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

[MC3OZ]

I'm just back from a long driving holiday Sunshine Coast QLD to Sydney NSW around 1,000 klms one way, not problem at all with fast charging typically at least 3 free stalls at every charger in busy holiday times...

I missed the discussion on the Chinese made Model-2, it is important that Tesla make this car, and like Cybertruck it will be designed to fit a purpose, with an appropriate level of compromise...

Learning from Model-2 can be applied to other Models, and in this case the learning required is, cost reduction...

The target should be a price of 20K-25K, range, acceleration, looks, charging speed, carrying capacity are all areas that can be compromises... Factory locations can also be chosen to suit... and the US may not be one of them.... China, Europe and perhaps South America are likely factory sites...

Model-2 is needed to complete the range, and the retention of Model S/X is equally important...

I would not take a Model-2 or a Cybertruck on the type of road trip I just did.... nothing wrong with Cybertruck as a road trip vehicle, but something easier to park is my preference.. as I parked in a wide range of places.... some of them fairly small.

I don't think Tesla has too many models or needs to worry about models competing with each other, it is important to give customers a choice, and to tackle every challenge and every suitable market segment.

Tesla can make money on all models and learning things that can later be applied to other models, including findings ways of lowering costs, or improving quality...

China is the right country for Model-2 development, it is a great decision....

 

[Fact Checking]

nothing wrong with Cybertruck as a road trip vehicle, but something easier to park is my preference..

I was with you up to this point, but why would it be difficult to park the Cybertruck:

The Cybertruck can be parked almost anywhere.

 

[KarenRei]

I missed the discussion on the Chinese made Model-2

1) Nobody ever said "Chinese made". Musk said Chinese designed.
2) We're naming it already, really? What if what they're designing is, say, a next-gen Model S or Model X? A mass-market convertible? A different class of pickup? It could be literally anything.

it is important that Tesla make this car

What car? Describe what we know about it.

The target should be a price of 20K-25K, range, acceleration, looks, charging speed, carrying capacity are all areas that can be compromises... Factory locations can also be chosen to suit... and the US may not be one of them.... China, Europe and perhaps South America are likely factory sites... Model-2 is needed to complete the range, and the retention of Model S/X is equally important... I would not take a Model-2 or a Cybertruck on the type of road trip I just did....

I love how people are already filling in the details of a car that we know literally nothing about, apart from the fact that it'll be designed in China (because Musk feels "China has some of the best art in the world") and be Cybertruck-level unconventional.

We can certainly talk about the prospect of Tesla designing a lower-end car without declaring it to be "Chinese made" and attributing all sorts of things to Musk's announcement the other day. AFAIK, Musk has only talked about such a vehicle once - on MKBHD, in fall of 2018. Briefly, when prompted, and said that they could "maybe" do it, saying it would take a minimum of 3 years, but did not commit to it.

Of course, lower-priced vehicles do have to come eventually.

 

[Pezpunk]

I can see the Plaid S coming out but would not be surprised if the MX got the chop at end of 2020.

i regret that i have but one disagree to give this comment. absolutely not happening.

 

[RobStark]

S/X could be worth about $1.5 billion to the bottom line, or $7.50 per share, rounding up the share count to 200 million. That's still a considerable contributor, though, of course, less than 3 or Y.

The alternative is to cede that market share and profits to VW Group,BMW Group, and Daimler Benz.

Giving them relief from unrelenting pressure to electrify.

 

[MC3OZ]

1) Nobody ever said "Chinese made". Musk said Chinese designed.
2) We're naming it already, really? What if what they're designing is, say, a next-gen Model S or Model X? A mass-market convertible? A different class of pickup? It could be literally anything.



What car? Describe what we know about it.



I love how people are already filling in the details of a car that we know literally nothing about, apart from the fact that it'll be designed in China (because Musk feels "China has some of the best art in the world") and be Cybertruck-level unconventional.

I am assuming Chinese designed, includes designing and building a factory to make it...

I assumed we were taking a 20k-25K city car designed and built in China, as I always assumed that was the next logical step...

So lots of assumptions, perhaps too many....

If Musk hasn't explicitly said that, I might be wrong, but I am finding it hard to imagine what else they would be designing... but it could be a smaller Pickup....

 

[KarenRei]

I am assuming Chinese designed, includes designing and building a factory to make it...

Pretty hefty assumption, for a conversation which Musk explicitly stated was about a design centre.

I assumed we were taking a 20k-25K city car designed and built in China

Well, for now, that's purely your imagination. Musk said nothing of the sort on that line. All we know is that they'll have a car designed there, it'll be consumed worldwide, and it'll be Cybertruck-level unconventional.

That's not to say that none of what you posit could happen. But it's not something at all suggested by Musk.

IMHO, I do not see Tesla "ever" (read: for the forseeable future) exporting vehicles to the US or Europe from China. Beyond the huge hit that would take to Tesla's perceived quality in the US and Europe, and political fallout from such a decision, and geopolitical risks, and tariffs, and shipping costs, and inventory buildup, and reintroducing "the wave", and on and on... it's entirely contrary to Musk's long-term and repeatedly, explicitly pronounced belief that production should be done as close to consumption as possible.

THAT said, I can picture exports from China to countries that don't have Gigafactories, and which have better trade agreements with China than with the US or Europe (or other locations with Gigafactories). For example, Thailand has a far better trade deal with China re: car imports than they do with the US or EU.

 

[RobStark]

 

[MC3OZ]

We don't know where Plaid Model S/X would be built, but it could be Fremont and perhaps they are building a batch of Raven inventory prior to line changes....

When they have talked about Plaid ... Model X was specifically mentioned.... no one has seen a Plaid Model X .. yet ... but all indications are we they will build one...

 

[KarenRei]

We don't know where Plaid Model S/X would be built, but it could be Fremont and perhaps they are building a batch of Raven inventory prior to line changes....

They're not going to build a new factory for S/X elsewhere when they already have all of this capital invested in Fremont. Unless there's some technical reason that they have to tear down the entire line and rebuild a new one from scratch, which I can't imagine being economically justifiable for a comparably low-volume pair of vehicles.

They could certainly be line downtimes for upgrades, of course. But I doubt it's even that. From the description given, it seems to just be a case of "Chowdhry saw S/X being made faster than the last time he was there, and let his imagination go wild".

 

[bhtooefr]

Opricot says max pain is 470, BTW.

 

[MC3OZ]

Pretty hefty assumption, for a conversation which Musk explicitly stated was about a design centre.



Well, for now, that's purely your imagination. Musk said nothing of the sort on that line. All we know is that they'll have a car designed there, it'll be consumed worldwide, and it'll be Cybertruck-level unconventional.

That's not to say that none of what you posit could happen. But it's not something at all suggested by Musk.

IMHO, I do not see Tesla "ever" (read: for the forseeable future) exporting vehicles to the US or Europe from China. Beyond the huge hit that would take to Tesla's perceived quality in the US and Europe, and political fallout from such a decision, and geopolitical risks, and tariffs, and shipping costs, and inventory buildup, and reintroducing "the wave", and on and on... it's entirely contrary to Musk's long-term and repeatedly, explicitly pronounced belief that production should be done as close to consumption as possible.

THAT said, I can picture exports from China to countries that don't have Gigafactories, and which have better trade agreements with China than with the US or Europe (or other locations with Gigafactories). For example, Thailand has a far better trade deal with China re: car imports than they do with the US or EU.

Fair enough... I could be wrong....

But if they do make this kind of car, my hunch is China will not export to Europe, Europe would have it's own factory, .. and US imports will be low volume..

I'm taking Musk's comments about China having skilled engineers. at face value, if they can design, they can build, and if the target is a low price, they probably do it better than anyone

 

[bhtooefr]

As far as S/X revisions, the fact that Plaid S third row has been stated as supporting larger passengers suggests to me that there are rather significant body changes.

Here's the lower portion of a Model S unibody with all of the components necessary to make it a rolling chassis, and a battery:

To get more space for third row passengers would likely involve significant changes to that rear section. (The well in the Model S floor where the seats are stowed, and where third row passengers' feet go, is behind that structure.)

Now, given Tesla's focus on economies of scale, the question is whether that would only happen for the Plaid cars, or for everything. (And, could it even happen for everything? After all, there must be motor packaging changes enabling that...)

 

[Fact Checking]

I love how people are already filling in the details of a car that we know literally nothing about, apart from the fact that it'll be designed in China (because Musk feels "China has some of the best art in the world") and be Cybertruck-level unconventional.

We can certainly talk about the prospect of Tesla designing a lower-end car without declaring it to be "Chinese made" and attributing all sorts of things to Musk's announcement the other day. AFAIK, Musk has only talked about such a vehicle once - on MKBHD, in fall of 2018. Briefly, when prompted, and said that they could "maybe" do it, saying it would take a minimum of 3 years, but did not commit to it.

Of course, lower-priced vehicles do have to come eventually.

While you are right that they didn't share any specifics, it doesn't take a great leap of faith to come to the obvious conclusion:

• "Model 2" is thought to be Tesla's lower end car, although I think they'll call it the "Model 4".
• China EV policies are shaping up to be like Norway was 10 years ago: exceedingly advantageous EV-friendly policies pushed by the government. Only that Norway's annual car sales are 0.15m, while China's is 25.7m, or 170 times larger (in units).
• The main problem with China is that due to the lower purchase power of Chinese citizens the average new car price is a fraction of that of western car ASPs.
• A smaller Tesla in the $20k-$30k price range (below 150,000¥ is ~$21k USD, 200,000¥ is ~$29k) would address a far larger portion of the Chinese market: with a "Tesla stretch" about a third of all Chinese car buyers could afford a Tesla Model 4, and in 5 years that might be 50% of the market or higher if China continues to increase in the purchase power of their citizens.
• The numbers: average Chinese worker income was around 90,000¥ in 2019, but there was an about 10% growth in recent years - so annual income might be above 200,000¥ for families by the time the Model 4 arrives. Most middle class people buy cars where the ASP is about equal to their annual family income - that's a big psychological barrier to cross. So an entry price for the Model 4 of 150,000¥ would be able to capture close to half of all Chinese consumers, in about 3 years from now.
  
• China is IMO the natural market to prototype the Model 4 in. They might even end up exporting it to Europe and to the U.S. - just like "Made in Japan" became a seal of quality, an "iPhone made in China" was accepted by consumers and a "Tesla made in China" will be accepted as well IMO.
• Elon wanted to signal it to China that Tesla is treating their China factory not as a carbon-copy, work-for-hire assembly factory location like most of the German carmakers are doing, but as a prime location that is a peer of Fremont and GF4, with R&D and original product development as well. This attracts talent and helps China's long term policy goals.
  
• Finally, this is exactly what the Chinese political leadership wanted to see happen when they invited Tesla to China: to create an Apple-alike phenomenon and to pull up their automotive sector. The "Tesla Effect", imported into China. Cleaner air, dominance in yet another industry and detaching themselves from crude oil suppliers are the icing on the cake.

So yes, I think Model 4 development will be done in China and for China, but the 3 years time frame Elon mentioned is probably true as well. You are also right that much of this is conjecture - but IMO it's pretty much the only conclusion one can arrive at.

 

[KarenRei]

Now, given Tesla's focus on economies of scale, the question is whether that would only happen for the Plaid cars, or for everything. (And, could it even happen for everything? After all, there must be motor packaging changes enabling that...)

This is indeed something I don't want to talk about too much because it has Osbourne potential. But while there's many changes that logic says only make sense for Plaid (fatter, more expensive, faster-wearing, more energy hungry tires; fender mods for them; a high-downforce spoiler/wing; etc etc), there's a lot of things that make no logical sense whatsoever not to offer on the base models, and would actually cost Tesla more to keep making the old versions. For example, they've said Plaid will get a new battery pack. What's the logic to continuing to build an older, inferior, more expensive pack architecture? There's none. Even if they wanted the others to have an inferior pack, it'd make more logical sense to give the others the new pack and then software-cripple it.

As for more interior space, I'd need to see the original comments again - do you remember where they were? Note that Tesla has gotten better with packaging interior space since they designed the S, as evidenced with the 3.

 

[bhtooefr]

I linked Musk's tweet stating larger passengers in the third row in that post.

Edit: I could see a scenario where the Plaid cars are basically hand-built one-offs pulled off of the regular production line, at which point things like custom packs just for them and unibody modifications to the standard unibody (without integrating those into normal production) start to make sense, though. Think like AMG cars for Mercedes-Benz, or like the Roadster will almost certainly be.

 

[KarenRei]

I linked Musk's tweet stating larger passengers in the third row in that post.

Sorry, missed that. So: "No, original 5 forward facing seats plus 2 rear-facing smaller seats. The new rear seats will accommodate larger passengers than before."

Seems the easiest way to do that would be to adopt the Model 3's new dash design (recessed, screen protruding, and no need to touch the vents)... no? This would allow the rear seats to also shift slightly forward, adding more headroom due to being further ahead of the taper. This would also add a bit more room to the rear-facing seats as well.

They could also optionally adopt Porsche's "foot garage" strategy of deliberately designing gaps in the new battery pack design for feet to go down into.

 

[ReflexFunds]

Interesting tidbit from Ihor:

Ihor Dusaniwsky on Twitter

"I believe that #Tesla convertible bonds all have conversion prices way below today's stock price so most of the arb bond holders should already be fully hedged or close to fully hedged and not need to short much more stock."​

I.e. the run-up allowed convertible debt bond holders to buy hedging puts and close their short positions, allowing them to take advantage of any subsequent rise in the share price, without the downside risks.

I.e. the "80% of convertible notes are short hedged with equity short positions" assumption might not be true anymore.

The consequence: much of the remaining 27m short shares are exposed to a short squeeze.

All Ihor is saying here is that convert holders likely already hold close to the maximum needed number of Tesla shares short because delta is already so high on these options - and hence further prices rises require a slower increase in the convert's short position to remain hedged.

At a delta of 1, 12.8 million maximum Tesla shares would have to be sold short to 100% delta hedge the converts.
Ihor's saying that probably delta is already close to 1 (but he didn't bother doing the actual calculation) and so convert holders are likely already short close to the maximum and shouldn't have to short much more.

In reality delta is a weighted average 0.84 across the converts and 10.8 million shares would have to be sold short to hedge. I assumed 80% are held by debt funds who delta hedge, so convert holders currently hold a 8.6 million share short position of a maximum 80% * 12.8 = 10.2 million.

So yes there will need to be limited further shorting from convert owners as the price rises further, but this doesn't mean they closed all their existing hedges.

 

[Fact Checking]

TSLA up around +$4 in pre-market trading so far:

On moderate trading volume (highest volume bar is ~1k shares) - the what I believe to have been short-margin-call driven early trading patterns that were visible after ATH closing price days are not there today, so far.

Mostly macro driven, I believe, Nasdaq futures are looking good so far.

 

[mrdoubleb]

Pretty hefty assumption, for a conversation which Musk explicitly stated was about a design centre.



Well, for now, that's purely your imagination. Musk said nothing of the sort on that line. All we know is that they'll have a car designed there, it'll be consumed worldwide, and it'll be Cybertruck-level unconventional.

To be honest I don't think he said even that much.

If you notice, he start the whole show reading - at least reading talking points - from a script when he introduced the start of the China Model Y program. Very un-Elon-like. Not that there is anything wrong with the CEO of a 80 billion dollar company not simply winging every public speech you know...

When he got to the China design center part, that was later in the day and completely off the cuff, in his usual mind racing ahead of his mouth, sharing his stream of consciousness kind of style. So it wasn't something vetted with Law and PR, it wasn't precise. He was saying he thinks it would be cool to do this R&D center in China and share their art style with the world and that there should be more things [in this world - my interpretation of what he meant] like Cybertruck that no one sees coming and just grows to your heart over time and that's what they will be aiming for more often in the future.

My 2 cents: he had discussions with Chinese leadership about an R&D center which they are trying to do now at these GF locations (see the same set-up in Berlin), but there is nothing specific yet on what car exactly that future team will design. So I am pretty sure we are reading way too much into his words that he just came up with on the spot.

Scroll to 3:55 in this video - TM does not really like to add in YouTube time codes so I was unable to set it up to start there.