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

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There are 3 reasons Tesla would sell cars at zero margins:

1) The invisible hand
The selling price of a good is dictated by market demand. If you want to sell something at $50 but the market is only willing to pay $40, you must sell at $40, regardless of how much it costs you to produce the product, unless you choose to cut production. Interest rates and the expectation of a recession have severely impacted demand for premium-priced vehicles such as all Tesla models. And Tesla will not cut production because of

2) Scalability
Tesla's long-term goal is to cut production cost by 50%, and in order to achieve this target or even get anywhere near it, Tesla needs to constantly expand production. Even if they didn't make any money on the cars being produced, they'll make up for it when the economy rebounds and Tesla has the most favorable cost structure.

3) Propagation of platform
Tesla's end game is to sell software, i.e. FSD, to Tesla vehicle owners. Scaling production as fast as possible and selling everything is the prerequisite for this strategy. Classic printer & ink business model, just at a much larger scale.

Need to find a better analogy than printer & Ink business.

A printer is useless without the ink, its singular job requires ink.

By contrast a Tesla is a perfectly great usable product without software upgrades. Many people can buy one and never need or think about paying anything extra for software upgrades or services.
 
Planning a 3,500km roundtrip to Prince Edward Island, Canada. Tesla Superchargers are quite sparse in New Brunswick and PEI, and am YouTubing 3rd party charging sites (ChargePoint, Flo, etc.) on their operation, downloading their Apps and testing them out locally. It is some work. Up until now, I have never had to use 3rd party charging sites, and have taken Tesla's Superchargers forgranted.

Unlike Tesla's 8 or more chargers at each Supercharger station, the others seem to be content with less than a handful of isolated chargers, sometimes just one or two, with the majority as Level 2 charging at 33km/hr, less than my Tesla home charger of 60km/hr. Will plan accordingly. Some good finds though. My son takes a College course one evening per week and used to pay $10 for parking. Now we pull into the ChargePoint EV parking spot, and after class have an additional 100km added to the battery at a cost of approximately $10. So, free parking.

Tesla's Supercharging network (and destination chargers) are an absolute dream in their operation, reliability and simplicity, and just another major reason why Teslas are superior to all other EVs. The vast majority of our trip will use Tesla Superchargers, and we will set ourselves up for success using 3rd Party chargers when needed.
Safe travels.

We are heading to NB and NS for a total of two weeks worth of cottages this summer; I’m gonna be stubborn and plan to only stay on the Tesla reservation.
 
Need to find a better analogy than printer & Ink business.
Maybe a gaming console? It might come with a few "free games", but the maker is banking on the customer buying more games.

Regardless of what Elon said, I don't expect to see zero margin car sales.

IMO selling more cars is the best form of marketing, ever Tesla sold helps sell Teslas for the next 10 years, and most owners are willing helpers.
 
These are the US price cuts

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I'd like to see GM overlayed on these graphs
 
Need to find a better analogy than printer & Ink business.

A printer is useless without the ink, its singular job requires ink.

By contrast a Tesla is a perfectly great usable product without software upgrades. Many people can buy one and never need or think about paying anything extra for software upgrades or services.
OK, let me nominate a two yr old, still a little green, but saddle broke horse.
 
  • Funny
Reactions: MC3OZ
So you say you'ld get a new S or X, but don't want to lose your unlimited Supercharging. How many years ya think your car has left? More or less than 6?
Ok, they are getting really close on this now. My counter offer: Tesla to provide free, unlimited supercharging for lifetime (my lifetime, not the car’s) and with the model S price back at $69,420, and I, in return, will return my 2015 MS70D. Elon please call 555-867-5309………waiting.
 
@Optimeer thanks for your detailed reply re: Megapack. Let me add what I can:

Beginning of April March, there was a guy sitting a few 7 days in his car in front of the Lathrop factory
Yeah, that was Bradford Ferguson (Halter-Ferguson Financial). Great guy, very active Twitter feed. Recommend you read his "Telsa Valuation w. Megapack [PDF]" (link via his Twitter)!

13 weeks/quarter x 7 days/week x 10.5 Megapacks/day x 3.9 MWh/Megapack = 3.7 GWh/quarter.
Agreed, I estimate the March 2023 utilization rate of Megafactory phase 1 was ~74% (I think the limit will be CATL LFP battery supply reaching 40 GWh/yr when phase 2 is complete).

Regarding the margin aspiration of 25%: Probably there is a lag until the money is transferred from the customer to Tesla at the end of the project, so we potentially didn’t see the steep ramp last quarter fully reflected in the earnings report.
There was a detailed twitter thread explaining the delayed revenue recognition that Tesla will apply to Megapack sales: (it'll be like a growing tsunami of cash) :D

JPSartre on Twitter: (Jan 27, 2023)
  • @Garyblack00 @TeslaBoomerMama good space. @Zerosumgame33 thx for sharing. Key takeaway to note: Lathrop ramp is not deployment. Deployment is not MP ramp contract execution=Ramp ?? Revenue Recognition explained
  • Customer pays 40% @ Contract execution. Tesla expense 40% CATL & Production 40% = offset costs of production (lithium price pass thru) B/S neutral = $0 revenue / cost 1 - 20% shipped 2- 20% installed 3- 20% commissioned Each payment will be recognized as 100% margin/MP
  • Happy to chat off line… but this is literally well camouflaged free cash flow transaction.
  • Following payments can span multiple qtrs I.e. Execution of 3.9 GWH contract = 1000 MP = $2.4B rev Balance sheet inventory of $960M Payable of ($960M) @ 125/kwh Payment 1 = $480M shipped Payment 2 = $480M installed / Payment 3 = $480M commissioned / live
  • Unless there’s an accounting change Tesla inventory/accounts payable will continue to balloon at the rate they execute contracts and receive deposits and which become offset by payments to CATL and battery production. Most are going to say this is autos…
  • but Auto 50% yoy growth has been happening with 3~5B inventory and with delivery wave smoothing there should be less inventory. Thus $8B in inventory in LTM & linear accounts payments can only be a LARGE SCALE BUSINESS WITH SLOW delivery /revenue recognition schedule.
    FngYupZWIA0mIF4
  • Therefore inventory growth = contract execution and customer deposits. With 15 year contracts on service / termination fees / project planning approved at local jusristication and 40% payment the ENTIRE amount of contract should be valued at 100% on SIGNING, not deployment. / Twitter
Regarding your selling 15% of your holdings, I understand. To me, it seems like the $800M FX charge is an Accounting artifact which doesn't represent the true state of the business. That cash isn't being converted from RMB to USD at a loss. Instead, that cash is being used to pay local suppliers at world-best prices, and will also support further capital investment such as Giga Shanghai Megafactory.

Also, FSD revenue was deferred (not lost), so it'll just add to the next quarter (Tesla stated in the 2022 10-K they plan to recognise $630M in deferred revenue over the next 12 months, which includes FSD). Finally, Megapack revenue recognition will build like a tsunami of cash over time (steady, relentless, and surprising).

Finally, you sound like the PERFECT FIT for the new compact car from Tesla. Hopefully built in Berlin, too! But, aren't you able to order a 7-seater Model Y in Europe now?? Mine was built in Fremont in April 2024, for what is now equivalent to €2,650 extra. Great option!

Cheers!
 
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Yes, writing this could go badly for me, but it occurs to me that Tesla not advertising may address generalized complaints about Tesla in the past

Common talking points (real or imagined) :
Lack of charging
Lack of service centers/ availability
Lead time for car

Tesla has grown its service and delivery, but is still not at the location saturation of traditional OEMs, especially if you lump the major automakers in one group.
Tesla has grown its Supercharger locations, but they are still not as common as gas stations, especially if you lump all the brands together.
Tesla has increased its inventory, but not to level of traditional OEMs where the desired model, trim, and color combinations may be either on the lot or in the next town over.

My point? Tesla is better and continues to improve, but its still lumpy. There are places with better coverage of centers and chargers and areas with less. These areas also have something else... more Teslas. The inherent result of more cars is more people seeing the cars and checking out the cars and buying the cars.

Who doesn't see Teslas? People living where coverage isn't as good.

Who do you typically advertise to? People who don't know about your product.

See where I'm going here? Tesla and new owners are well served when volume and regionality track with infrastructure. Tesla is still sparse. Tesla advertising to the unaware could increase demand the most where experience is the worst (relatively speaking, I'm not claiming it's bad). Else, they advertise into a more saturated market increasing the load on the existing infrastructure.

Delivery and service locations:
SmartSelect_20230422_081155_Firefox.jpg

Supercharging locations:
SmartSelect_20230422_082416_Firefox.jpg

Then there is the buyer type. Transitioning from ICE to EV is a change. Better to have new owners who understand that versus unaware ones who get annoyed at the differences once they find them. In this, the opening of Superchargers to other brands is advertising to non Tesla EV owners who might choose Tesla as their next EV.
Supercharging open to others:
SmartSelect_20230422_082524_Firefox.jpg
 
Anyone able to track US inventory to see if the most recent $3,000 price drop had any affect?

Locally (in NY), the inventory didn’t seem to drop much, if any, but I am not sure if just looking at the inventory page means anything.

with gigatexas continuing to ramp I am thinking prices will have to keep coming down to move them all. As an investor, Hopefully I am wrong. Thoughts?
 
Anyone able to track US inventory to see if the most recent $3,000 price drop had any affect?

Locally (in NY), the inventory didn’t seem to drop much, if any, but I am not sure if just looking at the inventory page means anything.

with gigatexas continuing to ramp I am thinking prices will have to keep coming down to move them all. As an investor, Hopefully I am wrong. Thoughts?
Unfortunately, you are probably correct. Tesla is now at the point where they have to start selling to people who just want a car and are probably more interested in the monthly payment than anything else. That is a pretty sizable percentage of the population. Also, some of the competition out there really is competition. People on this thread have mentioned choosing another brand over Tesla when replacing a car. My personal doofus opinion is that Tesla hasn’t helped themselves by restricting the number of “free” colors and going to black trim only. All I see is white cars with a few black around here. I would be ordering a new S right now if I could get bright trim. Also, the picture of the X on the order page is god awful. No wonder it isn’t selling.