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

[Fact Checking]

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

View attachment 498549​

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.

Today is options expiry day, and absent any other news or big macro impact I'd expect today's TSLA price range to be determined by options expiries. This is how the options open interest looked like at yesterday's close:

 PUT $250:   1,386                     ,   CALL $250:      19            
 PUT $260:     701                     ,   CALL $260:       5            
 PUT $270:     510                     ,   CALL $270:       4            
 PUT $280:     555                     ,   CALL $280:      14            
 PUT $290:   1,130                     ,   CALL $290:      45            
 PUT $300:   1,325                     ,   CALL $300:      97            
 PUT $310:     779                     ,   CALL $310:      70            
 PUT $320:     993                     ,   CALL $320:     108            
 PUT $330:   3,143 #                   ,   CALL $330:     284            
 PUT $340:   2,503 #                   ,   CALL $340:     300            
 PUT $350:   3,603 #                   ,   CALL $350:     513            
 PUT $360:   1,617                     ,   CALL $360:   1,016            
 PUT $370:   2,658 #                   ,   CALL $370:     589            
 PUT $380:   3,663 #                   ,   CALL $380:     926            
 PUT $390:   4,038 #                   ,   CALL $390:     879            
 PUT $400:   5,664 ##                  ,   CALL $400:     884            
 PUT $410:   3,964 #                   ,   CALL $410:     867            
 PUT $420:   7,025 ##                  ,   CALL $420:   2,198            
 PUT $430:  13,028 ####                ,   CALL $430:   3,466 #          
 PUT $440:  18,273 ######              ,   CALL $440:   2,832 #          
 PUT $450:  11,886 ####                ,   CALL $450:   8,322 ##        
 PUT $460:  14,342 ####                ,   CALL $460:   7,688 ##        
 PUT $470:  18,371 ######              ,   CALL $470:   7,492 ##        
 PUT $480:  15,227 #####               ,   CALL $480:  11,593 ####      
 PUT $490:  10,838 ###                 ,   CALL $490:  16,490 #####      
 PUT $500:   2,433                     ,   CALL $500:  21,057 #######    
 PUT $510:     366                     ,   CALL $510:  11,490 ###        
 PUT $520:     325                     ,   CALL $520:   8,755 ###        
 PUT $530:     163                     ,   CALL $530:   4,219 #          
 PUT $540:     139                     ,   CALL $540:   4,240 #          
 PUT $550:      41                     ,   CALL $550:   4,518 #          
 PUT $560:      33                     ,   CALL $560:   2,204            
 PUT $570:       7                     ,   CALL $570:     831            
 PUT $580:       4                     ,   CALL $580:   2,295            
 PUT $590:       2                     ,   CALL $590:     862            
 PUT $600:       2                     ,   CALL $600:   2,436

(Rounded to $10 boundaries to make the histograms easier to read and interpret.)

Key takeaways:

• There are 135,664 calls and 150,757 puts expiring this week, which is a moderately high open interest. The call/put ratio has improved over the past few months, but it's still put dominated.
  
• This is a fresh options series and market makers stopped offering 'bankwuptcy bets': $100 and lower strike prices. A welcome insertion of common sense.
• The 'consensus price' expectations of bearish investors (put buyers) is around $460, of bullish investors around $500.
• Market makers (options writers) as a group would keep the most income if price today stabilized today into the $480-$500 range: lower than that and puts start earning serious money, above that a lot of calls start earning money. The "max pain" equilibrium is probably between $485 and $490: most puts expire worthless while some calls, probably already delta hedged, will pay out. There's probably going to be resistance from market makers below $470, that's where the puts start hurting them big time.
• A break-out to over $500 would IMO generate significant delta hedging of this week's and next week's options, potentially magnifying any breakout above $500.
  
• Next week is going to be a big options week: 940,000 options contracts will expire on the 17th (!!!), this was the 2-year LEAP expiry contract for two very volatile years. The shares-equivalent interest is 94 million TSLA shares ... As per @ReflexFunds analysis closer to expiry market maker delta hedging related volatility could increase.
• I'd expect many in the money calls to be rolled over to later expiries at higher prices, which will reduce their delta hedging inventory effect. There's about ~4 million shares worth of delta-hedging inventory for calls in the money right now, market makers could use this inventory to defend $500 during the day.
• Opricot is listing today's "max pain" as $470, but I don't think they take the high delta hedging ratio of Tesla market makers and the delta-hedging inventory effect of in-the-money options rollover into account.

This of course depends on whether there's any fundamental Tesla news or big macro event, which tend to be stronger forces than options market makers on minor weekly options expiry days.

Edit:

To demonstrate how delta hedging can impact TSLA, this is what happened on January 18 2019, a very big options expiry day, when Tesla issued a (poorly timed ...) profitability warning, on the hourly chart:

A 15% drop, which I believe was magnified by the delta hedging effect of the huge PUT options open interest on that LEAP expiry day, which were mostly out of the money before that profit warning.

The takeaway: Tesla management doesn't care about Tesla investors who use options.

 

[RobStark]

• 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.

It took 30 years of importing Japanese cars with excellent Consumer Reports ratings before Americans would accept a 5 Series E Class priced Japanese car.

It took another 10 years for Americans to accept a 7 Series S Class priced car from Japan.

It seems Europeans still don't accept premium cars from Japan.

Cars are not phones. Chances of getting killed by a defective phone are trivial compared to a car.

I Phone did not give consumers a choice. You could not buy something comparable made in Germany or the US.

Blackberry phones made in Hungary doesn't sound all that great.

 

[Fact Checking]

It took 30 years of importing Japanese cars with excellent Consumer Reports ratings before Americans would accept a 5 Series E Class priced Japanese car.

It took another 10 years for Americans to accept a 7 Series S Class priced car from Japan.

It seems Europeans still don't accept premium cars from Japan.

Cars are not phones. Chances of getting killed by a defective phone are trivial compared to a car.

I Phone did not give consumers a choice. You could not buy something comparable made in Germany or the US.

Blackberry phones made in Hungary doesn't sound all that great.

You might be right - but this was just a side argument, Tesla can, of course, use any Model 4 production lines prototyped in China and build them at GF4 as well. (I don't think the Model 4 would have much of a market in the U.S.)

 

[FrankSG]

• "Model 2" is thought to be Tesla's lower end car, although I think they'll call it the "Model 4".

I doubt it will be either of these. Model 2 just doesn't make any sense, because that's kind of what the S and/or X is.

Model 4 would imply a newer version of the Model 3, and potentially negatively influence Model 3 sales, so I'm quite confident they'll go with something completely new.

I personally think it's more likely (although still pretty much pure speculation) that China will not design a $20-30k car, but something completely different. Because if Tesla can launch a massive $40k Cybertruck in 2021, they sure as hell can launch a much smaller sub $30k Cybercar in 2023. I reckon that this will end up filling in the gap in their line-up in the low end of the market. The ruggedness makes for great robotaxis too.

 

[KarenRei]

I simply think we should expect the unexpected.

 

[FrankSG]

• Next week is going to be a big options week: 940,000 options contracts will expire on the 17th (!!!), this was the 2-year LEAP expiry contract for two very volatile years. The shares-equivalent interest is 94 million TSLA shares ... As per @ReflexFunds analysis closer to expiry market maker delta hedging related volatility could increase.

94 million? Woow

Would it be possible to share a similar chart of the expiring options' strike prices for next Friday?

 

[KarenRei]

94 million? Woow

Would it be possible to share a similar chart of the expiring options' strike prices for next Friday?

You mean this?

Massive heap of worthless bankruptcy puts

 

[FrankSG]

You mean this?

View attachment 498556

Massive heap of worthless bankruptcy puts

Ah yeah, should've known

Would still like to see one in @Fact Checking 's format, because it'll be easier to see the risks of the sellers of the Call Options around $500. Looks like it's about 10k for the $500s, but hard to tell how many $480, $510, $520, and $550s were sold.

 

[LST]

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.

While i agree wth most of your excellent points, I would say it would be REALLY BAD to name the small China Tesla Model 4.
Four has a bad connotation as far as I know, spoken the same as death, so no please no Model 4 coming out of China.

As for the market for a compact car, I think some of you are missing a point. It is not so much about addressing the low end market, with low margins, but also giving the more affluent customer a choice for a small, sexy city car. With the right features (as in M3 equivalent), high quality interior etc. such a car could be priced sub 30k (CHF/USD) and would IMO sell a ton. Look at what prices the BMW Mini Cooper, Cooper S etc are selling and its not niche , at least not over here in EU / CH-Land. I would love to see a Mini CyberP City Car.

 

[RobStark]

Fiat Chrysler will effectively fund Tesla's German factory, investment bank says

 

[Fact Checking]

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.

That's a fair point and Ihor indeed said that and nothing more - so your prior calculations of delta exposure are valid.

But this might matter in the future: at this point it looks a viable strategy for debt fund managers to change the equity-short position hedge over to an options hedge, by buying put contracts and closing the equity short position.

For example a fund holding $10m of the 2022 convertible notes which convert with a strike price of around $327.50 could buy 2022 March put contracts with a $330 strike for $50 per share right now, in preparation of closing the equity short position at lower prices. There would be a fixed cost of $1.5m, which reduces effective annual yield by -7% in the worst-case (if TSLA closes at today's price level), but the upside would be massive and unlimited if TSLA appreciates in the next ~2.3 years.

As the strike prices are moving farther and farther away from the convertible strike prices, and as expiry events draw closer, so does the worst-case impact get lower and more and more convertible holders might convert to options, even if they are otherwise risk averse to worst-case changes in the principal.

 

[Fact Checking]

Fiat Chrysler will effectively fund Tesla's German factory, investment bank says

The key portion:

"The automaker reached an agreement with Tesla last spring that could cost FCA an estimated 1.8 billion ($2 billion) through 2023. That breaks out to about $150 million to $200 million per quarter and will pad Tesla's profit margins starting in the first three months of this year, according to Ben Kallo, a Robert W. Baird & Co. analyst."​

Note that this is a conservative estimate IMHO: it apparently assumes current delivery levels with no growth in Tesla sales through 2023, and it doesn't seem to include 'SuperCredit' benefits, nor the effects of the merger with PSA.

If the per unit ZEV bounty paid by Chrysler-PSA to Tesla is roughly around ~$10,000 estimated by @Prunesquallor is accurate (but we don't know the details of the contract), then $150m-$200m per quarter ZEV revenue assumes average quarterly European Tesla sales of 15k-20k through the next 4 years, which is very low: Q4'2019 already significantly exceeded those levels with ~30k deliveries, and then we haven't even included any GF4 sales which are supposed to start next year ...

European ZEV credits from the FCA deal (if any), are a significant wildcard for Q2'2020 financials and could be the key to S&P 500 inclusion ...

 

[LN1_Casey]

German market looking good.

 

[Fact Checking]

94 million? Woow

Would it be possible to share a similar chart of the expiring options' strike prices for next Friday?

Sure:

 PUT $010:  46,018 ###############     ,   CALL $010:       0                
 PUT $020:  23,638 ########            ,   CALL $020:       7                
 PUT $030:   9,474 ###                 ,   CALL $030:       4                
 PUT $040:   4,995 #                   ,   CALL $040:      83                
 PUT $050: 112,413 ###################+,   CALL $050:     333                
 PUT $060:   3,522 #                   ,   CALL $060:     280                
 PUT $070:   7,628 ##                  ,   CALL $070:     797                
 PUT $080:  14,915 #####               ,   CALL $080:     995                
 PUT $090:   7,535 ##                  ,   CALL $090:     917                
 PUT $100:  68,508 ###################+,   CALL $100:     809                
 PUT $110:   4,018 #                   ,   CALL $110:     260                
 PUT $120:   4,978 #                   ,   CALL $120:     246                
 PUT $130:   4,763 #                   ,   CALL $130:      28                
 PUT $140:   5,831 ##                  ,   CALL $140:     101                
 PUT $150:  35,388 ###########         ,   CALL $150:     996                
 PUT $160:   3,272 #                   ,   CALL $160:     184                
 PUT $170:   7,498 ##                  ,   CALL $170:     319                
 PUT $180:  26,996 #########           ,   CALL $180:     424                
 PUT $190:  26,279 ########            ,   CALL $190:   1,601                
 PUT $200:  36,065 ############        ,   CALL $200:   1,515                
 PUT $210:   9,902 ###                 ,   CALL $210:   1,375                
 PUT $220:  19,072 ######              ,   CALL $220:   2,341                
 PUT $230:  11,475 ###                 ,   CALL $230:   1,278                
 PUT $240:  10,135 ###                 ,   CALL $240:   4,388 #              
 PUT $250:  14,603 #####               ,   CALL $250:   3,048 #              
 PUT $260:   8,699 ###                 ,   CALL $260:   3,715 #              
 PUT $270:  12,071 ####                ,   CALL $270:   2,903 #              
 PUT $280:  10,162 ###                 ,   CALL $280:   5,593 ##            
 PUT $290:   4,841 #                   ,   CALL $290:   2,214                
 PUT $300:  13,010 ####                ,   CALL $300:   6,031 ##            
 PUT $310:   9,622 ###                 ,   CALL $310:   1,963                
 PUT $320:   4,499 #                   ,   CALL $320:   6,647 ##            
 PUT $330:  11,133 ###                 ,   CALL $330:   8,262 ##            
 PUT $340:   6,445 ##                  ,   CALL $340:   5,072 #              
 PUT $350:  11,450 ###                 ,   CALL $350:   8,014 ##            
 PUT $360:   4,699 #                   ,   CALL $360:   5,158 #              
 PUT $370:   4,417 #                   ,   CALL $370:   2,930 #              
 PUT $380:   5,097 #                   ,   CALL $380:   5,365 #              
 PUT $390:   5,637 ##                  ,   CALL $390:   3,929 #              
 PUT $400:   8,306 ##                  ,   CALL $400:   7,761 ##            
 PUT $410:   5,332 #                   ,   CALL $410:   4,658 #              
 PUT $420:   8,201 ##                  ,   CALL $420:   7,333 ##            
 PUT $430:   5,915 ##                  ,   CALL $430:   5,758 ##            
 PUT $440:   9,369 ###                 ,   CALL $440:   4,773 #              
 PUT $450:   7,084 ##                  ,   CALL $450:   7,514 ##            
 PUT $460:   8,205 ##                  ,   CALL $460:   3,757 #              
 PUT $470:   5,846 ##                  ,   CALL $470:   4,308 #              
 PUT $480:   6,764 ##                  ,   CALL $480:   7,234 ##            
 PUT $490:   2,694 #                   ,   CALL $490:   6,191 ##            
 PUT $500:   2,588 #                   ,   CALL $500:  14,854 #####          
 PUT $510:     492                     ,   CALL $510:   5,579 ##            
 PUT $520:   1,052                     ,   CALL $520:   5,470 #              
 PUT $530:     185                     ,   CALL $530:   3,985 #              
 PUT $540:      48                     ,   CALL $540:   3,188 #              
 PUT $550:      88                     ,   CALL $550:   4,554 #              
 PUT $560:      47                     ,   CALL $560:   1,731                
 PUT $570:      17                     ,   CALL $570:   4,254 #              
 PUT $580:      31                     ,   CALL $580:   2,686 #              
 PUT $590:      11                     ,   CALL $590:   1,451                
 PUT $600:      16                     ,   CALL $600:   7,898 ##            
 PUT $610:       6                     ,   CALL $610:   1,878                
 PUT $620:       0                     ,   CALL $620:   1,765                
 PUT $630:       6                     ,   CALL $630:   2,658 #              
 PUT $640:       7                     ,   CALL $640:   1,274                
 PUT $650:       8                     ,   CALL $650:   2,380                
 PUT $660:       2                     ,   CALL $660:     638                
 PUT $670:       1                     ,   CALL $670:   1,431                
 PUT $680:       0                     ,   CALL $680:   1,522                
 PUT $690:       2                     ,   CALL $690:   2,477                
 PUT $700:       9                     ,   CALL $700:  14,743 #####          
 PUT $710:       5                     ,   CALL $710:     118                
 PUT $720:       0                     ,   CALL $720:     152                
 PUT $730:       0                     ,   CALL $730:     155                
 PUT $740:       0                     ,   CALL $740:      61                
 PUT $750:       0                     ,   CALL $750:   1,137                

2020/Jan/17:  PUTs:   703,040 ; CALLs:   237,451

Notes:

• 567,704 put options are at or below $300 and will likely expire worthless. I'm sure that an almost unanimous portion of TMC readership will be delighted to learn that a (formerly) significant short position of Mark BS. Spiegel's 2020 bankwuptcy puts will possibly expire among them. Good riddance.
  
• The 'near the money' portion of the open interest is actually smaller than this week's.
• There's a very high number of calls expiring in the money: 128k contracts if the price stays above $450. Deep in the money contracts are often exercised, because deep in the money options contracts are relatively illiquid in the market (higher spreads), and the delta hedging and options excercise inventory of these contracts is significant, and the dynamic delta hedging effect is significant as well, should there be bigger price swings.
• "Max effective pain" looks to be around $500, so I'd expect defenses of that line, should the price break above $490.
  
• There's 40k "short squeeze bet" calls at and above $600, I'd expect market makers to defend that level if given the opportunity, should $500 fall. Last Friday I believe it was them who successfully defended the ~$445 level, so it's possible if not much else is going on in the markets.

 

[Aeon]

The key portion:

"The automaker reached an agreement with Tesla last spring that could cost FCA an estimated 1.8 billion ($2 billion) through 2023. That breaks out to about $150 million to $200 million per quarter and will pad Tesla's profit margins starting in the first three months of this year, according to Ben Kallo, a Robert W. Baird & Co. analyst."​

Note that this is a conservative estimate IMHO: it apparently assumes current delivery levels with no growth in Tesla sales through 2023, and it doesn't seem to include 'SuperCredit' benefits, nor the effects of the merger with PSA.

If the per unit ZEV bounty paid by Chrysler-PSA to Tesla is roughly around ~$10,000 estimated by @Prunesquallor is accurate (but we don't know the details of the contract), then $150m-$200m per quarter ZEV revenue assumes average quarterly European Tesla sales of 15k-20k through the next 4 years, which is very low: Q4'2019 already significantly exceeded those levels with ~30k deliveries, and then we haven't even included any GF4 sales which are supposed to start next year ...

Just as a minor input re. FCA-PSA Tesla Pool:
As they improve their own EV-ICE ratio (with e208, e2008, Corsa, etc.) the need to substitute with Tesla vehicles might shrink. Has anybody seen reasonable calculation how many vehicles Tesla needs to sell and how many might be needed to press FCA-PSA below the CO2 threshold?

 

[Tslynk67]

This made me want to max out my margin on deep OTM LEAPS. Not new information to a lot of us here, but when it’s all laid out like that...had me thinking “Stop! I can only get so bullish!”

Watch Solving the Money Problem's YouTube vids too - has the same effect, and he doesn't talk like a robot.

 

[Fact Checking]

Just as a minor input re. FCA-PSA Tesla Pool:
As they improve their own EV-ICE ratio (with e208, e2008, Corsa, etc.) the need to substitute with Tesla vehicles might shrink. Has anybody seen reasonable calculation how many vehicles Tesla needs to sell and how many might be needed to press FCA-PSA below the CO2 threshold?

I believe @Prunesquallor and @mrdoubleb might be able to provide a more accurate assessment, but I had the impression that PSA has an even poorer EV program than FCA.

If FCA-PSA gobbles up all supercredits with highly subsidized compliance EVs in the small car segment, then the Tesla per unit bounty drops to around ~$6,000 IIRC - with flat 30k deliveries in the next 4 years that's still $180m per quarter.

We also don't know anything about the structure of the pooling agreement, other than that it exists, and that FCA provided their cost of the pooling agreement under the assumption that they'll be able to raise EV sales this year, and that they'll be able to 100% avoid Tesla's ZEV credits starting in 2021 (which I consider highly unlikely).

 

[NicoV]

Tarantino explains Belgian car taxes:

 

[Sancho]

No way in hell.

The reason Tesla didn't even announce a Plaid version for the X yet is because X sales are fine, large SUVs are growing in popularity all around the world, and the equipment to make them already exists. The X might be a Fabergé Egg, but as Elon said it's a work of art - and they already cracked the method of how to make it.

Probably even at the current 16k-18k/quarter sales levels the S/X are already generating a nice chunk of cash, and demand will only increase as the EV transition gets underway.

It is true that the S/X product lines are not key to Tesla's success anymore - they played their role of bootstrapping the 3/Y, but this welcome reduction in strategic importance doesn't mean Tesla will be throwing out cash generating product lines that already paid for themselves, which also happen to be great, beautiful cars.

The fact that the Mercedes-Benz GLC-Class is not critical to Daimler-Benz's survival and that they are selling in comparatively lower volumes doesn't mean they'll stop making those highly successful halo products which they've been selling for decades.

S/X might also be key to continued success in China, where larger/longer cars are sought after more than in say the EU, and where a more expensive status symbol up-sell model is key to the success of premium/luxury carmakers.

Edit:

• @luvb2b is estimating Q4 sales of S/X of $1,589m, on CoGs of $1,223m - so S/X probably generated about +$366m of cash in Q4 alone, and similar magnitude of gross profits.
• Even in the infamous Q1 of 2019, when S/X sales fell massively to 12k units in part due to the discontinuation of the 75kW model, there was $1,219m of revenue from the S/X models on $1,051m of CoGs, so the S/X still generated around +$168m income at 12k deliveries. The break-even point seems to be well below 10k units per quarter - S/X production appears to be pretty scalable both up and down.
  
• There are indirect benefits of the S/X models:
  • They scale up parts and materials purchases, even if few of them are shared with the 3/Y, it will add up and will move Tesla into higher discount tiers at key suppliers. I.e. even at break-even S/X sales help improve margins for the 3/Y through economies of scale.
  • Some customers will come into the showroom for the X and leave with a Model Y or 3. As long as it's a sale Tesla doesn't mind which model they pick, and having broader product lines is generally an advantage to get customers in the door (which is half of the sale), or to get them to a test drive (which in the case of Tesla is 99% of the sale ).
  • Members of the S/X workforce can temporarily be used to fill in gaps in the 3/Y lines. So while the S/X are more labor intensive, they can also be seen as a pool of experts who can help out anytime.

This is a rare case where I’m going to disagree with Fact Checking. My wife and I have owned the MS, MX and M3. We love everything about Tesla cars, but the gull wing doors of the MX were so impractical that we were forced to sell our MX and lease an Audi until our MY arrives.

So few people will prefer the MX to the MY that it will cease to make sense to keep a line operating for MX production. Tesla will have other better uses for their space-deprived factory.

 

[jbcarioca]

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....

Perhaps the problem in imagination is that many of us are thinking that this will be a single vehicle. IMHO it most definitively will NOT be that. The next one will be explicitly designed as a platform. After all the X is built on the S and the Y on the 3. The common parts count on X was perhaps ~50%, more that 70% for the Y. The next several vehicles will be on the new platform and will have at least 70% parts commonality including 100% of the skateboard. FWIW we already know that major components such as motors are used in similar form fir everything from Model S Plaid to SpaceX fin control, from Model 3 to Semi.

So I’ll wager last week’s market gains that the next vehicles coming from the China designed GF3 and GF4 built products will be a compact hatch-like (Think Golf), small SUV-like (Think Dacia Duster/Renault Captur- segment leaders even though NA has never heard of them), and mini-truck/van (think Ford Transit Connect). All of these can be on the same skateboard. They account for the largest volume vehicles in numerous high volume worldwide markets. Further, only slight alterations will allow going ever-so-slightly downscale to reach the globally dominant category of cheaper spacious utilitarian vehicles, in which SAIC/GM have had quite surprising success during the last couple of years.

In sum I think the Tesla mission will struck directly at the volume heart of global markets with the China designs. Those will end out requiring more GF’s in China, Europe, Brazil and only slightly smaller factories in a number of markets.

My prediction has a single major assumption: battery day will reveal serious pack cost efficiencies. Of course cost efficiencies probably come with myriad other, more sexy benefits that will make Plaid, semi, Roadster and others more of everything we know and love. Cost reduction is the first need.

We also will find out what exponitial growth really looks like when we see TE and the benefits of a distributed grid. @Paracelsus can tell us much more about that.