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

[EVNow]

By the time the Model Y comes out, the pricing might increase even for those with reservations. Who knows, it might cost double.

My offer is far better.

Well, it's then a question of who will keep the promise

 

[Drax7]

For those who really think the Model 3 will become an appreciating asset, I will sell you an option contract to buy my Model 3 which has the FSD option.

I'll sell you the option contract for $3000 right now. It will give you the option to buy my Model 3 in 2 years for $56k (which was my purchase price).

For those who believe in the appreciating asset thesis, please flood my PM inbox with offers. I'll be waiting.

Better appreciation with buying the car than the stock?
Concerning appreciation of the car,
Should we take it at face value?

Elon says we should always take him at face value.

 

[JohnDinger]

For those who really think the Model 3 will become an appreciating asset, I will sell you an option contract to buy my Model 3 which has the FSD option.

I'll sell you the option contract for $3000 right now. It will give you the option to buy my Model 3 in 2 years for $56k (which was my purchase price).

For those who believe in the appreciating asset thesis, please flood my PM inbox with offers. I'll be waiting.

Post of the week right here.

I'll sell the same option for $2.5k.

The idea this is an "appreciating asset" is absolutely absurd.

I also don't really understand the strategy for Tesla, here.

If they deliver the FSD technology next year, why would they let production constrain them? Why not license the technology to other EV manufacturers to fully capitalize on first mover advantage?

Let's say the current market for rideshares is 2 billion people taking 2 rides/day on average, with peak demand at 10%.

That's 200 million cars.

Tesla is not going to make 200 million cars by next year.

They need a way to lock more people in to the Tesla Network. They can't let ride-sharing constrain them.

 

[ReflexFunds]

Tesla surely has the FSD but nothing they're doing is earth-shattering or insurmountable. Others will also solve FSD... the only question the timing.

Google or Apple can design a chip... actually who's to say that Apple isn't secretly designing their own FSD chip right now?

And Google/Apple/Others can partner with a manufacturer to get cameras/sensors installed and their FSD chip/computer installed as well. Some people think this will take 5 to 10 years, but I look at it differently. If Google/Apple are motivated they can make it happen much, much quicker than that. Google (or Apple can announce a deal with Chrysler (or other company) that they're putting a google designed FSD system in one of their models, complete with FSD computer, cameras and sensors. Of course this is assuming that they've committed to a vision-focused FSD system, which I think it's possible that Google/Apple/etc already have teams working on.

Apple can design a chip in c.3 years best case - so it depends how soon they are willing to admit their mistake and copy Tesla. Apple currently seem to be very Lidar heavy so I don't see how they get their product into consumer's vehicles without starting again - and any chip they design now would be handicapped by optimisation for Lidar.

Normally design to manufacture cycle in the auto industry is 5-6 years, maybe they can accelerate that a few years to integrate hardware from Waymo/Apple, but it is very difficult to change the culture and practices of an industry that has been stagnant for 50 years. Its also hard to persuade a conservative auto company to give you all their data and control of their customers vehicles. The partnerships will be complicated by who owns the data and who profits from the software it builds - an auto company will not give this away for free.

Mobileye is potentially in the best position to start copying Tesla's data heavy approach, given they are already a Vision first company with partnerships with many auto companies. But they don't have the computing power in their hardware (EyeQ5 not out until 1Q21 and even then doesn't look nearly powerful enough), they don't have radar/ultrasonics, they don't normally control the prediction/driving policy algorithms, and they are not able to collect much data from their hardware once rolled out (so far they only collect some mapping data, whether this is due to contractual or technological limitations I don't know).

But i agree eventually there will be other players copying Tesla's strategy, but Tesla's 2-4 year head start is extremely valuable - particularly if they continue to move at a faster pace.
I've discussed before why I think first mover in Robotaxis should make an insane amount of money in the first few years (until there are 3-5 million on the roads globally, there is no incentive to price below the c.$2.5 per mile average Uber/Lyft price - based on Uber's prices and Uber's implied passenger miles %, a Tesla Robotaxi would make $150k gross profit per year until the market starts to get saturated), and why there is a good chance the first mover can maintain a significant % of the industry's profits for the long term.

I agree there will be several players in the AV market, but I think if Tesla gets there first, there are a number of reasons to think it can generate a significant, if not majority, % of the industry's profits over the long term. Of course, the AV car transition will be a huge disruption to the global economy and its very hard to predict how it all plays out.

A few reasons why I think Tesla stands to dominate the market if it gets there first:

• Autonomous taxi fleets have network effects. The largest fleet will offer the shortest passenger wait time and also likely the highest car utilisation rates and hence highest revenue per car. Just read Uber's IPO prospectus for how important they think these effects are.
• This is a software/app business and these tend to gravitate towards 1 dominant leader and 1-2 other competitors in each region. People do not generally download more than 2 or 3 apps to perform the same task and it will be very difficult for competitor number 3 or 4 to get the necessary network effects and scale to compete. Many of the extremely expensive AV R&D projects will have funding cut once they realise they have been too slow.
• Regulation is likely to favour the first movers who are likely to maintain a safety lead. The first mover will always have the data advantage and should in theory always be safest. This continuously raises the bar for regulatory approval for competing software. Why approve a new self driving car algorithm if it is demonstrably 3-4x more dangerous than the current self driving market leaders? Additionally, city streets could start to get flooded with driverless taxis. At some point the number of these vehicles will be limited and the companies which got there fleets in place early will be at an advantage. It is also very likely these fleets are required to be electric for pollution reasons.
• Tesla's vertical integration of its AV solution will provide a significant cost advantage and likely allow it to price rides lower than competitors while making higher profit per mile. Many competitors will use an AI vision solution from one company, driving software solution from another, hardware from another, and the car itself from yet another provider. These shared costs and shared development will handicap pricing power and slowdown development.
• Tesla's EV technology will provide another significant cost advantage vs competitors. EV AVs generally will be significantly more profitable than ICE AVs due to lower fuel costs and lower maintenance costs, but Teslas in particular will also benefit from lower depreciation per mile because they have been designed for durability. Tesla will likely be able to travel 500k-1 million miles rather than competitors designed for 150-200k. Tesla car will also benefit from high efficiency and high safety while being a much more enjoyable ride.
• Tesla's close relationship with customers, rather than via dealership networks, will make it much easier to establish its planned AirBnB style service. This model saves capital costs on fleet expansion, but also saves cash on parking spaces and charging infrastructure as this can take place at customer's homes.
• The first mover bounty is ridiculously high for the period before the market gets saturated with self driving cars. The first 1-3 million self driving cars on the road are still going to be massively outnumbered by the 30 million+ global taxi fleet. This means there is no incentive to charge less than Uber/Lyft per mile until the global taxi fleet is saturated with 3-5m self driving cars and competition begins to drive the cost of cars down. In fact many customers could be willing to pay a premium over Uber/Lyft for the novelty, increased safety, and premium Tesla passenger experience. If Tesla switches on 1 million self driving cars and is first to market, each of those cars could potentially generate over $200k cash flow per year (after electricity, service, cleaning costs etc) until the market starts to get saturated with 3 million+ self driving cars. Even when other companies deliver self driving technology, it is going to take a long time to get a global fleet of enough numbers to put the entire global taxi industry out of business and start to significantly reduce price charged per mile. In the first years i expect the majority of Tesla owners will be persuaded to send their $40-60k cars to work for Tesla's fleet for $30-50k annual profit. It doesn't make business sense for Tesla to give its customers a larger share of the profit than it needs to to persuade everyone to send their cars to work. So I can see Tesla keeping $150k cash flow per car and its 1 million self driving car fleet making Tesla $150bn cash flow in year one.

How many people are going to choose to use an app other than Tesla Network, when Tesla offers you 1) the safest drive (both in terms of crash probability and probability of injury if in a crash), 2) the lowest cost drive per mile, 3) the lowest wait time, 4) the funnest drive, 5) the most environmentally friendly drive.

Of course this is all theoretical until Andrej, Elon and the team deliver... But I agree with Elon, it appears quite obvious to me that Tesla are in the lead by a significant distance. I think the closest competitor is likely Mobileye, but their progress is much less transparent, and they will be handicapped by much less vertical integration and less aggressive ambition.

 

[MarcusMaximus]

Why not license the technology to other EV manufacturers to fully capitalize on first mover advantage?

They can’t. Nobody else would be able to use it. FSD isn’t a single gadget that can just be plugged into any old car and expected to work. Other car companies would have to completely redesign their cars to enable the specific camera views that Tesla’s existing cars have.

 

[mongo]

The idea this is an "appreciating asset" is absolutely absurd.

Is a car that operates as robo-taxi worth more than a car that does not?
Does a Tesla currently operate as a robo-taxi?
Assuming robo-taxi comes to fruition and 2.x/3.0 cars are capable, would they not then increase in value?
Isn't increasing in value the definition of appreciation?

Let's say the current market for rideshares is 2 billion people taking 2 rides/day on average, with peak demand at 10%.

That's 200 million cars.

Tesla is not going to make 200 million cars by next year.

Why does Tesla need to provide all rides next year?

 

[ZsoZso]

Tesla cars will become appreciating assets, wonder how the insurance will
Reflect that.

by continuously raising the premium you have to pay each month

 

[DaveT]

Is a car that operates as robo-taxi worth more than a car that does not?
Does a Tesla currently operate as a robo-taxi?
Assuming robo-taxi comes to fruition and 2.x/3.0 cars are capable, would they not then increase in value?
Isn't increasing in value the definition of appreciation?

This is making a lot of assumptions.

What if robotaxi rollout is very, very slow? How would that impact the "appreciation" of these cars? And if robotaxi rollout is very, very slow, then how would that impact competition getting into the game, thus impacting "appreciation" of Tesla cars?

 

[Remus]

OT



Less than you'd think. His big money is from catastrophe reinsurance, a business with almost no competition where the crucial aspects are (a) underwriting discipline (i.e very good actuaries), and (b) having $20 billion in cash and $100 billion in liquid securities to guarantee payout no matter what.

This is not a business which is easy to get into. Frankly, Tesla may end up buying catastrophe reinsurance from Berkshire Hathaway.

The auto insurance business is only a small corner of Berkshire Hathaway.

wonder how he feels about the recent onslaught of hurricanes.

 

[EVNow]

OT



Less than you'd think. His big money is from catastrophe reinsurance, a business with almost no competition where the crucial aspects are (a) underwriting discipline (i.e very good actuaries), and (b) having $20 billion in cash and $100 billion in liquid securities to guarantee payout no matter what.

This is not a business which is easy to get into. Frankly, Tesla may end up buying catastrophe reinsurance from Berkshire Hathaway.

The auto insurance business is only a small corner of Berkshire Hathaway.

Should we trust a catastrophic insurer who also invests in tar sands ? It's like a health insurance that sells junk food.

 

[anthonyj]

Oopsie there goes the market

 

[EVNow]

The idea this is an "appreciating asset" is absolutely absurd

It's like the NY taxi medallion.

Only thing that makes it seem absurd is we don't know the likelihood, nor the timeline.

What according to you is the probability of a robotaxi service by Tesla before end of 2021 in one city ?

 

[lascavarian]

It's true you can't eliminate all risk, but basically the attitude is "expect bad behavior and try to be as prepared for it as you can". Hence "defensive".

I completely agree about the preparation for bad behavior. My poorly made point is related to what they primarily teach as the preparation portion. My experience is that they mostly teach a mindfulness of keeping a cushion of distance and a cushion of option space so that the craziness can be avoided safely.

This cushion of distance and option space is closely related to human reaction time and vehicle limitations like stopping distance etc. Vehicle limitations remain but reaction time "may" be significantly improved with the FSD computer tech. I don't think we really know if this speculation is correct at this time but it might be. It is the "might be" that I think is interesting to imagine.

 

[Doggydogworld]

4. Capital costs for bootstrapping a robotaxi fleet are high, while ride-share prices are likely to decrease over time. Let's say Waymo had a gasoline Robotaxi network. To buy all the vehicles at say 200k each ...

Good grief. Underestimating the competition by making ridiculous assumptions does not lead to investing success.

If anyone is interested in a non-hysterical discussion of LIDAR vs. camera only, Brad Templeton is a TSLA shareholder and Model S owner who worked on robotaxis before any of us ever heard the term. You can also access this and other articles from his excellent blog.

 

[bpjod]

The principle I picked up from my defensive driving courses was "Assume everyone else is a maniac and will do the stupidest, most dangerous possible thing". That's the general principle.

True, but also what's implied, but not explicitly stated, is let's also assume you are human with a 2 second reaction time and not constantly monitoring all around your car and with forward radar bounced under the car in front of you and expertly programmed to respond to 99.99999% of situations on the road (I'm not saying Tesla's there yet)

 

[Nocturnal]

You ever heard of "The Wand" by Milestone Scientific? Probably the best product ever invented (next to Tesla of course). Hardly a soul ever heard of it and it's been on the market for 25 years.

Model 3 also has demand.

 

[oneday]

Tariffs Secured.

Not funny, but that’s how I cope with bad news

 

[Zaxxon]

Whew, you folks sure make it difficult to keep up with this thread, especially when jet-lagged and eight hours off my normal time zone ...

The main cameras that FSD relies on are the front cameras. All the other cameras are minor in comparison. Sure you need side cameras for lane-changing, etc. But the main cameras are the front ones, just like we rely on our eyes looking forward for 99%+ of driving.

I'm not saying a Google dashcam/camera system is the end-all for Google FSD, but what I'm saying is it's a bridge for them to get data to train their neural nets and allow them to build a somewhat decent semi-FSD solution that can get on cars and get to FSD.

Dave, I greatly value your contributions here on TMC. However, the idea you've been pushing in this thread today is the autonomous driving equivalent of 'it's not that hard for established ICE manufacturers to catch up to Tesla on EVs.' It's extremely naive and ignores several fundamental advantages--bordering on requirements--that Tesla enjoys and others like comma.ai, Google, and anyone partnering with existing manufacturers cannot replicate.

It's true that it's not that difficult to mount an aftermarket forward-facing camera, or even a suite of them a la Tesla's. And it's not that difficult to power them, and give them a data connection, and host cloud servers to collect and process their data.

As we know from Tesla's Autopilot history/progress, that's the easy part. But no competitor can do even that part as well as Tesla, since they do not control the full ecosystem--perfectly uniform hardware placement, complete integration with the vehicle's native control systems, data bus, other sensors, OTA update system fully in tandem for the car (to a level that no one but Tesla is close to being being capable of) and autonomy systems, etc. And now, a state-of the art chip shipping today on many thousands of vehicles every week.

This is before we get to the advantages of fleet size and daily data generation that no aftermarket system can hope to match in the near future. Any aftermarket system will receive poorer (less uniformly verifiable) data, and said data will come in much smaller batches. A system that could perform well enough to compete with what Tesla is doing today would require at least two side cameras in addition to the front, plus some form of radar. This isn't going to be a kit that the gen pop will order and install in an hour. Aftermarket, frankly, is right out. For lane keeping, sure. For FSD? No way.

I definitely agree it's not fair to compare them to Tesla's system, which is better. However, I bring them up because there's a prevailing opinion here that Tesla's data advantage is insurmountable.

Comma.ai shows us you can get data through very simple means (ie., a cell phone mounted to the dash of your car) and it can provide quite a lot of data.

I'm not claiming that data from a dashcam system will be sufficient to surpass Tesla, but I think if you had a dashcam/camera/cellphone system on several million cars, it will provide quite a lot of data and companies like Google can use that data to speed up their FSD efforts.

From comma.ai's site, I see that they have hundreds of daily active users. Hundreds!

Tesla surely has the FSD but nothing they're doing is earth-shattering or insurmountable. Others will also solve FSD... the only question the timing.

Google or Apple can design a chip... actually who's to say that Apple isn't secretly designing their own FSD chip right now?

And Google/Apple/Others can partner with a manufacturer to get cameras/sensors installed and their FSD chip/computer installed as well. Some people think this will take 5 to 10 years, but I look at it differently. If Google/Apple are motivated they can make it happen much, much quicker than that. Google (or Apple can announce a deal with Chrysler (or other company) that they're putting a google designed FSD system in one of their models, complete with FSD computer, cameras and sensors. Of course this is assuming that they've committed to a vision-focused FSD system, which I think it's possible that Google/Apple/etc already have teams working on.

I'd go so far as to say that it's likely that Apple and Google both have partnerships in the works with established automakers. I will believe those automakers can provide Apple/Google with integration to the level of Tesla when I see it and not a day before. There's simply no reason to think otherwise, as those manufacturers just don't have the capacity currently to provide such deep integration.

Volvo's been working with Google on Android Automotive for years now, for example, and what they're doing isn't as deep.

No, a partnership with an OEM that would compete with Tesla would require far more than an agreement to place a system in 'one of' their models. You'd need a fleet-wide commitment to install the system on at least tens of thousands of vehicles per month (likely far more than that so as to actually catch up to Tesla), and pretty base-level software control access to the vehicle's systems.

Basically, Google/Apple would need to be a full-on partner with the OEM, and not a simple provider of a stand-alone piece of vehicle functionality. The OEM would be effectively capitulating control of future vehicle software development to that partner, or at least would be committing to being a joint venture in perpetuity.

And for Apple/Google to effectively do this with multiple OEMs? Without epic, years-long morasses trying to standardize such systems across OEMs? Unthinkable. They'd be far better off owning the whole enchilada, which requires either starting their own OEM or buying one. Neither of which would be quick or easy.

I could certainly be wrong. Google, Apple, and Tesla all are filled with engineers far smarter and closer to this problem than I am. But it seems to me like you are trivializing the problem to an absurd degree.

I think we have a depressed valuation for Tesla's potential robotaxi business largely because of Elon's credibility problem.

Now this I can fully agree with.

Some people here would argue Elon doesn't have a credibility problem. Go figure.

Those folks are silly, deluded, or not paying attention. Of course Elon Musk has a credibility problem.

That doesn't, however, minimize Tesla's actual advantages.

 

[Carl Raymond]

But the one I'd use is # of crashes per MM, as that is what FSD needs to avoid.

Tesla’s market is global. All but three nations use metric. A non imperial measurement would be preferable.

 

[capster]

Apple can design a chip in c.3 years best case - so it depends how soon they are willing to admit their mistake and copy Tesla. Apple currently seem to be very Lidar heavy so I don't see how they get their product into consumer's vehicles without starting again - and any chip they design now would be handicapped by optimisation for Lidar.

Normally design to manufacture cycle in the auto industry is 5-6 years, maybe they can accelerate that a few years to integrate hardware from Waymo/Apple, but it is very difficult to change the culture and practices of an industry that has been stagnant for 50 years. Its also hard to persuade a conservative auto company to give you all their data and control of their customers vehicles. The partnerships will be complicated by who owns the data and who profits from the software it builds - an auto company will not give this away for free.

Mobileye is potentially in the best position to start copying Tesla's data heavy approach, given they are already a Vision first company with partnerships with many auto companies. But they don't have the computing power in their hardware (EyeQ5 not out until 1Q21 and even then doesn't look nearly powerful enough), they don't have radar/ultrasonics, they don't normally control the prediction/driving policy algorithms, and they are not able to collect much data from their hardware once rolled out (so far they only collect some mapping data, whether this is due to contractual or technological limitations I don't know).

But i agree eventually there will be other players copying Tesla's strategy, but Tesla's 2-4 year head start is extremely valuable - particularly if they continue to move at a faster pace.
I've discussed before why I think first mover in Robotaxis should make an insane amount of money in the first few years (until there are 3-5 million on the roads globally, there is no incentive to price below the c.$2.5 per mile average Uber/Lyft price - based on Uber's prices and Uber's implied passenger miles %, a Tesla Robotaxi would make $150k gross profit per year until the market starts to get saturated), and why there is a good chance the first mover can maintain a significant % of the industry's profits for the long term.

Elon may have another ace up his sleeve beyond FSD: The Boring Company.

Preferential access to tunnels would give Tesla Network robotaxi's a time advantage as well as a cost advantage. It's seems likely that faster rides would provide an opportunity to increase rates. Maybe something to pencil in to see how it, ah, pencils out.


That would also offer a competitive advantage, a "moat" if you will, that might extend their head start out by quite a few years.

It seems unlikely that those opposed would be able to stop all tunnels, everywhere, indefinitely. And once people see the benefits in one place, they'll want it at home.

Too bad Elon lacks the ability and experience to quickly scale up the manufacture of powerful and complicated machines like Tunnel Boring Machines. /s