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

[Pras]

Tesla only gets 15% commission as broker.

I see. Just corrected my original post. Does Tesla has any recourse or the commission is pure risk free profit?

 

[Nocturnal]

So with insurance there could be two effect on bottom line.

1) assuming 200k customer sign up for Tesla Insurance, the effective annual revenue will be $300m (avg 1.5k a year premium). The insurance margin can be in 20-30% so this could add $60-90m in annual profit. CORECTION: I was corrected that Tesla only gets commission on this. Which means it is pure PBT impact of $45m. Less than I thought

2) the take rate for FSD will increase. Let’s say 10% more US customers buy FSD, it will directly add to a bottomline of 90m revenue and profit.

So the insurance can add a good $150m in PBT. This will grow sequentially as more people sign up for insurance.

I think there is 3) also.

A new insurance seller with an incentive to offer reasonable rates on Tesla vehicles will encourage more buyers. There is a perception right now (partially true depending on the carrier) that Teslas are super expensive to insure. It will also help keep the existing carriers honest.

If you decide the current price is too high, you can sell puts. At least you make money by not getting the shares.

I don't do many options really. I'm a super long so I don't think it's too "high", just was hoping to buy in a little lower. ​

 

[EVNow]

So with insurance there could be two effect on bottom line.

1) assuming 200k customer sign up for Tesla Insurance, the effective annual revenue will be $300m (avg 1.5k a year premium). The insurance margin can be in 20-30% so this could add $60-90m in annual profit.

Tesla has sold 700k cars till now. If they offered insurance in all states & countries - may be they could get 100k to sign up. The problem is - a lot of us have home insurance, insurance on other cars etc. So, can't jump to Tesla for just one car.

Also, that 1.5k premium per year is very high. My guess is most of the Tesla buyers are not young and pay far less in premium. I pay about $1k for 2 cars.

2) the take rate for FSD will increase. Let’s say 10% more US customers buy FSD, it will directly add to a bottom line of 90m revenue and profit.

First of all, part of FSD money goes to deferred. So, getting that to revenue & profit needs delivery of Automatic City Driving (City NOA) - sometime next year, I guess.

Assuming ~100k cars per quarter, total FSD cash @10% and $6k would be $60M. If half is recognized, $30M in revenue & profit. $600 in margin or about 1% (for model 3).

Once they have City NOA - they can actually get better take rate on FSD and get that extra 5% margin from FSD that Musk talked about in ER.

 

[UncaNed]

It can't be understated just how important the product principles of safety and security (on top of cost and performance) have been (and might be):

Tesla Model 3 gets the nod from police over cost and performance, bye-bye Dodge Charger - Electrek

Wonder what the indirect effects of having Police Departments adopt Tesla will have elsewhere...further Fire Departments and Paramedics.

Increased credibility and visibility to new buyers!!

It would cost a fortune to get as much with paid "advertising" some of us keep yakking about.

 

[KarenRei]

Increased credibility and visibility to new buyers!!

It would cost a fortune to get as much with paid "advertising" some of us keep yakking about.

Indeed, if Tesla wanted more of this sort of "advertising", they could work with manufacturers of police software to integrate it into the in-vehicle display. Then they get a new round of police purchases and a new round of news stories and press releases.

 

[mongo]

Tesla can potentially get a cost advantage on insurance rates due to the $6k FSD option not actually costing $6k to replace. Same with the P option. Thus trading off rates for gross margin on totaled vehicles, if they want. Also provides the opportunity to cut down on used aftermarket parts.

 

[goinfraftw]

Indeed, if Tesla wanted more of this sort of "advertising", they could work with manufacturers of police software to integrate it into the in-vehicle display. Then they get a new round of police purchases and a new round of news stories and press releases.

The impression evoked when a police officer, fire fighter, or paramedic is helping with a rescue is going to matter a lot, I think. Backbones of society's infrastructure depending on a Tesla car. Excellent stuff.

 

[Stars aligned]

So predictable with TSLA gap ups. Loading up my trading account at $223

As you're such an excellent contraindicator, I bet the SP won't reach 223 today.

God chances, doesn't stonk at all!

P.S. gapped up 2nd day in a row, up to now at least.

 

[Zaxxon]

Indeed, if Tesla wanted more of this sort of "advertising", they could work with manufacturers of police software to integrate it into the in-vehicle display. Then they get a new round of police purchases and a new round of news stories and press releases.

In fact, if the Victoria example from earlier this year is accurate, they do this at least on a pilot level already.

 

[sweter]

OT (a bit, but not much):

Joe Rogan had a VERY interesting conversation with John Carmack, best known for founding and running id Software games studio, creating such titles like Doom and Quake and currently CTO at Facebook's Oculus VR.

It's 2.5h long, but I recommend to listen to the whole thing. He seems to have known Elon since early SpaceX days, as he also tried to create his own space company (Armadillo Aerospace), but eventually decided to close it down (he explains why) and gives some interesting insights into current state of tech. Topics include VR technology and where it can go and what kind of limitations it has, augmenting humans (incl. Neuralink which he says he visited week before their demo), space exploration and SpaceX (apparently he even sat on some engineering meetings there, sharing his ideas), martial arts (in context of VR too), turbo charging Ferraris, work ethics and his personal experiences with Tesla.

Carmack is a very good speaker and it's super nice to listen to him as he has a very deep understanding of technology and engineering.

Definitely a good weekend listening.

Here are some timestamps if you'd want to skip to relevant bits:

0h 43m : Neuralink
2h 05m : Tesla (experience with his P100D vs his previous Ferraris)
2h 07m : Roadster 2020 and SpaceX package
2h 13m : SpaceX and his own Armadillo Aerospace company he had in the 2000's, thoughts on Blue Origin and Virgin Galactic and others

 

[ReflexFunds]

Tesla sold 40k cars in California in 1H19, it is a huge market for them. Tesla have the scale in California to make insurance a profitable business quickly, then quickly expand to further states and countries. 20-30% insurance cost reduction is a very significant reduction in total cost of ownership for Tesla vehicles and should be a good demand driver for its cars.

For people in California, how does your Tesla quote compare to your current insurance cost?

So with the fixed algorithm it does indeed look like Tesla is saving most people 20-30% on insurance costs per month. In many cases this is as much as $50-60 per month. For many people this insurance saving will be enough to pay for 100% of Tesla charging electricity costs. In fact using this saving people can even pay for a home Tesla solar installation on the new monthly rental contract.

This Insurance offering really is the huge deal for total cost of ownership we had hoped.

I imagine Tesla's lower prices are mainly due to accounting for the significantly decreased crash rate of its cars vs the market average, but I think the pricing also benefits from zero sales & marketing costs, and likely also zero profits. Possibly Tesla will make a profit on the insurance business, but I expect it will gain most using Tesla Insurance as a tool to increase the affordability of its cars.

 

[sparcs]

Possibly Tesla will make a profit on the insurance business, but I expect it will gain most using Tesla Insurance as a tool to increase the affordability of its cars.

Won't it also put a ceiling on what you can charge for insurance on a Tesla?

I've seen a decent # of complaints about high insurance quotes for Teslas. I'm hoping some competitive pressure will keep them in reality.

 

[kengchang]

So with the fixed algorithm it does indeed look like Tesla is saving most people 20-30% on insurance costs per month. In many cases this is as much as $50-60 per month. For many people this insurance saving will be enough to pay for 100% of Tesla charging electricity costs. In fact using this saving people can even pay for a home Tesla solar installation on the new monthly rental contract.

This Insurance offering really is the huge deal for total cost of ownership we had hoped.

I imagine Tesla's lower prices are mainly due to accounting for the significantly decreased crash rate of its cars vs the market average, but I think the pricing also benefits from zero sales & marketing costs, and likely also zero profits. Possibly Tesla will make a profit on the insurance business, but I expect it will gain most using Tesla Insurance as a tool to increase the affordability of its cars.

Tesla is just insurance broker for National Group where Tesla earns commission.

 

[EVNow]

Tesla is just insurance broker for National Group where Tesla earns commission.

So, they are using Nation Group's software / API to get quotes ? What "algorithm" adjustments are they talking about, then … just tweaking the options ?

 

[larmor]

Tesla is just insurance broker for National Group where Tesla earns commission.

And in the current Market climate, the market rewards companies and services who function as brokers, eg ebay, netflix, amazon, apple, etc. All have services and subscriptions, and ebay and amazon are really just store fronts for others products....

 

[kengchang]

So, they are using Nation Group's software / API to get quotes ? What "algorithm" adjustments are they talking about, then ...

Not sure, there's some sort of API connection for sure to generate the contract and insurance.

 

[Nocturnal]

Tesla is just insurance broker for National Group where Tesla earns commission.

Surely they will be doing more than just that. If Tesla isn't providing proprietary risk information then the whole thing is pointless. Then it's just a referral program.

 

[UncaNed]

Tesla is just insurance broker for National Group where Tesla earns commission.

...so they ought to be able to offer competitive multi-vehicle/homeowner packages too, no??

- Like dryer lint fires!

 

[EVNow]

And in the current Market climate, the market rewards companies and services who function as brokers, eg ebay, netflix, amazon, apple, etc. All have services and subscriptions, and ebay and amazon are really just store fronts for others products....

Netflix is now a major content producer. Amazon as a retailer actually makes little profit. Their profit comes from AWS.

 

[ReflexFunds]

Tesla is just insurance broker for National Group where Tesla earns commission.

I'm not sure what parts of the process are handed over to State National and which are done in house, but Tesla is definitely doing a lot of work in-house, including input to the pricing algorithm.

Tesla insurance product to be fronted by Markel's State National - Reinsurance News

State National further explains the program’s use of Tesla technology to provide benefits back to the insurance consumer, “The purpose of the product is to use Tesla’s proprietary technology to lower costs and improve the customer experience by embedded technology to support the underwriting, rating, claims, repair, and product manufacturing network, including direct data feeds with customer permission, when required, that eliminate frictional costs and inefficiencies inherent in traditional insurance processes.”

Saying that through the use of technology and the insights it delivers, State National, “passes the savings yielded directly to the customer while simultaneously improving the customer service experience.”

The program is going to be marketed to consumers through a digital InsurTech platform from Tesla Insurance Services, with consensual sharing of vehicle and consumer data enabling policyholders to achieve lower car insurance costs under the program.

State National says in the filing that it recognises the advanced technology from Tesla could reduce accident and collision frequency or severity, helping to also keep the costs of insurance lower.

The Tesla insurance program is to be run separately from other auto programs under the State National banner, the company said.

As State National provides program fronting services to this new Tesla Private Passenger Auto insurance program, it is assumed the firm will be using reinsurance to pass on the majority of the risk to other parties, as it tends to only retain minimal risks from the programs.

Tesla filed documents on a potential State National partnership in April, but Elon later said its Insurance offering was waiting on a new acquisition to complete. I would guess some parts of the process are done in-house, in part using infrastructure from this unnamed acquisition, while other parts are performed by State National as Tesla's fronting partner.