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

[Fact Checking]

Is Ellison going to screw up Tesla's relationship with the public, who is their customer, as Tesla sells direct?

So if you think that a single new board member, even one of Ellison's caliber, will be able to turn Elon around 180° and transform him and Tesla into a sociopathic rent seeker then I think you are badly mistaken.

Elon is a fundamentally emphatic person and isn't egocentric but mission-centric, and such traits usually don't change at an age of 47.

Tesla does need to improve customer service now that the number of owners is tripling, and that requires a systematic effort - their current Salesforce based system is apparently a big mess, and I suspect they are also understaffed. They'll have maybe a year to fix that, before it starts hurting the brand.

 

[sandpiper]

So many people here are living in denial. They're cutting back on S/X. How can you not see that? This might reverse at some point in the future, but "very soon"? How can anyone possibly believe this in light of recent news? This is a textbook case of wishful thinking. Don't invest based on wishful thinking.

They are cutting back, but the question is why? It's obvious that, at some time, they will moderately retool the S line for a revised interior, new battery and and handful of other changes. This, very much, sounds like what EM said they'd be doing Q2 2019.

To do that properly you need downtime on the line... 4-6 weeks anyway. They're been running the line full bore just to keep up. The cheapest way to create downtime is to drop the lowest margin vehicle - the 75. If what I see around here is any indicator, the 75 is 2/3 of their sales. That allows them to cut back a shift, eliminate overtime and trim the workforce, while still cherry picking the profit from the 100s. Running 2 shifts and 1/3 of the sales will allow them to build up inventory and stuff the ships, to allow them to keep sales going while they re-tool.

Sure, the P3D is going to be having an effect, but none of us know how much. I know that I wouldn't buy a 3. It's a nice car, but just too small for my needs.

I expect we'll see the moderately refreshed S's out by mid-summer.

 

[avoigt]

A quick note from Denmark: FDM (Danish Motorist Association) is offering the LR AWD Model 3 for Leasing now for 8000dkk (FDM - Tesla Model 3 - Long Range AWD) - they also offer the Performance version. They do not offer the Model S but quite a few other cars.

A very popular choice for (short-term) leasing in DK is Dribe (owned by the biggest VW/Audi dealer of Denmark). They offer the Audi A4 for 8200 DKK (watch that you can't directly compare: the Audi is NOT AWD, then there are differences in the terms of conditions, downpayment, leas run time etc.): Audi A4 - Dribe

BUT: I repeat my point that the Model 3 is very competitively priced - at least in Denmark and I find it amazing that external parties seem to be willing to jump into the Leasing game head-on without any waiting & seeing...

To add to this. A German BEV rent company called NextMove offers leasing for the 3 as well. They did import already 2 3s and have 50 on order.

No reason for wait and see. They did test it inside out and won the German cannonball against all other BEVs with the 3.

I guess these guys have all they need to make a proper offer and from what I have seen its really attractive. They will get a high demand for sure.

nextmove (@nextmove_de) | Twitter

 

[jbcarioca]

So if you think that a single new board member, even one of Ellison's caliber, will be able to turn Elon around 180° and transform him and Tesla into a sociopathic rent seeker then I think you are badly mistaken.

Elon is a fundamentally emphatic person and isn't egocentric but mission-centric, and such traits usually don't change at an age of 47.

Tesla does need to improve customer service now that the number of owners is tripling, and that requires a systematic effort - their current Salesforce based system is apparently a big mess, and I suspect they are also understaffed. They'll have maybe a year to fix that, before it starts hurting the brand.

I agree completely. One minor context item. Salesforce-based systems can be scaled almost infinitely, but as scale rises the support complexity also rises. That complexity of interface often results from increased functional specialization as size grows. The "mess" at tesla in support derives almost certainly [in my very humble opinion] from having vastly more complex sales, service and support needs as a larger array fo models are in service with all the support that demands.

Until recently Tesla has tends to solve problems by centralizing decisions and overpowering problems. That was highly successful. Since TE has become multi-faceted and highly successful with demanding utility and large commercial applications that has required serious attention. Model 3 has been documented, perhaps overly so, but there is no way to exaggerate the importance of Model 3.

Frankly, does anybody exist who has faced all these things at the same time? Other than Amazon I doubt it. Elon knows all that and is recruiting some amazingly competent people while retaining ones like JB, Jerome and Deepak who have proven they know how to navigate unknown risky waters. We're going through Model X introduction-like crises right now. I'm betting all this will mature quite nicely this year, but I know it is not a certainty.

Ignoring macro issues, of course...they're out of our control and mostly out of Tesla's control too.

 

[Joe F]

The RBC downgrade yesterday that the media picked up and ran with comes from analyst Joseph Spak, who's had 77 TSLA calls since Oct, 2015, 75 of which were a "hold."

It appears he awoke from his coma with his finger on the hold button once on Sept 23, 2018 with a "buy" call and a $411 target, and awoke once again Jan 23, 2019 with a "sell" and a $287 target.

He's ranked #807 out of 11749 "experts" on Tipranks.com.

 

[Fact Checking]

dozens of issues repeatedly raised about the 2170 nonstarter in the remotely near term

Just to further support your argument that a 2,170 cell based Model S/X refresh is unlikely this year, I found these remarks JB Straubel made in the Q4'2017 earnings conference call:

Romit Jitendra Shah - Nomura Instinet

Yes. Thank you. It sounds like from the letter that you could do more than 100,000 S and X in 2018, but you're constrained by the 18650s. And I'm just curious what would it take to see the 2170 cells in these vehicles?

Elon Reeve Musk - Tesla, Inc.

Yeah.

Jeffrey B. Straubel - Tesla, Inc.

Well, this is JB. It's something we've of course contemplated, but it's quite a large change to the architecture of the module and the battery pack overall. And while the 18650 supply is somewhat of a cap at about 100,000 units per year, even just a few months ago we didn't feel that expanding and making some long-term bets on expanding that supply with Panasonic in Japan was really the right risk. It's something we could consider, but right now we're pretty happy with that balance and it matches our other production capabilities and our other investments.

Elon Reeve Musk - Tesla, Inc.

Yes. It's also like for any given complex manufactured item, in order to go past the total capacity you really need to move the whole supply chain in cadence.

Jeffrey B. Straubel - Tesla, Inc.

Exactly.

Elon Reeve Musk - Tesla, Inc.

So, you really have to then shift everything to say, okay, if you want to make 20% more S and X, everyone has to make 20% more.

There have to be investments in new lines or it's going to require over time, which negatively affects gross margin. Kind of design the manufacturing machines are to create ..., and then you'd have to redesign the machine or go redline. And so I think we feel pretty good about the 100,000 a year for S and X, and we want to focus on just improving the efficiency of production and gross margin.

Romit Jitendra Shah - Nomura Instinet

Thank you. Okay. Yes, it makes sense.

Jeffrey B. Straubel - Tesla, Inc.

We are keeping the course on Model 3. I mean, that's really where the majority of the effort is.

Elon Reeve Musk - Tesla, Inc.

Yes, okay. Exactly.
​

Key takeaways:

• Tesla investigated whether S/X should use the 2,170 cells, but decided against it due to complexity and the impact on the battery pack.
• Instead Tesla investigated whether to expand 18,650 cell battery supply with Panasonic, and decided against this as well.
• JBS and Elon are pointing out that scaling up S/X production affects the whole supply chain as many of those suppliers would have to scale up their manufacturing capacity as well.
• Even a 20% increase in S/X production capacity would have resulted in non-trivial capex, and they decided against it.

And all that was decided back in times when Tesla didn't cut back on capex and opex.

Conclusions from that:

• Migration to 2,170 cells is not going to happen anytime soon - certainly not in 2019. (I previously thought this would happen, but I was wrong.)
  
• Tesla is (correctly) trying to maintain S/X production as their cash generation machine, watching margins over everything else. The elimination of the 75D should be seen in this light.

Speculation:

• Introduction of a new 18,650 based pack might be possible in the next couple of months - but I'd guess in the 105-110 kWh pack range at most, and perhaps combined with using the new more efficient drive trains from the Model 3. This would allow the introduction of three S/X variants: "Long Range" (330 miles) "Very Long Range" (400 miles) and "Performance".
• It might even be possible to introduce a refreshed drive train that improves range and performance, rename the refreshed 100D to "Very Long Range" (380 miles) and the P100D to "Performance" (with acceleration improving to 2.2 secs from 2.3 secs, and range improving as well), and re-introduce the 85D battery pack with the new drive train as "Long Range". The advantage of this approach: they'd not have to touch battery pack assembly lines, if they otherwise preserved their 85 battery pack production capability.

I still think the 'interior refresh' will come after any battery/range refresh, because executing it in that order would capture the maximum amount of demand.

 

[bhtooefr]

Seen at the top of my Robinhood news: Is Tesla the Next Great Marijuana Stock? -- The Motley Fool

Of course, Betteridge's law of headlines says that the answer is no, but it does point out addressable market that's being newly created for Tesla Energy's Powerpacks.

 

[Fact Checking]

The RBC downgrade yesterday that the media picked up and ran with comes from analyst Joseph Spak, who's had 77 TSLA calls since Oct, 2015, 75 of which were a "hold."

There's no need to examine his track record I think, the TSLA downgrade RBC analyst Joseph Spak gave was IMO based on flawed valuation math:

The 12% EBIT margin looks ridiculously low for 2025 - the only reason Q3 EBIT was only $445m is a high intensity growth cycle: the real metric is EBITDA, which was $949m in Q3 and probably rose to $1.3b in Q4.

That's a TTM EBITDA of 4x1.3 = $5.2b, which with a conservative 15x multiple gives a valuation of $78b, or $450 per share. Right now, not in 2025 and not "discounted back".

And if Tesla spends half of their income on future growth, then a hefty growth premium is justified, in addition to the static valuation.

RBC is trying to have it both ways: they are using a no-growth assumption but growth-reduced EBIT metrics.

He is also apparently disregarding the very probable Q4 cash generation results.

This is why I think Tesla should not announce their earnings reports: just drop the news 1 day before it's done, like in Q3. That should make it harder for bears/shorts to time their FUD.

 

[elasalle]

Commerce Sec Wilbur Ross: The US is still 'miles and miles' from a trade deal with China

and there goes macros for today, only to be amplified for Tsla

 

[lklundin]

Elon is a physicist, and I'm pretty sure he includes "radio frequency" and "infrared" spectrum in "vision" as well.

Yes, it is all part of the electromagnetic spectrum.

However, from a practical point of view it is not with currrent detector technology feasible to create a sensor that works well with both visible and infrared light.

Naturally, the change of the frequency from visible red to near-infrared is gradual, but for the frequencies where heat sources (such as people and animals) become visible the sensor technology really is quite different.

So while an infrared sensing capability would be very useful, it would have to be its own camera.

 

[Fact Checking]

Commerce Sec Wilbur Ross: The US is still 'miles and miles' from a trade deal with China

and there goes macros for today, only to be amplified for Tsla

Much of today's macro volatility was due to the ECB's Draghi holding a press conference and saying various things, which some interpreted as an impending interest rate hike, just to be nullified by more dovish remarks a few minutes later.

But I have to say that in pre-market trading $TSLA has shown a ~$10 drop that doesn't seem to be supported by any particular news, in a time when macros were mostly flat. Maybe it was the Wilbur Ross remark.

 

[Fact Checking]

However, from a practical point of view it is not with currrent detector technology feasible to create a sensor that works well with both visible and infrared light.

Although, as a practical matter, most commercial cameras are much more sensitive in the IR range than the human eye - so a fair degree of "night vision" is already possible.

This is easily demonstrated with smartphone cameras: for example take a look at an IR remote control's LED with your smartphone's camera - you'll see the IR light in the picture, while the human eye sees nothing.

 

[bhtooefr]

I'm seeing down $4.20 in premarket...

 

[sundaymorning]

Commerce Sec Wilbur Ross: The US is still 'miles and miles' from a trade deal with China

and there goes macros for today, only to be amplified for Tsla

Sending mixed messages during a negotiation is good tactic:

White House confident US-China trade deal will happen by March 1

 

[Fact Checking]

I'm seeing down $4.20 in premarket...

View attachment 371385

Yes - but in the European session it was up to above $290 pre-market - so there was a drop to $282 levels after that - and a recovery. Partly caused by the ECB volatility, and also maybe caused by the China trade talks setback.

 

[lklundin]

6 more sleeps.

Potentially as few as zero if you read TMC all night, but then posting is not advised.

 

[Fact Checking]

Sending mixed messages during a negotiation is good tactic:

White House confident US-China trade deal will happen by March 1

Yes, the China negotiations are pretty much the first time I've seen the Trump administration conduct somewhat competent negotiation tactics. I guess part of it is was 2 years of demonstrated track record of doing super crazy things: if Trump asks China "Shall we both jump down the abyss, it's gonna be fun!" then I'd expect China to blink first - within reason.

I'm pretty sure China has found a lot of creative ways to give Trump the Biggest Win Ever, including as many trademark registrations as Ivanka fancies, and since the Chinese government controls international news presentation within China they can present it as a win at home as well. The classic win-win scenario.

 

[Krugerrand]

It’s the best selling luxury vehicle, beating Mercedes and BMW S class & 7 series combined. Why would anyone think about discontinuing it, unless it was just FUD.

Why then are there no plans to give it the most up to date Tesla technologies? They said from the start S would contain all the best technology, yet they went on record to explicitly say it will not be getting 2170 batteries. And they even gave very rational, valid reasons for it.

But now we can’t possibly wrap our brains around a possible discontinuation, especially when the so called major refresh/redesign hasn’t happened, yet been talked about for a year and a half? Any day now.

I don’t know about you, but I see some contradiction. It actually makes sense what the ex-employee said. Tesla may have been going back and forth about the planned future for the S. If they hadn’t been considering all possible options and avenues, I’d be disappointed.

We know Tesla changes directions all the time. It’s part of their innovation lead. I’m curious to see what their new plans are in the upcoming ER.

 

[lascavarian]

Autopilot Hardware 3 upgrade

This is not a recall but a field upgrade with a substantially different board and presumably SW.

Here are some suggestions to consider.

1. Requires a qualified kit, qualified installation procedure, validated training procedure for installation, trained staff, updated labeling with manual update, traceability after the fact, validated checkout procedure to confirm upgrade and probably owner sign-off.

2. Focus on getting full quantity of qualified kits in inventory and procedure to deal with returned boards.

3. Most would think this would be done with existing staff but NO. This needs to be done with dedicated staff that does nothing else.
They need to be able to work unusual shifts, need to be on the road for extended time and ideally, need to have some employment opportunities after the fact. This is not an easy hire or contract. Hire x number and train them on the procedure and how to work with the existing Tesla Rangers. Rangers should assist with communications but not do the work.

4. Upgrades will be done in several ways. Tesla can do them onsite in some cases but it makes a some sense to rent a facility for a month just for this process in some high density areas. Many can be done best in the evening or weekends. The problem is that these vehicles are in daily use and getting access is an issue. Then it has to be done as fast as possible with the least inconvenience. This is a bit of a nightmare in that scheduling is key and customers lives are not always orderly so schedules are problematic. This is really difficult getting the kits, installation staff and vehicles all together at the same time and place. Incentivize as a help!

5. Since the Early Experience folks are known they will get this first. Tesla knows where they live so that needs to be the focus. Work location is fallback alternative but adds complexity so should be deferred to the end. The goal is to get 50% of the CA early experience folks completed in y (2 weeks?) timeframe. Then take 50% of the trained staff and move them to the other states to expand the experience base. In 30 days, review and revise the kit and training as needed and then move to the larger base.

6. I would try to use local hire where possible but it may be necessary to use US staff in foreign countries as a back up toward the end (it is a perk).

7. Delivering a smooth and quick upgrade to HW 3 holds many benefits if done well.

 

[Joe F]

There's no need to examine his track record I think, the TSLA downgrade RBC analyst Joseph Spak gave was IMO based on flawed valuation math:

Totally agree. I only did so to point out how someone with a historic negative view on TSLA (75 holds, really?) is able to sway MSM to scream, "See, this expert says sell TSLA!"