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

[CorneliusXX]

Does it bother you that they were planning 10k per week model 3 from Fremont, but now planning 7k ex Fremont and 3k ex Shanghai? I mean, GF3 adds fixed costs.

Or is it going to be an insignificant blip on the charts when we look back a few years from now? The 3k strikes me as a convenient way to pretend the original goal will be met, which is false. But 3k is not an output level that will be held. It’s just a marker on a chart that will go passing by.

You have to look at total unit output v capacity from each factory. If you believe T will produce more than 10k vehicles per week in total then there is the need for more than one factory.

Fremont can be at full capacity with 3 + Y for domestic &ROW production, while GF3 can max out on China production.

 

[Fact Checking]

To be slightly fair to the PTO, they generally don't have the funding to hire the necessary people to begin to understand which patents are ridiculous and which aren't, so they just keep rubber stamping them rather than denying them as it's safer for them to do that and let the courts sort it out, than to deny it and get into trouble themselves - they're just doing what they can with what they've been given. Ideally together with legislative fixes to the patent system and courts, we'd also better fund the PTO so it had the subject matter experts it needed.

The big problem with patents is that the Patent and Trademark Office's budget depends on:

• the number of patents and trademarks issued generates significant amounts of income,
• the number of hours a patent examiner spends on processing a patent creates expense,
• also patent offices all around the world are seeing themselves as the centers, arbitrators and sources of innovation, and routinely measure their success in terms of number of patents approved.

These kinds of incentives create strong internal pressure to keep approving obvious patents, to accommodate patent mills and patent trolls, to weaken prior art review of erroneously issued patents - combined with a false institutional culture of self-importance.

For hardware patents it's mostly just a cost and a nuisance, as they can be worked around.

Software patents on the other hand are a tool to monopolize mathematics (as @neroden mentioned), which often cannot be worked around when the patented method is the obvious and only viable approach in a field.

So yes, the PTO is part of the problem. We'd be infinitely better off with no patents at all: copyright, trademark and trade secret protection combined with regular contractual safeguards are more than enough to keep innovators safe and to reward their innovation.

 

[RobStark]

The original projection was 10k units per week with ASP of $42k.

With a bit extra CapEX need to get from 7k to 10k.

With base $35k Model 3 off menu it is not long for the this world.

New base will be $39.5k.

New ASP will likely be ~$50k at 7k per week at Fremont.

 

[Fact Checking]

He sure is quadrupling down his bet on FSD...

At this point it's not a "bet" - just like reusable rockets were not a "bet" anymore after December 2015 when the first Falcon 9 landed - even though it took another 4 years to design and deploy "Block 5" boosters which are actually reusable.

FSD is a similarly complex technology that took a lot of time to develop, and I think the gating event was the Tesla chip that increases NN computing performance up to 21x.

The Nvidia board is probably borderline capable of doing a coast-to-coast FSD trip already, and the 21x performance increase makes it a slam-dunk.

 

[Buckminster]

Funny. Cherrypicking. And yet these people still can't do basic financial math. Here it is, my investment thesis in its most simplistic form:

Gross profit of 20% (this embeds pessimism bias vs. Musk's optimism)
ASP of $50K
Fixed costs of about $6 billion/year, which are pretty stable with increasing volume.
So very very roughly, profit means selling 600K cars per year.

But Model S, X, and Semi count as two cars each (ASP twice as high), so 100K S&X means that 400K Model 3/Y is the profit point.
After that, it's cash factory time: every car is $10K to the bottom line.

Assuming they line up the battery supply, Tesla has a clear path to produce and deliver 100K Model S & X, 1 million Model 3 & Y, and 100K Semis, circa 2021. That's 8 billion/year in profit, disregarding any stationary battery or solar roof profits, and disregarding plans to raise gross margins. So Tesla's forward-looking P/E multiple looks a bit low to me.

Tesla the lemonade stall - making the complex into a simple narrative is beautiful.

 

[Dan Detweiler]

Only Semi-OT


There are so few.

Really, Trump is a terrible businessman. Those of us who followed his "career" in the NY papers back in the 1980s knew this. He usually fails to pay his suppliers, threatens to sue his suppliers, and then after a long lawsuit, caves and pays them more than he would have if he'd been honest originally. There is *all kinds of stuff like this*. The only reason he's rich is that he inherited a lot of money. (Ivana was smarter, and Ivanka inherited her brains.)

Full credit to Trump -- he does have some skills. He won a lifetime achievement award from World Wrestling Entertainment for his acting skills.

Relevance to investor thread? If you can't correctly analyze Trump's (total lack of) business acumen, you have no business playing around with individual stocks.

Wow, so now my ability to invest my own money should be based on YOUR view of MY President? Come on, you're better than that. Sorry you're so bitter but don't let your own biases effect the maturity of your own posts.

So it seems that the prerequisite for posting here is that you must have an unabashed hatred for the man our own citizens placed in office? Look, I don't think the man is going to go down as one of the top ten US Presidents either, remember I didn't vote for the guy, but I do have a very deep respect for our Constitution and thus a respect for the office and person elected to that office.

As to the relevance to this thread, the international affairs of any US President will obviously have an impact on the stock market. Always has and always will. Childish attacks and name calling is what has no place here and quite frankly I do take offense to these attacks. Remember, the man represents the country in which the stock market this thread is all about made possible. National arrogance on my part? Maybe, but I wouldn't think of attacking anyone else's elected leaders and I take offense to those that attack mine.

Dan

 

[SO16]

I wish I had that confidence in demand. I'd be doubling down at this SP. I'm not at all clear that the 12k S/X performance was transient.

If people stop buying a Tesla in order to buy a competitor. THATS a demand problem.

When people are just waiting for a refresh to then buy their product, that isn’t a “demand” problem. That’s just a FOMO problem....which can and will be rectified.

 

[InDaClub]

Meanwhile, this is potentially mana from silicon heaven. Could TSLA be headed to San Francisco?

U.S. regulators approve new Silicon Valley stock exchange - Reuters

SAN FRANCISCO (Reuters) - U.S. regulators on Friday approved a new stock exchange that is the brainchild of a Silicon Valley entrepreneur, a move that will give high-growth technology companies more options to list their shares outside of the traditional New York exchanges.​

"The U.S. Securities and Exchange Commission approved the creation of the Long-Term Stock Exchange, or LTSE, a Silicon Valley-based national securities exchange promoting what it says is a unique approach to governance and voting rights, while reducing short-term pressures on public companies.

"The LTSE is a bid to build a stock exchange in the country’s tech capital that appeals to hot startups, particularly those that are money-losing and want the luxury of focusing on long-term innovation even while trading in the glare of the public markets.

"The stock exchange was proposed to the SEC in November by technology entrepreneur, author and startup adviser Eric Ries, who has been working on the idea for years. He raised $19 million from venture capitalists to get his project off the ground, but approval from U.S. regulators was necessary to launch the exchange.

"Ries says the public market’s focus on short-term results leads to a decline in innovation, something LTSE wants to reverse. A 2017 study by public policy think tank Third Way showed that going public was accompanied by a 40 percent decline in patents within five years after listing, the result of pressure to satisfy analysts’ short-term expectations.

“Everyone is incentivized to make the numbers quarter to quarter,” Ries said in a recent interview with Reuters.

"The new exchange would have extra rules designed to encourage companies to focus on long-term innovation rather than the grind of quarterly earnings reports by asking companies to limit executive bonuses that award short-term accomplishments.

"It would also require more disclosure to investors about meeting key milestones and plans, and reward long-term shareholders by giving them more voting power the longer they hold the stock.

"LTSE would be the only stock exchange in California and the first in Silicon Valley since the shuttering of the Pacific Exchange in San Francisco at the end of the dot-com boom. It remains to be seen how well it would compete with the larger and better-resourced New York Stock Exchange and Nasdaq, which often court tech companies with fanfare to persuade them to list.

"Ries said LTSE would allow companies to dual-list their stock on other exchanges. He added that a number of technology companies and a mix of foreign and U.S. investors and asset managers had signed letters of intent to participate in the exchange, but declined to provide further details."

This is great news! I expect Tesla will be first in line to move TSLA to the all new LTSE

LTSE is on a mission to enable
21st-century companies to thrive.​

 

[Pras]

This is great news! I expect Tesla will be first in line to move TSLA to the all new LTSE

LTSE is on a mission to enable
21st-century companies to thrive.​

I was asking the same question. Just moving the exchange will free up the naked shorting issue. And temporarily short will have to return the stock. Not sure if this can be done.

Besides the above points, ltse seems the alternate (not Private) best answer Elon was seeking.

 

[Cobbler]

How would this work for current shareholders if Tesla shifted to a different stockexchange?

 

[Fact Checking]

Sorry you're so bitter

Why are you accusing someone of being "bitter" and "deranged" if all they are doing is listing well documented facts?

As @neroden said it too, Donald Trump was a shady, third tier real estate developer in NY with organized crime ties who after a series of bankruptcies couldn't get any U.S. financing in the 2000s, until he found mysterious financiers with Russian ties and probably also aided and abetted them in laundering bloody Russian mafia money through real estate deals. The pinnacle of his Russian connections would have been the Trump Tower Moscow, which had the blessing of Vladimir Putin to whom they'd have "gifted" the top floor suite "free of charge", on which project they worked even during the 2016 elections:

Buzzfeed investigative report on Michael Cohen and Trump Tower Moscow

Trump's undeserved "fame" comes from the false persona of a successful businessman played on television, in real life he lost a lot of money despite committing tax fraud, and he would have retained a lot more of his father's wealth had he put it all into S&P 500 tracking index funds and done nothing else in life.

Trump lost the 2016 presidential election by 3 million votes, and only due to an anachronism of the U.S. electorate system that gives "land" more voting rights than "citizens" did he get appointed president by a minority of U.S. citizens. His party also lost the 2018 midterm elections, which Democrats won in a historic, landslide victory, which gave Democrats a very strong electoral mandate that Trump is lacking.

There's nothing emotional about these arguments I'm making, these are simple facts, and they are relevant to understanding U.S. politics, Trump's policy actions, and how it all affects TSLA.

If you disagree, you need to counter the numerous facts I and others listed, not attack the messenger.

 

[bramsvs]

[...]
, but I do have a very deep respect for our Constitution and thus a respect for the office and person elected to that office.

As to the relevance to this thread, the international affairs of any US President will obviously have an impact on the stock market. Always has and always will. Childish attacks and name calling is what has no place here and quite frankly I do take offense to these attacks. Remember, the man represents the country in which the stock market this thread is all about made possible. National arrogance on my part? Maybe, but I wouldn't think of attacking anyone else's elected leaders and I take offense to those that attack mine.

Dan

Come on, this makes no sense to me at all.

You're (I think falsely) accusing @neroden of making childish attacks and name calling:

*If only you would held Trump to the same standards*

Case in point: The 567 People, Places and Things Donald Trump Has Insulted on Twitter: A Complete List

Maybe time to take offense to these attacks instead

The reason I think Trump is attacking all those people is that he can't win the argument with facts and logic. Don't fall into the same trap!

 

[uselesslogin]

So Nebraska officially delayed the bill allowing sales and service by a manufacturer until 2020. And now we in Omaha finally have a service center. (Across the river In Iowa, of course.) Still, it was coming soon in 2013 so since FSD is coming soon maybe that will be 2025 or so.

 

[dc_h]

I’m no fan of the Donald, but I’d prefer that us Teslemmings avoid politics. We need every fan we can get and alienating half or 38% of the population is a no win game.

 

[shootformoon]

Tesla's goal isn't to become the electric Mercedes Benz.

But to become ubiquitous and transition the world to sustainable energy ASAP.

You people still do not get it. High margin/ high cash flow now is the optimal to achieve the long term mission of Tesla. It’s like cell phone in the early 90s, you had to sell it expensive to accumulate more capex for the later generation.

 

[kbM3]

That absolutely hurt, significantly. Yes, it does bother me. Yes, it lowered my long-term valuation of the company. It's still undervalued, just not as undervalued.

From an accounting perspective, most of the factory is capex and COGS; the non-capex fixed cost portion of "keeping the lights on" is relatively small. Tesla seems to have been able to stabilize capex at $2.5 billion/year while expanding (which is higher than I'd like, but it's OK).

This is one of the two places where the failure to hit 10K/week out of one factory came through into my model; had they hit their target I would have had it as $2 billion/year. The other place is, of course, gross margins of 20% - 25% instead of 25% - 30%, because the number of factories needed per car has risen.

R&D seems to be stabilized at $1 billion/year. SG&A is the one which might expand with growth, but I think it's going to be stable around the $2.5 billion/year level (it's currently a bit lower) after they finish expanding and straightening out service centers.


Yeah.

I don’t understand your point. Can you please elucidate?

Here’s my take:

1) Model 3 ultimate demand is 15k / week.
2) A nice rough breakdown would be:
— 7k U.S.
— 4k Europe
— 4k China

If the above is true, then the mistake was the original plan to manufacture 10k / week in Fremont, not the current plan for 7k / week in Fremont and presumably 4k / week each in Europe and China.

What am I missing?

 

[Freder Reeve]

I’m no fan of the Donald, but I’d prefer that us Teslemmings avoid politics. We need every fan we can get and alienating half or 38% of the population is a no win game.

Totally agree. Pages of supposedly smart people arguing over puppets ruins a perfectly good investment forum.

 

[Singuy]

That absolutely hurt, significantly. Yes, it does bother me. Yes, it lowered my long-term valuation of the company. It's still undervalued, just not as undervalued.

From an accounting perspective, most of the factory is capex and COGS; the non-capex fixed cost portion of "keeping the lights on" is relatively small. Tesla seems to have been able to stabilize capex at $2.5 billion/year while expanding (which is higher than I'd like, but it's OK).

This is one of the two places where the failure to hit 10K/week out of one factory came through into my model; had they hit their target I would have had it as $2 billion/year. The other place is, of course, gross margins of 20% - 25% instead of 25% - 30%, because the number of factories needed per car has risen.

R&D seems to be stabilized at $1 billion/year. SG&A is the one which might expand with growth, but I think it's going to be stable around the $2.5 billion/year level (it's currently a bit lower) after they finish expanding and straightening out service centers.


Yeah.

I don't think we should jump to conclusions about max production rate from Fremont. Obviously more cars can be pumped out since they are in the middle of approving Model Y's production location. My guess is that Model Y is now a consideration at Fremont as a cost saving strategy since China's gigafactory is going up as fast as the Chinese promised. There's a difference between not having the ability to hit 10k Model 3s/week vs not wanting to hit 10k/week at Fremont. Considering that the Model Y is expected to sell more than S3X combined, Elon would really be shooting themselves in the foot trying to share Fremont's 7k/week limitation between the Y and the 3.

 

[Pras]

I don't think we should jump to conclusions about max production rate from Fremont. Obviously more cars can be pumped out since they are in the middle of approving Model Y's production location. My guess is that Model Y is now a consideration at Fremont as a cost saving strategy since China's gigafactory is going up as fast as the Chinese promised. There's a difference between not having the ability to hit 10k Model 3s/week vs not wanting to hit 10k/week at Fremont. Considering that the Model Y is expected to sell more than S3X combined, Elon would really be shooting themselves in the foot trying to share Fremont's 7k/week limitation between the Y and the 3.

The best strategy would be to have three factories, US, EU and China, and all of them producing all mainstream cars (S, X, 3, Y). The GF1 can be used for Truck, Semi, Energy, and cell manufacturing.

 

[bdy0627]

Lack of demand is just one part of the bear narrative I'd say, the others are falling ASP and lower-than-expected margins on SR(+).

The question about the sustainable model 3 global demand level obviously can only be speculated on at this point. Not enough markets are supplied yet with the full trim mix. It will be interesting to see U.S. sales during the busier season over the summer. We should have a pretty good idea about the U.S. demand by the end of Q3. Of course, there is still the question of whether the demand will grow from there, as it has with the S and X. Many think it will, but that's just speculation right now based upon S and X.

Is there anyone who truly thought ASPs weren't going to drop a lot as the pent up demand for higher trims was supplied? That seems like a bizarre concern at this stage of the game. Of course it was going to drop. Is the concern that it seemed to drop sooner than expected? Faster than expected? That concern seems to be primarily a function of Tesla taking the strategy of reservations with a huge backlog of customers. There is no way to avoid a bumpy shift from supplying the pent up demand for higher trims to supplying ongoing orders for an unknown trim mix.

Margins seems to be a reasonable concern. They've got to increase production.