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

[Fact Checking]

There is a political element to gas pricing strategy around the US. Oil companies price gasoline less in more rural, more conservative areas in order to keep the people's conservative support. In cities and liberal areas they "stick it to them" because the people are already going to elect anti-gas/oil representatives anyway.

It's like a bribe of cheap gasoline to maintain the status quo. This is very real (and it works).

There might also be more natural explanation to that:

• gasoline price also includes gas station employee and real estate rental costs, which is higher in urban areas,
• there's also the basic observation that price is not just what something costs to produce, but also what people are willing or forced to pay for it (consumer elasticity) - which is higher in urban areas,
• there's also significant sales of the almost snake-oil "premium" gasoline variants - which is something like 5% of all gasoline sales in California.

Those factors alone might explain an urban/rural split in retail gasoline prices.

 

[StealthP3D]

I don't think there's any contradiction: Jack Rickard was characterizing the work of Jeffrey Dahn, Tesla's battery research specialist (starting at around 13:00 in the video), who was doing two things:

• "cycle testing": measure the longevity of a cell by doing thousands of charging/discharging sessions,
  
• "degradation prediction": to predict where a given cell is in its expected life cycle by doing a single charging/discharging session

I get that. I was just surprised to see the emphasis on being able to tell where a cell is in its cycle life. Because the real utility of Dahn's work was to predict the longevity of a new cell chemistry, not where it was in its cycle life.

 

[StealthP3D]

There might also be more natural explanation to that:

• gasoline price also includes gas station employee and real estate rental costs, which is higher in urban areas,

That doesn't explain it.

• there's also the basic observation that price is not just what something costs to produce, but also what people are willing or forced to pay for it (consumer elasticity) - which is higher in urban areas,

I think people need to buy gasoline regardless of the price. They can't adjust the miles driven enough to make that much of a factor. People will buy gasoline.

• there's also significant sales of the almost snake-oil "premium" gasoline variants - which is something like 5% of all gasoline sales in California.

I'm not confusing the matter by including premium variants. And premium is not "snake oil", octane is a critical property of gasoline, you need to run the octane your engine was designed for.

Those factors alone might explain an urban/rural split in retail gasoline prices.

The first two reasons have a very small impact on gasoline pricing compared to the actual pricing difference. I notice you didn't say that rural areas are typically thousands of miles further from refineries and this incur higher trucking costs. That alone is more than enough to wipe out the two valid factors you offered.

The effect I've presented (political strategy) is very real. Oil companies really do stick it to liberal areas (and I'm accounting for the higher taxes already). They do it because they can. And they avoid doing it in rural areas partly because of your second reason (consumer elasticity) which is related to the primary reason I provided, (political fallout).

 

[Fact Checking]

I get that. I was just surprised to see the emphasis on being able to tell where a cell is in its cycle life. Because the real utility of Dahn's work was to predict the longevity of a new cell chemistry, not where it was in its cycle life.

I believe Jack said that Dahn's original interest wasn't new battery chemistry testing, but to be able to measure how "old" an individual cell is and how many recharging cycles it still has.

My speculation is that this would be useful in battery packs with thousands of cells that get charged with different intensities and which have both production and temperature management asymmetries that might impact their life cycles. Since each battery pack is as weak as the weakest cell in it, by being able to track cell condition individually, they could be managed better, or isolated sooner, should they develop a fault. Maybe Jack alluded to this possibility in his comments.

Anyway, Dahn got funding from Tesla and moved to iterating new chemistries instead.

 

[ReflexFunds]

The used market is getting flooded with German luxury cars people are trading in to buy their Tesla. So not only is Tesla stealing their sales, they're also making it harder for them to sell new cars by effectively lowering the price of used models.

{{ngMeta.title}}

'The data shows exactly how rough the recent road has been for the once-dominant luxury marques. In the first six months of 2019 alone, a 2018 BMW 320i lost nearly 20% of its value, dropping from $37,700 to $30,700.* While it’s true that newer vehicles typically depreciate at a steeper rate, it’s not usually that steep. But again, The Tesla Effect is changing the norm. At three years old, a 2016 Mercedes B-Class would ordinarily depreciate at a slower rate. For the same time period as the BMW above, though, the B-Class dropped from $18,500 to $13,250, nearly 30%.'

I think this is part of the reason for BMW and Daimler's dramatic collapse in EBIT per car this year.
Lower resale values impact new car sales in three key ways:

• Increased competition between new and used cars. This could force increased discounts on new cars to clear inventory and reduce the relative value gap with used cars.
• Lower resale values increases annual depreciation and increases the annual total cost of ownership for customers - increasing the cost further relative to Tesla.
• Lower resale values will make leasing and financing rates more expensive, reducing demand and increasing total cost of ownership.

Ultimately I think this increases the need for ICE OEMs to cut production volume or to cut number of models - this will reduce price pressure on their cars. This reduced ICE competition would be very positive for Tesla and the EV transition.
I think the odds of large mergers between ICE auto OEMs is increasing every day. This increases the potential for cutting production volume and model numbers and reduces competition.

I am interested to know exactly what is causing the auto industry collapse so quickly.
I think Tesla's impact on BMW/Mercedes gross profit is much greater than its impact on overall volume due to operating leverage, as well as increased discounts on the increased competition plus Tesla's focus on the more profitable models/options.

As an illustration, Daimler's 2Q19 car volume fell 2.6% to 576k while its adjusted EBIT per car collapsed 37% to EUR2.0k (its reported EBIT was actually negative EUR1.2k per car due to recalls/diesel scandal etc). I think this was partly due to worse vehicle mix on underperformance in SUVs, as well as to tariffs/cost inflation, adverse FX and higher R&D (possibly for EVs), but I would guess Model 3 has also already had a significant impact beyond the simple stolen market share.

The free cash flow collapse is even worse with 1H19 FCF at negative EUR3.3bn from positive EUR1.8bn in the same period last year.

BMW is not doing much better - 2Q19 car volume increased 1.5% to 648k but North America reduced 1.4% and Europe fell 4% (-9% excluding Germany). Average revenue per car increased 0.4% to EUR34.9k while EBIT per car reduced 25% to EUR2.3k. It doesn't look like the profitability reduction was due to R&D because R&D was down yoy.

For 1H19 free cash flow, auto segment fell from to EUR 0.3bn from EUR 1.9bn in 1H18.

 

[KarenRei]

I think this is part of the reason for BMW and Daimler's dramatic collapse in EBIT per car this year.
Lower resale values impact new car sales in three key ways:

• Increased competition between new and used cars. This could force increased discounts on new cars to clear inventory and reduce the relative value gap with used cars.
• Lower resale values increases annual depreciation and increases the annual total cost of ownership for customers - increasing the cost further relative to Tesla.
• Lower resale values will make leasing and financing rates more expensive, reducing demand and increasing total cost of ownership.

Ultimately I think this increases the need for ICE OEMs to cut production volume or to cut number of models - this will reduce price pressure on their cars. This reduced ICE competition would be very positive for Tesla and the EV transition.
I think the odds of large mergers between ICE auto OEMs is increasing every day. This increases the potential for cutting production volume and model numbers and reduces competition.

Or, in three words:

The Great Disruption.

 

[Fact Checking]

I'm not confusing the matter by including premium variants. And premium is not "snake oil", octane is a critical property of gasoline, you need to run the octane your engine was designed for.

I might start an OT flamewar with this, but all modern mass market luxury car engines will run fine with 95RON, there's no need to buy 98RON or their US equivalents of premium fuel - which are a significant percentage of gasoline sales.

 

[Fact Checking]

I think this is part of the reason for BMW and Daimler's dramatic collapse in EBIT per car this year.

Is there a good link about this EBIT collapse?

 

[Fact Checking]

Gotta love the /r/teslamotors mods. The sub used to have "sh*tpost Sundays" (when moderation rules are relaxed and everyone can submit low quality posts, some of which turn out to be high quality), but today they have:

 

[Prunesquallor]

Some “people” may but not the utilities because almost all the planned new power generating facilities are solar. They are cheaper to build, quicker to build, and much easier to get approval.

...and the fuel is free. Forever.

 

[Buckminster]

OT - for photography and astronomy geeks:
The world's largest optical lens has been delivered for a $168M, 3.2-gigapixel telescope camera

 

[KarenRei]

OT - for photography and astronomy geeks:
The world's largest optical lens has been delivered for a $168M, 3.2-gigapixel telescope camera

LSST: my favourite upcoming telescope. Even more than the eternally-delayed James Webb This thing is going to be an utter data flood. If it moves in our solar system and it's bigger than Russell's Teapot, LSST will find it.

 

[KarenRei]

Like rabbits...

Jay in Shanghai on Twitter

 

[StealthP3D]

I might start an OT flamewar with this, but all modern mass market luxury car engines will run fine with 95RON, there's no need to buy 98RON or their US equivalents of premium fuel - which are a significant percentage of gasoline sales.

This is so off-topic it's not even funny but I know a lot about this subject. Not everyone drives a vehicle with a "modern mass-market luxury car engine". Furthermore, even if this is the class of engine you drive, many will have higher performance and return higher MPG with premium. The acceleration times published in auto magazines are always with the manufacturer's recommended octane. The allowable octane is typically stated as a range of acceptable octanes but higher performance engines often recommend the higher end of the octane range. And for very good reasons, definitely not snake oil.

I feel you are addressing a different question. Do some people waste money putting the wrong octane in their cars? Of course!

 

[StealthP3D]

Like rabbits...

Jay in Shanghai on Twitter

This does not bode well for anyone short TSLA!

 

[EVMeister]

This does not bode well for anyone short TSLA!

No, reality doesn't bode well for TSLA shorts.

 

[SW2Fiddler]

Much ado about Jack! It’s unwatchable on purpose.

And so a word on why EVTV is long, boring, and technical. Many of our viewers know exactly why. But the recent series of Model 3 and Solar explorations seems to have caused a dramatic influx of new blood into our little club. And that is a GOOD thing I suppose but problematic at the same time.

The universal reaction is “too long, sorry”. This implies very effectively that they are very busy very important people very focused on much more important things than our trivial videos. Or else it implies the attention span of a four year old. I imagine it varies.

I’ve spent 40 years following technology, not just its development and processes, but its impact and adoption. During a couple of previous rodeos, first involving the development of the Personal Computer, and subsequently the development of the Internet, two amazing and delightful things happened...

We’ve Upped Our Game…so UP YOURS.

I pause, re-watch, freeze, screen-cap ...as if I’m going to be paid for doing so. Y’all do y’all.

 

[Prunesquallor]

LSST: my favourite upcoming telescope. Even more than the eternally-delayed James Webb This thing is going to be an utter data flood. If it moves in our solar system and it's bigger than Russell's Teapot, LSST will find it.

Oumuamua II early warning system.

 

[KarenRei]

Oumuamua II early warning system.

Indeed. Plus almost every NEO of significance, any distant planets in our solar system we haven't found yet, vastly more Kuiper belt objects and asteroids.... just a flood. LSST will be awesome It's expected to increase the number of known objects in our solar system by one to two orders of magnitude.

 

[mblakele]

I believe there's various price cartel and monopoly supply shenanigans in California that are unconnected to the price of crude oil: refineries go down for "maintenance" with suspicious timing, and refinery capacity is limited to begin with. All this goes hand in hand with rising gasoline consumption in California:

[snip]

(Graph ends early 2018 - does anyone have the 2019 data perhaps? Do EVs make a dent in gasoline consumption already?)

Yes, I put together some numbers in another thread: please check my math. Since originally posting this I've added two more weeks of data, and the trend continues.

@RubberToe

Assuming I didn't mess up this chart, it compares the running total of production for each year up to week 36, which is the latest week for which 2019 data was available. It looks like less gasoline was produced in 2019 to date than in any of the past three years.

This isn't a large drop, and may not be due to EV adoption. But maybe it's something to keep an eye on.