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

[MartinAustin]

This difference will only get more astronomical with the upcoming spaceship.

No pun intended LOL

When I was watching the autoline show yesterday I started to feel the same way about Tesla.

I think Elon was assuming the rest of the industry would follow along after the 2010-2014 period... instead Tesla was laughed at and a concerted attempt to squash them has been underway since. I don't think Elon has any more sympathy for the legacy manufacturers. They have relied on capitalism and its evil brother, legislation, to keep momentum. They won't be able to stay afloat if people aren't buying their products... and Tesla's amazing rate of innovation and growth is starting to show. There needs to be some serious carnage to slow down ICE production and FF consumption. The one thing we can definitely say is that Tesla has done it fair-and-square: by staying away from sleazy legislation and government help, and simply selling products that people want.

One other point... some were saying that Model 3 demand might slow down once the 400,000 reservations were supplied; I believe the opposite to be true. Don't forget that the 400,000 reservations were from people who don't mind fronting $1,000 without seeing the car. There are a lot of other people interested who want to wait until they see it on their local streets, and/or can test drive it. I would say at least a 2x number of cars can be sold to this latter group. THEN there is the word-of-mouth from owners who get hold of the car in the newest markets like RHD. These will translate into even more orders. No demand problem.

I believe there will also be a price cut in the base Model 3, first back to a $35,000 base price, and eventually even further downwards. Tesla won't stop applying pressure.

 

[Chunky Jr.]

But I know if they see that Tesla isn't profitable, the ICEmakers won't even try to switch

I think we'll have an entirely different auto industry, with lots of upstarts, just like the giant mainframe makers of the 60s and 70s are not making the computers you use every day.

 

[EVMeister]

How would YOU know?

I wasn't claiming "losing" nearly a billion dollars in a quarter was rough. Nor was I claiming it wasn't. Point being made was you didn't lose that money and have no idea how Tesla feels. Because you know... The money didn't just evaporate into the ether. They're growing massively and massive growth requires investment. And I reckon that level of growth and seeing the fruits of their labour feels pretty damn good for Tesla actually. It's really quite simple.

 

[Green Pete]

I agree. I believe Elon is just waiting for that specific European country to get their poo together and take the plunge.

Just as he waited out China to get the arrangement he wanted (which btw is equally beneficial to ALL parties, not one sided), he’s waiting for Europe.

The China deal still worries me. China already makes most of the worlds EVs. What they might want is access to autonomous tech. They chased Uber out of china quite successfully. I still don't understand why the Chinese let Tesla have a WOFE. Something about this still makes me nervous.

 

[Chunky Jr.]

Once Tesla shows OEM that EVs are profitable

Maybe I'm just naive, but does it really matter if Tesla is profitable as long as they have positive cash flow? I'm not an accountant, but from what I understand there are a lot of accounting details (eg depreciation and other write offs) that impact profit but do not impact cash flow. To me, the important thing is that their cash balance keeps increasing so they don't have to raise more money and can fuel innovation and growth.

 

[Krugerrand]

Lol, seems to me GM tried to kill their EV1 back in, what was it, 2002? That was a damn good car 20 years ago, even with SLAs. I heard there was a NiMH version near the end.

If GM dies, it's their own choice.

Yes, of course GM being the exception as having been dragging their feet even longer.

This is all making for a really fascinating historical chapter in human existence. Exciting times!

 

[Chunky Jr.]

I don’t know if we will ever, ever see a true Model 3 competitor. No one can build it at Tesla’s price point.

I think the only model 3 competitor will be a company that licenses the Model 3 "skateboard" (along with software for managing batteries/charging) and puts their own body and software on top of it. They can differentiate with the interior, user interface, etc. Basically the Model 3 skateboard becomes a reference design like a PC clone. I don't actually see this happening.

Someone could create their own from scratch, but it will take a while, and that's what we'll see. People, and the industry, are starting to realize that what Tesla has done is a lot harder than it looks.

 

[mongo]

I wasn't claiming "losing" nearly a billion dollars in a quarter was rough. Nor was I claiming it wasn't. Point being made was you didn't lose that money and have no idea how Tesla feels. Because you know... The money didn't just evaporate into the ether.

Only a blind and willfully ignorant fool would fail to see that they are growing massively. And massive growth requires investment. And I reckon that level of growth and seeing the fruits of their labour feels pretty damn good for Tesla actually. It's really quite simple.

It's not even accurate, the money wasn't lost. Building a ton of cars in Q1 that were delivered in Q2 is not losing money. Paying off a $900 million loan is not losing money.
Adjustments to sales price may be a loss, or it may just be less profit.

 

[Doggydogworld]

It was several/many thousands of dollars per S/X sold this quarter if it's all attributable to them, depending on how you break it down into buyback guarantees vs. written-down inventory.

Yes, it's more than I thought. First paragraph of earnings letter says 121m for RVG + inventory writedown. RVG was 92m which leaves 29m of write-down. That's almost 2k per S/X. I assume it's unevenly distributed, e.g. 17% of inventory written down an average of 10k each.

You write inventory down to "estimated realizable value", not "artificially low value which will allow us to report 25% gross margin in subsequent quarter". The latter constitutes fraud. Of course the word "estimated" means it will never be exact, but auditors don't look kindly on large one-time "mistakes" that boost subsequent period profits.

When you say ASP, are you talking about your model for ASP, including the M3 price increases?

​

Yes, actual data plus estimates to fill in the gaps. I assume emissions credits drop back to ~2k/car from 3.3k in Q1. If they recognize a huge chunk of prior period deferred EAP/FSD revenue it will drive ASP (and margins) up, however. I didn't account for that.

Possible, although the SR/SR+ number for Q2 sounds high. There seem to have been very few delivered in Europe, and one presumes China is similar.

I assumed 60% US, 90% Canada, 0% Norway, 12% rest of Europe and simply guessed at 15% in China. We'll never know for sure. ​

80% take rate on EAP? You have to be joking.

​

I was hearing anecdotes from people at Tesla stores of something like 25-30% EAP take rates on SR+.

Was EAP ever an option on SR+?

Take rate for 3k AP on a 37k SR+ should be similar to 5k EAP on a 50k AWD. If SR+ buyers were really that price sensitive and anti-AP we'd have seen a huge shift to the 35.4k SR after they started force-bundling AP in the 39.9k SR+. It didn't happen.

Even if $3k AP take rate was only 50% on SR+, though, the SR+ "price increase" was only 1400. On the other hand, AWD was 51k in January and 49.9k in February. Add 3-4k to that for 60-80% EAP take rate. That's ~54k ASP (ex-color/wheel/etc.) vs. 49.9k today. At least half of US AWD and essentially all Euro-AWDs sold at those higher prices in Q1. That more than offsets any SR+ price increase.

 

[Krugerrand]

No pun intended LOL


I think Elon was assuming the rest of the industry would follow along after the 2010-2014 period... instead Tesla was laughed at and a concerted attempt to squash them has been underway since. I don't think Elon has any more sympathy for the legacy manufacturers. They have relied on capitalism and its evil brother, legislation, to keep momentum. They won't be able to stay afloat if people aren't buying their products... and Tesla's amazing rate of innovation and growth is starting to show. There needs to be some serious carnage to slow down ICE production and FF consumption. The one thing we can definitely say is that Tesla has done it fair-and-square: by staying away from sleazy legislation and government help, and simply selling products that people want.

One other point... some were saying that Model 3 demand might slow down once the 400,000 reservations were supplied; I believe the opposite to be true. Don't forget that the 400,000 reservations were from people who don't mind fronting $1,000 without seeing the car. There are a lot of other people interested who want to wait until they see it on their local streets, and/or can test drive it. I would say at least a 2x number of cars can be sold to this latter group. THEN there is the word-of-mouth from owners who get hold of the car in the newest markets like RHD. These will translate into even more orders. No demand problem.

I believe there will also be a price cut in the base Model 3, first back to a $35,000 base price, and eventually even further downwards. Tesla won't stop applying pressure.

The tide turned at that private talk with Elon and owners at one of the Tesla stores in Europe back in the day (2013/2014).

He clearly expressed his disappointment that the OEMs were not following Tesla’s lead. He basically said, if they won’t follow then we’ll kill them.

 

[Sudre]

We have a Tesla and a Leaf. Tesla service has been first rate. Prompt, and no issues. Leaf service is another matter. Even though an appointed is made, the Leaf technician is typically either not there (didn't work the day of the appointment and no one said anything) or just quit. No difference if another Leaf dealer is tried (have tried several).

My service has been first rate too, except once. The bad news is that's not how the American political process works. Tesla has people volunteer to take off work and come in to laminate over how immensely happy they are. Then the National Dealer Association will pay the politician money to their campaign and the politicians will decide that Tesla should use a franchised dealer or not sell cars in the state. Since Tesla is the one in question they can not bring in customers to complain about franchise dealers and even if they did that testimony would be ignored because the franchise dealers are not the method in question. This is slowly starting to change now that larger numbers of people are happy with Tesla.

Currently in some states the above is how things have gone and why Tesla's can not have stores in certain states and no service centers in others. With the number of people having difficulty getting their cars services through Tesla, this will only lead to a worse situation. Now the above description will include peoples horror stories about Tesla service. If each side gets the same amount of time for testimony and each side presents the same number of happy versus unhappy customer stories then the National Dealer Association will not even have to pay off politicians. Other states will start to turn the corner away from Tesla too.

SO... while I completely agree with your view Tesla has to get the service/repair delays worked out because of how the "system" works in the US. I guess Tesla could just setup a really large budget to start paying off.... I mean start donating to politicians... I mean campaigns. I'd rather have that money go to service improvements.

 

[canoemore]

I agree phones should always work. These communication and customer services responses should be the easiest for Tesla to fix. I don’t get it either.

Maybe they're just stalling until Neuralink Personalized Customer Service (™) comes online and obviates the need for humans

 

[EVNow]

OT :

Or India's horrific caste system....

Which most of my relatives even now refuse to recognize as horrific .. that reckoning is yet to happen. Just as many people here refuse to believe there is systematic racism.

 

[pyromatter]

 

[canoemore]

I think Elon was assuming the rest of the industry would follow along after the 2010-2014 period... instead Tesla was laughed at and a concerted attempt to squash them has been underway since. I don't think Elon has any more sympathy for the legacy manufacturers. They have relied on capitalism and its evil brother, legislation, to keep momentum.

Man, I can't imagine how cynical I would be in his shoes after this whole experience. Just how soul-crushing and demoralizing it must be to show folks the way and not only have no one follow you, but to endure such concentrated ridicule and hatred. ooof. More power to him - he certainly keeps his chin up.

 

[Krugerrand]

The China deal still worries me. China already makes most of the worlds EVs. What they might want is access to autonomous tech. They chased Uber out of china quite successfully. I still don't understand why the Chinese let Tesla have a WOFE. Something about this still makes me nervous.

I’m choosing to believe that the Chinese realize *this* requires a group effort. So what if they want autonomous tech? Good! That means when FSD comes online, Tesla will have a country ready to embrace it and lead by example.

Never mind the fact that Elon is a seriously convincing talker via sincerity, honesty, determination and a very clear message that ‘I’m for everyone benefiting’.

Here’s why you need not be nervous; it’s out of your control so wasted energy worrying about it and you won’t be around if it all goes bad and the Chinese take over the world. That might not even be a bad thing since clearly when they put their minds to something, they don’t mess around. That kind of decisiveness and knowledge that this has to be fixed now rather than later is to be admired and encouraged.

 

[StealthP3D]

I know a Norwegian who did just that - and swapped the Tesla for a Jag. Thought the iPace looked really cool. So they exist. Some favour style and looks over function. And others just want to be different.



Not all. But a few might. Having a Tesla in Norway is not a way to stand out in a crowd. You need an iPace or e-Tron to do that. But soon they will be too common too. So then you need a Taycan.

For some people these things matter.

That's fine, it helps the EV movement when you have fashion conscious people flipping new cars every year as it brings more good used cars to market at (slightly) lower price points.

Unfortunately, the effect is pretty weak because used Tesla have been holding their value far better than ICE cars do. If you go to a "For Sale" forum you can see there are people actively trying to push down resale values of used Tesla (it makes them angry they hold their value so well).

Once a new listing is posted they get attacked by these cretins who claim they are asking too much. This seems odd to me, I mean the car is going to sell for whatever it sells for. If you want it, and you think it's priced too high, make an offer, don't belittle the seller and tell them how stupid they are for asking so much! If you don't want it, then why do you care what the asking price is?

For a while I thought these people wanted to buy the car at a lower price but, after watching this play out time and time again, I realized it was a concerted and repeated effort (by many of the same people) to damage the resale price of used Teslas. And a similar dynamic plays out in other Tesla Owner forums with people who are trying to make owners less happy with their new purchase. They will try to drum up resentment if Tesla lowered the price recently or included some feature than other owners might not have got for free. They will try to make owners dissatisfied with their purchase any way they can. Because Tesla has the highest owner satisfaction rating of any car brand (and this bugs the hell out of these forum cretins). They want to see dissatisfied owners, not gleefully happy ones! That just pisses them off.

 

[jbcarioca]

Maybe I'm just naive, but does it really matter if Tesla is profitable as long as they have positive cash flow? I'm not an accountant, but from what I understand there are a lot of accounting details (eg depreciation) that impact profit but do not impact cash flow. To me, the important thing is that their cash balance keeps increasing so they don't have to raise more money and can fuel innovation and growth.

In my view the major reason that GAAP profits are important together with growth is not about funding Tesla. It is more providing proof to well meaning but reluctant policy-makers that BEV production can be and is as profitable as is ICE.

One point often ignored is that Tesla would have signification GAAP profits today were it not growing. Despite large capital outlays that are capitalized there are major expenses related to growth that must be recognized as expenses in the current reporting periods. Such adjustments to reflect what results would be without the large growth are quite difficult and a bit arbitrary. It seems few have made a serious attempt to do so for Tesla. I have not.

In one of my former activities I evaluated fast-growing companies as acquisition and financing targets. A major component of our evaluation was making those adjustments. For Tesla specifically there are some factors that render any such calculations to be more complex. In past posts these haev been stated a few times by several people, each with a slightly different perspective. Here is my view:
1. Direct distribution (part one)- as a rule of thumb the total dealer distribution for cars typically costs around 25-30% of MSRP and nearly all the capital costs are off-balance sheet for the manufacturer. That is, in high growth there is very modest manufacturer costs in distribution system growth.
2. Distribution system (Part two)- most manufacturers recognize income when legal title changes (NOT registration to end purchaser) so once a dealer or distributor assumes responsibility the manufacturer recognizes income. Tesla recognizes income when the end purchases has paid and changes vehicle registration.
3. Tesla vertical integration is the highest since probably the Ford Model T. That means much of every single type of growth-related expense enters current-period P and L. That is one reason why aircraft and car manufacturers are rarely highly integrated.
4. Much of R&D does not fit neatly in capitalizable categories so causes higher current expenses that would be needed in steady state.

Having done this type of analysis numerous times in myriad industries these issues of distribution system, vertical integration and R&D always appear. Each one will certainly seem to improve magically if growth rate diminishes. I sincerely hope that does not happen!

FWIW Wall Street implicitly understand this but anytime a growth rate is very high FUDsters abound and legitimate growth-related risks are amplified. That is why high growth rates are highly rewarded when markets are optimistic and are penalized when markets are pessimistic. Thus, high growth is volatile.

 

[MarcusMaximus]

Thanks for your response. Yeah, I up-voted your comment as 'Helpful'.

Let's do some quick math. Say Tesla produces 0.4M cars in 2019, and continues to grow production at 50%/yr. We need to displace every other car/truck/ice-burner on the roads, say 100M/yr total.

How many years does that take? Some quick maths says 14 years:

0.4M * 1.5^14 > 100M​

That's around 2033, which might be okay, but here's the problem: Say Tesla's CAGR drops to a paltry 40%/yr. Then it takes 17 years. Slow to 30% CAGR? Then its 21 Yrs.

Climate studies show we likely don't have 20+ yrs to achieve net-zero emissions in terrestrial transport (add 10 yrs to displace the ICE fleet).

Now, is it a safer bet that Tesla can achieve growth of 30% year after year without fail for 2 decades, or that ICEmakers could convert their production to EVs in that same time frame?

I don't know the answer. But I know if they see that Tesla isn't profitable, the ICEmakers won't even try to switch. And that inevitably risks national governments stepping in to artifically prolong the life of these failing ICEmakers, and their pollution continues.

It's a genuine dilemma, one that long-term investors need to reconcile as we struggle to chose the best path forward. IMO, the over-arching goal must be to choose the way forward that reduces fossil fuel use as fast as possible.

Someone once said "If you want to go fast, go alone. If you want to go far, go together." Society's shared problem now is that we need to go far, and fast! But some people don't think they need to change at all, or worse, they think it doesn't matter what they do.

As always, I say its best to lead by example. Let's show them a better way.

Cheers!
Lodger

Hmm, I think you missed something in my post: I suggested letting the old guard die, but *not* Tesla going it alone. Between Rivian, Bollinger, BYD, NIO, etc, there’s plenty of companies devoted to EV’s to join in.

Not to mention, these are not independent variables. If every gas car company goes out of business entirely, demand for those old, unsupported cars evaporates, dramatically increasing demand for the remaining companies, all of which produce EV’s. That increases ASP, increasing cash flow, and allowing faster expansion.

 

[jerry33]

SO... while I completely agree with your view Tesla has to get the service/repair delays worked out because of how the "system" works in the US. I guess Tesla could just setup a really large budget to start paying off.... I mean start donating to politicians... I mean campaigns. I'd rather have that money go to service improvements.

When did I say that? I'm guessing you mean other's posts when they experienced poor service. The poor service I've experienced as always been at a franchised dealer (and didn't start with the Leaf).

Donating to politicians doesn't work unless you can donate more than your opposition, and even then it might not work because the politician might have investments that would go down in value.

Right now the service problem appears to be the phone system is overloaded (or perhaps poorly programmed) and sometimes parts are a problem. What we don't know is what percentage of the time it occurs, and is it regional or not. Those who complain about service are very vocal--not that they don't have a right to be--but there is no way to tell on this forum what percentage of the total phone calls/service appointments/actual servicing that might be.