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

[FSDtester#1]

I made another super inaccurate chart to illustrate just what happened to Teslas margins over the past few months, why margins are restored to where they were in middle of 2022, and how they will climb back up to where they were in late 2021.

Tesla’s margins dropped initially due to Tesla opening their new factories early in 2022, Musk called those factories money furnaces initially and they burned cash for much of 2 quarters with fairly low production. Tesla’s Shanghai COVID debacle added insult to injury there. But during most of 2022, price hikes were slowly kicking in which largely offset that hit. Then once those factories starting producing in volume, margins started climbing fast.

At the same time, commodities and shipping prices came down a lot too. Tesla’s prices were sky high and their materials costs were way down from their highs and near the levels they saw in 2020.

Then finally, at the first of the year, the IRA Manufacturing rebate kicked in and broke my chart. That’s a ~$3600 bonus to Tesla’s bottom line. At retail, thats absolutely massive.

Tesla’s price chop was just reflecting the massive reduction in costs they’ve seen over the past 9 months or so. I suspect Margins for 4th Q will be quite good in spite of the discounting that happened. Teslas new factories aren’t even at half of capacity though. The next year we should see continued improvements in margins until Cybertruck comes online and margins will dip temporarily again.

View attachment 895630

PS: The chart is generally accurate but specifically wrong so don’t call me out on it unless you disagree with the premise. I know the timeline is crap.

Great post, thanks . The only thing I would call you out on is I didn't know Ogres knew how to write and draw, using like pens and markers and such.
Otherwise very informative

 

[Ogre]

Great post, thanks . The only thing I would call you out on is I didn't know Ogres knew how to write and draw, using like pens and markers and such.
Otherwise very informative

All those random color changes were due to me eating crayons. I like the red ones…

 

[heltok]

I’ll take Clueless for $1000, Alex.

Toyota’s CEO Akio Toyoda says we need to convert existing cars to EVs and hydrogen — just selling new EVs isn’t enough.
He showed off a demo of two vintage AE86 hatchbacks converted to hydrogen and BEV drivetrains.

https://twitter.com/x/status/1614114545584451586

I am hearing all those old arguments come back again. Convert existing cars, battery swapping, hydrogen, e-fuels, wireless charging, electrified roads, solar roofs on cars, 45 sensors etc. All those ideas that sound cute but once you actually analyze the economics, talk with the engineers or have some experience owning a car with a good charging network you quickly realize how little sense those ideas make. Those who fail to understand Tesla are condemned to reimplement Tesla poorly....

Meanwhile Elon keeps making those decisions that later turns out to have been very wise, betting on the right technology, cutting the losses on the wrong technology long before the competition has even implemented their own version of it. Which is why Tesla now can sell their cars so much cheaper than competition yet have good margins.

 

[Criscmt]

I would advise keeping in mind that Fed has a very serious problem, run away inflation.
Big run up in equity, and/or housing markets I would think will be very detrimental to their efforts to contain the run away inflation.
JPowell was praising Volcker recently on how Volcker handled the run away inflation.
Big run ups in equities this time will likely end with large funds selling equities to retail and leaving them as bag holders.
Mar-2020 is very different from this time. Post covid there was a lot of liquidity the Fed injected into the system. This time, they are very serious about draining the money out of the system to fight inflation.
It's not just the Fed funds rate, there's Balance Sheet run-off, and likely active QT. These will have serious effects on risk-on assets.
The rise in mortgage rates in the last few weeks, as Fed stopped adding to their MBS holdings, is likely a sign of things to come.

Isn’t over stimulation, too much money in the hands of people, inflated assets, wealth effect, likely key reason for substantially over-normal demand, especially a time less was being produced, leading to this inflation?
Looks like significant part of people feel wealthy now, and spending more like on housing, all kinds of goods, services. Unfortunately, the others, especially poor, are suffering the pain.

Would love your thoughts, especially those who were experienced dot-com period in stocks


I am trying to understand current situation, and here's what I see:
A lot of money was pumped into the system post covid breakout (in fact even before covid, at least since QE-1), both Monetary policy (Interest rates, QE), and Fiscal policy. At a time when production went down, demand went up due to this extraordinary money supply, causing inflation.

Housing was pumped with explosive combination of all-time low mortgage rates (thanks to incremental MBS purchases until a few weeks ago), and high asset prices (high stock valuations) which made down payments easy for large many.
Now there's runaway inflation. For example, if we take housing, house prices go up, people take cash out and invest in buying more homes. Why? because house price are going up. This lead to the vicious cycle.

Is it the case that, (1) this money supply pumped into the system still being around, and (2) tens of millions of new “traders” (stock and options) is likely stopping the collapse of the market? Because, there's a lot of money on the put side too, both retail and institutional?

Do you share the view that for controlling the inflation, money needs to be sucked out, asset valuations must be brought down?
2006-2008 likely is not a similar situation, we didn't have so much money pumped into the system at that time?

I wasn't in stock market during Dot com bubble.
Was there such high money supply during that time? I read the asset valuations were high, likely even higher than now (not nominal)

If we take housing, looks like we will have a step-up inflation that will not be reversed, offset but will have to live with?
Home prices went up ~40% from Jan2019, and mortgage rates today are same as in Jan-2019. Incomes didn't grow anywhere close to that. This means, Fed robbed the opportunity of housing from millions, and that too from those who are already at the bottom of wealth pyramid. The only way this can be corrected is by bringing down house prices, because interest rates can’t be brought down with the current inflation?

Do you see strong parallels to Dot com period, on the risk front (asset devaluation)?

@Artful Dodger @StealthP3D @FrankSG @The Accountant @generalenthu @ZeApelido @bxr140

Thanks for your replies.
I am more interested in the cash levels during dot-com bubble. The kind of money that was pumped into the system the last two years, in fact even prior to that (QE post GFC), both Monetary, and Fiscal, seems unprecedented. Was there even nearly as much cash injection into the system, positive wealth effect, retail trading activity, going into dot-com bubble? Of course, I understand that inflation wasn't as high as it is now.

OT (Not sure if Macro related discussion would be allowed here by Mods)

Thought it's good to listen to the point of view of the folks on other side of the macro.
Sharing this here to learn from you all, what your view on these points is.

I understand markets are forward looking. Do you think this is all priced in in the market?
The vast amount of money injected into the system, the changes to consumer spending (including housing) due to this, the inflation exacerbated due to the horrible invasion of Ukraine?

Link to the Tweet thread
=================================================================
Over the past two years, the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England collectively printed over US$11 trillion (about 26% of their GDP), more than double the amount which was printed after the GFC in half of the time.
These four central banks cut rates to (or below) zero. Money became literally free and enormous quantities of it were (and still are) floating around. Governments availed themselves of this free money and spent more in 2020-21 than at any time since World War II.

The combination has been explosive for economies and markets, particularly because the Fed can print money, but cannot control where it goes. All this is now reversing. Most central banks are already tapering their bond purchases or are about to.
A few have started raising rates – most recently the Bank of England. For its part, the Fed has started tapering quantitative easing (QE) purchases, expects to raise rates three times in 2022, and is even starting to discuss QT (quantitative tightening
, i.e. shrinking its enormous nearly $9 trillion balance sheet). Free money has been an elixir for markets. What happens when money is no longer free?
In the ten years before COVID-19 hit, U.S. and global stocks rose in one of the biggest and longest bull markets of the past century. But interestingly stocks did not show signs of generalized frothiness usually associated with long bull markets.
Then in the eighteen months following the COVID-19 low in March 2020, from a near standstill, most market participants caught the bid and pushed almost every measure of speculative enthusiasm to record levels: IPO funds raised went
from $32 billion annually from 2009 to 2019 to a record $262 billion in 2021 (nearly four times the 2000 record of $65bn).8 M&A activity went from $1.25 trillion annually in the last decade to $2.75 trillion in 2021. Inflows into equity mutual funds and ETFs
reached $1 trillion in 2021, more than the past twenty years combined and significantly exceeding 2000’s $312 billion. Margin debt has doubled from the average of the past five years to reach more than 2% of GDP, much higher than the 2000’s when it was 1.4% of GDP.

The meme stock craze of early 2020 has ebbed with many stocks down -50% from their peaks, but their market caps are still 10 to 20 times higher than pre-COVID-19 levels in 2019 despite revenues down 20 to 50% and no profits.
History shows that these speculative manias tend not to last much more than eighteen months, and are followed by market corrections greater than -40%, unwinding almost all of the bubble’s gains.
Highly speculative and expensive assets are most at risk: the crypto ecosystem, retail/ meme stocks, no-profits stocks, hypergrowth high-multiple stocks and probably growth stocks in general.
There are already indications that some of the bubbliest areas in the market have burst, though the overall market continues near all time highs, powered by an increasingly small number of mega-cap stocks. Possible catalysts for a more generalized market correction include
The End of Free Money, the fiscal cliff and Stagflation. Or it may just be that stock market optimism and expectations are so high that they are very unlikely to ever be met. (MS)
=================================================================

Not trying to boast that some of these things turned out as I was afraid back then. But quoting these to give background for this post.
I hope you all had minimal impact due to the SP action in the last one year.

I am curious if some of you are interested in hedging against market capitulation event, and/or TSLA going to even crazy levels, I guess Elon was alluding to level that is below current SP.
Obviously, a separate thread would be better.
One example: If market stays crazy low for a while, asset prices go even lower, white collar job market loosens significantly, does LVHM continue to hold to current levels? (In a tough macro environment, it would be abnormal to have LVHM owner as richest person in the world).
Maybe traditional energy (XLE)? Just some examples. I am sure there will be plenty of ideas worth exploring.

@Mods If you don't think this (hedging) is crazy topic, can you please help with creation of a separate thread?

 

[elasalle]

Not trying to boast that some of these things turned out as I was afraid back then. But quoting these to give background for this post.
I hope you all had minimal impact due to the SP action in the last one year.

I am curious if some of you are interested in hedging against market capitulation event, and/or TSLA going to even crazy levels, I guess Elon was alluding to level that is below current SP.
Obviously, a separate thread would be better.
One example: If market stays crazy low for a while, asset prices go even lower, white collar job market loosens significantly, does LVHM continue to hold to current levels? (In a tough macro environment, it would be abnormal to have LVHM owner as richest person in the world).
Maybe traditional energy (XLE)? Just some examples. I am sure there will be plenty of ideas worth exploring.

@Mods If you don't think this (hedging) is crazy topic, can you please help with creation of a separate thread?

Isn’t it too late to be thinking about capitulation- when Tesla has already been decapitated- down 70% in one year

Also read is inflation winding down- maybe one more.25 point interest hike in feb and then done

Either just HODL or buy more when there is blood on the streets

 

[StealthP3D]

Yep, whatever CBO projected the cost of the bill is (over 10 years?) We are going to blow through that next year.

The net effect of the IRA on the Federal Budget is projected to be strongly net positive and reduce the Federal Deficit by something like $300 billion over the decade due to the way the bill was designed to be self-funding and then some. It purports to do this with various measures such as controls on prescription drug pricing (saving Medicaid/Medicare billions) and the 15% corporate minimum tax (increasing federal revenues by an estimated $300+ billion). The latter actually targets corporations like Tesla who pay $0 of corporate tax. This portion of the bill was written, in part, by Senator Warren. Ironically, some of the fine print benefits oil companies, leaving them not impacted to any great degree while probably costing Tesla billions in additional taxes over the next 7 years.

I suspect that those who claim the IRA is a huge benefit to Tesla have not read, or do not understand all the nuances of the Act or how disruption in the auto industry would likely play out with and without the Act. I certainly haven't read enough of it to have any kind of comprehensive opinion, but my rough seat of the pants take is that the positive and negative impacts of the EV and corporate tax portions of the Act will likely largely balance out to perhaps being somewhat negative over what Tesla would have achieved had the pre-existing $7,500 credits just been allowed to die out. However, the Act is farther reaching and more complex than most people know which makes it nearly impossible for anyone to understand all the impacts. The EV tax credits are just a tiny part of the Act, both from a monetary standpoint and from a detail standpoint. There are other areas of the act (in addition to the battery tax credits for EV's) that could benefit Tesla in the future that I haven't accounted for by only considering how autos will play out.

It's a work in progress with more details coming down the pike in March. No one really knows what the actual costs and expenditures will actually be or how it will shape and change markets. It could be argued that while the number of eligible cars produced by Tesla are wildly under-estimated, that same error will result in Tesla profits that are much higher than accounted for in terms of how much additional funds the 15% minimum corporate tax will raise. Meanwhile, Tesla, who had to pay people to stay abreast of this monstrous change to the American economy, has already responded rather quickly by cutting prices pretty much across the board to take maximum advantage of the IRA. So much for Elon being so distracted by the blue bird that Tesla was rudderless!

The one thing this act did *not* do is simplify the tax code! It just keeps getting more massive!

 

[insaneoctane]

This! This is what I like about Tesla's power move. Expect the first price rises to come before Tesla reports Q1 earnings. Perhaps they will add only $1000 per car or so. This will actually stoke demand as people who have been holding off on a purchase realize the price is going the wrong way. Then, depending upon wait lists, they may add more small raises as the year progresses.

Tesla has really planted themselves firmly in the driver's seat once again.

I was thinking the same thing....going with this price for a few months, then they raise the price slightly ($1k to $2k), it likely creates additional demand via FOMO.

 

[insaneoctane]

I am afraid this price cuts are going to bankrupt VW, GM, Ford, Toyota..

Not soon, but history might well point to this price reduction event as the catalyst that caused it.

 

[Maarten]

I agree, except the term "predatory pricing" implies a predatory intent. The only prey here are the IRA incentives that were in direct opposition to Musk's stated preferences. Tesla would be foolish to not hunt those incentives down after they were approved anyway. If the other manufacturers who were in favor of IRA incentives feel preyed upon, it is only because their applicable products are inferior and uncompetitive, just as they were before IRA that they helped write. That's on them.

This is not about predatory behavior. What it is doing is exposing the fact that legacy auto was not as good at making cars as we were told. American auto making has not been leading the economy forward for many decades. On the contrary, the inefficient auto industry has been a drag on the American economy for decades as autos have sucked a huge percentage of American resources into the black hole of car payments, insurance, and monthly gasoline bills, sending the money to incompetent auto manufacturers, advertising agencies, and oil producing nations, leaving behind a wake of toxic exhaust causing death, higher healthcare expenses and expensive global warming. They repeatedly told us American car buyers did not want EV's, glorified golf carts, that EV's were impractical, too slow, too cramped, and too expensive. We knew they were lying to us but many of us didn't know how terribly inefficient and incompetent they were, even at making gas cars, until Tesla showed us what an efficient and modern auto company looked like. When an unsubsidized EV is more competitive than a gas car, well, that's your first clue that legacy manufacturers are incompetent, even at making ICE cars.

The very tenents of capitalism that America holds so dear, namely, productivity, efficiency, competitiveness and profitability, the things that cause capitalism to serve humanity so well, that make it the best economic system known, and the only system not known to lead to massive poverty and suffering, those very tenents of capitalism we hold dear, require manufacturers to be efficient, to match the performance of other manufacturers, like Tesla, or get out of the way.

Legacy auto fooled us for decades by telling us how good they were at making cars efficiently, at bringing value to new car buyers, and most of us were none the wiser because their size, scale and dominance prevented anyone else from showing us what was possible, how much better big auto could provide for our transportation needs without bleeding us dry, while pushing up healthcare and insurance expenses while sending huge amounts of money to people who don't have our best interests in mind. Big auto and big oil were like two peas in a pod. Big oil suggested that big auto should make bigger, less efficient cars and they would work their magic with congress to get EPA exemptions for heavy vehicles. Because they are bigger, right? Big oil and big auto were unstoppable in America, no one wanted to say "no" to them, they even spent our money on expensive advertising campaigns to make us think that being wasteful was what made us free Americans, but the American consumer has been paying the price for this corruption of our system called capitalism. Crony capitalism is a greedy bastardization of everything that makes capitalism serve our needs so well to begin with. It's not capitalism, it's crony capitalism. That's like "clean coal", a term invented by crony capitalism.

Half of the decay in American cities is directly attributable to this.

Tesla has, in the last several years, finally made it clear to big auto where they have gone wrong, how terribly inefficient thy are at making cars, gas or electric. Big auto has seen they are losing control of their destiny. This has caused big auto to write a bill named IRA and telling congress to pass it for them. Essentially, they have told big oil that it was fun while the marriage lasted but it was an unsustainable relationship from the get-go and, as you know, the pages of the IRA are essentially the divorce papers, but don't worry, we will remain on friendly terms and still make as many big, heavy, inefficient vehicles as possible, for as long as possible, but now we have a chance at a new life. We might not make it, but we have to try.

Sorry about the long rant but calling Tesla's price cuts in response to the IRA, written by legacy auto and rubber-stamped by congress, "predatory pricing" is the height of irony. I know you had no ill intent, and I love and fully support that the price cuts will have the same effect as a predatory competitor willing to drive their own margins in the ground to harm a competitor, but the price cuts are not predatory, because they lack predatory intent. And Tesla's margins will remain strong. "Predatory pricing" is a term with a well-defined meaning, and that meaning does not apply here, not even a little bit.

Predatory pricing is illegal under anti-trust laws and is an entirely different thing than what you see here.

Great and insightful on what is happening now. Would like to propose this post to go to the thread "Moderators' Choice: Posts of Particular Merit".

 

[Max Plaid]

So what's a TeslaPoint worth in CAD?

"Henry Ford" since Aug 2018 | Arttful Dodger on TMC​

What Henry Ford did was legendary (also scary for some TSLA shreholders including Uncle Leo).

No matter. Elon already said he wants Tesla 'bot to be controlled by a public Company, and Tesla is ideal for that.

The unsettled issue is how does Elon pay the ~$7B cash due when he excercises his 2018 CEO stock options? Those should be fully vested after Tesla files it's 2022 10-K at the end of January.

I'm still hoping E. holds off exercise until he does a 2nd IPO for the blue 'bird and raises enuf cash that way (the TSLA options expire after 10 years, so he has until April 2028 to exercise them). Lol, just over 5 years to go, huh?

Cheers to the Longs!

Elon said no stock selling in 2023, probably 2024. Surely he's well aware of these options waiting to be vested. If he did a sell through an offering or dark pool, then ended up with more stocks as a result, I'd forgive him...

 

[mongo]

I’ll take Clueless for $1000, Alex.

Toyota’s CEO Akio Toyoda says we need to convert existing cars to EVs and hydrogen — just selling new EVs isn’t enough.
He showed off a demo of two vintage AE86 hatchbacks converted to hydrogen and BEV drivetrains.

https://twitter.com/x/status/1614114545584451586

I mean, *maybe* VW should have looked at doing this...
5 years ago...
Aerial Footage Shows VW’s Massive Diesel Vehicle Graveyard

 

[Max Plaid]

So not "nothing", but it is a solid 15% discount. That's some real foldin' money right there!

Cheers!

Yeah, made the whole thing more palatable given my portfolio demise since I ordered but indeed my point was that ALL the MS/X just sold in EU, will be with similar pricing as they're all ordered in 2021, the new pricing only came in when the order process was reopened late last year

So yeah, Q4 margins for these cars is based on pricing way lower than current - although I can't imagine anyone in EU ordering an MSX now until they drop the prices a bit, +€30k on the US, people gonna wait and see

 

[OrthoSurg]

On the Tesla Model 3/Y Montreal FB group I see a lot of pissed off customers who took delivery recently of Teslas. I know how they feel because au took a delivery of my 2019 SR Model 3 exactly 2 weeks before the federal government released a 5k incentives so I missed out on a 5k price reduction. Didn’t blame anyone for it and just took a 5k loss when I sold it 2 years later and bought my Model Y. For the people changing cars every 1-2 years that must be a bigger problem than the ones keeping their car 10 years. I was lucky K bought my Model Y when the prices were still low so it’s not a current problem for me however to avoid a bunch of pissed off people I was wondering if decreasing the prices incrementaly 2-3% monthly over 6 months could have pissed less customers in the process. I realize the point was to qualify for the EV rebate however I am trying to be devils advocate for all the people complaining online. The price increases were incremental so I am trying to figure out the Tesla argument to drop the price suddenly instead of small steps.

 

[EVMeister]

On the Tesla Model 3/Y Montreal FB group I see a lot of pissed off customers who took delivery recently of Teslas. I know how they feel because au took a delivery of my 2019 SR Model 3 exactly 2 weeks before the federal government released a 5k incentives so I missed out on a 5k price reduction. Didn’t blame anyone for it and just took a 5k loss when I sold it 2 years later and bought my Model Y. For the people changing cars every 1-2 years that must be a bigger problem than the ones keeping their car 10 years. I was lucky K bought my Model Y when the prices were still low so it’s not a current problem for me however to avoid a bunch of pissed off people I was wondering if decreasing the prices incrementaly 2-3% monthly over 6 months could have pissed less customers in the process. I realize the point was to qualify for the EV rebate however I am trying to be devils advocate for all the people complaining online. The price increases were incremental so I am trying to figure out the Tesla argument to drop the price suddenly instead of small steps.

Some people would argue that small price drops over time would lead people to anticipate (and wait for) future drops. Whereas the way Tesla did it rips the band-aid off and really gets the shock-factor FOMO going. They wanted to spur this immediate demand.

 

[SO16]

Not the first time.

Won’t be the last.

https://twitter.com/x/status/1116766103177285633

 

[Hiline]

Not soon, but history might well point to this price reduction event as the catalyst that caused it.

These legacy automakers are too big to fail. They will get bailed out or Congress will pass a law to slow down Tesla if the market gets to that dangerous point.

 

[Cattledog]

https://twitter.com/x/status/1116766103177285633

The only way this would have been better was if he had written 'when we raise prices in the future' to create even more FOMO.

 

[Mengy]

These legacy automakers are too big to fail. They will get bailed out or Congress will pass a law to slow down Tesla if the market gets to that dangerous point.

People said that about Chrysler once too, now it's owned by the Stellantis Group in the Netherlands. Kokak was also once considered "too big to fail", but look at it today. GM went bankrupt just 14 years ago!

Things can change very quickly, and sometimes they change in ways which might seem unlikely, yet it still happens.

 

[CorneliusXX]

Here is the conflict:
In the Supply agreement, it appears that credits for taxes go to Tesla:
View attachment 895588

. . but Panasonic in their quarterly earnings call, seemed to indicate the benefits were theirs:
View attachment 895590

It's an interesting one. If we look at the parties that have singed the general T&C for the GigaNevada production it is clear that Panasonic Energy is a party to the agreement and presumably should pass on any tax benefits.

tsla-ex102_486.htm

However in the 2020 Pricing Agreement it states that the Unit Prices shall not change during the term of the agreement (noting this is heavily redacted) due to customs/duties etc (noting that taxes are not specifically stated in the Pricing Agreement while they are in the T&C).

tsla-ex103_487.htm

It might be that Panasonic will need to claim the production credits while keeping unit prices flat, then pass the credits through to Tesla as a side payment. The wording in the Panasonic presentation is so vague it could mean almost anything (e.g. It could be limited to just a cash timing difference, or it could relate to solar panel production in GigaBuffalo). I'd be much more inclined to assume that any IRA impacts for Panasonic would relate to other customers or products than cellmaking.

Edit: The earnings transcript makes it clear that Panasonic is counting on the $35/kWh credit - so it's pretty definite they are assuming the credit is available for the cells.

 

[elasalle]

The trend is no longer tslaq friend
Inventory down from 2500 to 1500

Portfolio - Matt Jung Photography