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

[M3Rider]

They specifically connected the dots between managing money judiciously and preparation for a recession.

They’ve spoken in the past about weekly capacity vs spending to get to 10k/wk out of Fremont. They specifically said they could get to 7k/wk without having to spend a whole lot more money but to 10k/wk meant a much bigger cash layout.

They specifically connected the dots between managing money judiciously and preparation for a recession.

They’ve decided to take their time getting to that 7k/wk thus allowing spreading of the capex throughout the year, probably to help make sure they stay FCF positive from here on out - as they obviously have other capex this year.

There were 2 questions - one about $35k car and that's where the costs came into discussion:

Emmanuel Rosner

First, I wanted to ask you about the short-range Model 3. What are your latest thoughts in terms of timing of introduction? I think at some point, you had in mind to do it in the - maybe the first half of this year. And just to clarify, when you're sort of talking about the outlook for 2019, the number of deliveries up 50% and then the margin target for Model 3 to get to 25%, does that assume that you're introducing a lower range, the short-range Model 3 at some point during the year?

Elon Musk

Well, you could call it the standard range, but it's maybe short by Tesla's standards, but it's long range by other manufacturers' standards. So - but yes, we expect to introduce the standard range Model 3 sometime - probably the middle of this year is a rough, rough guess. And we're working hard to improve our costs of production, our overhead costs, our fixed costs, just costs in general. I think this past year, while extremely difficult, has driven us to a high level of financial discipline. I think we're way smarter about how we spend money, and we're getting better with each passing week. Yes.

This, I feel is a primary driver.

Then, there was a question about recession and they basically said that their cost cutting measures will let them sail through:

Pierre Ferragu

So, Deepak, I was wondering, so as you get to 2019, we're all concerned about the potential recession, and I was wondering how you think about it and what you would tell us about what we should expect - how we should expect Tesla to react to recession in 2019. How do you manage your volume land? How do you manage your pricing? How do you present cash? How do you manage your CapEx if things turn south in 2019? And then I have a follow-up on gross margin for Jerome.


Deepak Ahuja

Yes, it's a very broad question, which is not really just for me to answer. But I think at the highest level, the way we are trying to be prepared for any kind of contingency here is to just continue focusing on cost. And the theme of our conversations here is, how do we reduce cost all the time? And how do we run our business with a very high level of financial discipline? And Elon alluded to that and so did Jerome - Jerome, I think. That - if we do that, we believe that even in some of the scenarios of lower volumes and pricing - tight pricing, we do have a good chance and a good shot of being profitable and generate free cash flow. So that's the best way to manage the business, be frugal.

Elon Musk

Yes, I don't want to be a broken record about this, it's costs, costs, costs, because reducing our costs - by the way, while making improvements to Model 3, I want to emphasize, the product is getting better by slight degrees despite lower costs in hundreds of small ways. But you actually wouldn't notice explicitly, but they would appreciate subconsciously. And getting those costs down, variable costs and fixed costs, is what allows us to lower the price and be financially sustainable and achieve our mission of environmental sustainability. So we have to be absolute clear about this. There's no question.

It's understandable that lower costs and better margins make them more profitable

But given "minimal" capex for 7k, which they themselves talked about trying to make an impression that 7k is not a big deal, makes you question why is it such a big deal that it's going to take ~1year+. If Opex is huge, then they shouldn't have brought it up in the first place.

The 50% growth is compared to whole 2018, they started @ 2.3k/week and ended 4.6k/week,

2019 is going to be an amazing year for Tesla. As I mentioned, we are expecting to increase sales by 50%. Perhaps could be a lot more than 50%, but I think 50% is a very reasonable number. But that's crazy growth for the automotive industry.

So, actually given 90k total deliveries in Q4, when they guide for 360k-400k deliveries in 2019, that's almost like no growth at all compared to Q4.
90k*4=360k, which triggered this question:

Emmanuel Rosner

Okay. And, I guess, my follow-up would be on the demand side. So you're talking about 50% increase this year. You said a few times that it could be higher than this. I think you just mentioned in the previous question 350,000 to 500,000, if I understood well. So what is sort of like what drives the cautious outlook that's in your letter? Because it feels like it's the - it's just basically four times the fourth quarter run rate, which would imply sort of 50% for the full year but not really a lot of growth versus what you just accomplished.

So, this is a bit disappointing, but definitely not lethal

 

[printf42]

600 km = 375 miles. Interesting.

Chinese EV subsidies are correlated with range, so the industry kind of come together and game the system by converging on favorable testing standards.

 

[SpudLime]

Really makes you wonder why he still has a job. What other job can you fail so miserably and consistently at without being fired?

A weatherman?

EDIT

Damnit HG WELLS’ was better.

And wnuk beat me to it.

 

[BioSehnsucht]

Given that Tesla only makes 5400 Model 3s per week it appears that Musk has squeezed 6 weeks into January.

I can only conclude that Tesla has perfected time dilation.

That or found a way to harness Elon Time for good by inverting the effects.

 

[Fact Checking]

Meteorologists have a better record than this. They tend to be slightly better than a coin flip, where he is slightly worse than one.

Yeah, 3 day weather forecasts are pretty damn accurate these days:

7+ days out and it's often a coin toss.

 

[Mobius484]

Many thanks to people who answered my question on why model 3 before model Y. I love this forum.

Another question in my mind for quite some time, why model X's market share in large luxury SUV is NOT as high as model S's market share in large luxury sedan?

Appreciate your thoughts. Thanks in advance!

Because it’s the “faberge of cars”.... EM

Classic.

 

[Fact Checking]

The delay on the Y is related to the impact of frontal area on battery pack size and how much cost difference shows up when comparing EVs to ICE vehicles. You see it in SUV offerings from other manufacturers.

Yet Model X range is pretty close to Model S range, and they share the battery pack.

EVs (SUVs and sedans alike) have a big aerodynamics advantage compared to ICE cars: EV drive trains require a lot less cooling compared to engines, which means much smaller front air intakes and no grille - which improves the drag coefficient by ~0.1 - a huge number..

SUVs are simply taller and thus more car, and have a higher entry price. (Elon also wanted Falcon Wing Doors for the Y originally.)

So going for a smaller sedan was probably the better approach to the mass market.

 

[Buckminster]

The plan for Y is to reveal it in Q2 (approximately) or maybe end of March 2019. Then low volume production in early 2020 rising to volume production by end of 2020.

That is a pretty aggressive schedule IMO!!! Not only that, they're going to be producing in scale in two continents in 2020!!! I don't think they are moving slowly.

Model 3 was unveiled March 31st 2016 and deliveries began before August 2017. A gap of about 16 months.

March reveal:

Pros
Competition in meltdown
Tesla will have captive audience
Keeping design secret is almost impossible once in supply chain

Cons
Major M3/S/X osborning particularly M3 reservations in non-US

Towing. I would pay extra for a car that tows. These days it’s only once or twice a year, so could get around it with the occasional ute hire, but in younger days we towed boats to many sailing regattas.

Edit: what the US call a truck, we call a Ute (utility). A truck to us is a semi, prime mover or lorry.

I grew up watching Neighbours - loving the Ute memories.
In UK:
Lorry

Big lorry

Pickup truck

Truck

Semi is too graphic

OT

Possible guesses:

• Aerodynamic efficiency
• Weight : another efficiency tradeoff
• Cost to manufacture
• Engineering cost

$35k price point - mission critical.

Given the rough guidance that Y will be 50% higher demand than 3, I don't see having stamping located at Fremont as bring viable capacity wise. I'm also doubtful of shipping ecomics for stamped pieces, seems like the space utilization of racked parts in the trailer might result in empty trucks from GF1 to Fremont.

I'm also guessing they've had the long lead equipment on order for a while. And having independent stamping lines is good from a what-if-something-breaks point of view.

Something must be going on here. I am guessing Elon wants to bargain with Nevada state: Money, housing, infrastructure?

The reason I feel Tesla didn't go with a SUV are the following.

1. SUV vs Sedans didn't matter because demand will be the same when it's a production limited demand due to cell limitation

2. Tesla REALLY want to hit a 35k price point. SUV for them might not be possible within the aggressive timeline Tesla have set themselves. Based on all the crazy amount of reduction in operational cost including cutting staff, Tesla is willing to go through fire to get the cars down to 35k.

With 76% commonality, base MY margin could be 30%...

 

[RobStark]

Probably less to do with being incapable and more to do with having been uncompetitive. I don't see how China would be uncompetitive, price wise.

China can be incapable at X price point.

If Chinese produces charge almost as much as Swedish or Luxembourger producers most will just go with established companies.

 

[gora321]

What do we think the effect of revealing the Model Y being on Model 3 demand?

Clearly Telsa is concerned about it or else they wouldn't reveal it so close to production.

I think that you are talking about EV turn from ICE producers

 

[BioSehnsucht]

China can be incapable at X price point.

If Chinese produces charge almost as much as Swedish or Luxembourger producers most will just go with established companies.

Accounting for importing the material to China from Europe, it seems unlikely they could fail to be competitive. Whether the ability is there at all or in sufficient available capacity seems much more likely an issue, which of course can be solved if they know they're going to have a customer.

 

[Buckminster]

OT

Wikipedia doesn't agree with their definition of city. Interesting though.
Opportunities for Boring Co. as well as Tesla. Sooner Tesla buys Boring Co the better.
We're going to need a bigger Asian GF...

 

[gora321]

https://www.facebook.com/video.php?v=1274500982705018

 

[Ocelot]

Can someone enlighten me on why Tesla choose to do model 3 (sedan) before model Y (SUV)?

I kinda understand model S before model X in early days of Tesla, because sedan is lower cost and easier to build etc help the EV adoption. But why model 3 before model Y? I think model Y should be build first.

Can't speak for Europe, but I believe in US and China, SUV is a bigger market and higher growth than sedan. In fact, most EV startups in China such as NIO choose to launch their first car is an SUV.

This really puzzled me quite some time. Your thoughts on this is greatly appreciated!

Well there has been a lot of answers already. I have had this discussion in the past. Sedans are going the way of the dodo. I disagree with most of the answers. The best are there would be too much demand! Really, when was the last time a company did not build something as there would be too much demand? Isn’t that the whole Tesla mission? To be frank, I feel they just didn’t think about it. When the plan was hatched in 2006 or so, sedans were still more popular, especially in fair weather states. At the time the plan was roaster....model s...then 3. Then the plan is set in motion...and they did not anticipate the relatively rapid pendulum swing from sedan to cuv/ suv.

 

[Buckminster]

OT

Wikipedia doesn't agree with their definition of city. Interesting though.
Opportunities for Boring Co. as well as Tesla. Sooner Tesla buys Boring Co the better.
We're going to need a bigger Asian GF...

Kinshasa in Congo predicted to be well into top 10 by 2035. M3/MY could do well here looking at the cars here.

 

[RobStark]

Accounting for importing the material to China from Europe, it seems unlikely they could fail to be competitive. Whether the ability is there at all or in sufficient available capacity seems much more likely an issue, which of course can be solved if they know they're going to have a customer.

The US is technically capable of producing all out steel needs yet we import ~25% of our steel needs. And pay for shipping for that 25%.

 

[bhtooefr]

600 km = 375 miles. Interesting.

Yeah different testing standards

It's NEDC. (China is apparently adopting WLTP in 2020 when they adopt "China 6a" (derived from Euro 6c I believe) emissions standards, but I'm finding things claiming it's only for emissions, not for fuel efficiency/EV range.)

 

[lklundin]

Long Range Rear Wheel Drive Model 3 can be ordered in China. Delivery in March.
600+ km range

View attachment 373580View attachment 373581

Yes, it is unfortunate that the Model 3 AWD gets people _less_ range at a higher cost than RWD
- unlike the Model S when it had the RWD option.

PS. The range in China (per their standard) is:
Model 3 RWD: 600+ km
Model 3 AWD: 590 km,
https://3.tesla.cn/model3/design#battery

 

[lklundin]

I am wondering about Elon's statement about possibly buying cells from Japan for GF3. Is anyone producing 2170 cells in Japan currently? If not, might this possibly imply that Panasonic would stop production of 18650s on their line there and switch to 2170 production? (this would likely require S/X to also be switched to 2170 before that could happen, obviously). At the rate Panasonic is adding new cell lines there could be enough capacity by the end of the year to switch the S/X to sourcing 2170s from GF1, which allow Panasonic to change out the cell lines in Japan to make 2170s to ship to GF3. This would shorten the shipping distances required for both products and thus presumably lower costs (GF1 to Fremont for S/X and Japan to GF3 for China Model 3 SR, versus GF1 to GF3 for China Model 3 SR and Japan to Fremont for S/X).

Of course, he might be just throwing ambiguity out there to keep the suppliers in check.

In the race against other car makers to secure supplies for cell production Tesla will gain an advantage by producing cells in China for that market - at least for as long a Tesla depends on Cobalt for its cells, since the export of that metal is restricted by China.

 

[avoigt]

7h7 hours ago
Hi @elonmusk , congrats on the 2nd profitable quarter in a row!! Spoke with many ppl (friends, co-workers...) in my latest biz trip in China, many of them are really interested about M3 & asking if @Tesla is planning to make a “Long base version” etc C-Class 200L? Thanks.


Verified account 10m10 minutes ago
No plans to do so. Would recommend Model S.

Vincent on Twitter