and cashflow?

 

[seldon]

Yes, but production is not sales. It's sales that's really critical.

What we really want to see from Tesla Energy is to start getting revenue from those really big powerpack / megapack projects. Those will be devouring cells en masse.

The information I have heard is that there is a long waiting list for Energy products. I think it is a production constraint not demand/sales constraint caused by lack of batteries

 

[RiverBrick]

Tesla doesn’t get to decide on the CARB monies and such, they only get to decide when they apply them.

CARB doesn't fix the value of ZEV credits in private sales. When there is a sale of credits between companies they just claim to know the credit amount, not the dollar amount.

 

[Krugerrand]

Upon reflection, I have mixed feelings about this.
As a EU citizen, I'd prefer a fine of 2B to FCA: those money could be then implemented elsewhere in services or climate change action. One could say that FCA avoided the fine and those "public profits" have now been "privatized" by Tesla.
As a TSLA investor, of course this is very nice and I hope they get *a lot* of money.

At the end of the day, I think this is good. If Tesla gets money now ro reinvest *and* enable FCA to work on EVs, long-term it's good news for everyone. I'm very curious on how this news will be received in Europe.
I'll keep you posted about Italy's media reaction.

That’s valid. But here’s the thing, would the EU be more efficient with the money or would Tesla? Which entity does more with less on a regular basis? That answer should ease your mind about who would do better receiving the money.

 

[Mars ☰mperor]

Can we not repeat the same mistake we made just the last week of becoming too optimistic? That was a misjudgment guided by just few data points (model 3 deliveries in Norway, NL, etc).

So, my expectation for earning is negative GAAP net income. The only question is how big the loss is, hopefully small. Cash flow could be drop of $500m from the end of Q4. I would still love to be surprised!!

Yes we should not set out expectation high. I was just trying to point out the possibility, however tiny.
I am not too focused on short term.
But I don't mind a surprise, big or small.

 

[Chickenlittle]

Elon blew the whole take private fiasco in our faces and also dragged us into a fight with the SEC. I don’t want to deal with that crap again. Yes the media has treated him unfairly; but a lot of it was also brought upon himself. I don’t want any more talks of Saudis bailing him out with a take private deal. Another take private tweet and the stock will plummet.

I think your missing point of take private tweet/SEC issue. The whole fight over tweeting before judge points out that SEC has issue with him tweeting at all the infamous tweet was just used to justify reigning him in. I believe the SEC in court pointed out 15 other tweets they didn’t like. I am sure expressing negative thoughts about the SEC is something they are not used to and they want to suppress. They can’t state that in court but suppressing all tweets would achieve their goal.

 

[Pras]

You are confusing change in demand and change in quantity demanded. Changes in price make the law of demand kick in and people buy more at lower prices and vice versa. A change in demand occurs when some factor other than the price changes (consumer taste, consumer income, price of related goods, consumer expectations, population). You do mention improving value- that causes a change in consumer taste and hence does move the demand curve. Just changing the price does not.

The big demand factors for Tesla are:

Change in Consumer Taste- this is what advertising seeks to achieve, and Tesla doesn't advertise. Every car is an advertisement though, and the Great FUD War is being fought top down (in the investment class- FUD about Musk, Tesla's impending bankruptcy, etc.) and bottom up (directed at consumers- Tesla's viability as a company, fires, wompy wheels, deadly autopilot, etc.). Keeping stores open can help with consumer tastes. If we can just fight to a draw here, reinforcements are inbound in the form of 100,000 cars every quarter. Every one is an ad.

Change in Consumer Income- not much we can do about this, but a recession would suck since Tesla's are still on the expensive side. Unfortunately, economic cycles are inevitable and we are due for a recession just based on history. I really want to see Tesla on solid footing before we get a downturn.

Price of Related Goods- One thing people fail to mention is that Tesla has achieved mass marketability while gas prices have been historically low. $2.60/gallon here in Georgia and people are bitching because this is a two-year high. We need to be rooting for high gas prices. The other related goods are ICE vehicles and the perpetually right-around-the-corner EV competition. I don't really know what's been going on with new car prices, but truck prices have gotten outlandish. This ought to help whenever the Tesla pickup is ready (and why I'm rooting for an attainable pickup rather than a super-expensive futuristic Elon thingy)

Change in Consumer Expectations- This is the demand lever Tesla has been using. "Price raise coming next week", etc. This has been used mostly to good effect, in my opinion. One thing to watch out for, however, is the expectation that buying today will cause consumers to miss out on the next big innovation tomorrow. Also the expectation that waiting until quarter's end can mean lower prices. Tesla really needs to find a lineup and price levels and just let them be for a little while. This makes me see the sense in "model years" used by all other manufacturers. It puts the fear of missing out a full year into the future. I know Tesla does OTA updates, but the new motor in the S/X and the Hardware 3.0 updates certainly might cause some consumers to delay purchase.

The other factor involving expectations is the federal subsidy. Subsidies are technically a supply factor, but in this case they function like demand factors. Teslas are getting $1825 more expensive on July 1st. This expectation about future prices is why I'm not worried about demand until Q3. We'll sell as many as we can get delivered here in the US in Q2. Q3 is going to be the real test, and we might need Europe and China to save our bacon as the lowered subsidy causes (in effect) the law of demand to kick in domestically.

Sorry for the treatise. I just see "demand" and "quantity demanded" used incorrectly/lazily a lot. We want an increase in demand, not an increase in quantity demanded. An increase in quantity demanded means Tesla lowered prices. A change in demand means more people buying the cars at all price levels.

Thanks for clarifying the point. I did mean to say that demand can adjusted by moving down the PED curve or shifting it to the right (Value and affordability aspect, which you provided a good detailed view on, so thanks). Let me clarify this in the bullet points below.

Moving down the current demand curve

• Offer lower price variant: The way Tesla adjusted (or can adjust going forward) "quantities demanded" is not by giving more discount (which most other automakers do), but by offering lower price variants. Given the 35K-40K area of the PED curve is very elastic compared to say the S/X part, slight changes in price will increase quantity demanded. So Tesla is just trying modulate where they need to be on the current demand curve to meet production capacity and maximize margin.
• Reducing price for all current variants: This is also the reason why the store closing and 6% savings was cited as reason because that cost reduction would have enabled Tesla to move down the curve and generate much more demand. While much attention was given to SR model, the real deal was the SR+ model, which Tesla surprisingly was able to offer within their margin goals.

Shifting the demand curve (i will list the points you made)...

• Change in Consumer Taste- this is what advertising seeks to achieve, and Tesla doesn't advertise.....
  
• Change in Consumer Income
  
• Substitute effect(which you meant on your point on related goods, e.g. gas price) see the example below
• 
• Change in Consumer Expectations
  
• Other factors: subsidy etc..
• I will add another: product innovation, e.g. model S/X refresh:

For model 3, in future, when Tesla start to produce more and more cars, it will become demand constrained because it will no longer be able to sell more cars beyond the market capacity to absorb it, unless of course it reduces its cost per unit further and offers even lower priced cars. At that point, it will have an option to shift the demand curve to the right.

Theoretically a demand curve can have constant price elasticity (PED). In face, a demand curve the declines exponentially is such a curve. In such cases, you can't say that lower price car have more elasticity than higher priced one. Indeed, they would be equal. So you cant just appeal to a hypothetical demand curve and draw this conclusion. You might want to look at competitive alternatives within a price neighbor of a specific model trim to get a more localized sense of PED.

In real world elasticity of luxury cars are lower than regular cars. For example, if Ferrari dropped the price by $5K it would hardly affect the demand of the car. But imagine the same for camry.
Even in a localized neighborhood (zooming in the $40-$25K market) the shape will be similar. Simply think of the market size difference between accord vs. 3 series, it is huge.

 

[Prunesquallor]

Exposed site? I don't generally associate California with thunderstorms; I lived in Texas back when I had to care about lightning. In Iceland, lightning it's so rare that it often makes the news It's one of the few natural disasters that's not on our problem-list (blizzards, avalanches, hail, earthquakes, volcanoes, tsunamis, landslides, rogue waves, floods (including glacial outburst superfloods), toxic gas clouds... heck, we even get the extratropical remnants of Atlantic hurricanes, and even the normal extratropical cyclones can reach "major hurricane"-strength winds - had 70+m/s gusts clocked just across the fjörd from my land :Þ)

Phhht. No meteor strikes?