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

[gluu]

I suspect Elon's observation is primarily for US carmakers - European and Japanese carmakers have quite good EBIT on just new car sales, especially in the premium and luxury segments where Tesla is present. Japanese cars also have excellent reliability and build quality, which reduces the out of warranty service stream.

I'm wondering what @jbcarioca's take is on this.



Beyond software margins, there were a couple of other factors helping Tesla become the only successful new automaker startup of the past 100 years:

• Financing, insurance and leasing are the underappreciated gold mines of the car business, and Tesla made good use of this to improve both the owner experience and margins. Other U.S. carmakers have ceded this source of income to the dealership cartels.
• Aggressive vertical integration forced upon Tesla by an ICE OEM friendly supply chain distrustful and dismissive of Tesla. This improved margins, increased flexibility and seeded in-house innovation. Today Tesla probably already has more in-house automotive and tech talent that understands the entire car and is able to perform whole-system innovation and optimization than any of the other major carmakers. With a system consisting of thousands of parts this is an underestimated factor.
• As a Silicon Valley startup, equity compensation was always a natural and major component of Tesla's labor costs. This reduced cash outflows, while attracting and retaining top talent. It also protected Tesla from union influence like the UAW, who'd have sabotaged Tesla from within. (UAW prefers to structure members as contractors and avoids equity compensation, knowing that strikes are harder to sustain if the stock price is tanking and members get nervous due to equity exposure.)
• Tesla equity and debt investors risked well over $10b of their money to help Tesla past its first 15 years, against an unprecedented barrage of disinformation, lies and direct malicious interference with Tesla's business.
• Sheer dumb luck. There's just so many alternative universes where:
  • Elon would have been noticed by one of the attentive VCs in the roaring 90s who'd have snapped him and Kimbal up into one of the software companies of Silicon Valley and he'd never have become an entrepreneur himself.
  • Or one of the alternative universes where Tesla made just one more critical mistake somewhere in the early stages.
  • Or one where McCain won over Obama and the Republican establishment would have suffocated all this green economy nonsense in its infancy, to protect coal and oil "jobs".
  • Or one where SpaceX wouldn't have been bailed out by NASA, which I'm sure was a factor to Tesla credibility and early VC investor sentiment as well.
  • Or one where Mercedes (and Toyota) didn't invest $50m in Tesla at a critical stage. Btw., that stake would be worth over 6.5 billion dollars now, had Daimler not sold their ~10 million shares they bought for ~$5/share for about ~$70/share. They cashed out thinking it a genius 14-bagger, only to lose what is now a 130-bagger ...
• Tesla's mission was and continues to be a significant benefit as well, because it helped retain both employees and investors: "even if I'm wrong and all this money is gone, I gave a worthy cause a fair shot to help save the planet". The ratio of #NeverSellASingleShare Tesla investors is significant I believe.
• Finally, unlike other founder-CEOs, Elon never cashed out of his Tesla shares, not even in small amounts - which is unusual and which supported the TSLA price as well. He did this at a considerable personal risk.

All of these were IMHO important factors to Tesla's success.

What I find amazing, is that Elon essentially went all in to save Tesla in its early days. As an investor , I’ve never bought into the pure business value of electrification alone. Elon essentially confirmed this view in the Third Row Podcast interview, saying it is only the combination of electrification and autonomy which enabled Tesla to be disruptive and succeed.

So for anyone who has ever doubted Elon’s intentions, he really did go all in on Tesla purely for his stated mission without autonomy in his line of sight and little hope of a big future payday. In my opinion, it was somewhat a stroke of luck that autonomy became possible in 2012, with the invention of deep nets. Without this selfless, singular leap of faith, the incredible lead that Tesla now has would not be possible.

 

[scaesare]

In the Podcast that dropped last night, Elon all but told us that the new battery architecture won't have modules. So it'll be just cells in a giant battery pack. As far as getting rid of the actual cylindrical cells themselves, well, there is a good reason for that form factor. Tesla uses a very reactive chemistry that does have the side effect of every once in a while doing a thermal runaway and essentially burning up. Every cell has a small wire attached to it which is both the main current conductor and a fuse for the cell. When a cell "explodes", the fuse breaks and the cell is cut off from the pack. Meanwhile the cell "explosion" itself is contained in the aluminum cylinder, so no harm done to the rest of the pack. Tesla lives with such a reactive chemistry because in the final analysis, it works better than having a lower energy density pack.

I mean, Tesla is smart, maybe they've figured out a better way to handle runaway reactions, I just don't know what that would be. My bet is more of the same, but no modules.

In that same podcast I felt like asking Elon, why can't you fix problems you see when you've found them? He gave an example of the battery pack having a lid so that it is a self contained box. But the underside of the car also has a floor. So you end up with a double lid on the battery. I guess it is very hard to make changes like that, getting rid of the battery lid, mid way through production. I guess it depends at what point you find out about it. Elon was in Model 3 production hell, so fixing an engineering optimization mistake was way down on the priority list.

It appears that in the 3 they have incorporated intumescent goo to lessen the chance of thermal runaway within the pack.

 

[Cosmacelf]

It appears that in the 3 they have incorporated intumescent goo to lessen the chance of thermal runaway within the pack.

If they could just use goo or something like that instead of an aluminum can, what a weight and cost savings that would be!

 

[CyberDutchie]

I don't think the Project Dojo chip is quite finished yet.

I think on the whole the Dojo chip is likely to be very tailored towards training the specific type of neural networks Tesla has chosen for its software base. This is likely to make it more efficient that Google's TPU 3.0 and Nvidia's AI cloud chips for Tesla's specific needs, but for most applications Google and Nvidia are likely to be a better choice.

There may be a range of AI projects and applications that use similar networks to Tesla though and its possible Tesla's chips could also be the best option for some third parties if they were made available.
I think the profit potential Tesla has from AI in-house though is likely so large that any potential cloud revenue will be insignificant.

The biggest reason for project Dojo I think is cost. The scale of the compute that Tesla needs for model training is mind boggling. It would simply be cost prohibitive to buy that many of NVIDIA’s GPUs. A popular NVIDIA system for model training is the DGX-1 system that has 8 GPUs, it has a price tag of about $150K. Tesla would probably need to deploy a cluster of ten’s of thousands of these DGX-1 systems to process the amount of data they have. You can do the math.

 

[ByeByeJohnny]

I wonder why they are so pessimistic?

Unfortunately, even their most optimistic bull case will fail to get me to billionaire status.

Ok, need to find a calculator ...

 

[Spksmp]

As far as I know, Tesla has not announced a target date for that capacity level. However, I believe that Elon Musk said on the Q4 earnings call that they were targeting a continuous growth rate of 50%. Clearly, batteries and autos must grow at comparable rates.

Yup I was wrong about that target date - it seems there never was a target date for 2TWh. But anyways, batteries need to not just grow at a comparable rate to auto, but in fact higher, for energy storage growth. The Q4 earnings reports says "Both solar and storage deployments should grow at least 50% in 2020". I think there is huge potential for energy storage. I'm not sure where the bottleneck lies right now in installing utility-scale energy storage, but I assume cells/batteries are a large part of it. And building a Megapacks should be easier than building more cars, if you have a surplus of battery capacity available.

My pure speculation, but a massive step-up in cell production capacity, versus a moderate ramp-up that I think most people are expecting, is what would really blow my mind on battery day.

Any other idea's of what would "blow Elon's mind"?

 

[Fact Checking]

What I find amazing, is that Elon essentially went all in to save Tesla in its early days. As an investor , I’ve never bought into the pure business value of electrification alone. Elon essentially confirmed this view in the Third Row Podcast interview, saying it is only the combination of electrification and autonomy which enabled Tesla to be disruptive and succeed.

So for anyone who has ever doubted Elon’s intentions, he really did go all in on Tesla purely for his stated mission without autonomy in his line of sight and little hope of a big future payday. In my opinion, it was somewhat a stroke of luck that autonomy became possible in 2012, with the invention of deep nets. Without this selfless, singular leap of faith, the incredible lead that Tesla now has would not be possible.

I agree, but I don't think current TSLA valuation has much of an FSD component: Autopilot income is still basically tied to the sale of a car, and while it improves margins, it's still "only" a driver assistance convenience feature, a premium trim option with low take rates in key markets.

I agree with Cathie Wood's team that if TSLA valuation included FSD potential, then fair value in the 5-year timeframe would probably be in the $1,500-$15,000 range. Only a small fraction of the FSD potential has been recognized in the stock price so far I believe - and the ongoing R&D and CoGs costs probably decreased the share price by a similar amount. I think Tesla will continue to downplay FSD progress, until it's time to pounce.

Last April gave us a rare glimpse into Tesla's FSD plans, in the road show leading up to an equity financing round. This year they won't need equity financing - unless "Battery Investor Day" is more grandiose and ambitious than anticipated.

 

[EVNow]

Brilliant engineers believe anything is possible. There is no impossible task.

“Deliver 100 metric tons to the lunar surface on a reusable rocket in two years? I don’t know if we can make it, but I’m game!”

Brilliant engineers know the difference between a death march and a challenge.

 

[MP3Mike]

The biggest reason for project Dojo I think is cost. The scale of the compute that Tesla needs for model training is mind boggling. It would simply be cost prohibitive to buy that many of NVIDIA’s GPUs. A popular NVIDIA system for model training is the DGX-1 system that has 8 GPUs, it has a price tag of about $150K. Tesla would probably need to deploy a cluster of ten’s of thousands of these DGX-1 systems to process the amount of data they have. You can do the math.

They say the current models take 70,000 GPU hours to train. So 400 of those units should be able to train the network in ~21 hours.

So no, I don't think they need 10s of thousands of those units. Even doing a build every day is probably too often, as you need time to test it after you build it. But still 400 of those would cost them $60M. (Assuming no discount for volume purchasing.)

Of course from the picture they showed it looks like they are using AP2.5 style units for their training. And with two GPUs in each one they would need ~1,600 of them to train the network in one day. At $500/each that is only $800k. (Plus the infrastructure/power supplies/etc. to support them.)

So you can guess they didn't buy the expensive off-the-shelf solution.

 

[LJS22]

CNBC - late this afternoon: An 'electric' Tesla trade

This is just an immature understanding of a contentious stock, it’s sad that some might think this is a good ”play” and lose money.

Elon really screwed over short sellers though. He told everyone Q3 and Q4 will be profitable in early 2019. He said Q1, and Q2 were seeing struggles logistically. Then in Q2 earnings call he says well Q3 I could see us breaking even but we should be profitable in Q4. it seemed like he was backtracking and things were about to go wrong again...then Q3 numbers earnings hit and it’s been an avalanche ever since.

If you’re betting big money against this stock you should really know every single word Elon Musk says about Tesla. It’s imperative that one understands where the company is quarter to quarter.

The simple way to see this is if Elon Musk makes a statement and he’s wrong then that’s one step back, if he achieves that goal at any point in the future that he missed then it’s two steps forward...if you didn’t cover your position one step back then you are now behind a step, and now that’s it’s 2020 Elon is sprinting ahead so good luck catching up.

 

[DaveT]

Interestingly today, my old bookmarks resurrected this prescient post from @DaveT six years ago on January 6, 2014 which he titled
2019: The long horizon approach to TSLA investing

In it, among other things he makes this 2019 prediction:
“So conservatively if Tesla can sell 700k cars in 2019 then the stock price will likely be at least $630/share.”

Articles/megaposts by DaveT

Great job Dave!
Now...what’re your 2025 predictions??

Hey, thanks for the blast from the past.

These words stuck out from that post:

"TSLA as a stock will likely go through great volatility over the next several years. It will waver between periods of exuberance where much distant future value will be sucked into the present stock price and periods of depression where people dwell on major doubts of Tesla’s ability to disrupt the auto industry and be a global leader in the auto market.

If you’re able to time the ups and downs, then more power to you. But for the majority of people, it would probably be the wiser move to invest a significant amount with a long-term horizon and not being swayed by the volatility."

Hard to believe that I wrote that over 6 year ago. And I'm glad I listened to my own advice.

I feel rather comfortable with Tesla's direction and probably path to a $650B+ valuation by 2028.

I've been spending a lot of time thinking about the following 10-15 years after that... from 2028 to 2043. Does Tesla have a chance to do another 10x during that period? If so, that would make it a 1000x stock (from $30 in 2012)... and would truly be remarkable (and that's an understatement).

I think a lot of the excitement people have over Robotaxi and Tesla Energy... might be a bit premature, and might take longer than expected to realize the revenue/margins that can translate into significant market cap gains (ie., above $1T). And that actually makes me more bullish for 2028 and beyond, because I think that's the period where the Robotaxi Network will come to full fruition... along many other markets.

 

[JustMe]

My pure speculation, but a massive step-up in cell production capacity, versus a moderate ramp-up that I think most people are expecting, is what would really blow my mind on battery day.

Any other idea's of what would "blow Elon's mind"?

Well, a quick Google search answers that. It turns out that Elon Musk’s mind is blown on a regular basis.

In 2014 Elon Musk said a fully autonomous vehicle blows his mind.
Elon Musk teases Tesla’s fully autonomous vehicle: “It blows my mind”

He said that the Tesla Semi blows his mind when he unveiled it
https://www.nbcnews.com/news/amp/ncna821746

In this tweet, he said “What blows my mind is that peak pressure in regen chamber & nozzle is *far* above combustion pressure at over 800 bar or ~12,000 psi”
Elon Musk on Twitter

He has said it blows his mind that so many people don’t believe in global warming.

He said that it blows his mind that nobody used the techniques they developed for solar glass roof. Here Are Important New Details About Tesla’s Solar Roof – Fortune

So, I suppose that the battery “thing” that Elon Musk will unveil is better than what’s going on in GF1. And that the magnitude of the better ness is similar to the Tesla Semi over a traditional semi. So, it will not be incremental, something will double or fall by half or more. It will be very impressive. But I don’t expect something totally radical.

What is that battery thing? Its got to be dry cell, cell integrated in the battery pack. Assembly will be much faster and less expensive. I expect a high level of automation. It will be significantly cheaper with sufficient scale.

I’m obviously guessing!

 

[DaveT]

What I find amazing, is that Elon essentially went all in to save Tesla in its early days. As an investor , I’ve never bought into the pure business value of electrification alone. Elon essentially confirmed this view in the Third Row Podcast interview, saying it is only the combination of electrification and autonomy which enabled Tesla to be disruptive and succeed.

So for anyone who has ever doubted Elon’s intentions, he really did go all in on Tesla purely for his stated mission without autonomy in his line of sight and little hope of a big future payday. In my opinion, it was somewhat a stroke of luck that autonomy became possible in 2012, with the invention of deep nets. Without this selfless, singular leap of faith, the incredible lead that Tesla now has would not be possible.

I was just thinking about this last week... Tesla has been fortunate to run into AI. It opens up their next 10-20 years to far more possibilities than they could have imagined.

And it's fortunate for TSLA shareholders as well.

 

[Buckminster]

Phew! I have been catching up since earnings. Thanks to all. I have complained about the quality of postings previously but the standard has been really high across the board. I haven't fully listened to the call yet or part 2 of the interview. Brexit has taken a back seat - got to get your priorities straight....

I'm not as grumpy a crumudgen as a cat I know...but Cramer is to late to the party...don't care for him at all.

I think that anyone who promotes Tesla should be acknowledged. Where I work, no one has a kind word to say about Elon (citing the pedo guy comment mostly).

Just got the information an hour ago from a well known automaker that does not get enough battery cells/packs for the production hence they had to go down in output and the line is even partly standing while the supplier ask for a lot more money to restart delivery. Crisis meetings are ongoing here at Friday night, CEO is pissed as they did not tell him until a few days ago. Mid Management was shaking because they did not know how to convey the message.

Its what me and many other have predicted and it became true now. BTW, thats not public info and appreciate if that does not leave this forum.

Implications are extremely severe as I do not see that situation to change soon unless you have your own battery tech and production.

All I can hope for is that they start in large scale production in Europe and understand now how critical it is leaving their former wrong strategy. Its silly that they did not see it coming, incredibly dumb.

Tesla will in my opinion not benefit from that as their demand is going through the roof anyway and with lower output from other brands we have lower adoption rate from the broader consumer group.

Tesla purchasing CATL and LG cells for Giga Shanghai is gonna have a huge impact on battery market price and availability. #scarceresource

Ark posted its updated projection.

Tesla Price Target: Tesla's Potential Trajectory During the Next Five Years

2024 "expected value" - $7k. Bear case: $1,500. Bull case: $15,000.

Deserves its own thread - some cool stuff to digest. A lot of emphasis on whether Tesla can build factories efficiently. Why Elon talks about the factory being a product.

ARK's Tesla’s Potential Trajectory During the Next Five Years Report

 

[sparcs]

Tesla purchasing CATL and LG cells for Giga Shanghai is gonna have a huge impact on battery market price and availability. #scarceresource

nobody else is using cylindrical cells in volume for automotive. What other industries would even use 2170s in any sort of volume? power tools?
i was under the understanding that everybody else of any consequence is going pouch cells which is basically a different market.

(chinese automakers like byd, nio, etc might be the only exception where i haven't read too much about their sourcing)

 

[StealthP3D]

CNBC - late this afternoon: An 'electric' Tesla trade

The reporting on this trade left me scratching my head. CNBC's Mike Khouw reported the purchase of 900 June $800 calls. He said the buyer paid "just under $20 a contract on that" which would imply a purchase price of just under $18,000, not just under $1.8 million!

Does he not know what an options contract is? Pretty sure the buyer paid just under $2000 a contract which would be just under $20 for each underlying share.

 

[wipster]

Model 3 on Blue Bloods tonight!

 

[Remus]

Well, a quick Google search answers that. It turns out that Elon Musk’s mind is blown on a regular basis.

In 2014 Elon Musk said a fully autonomous vehicle blows his mind.
Elon Musk teases Tesla’s fully autonomous vehicle: “It blows my mind”

He said that the Tesla Semi blows his mind when he unveiled it
https://www.nbcnews.com/news/amp/ncna821746

In this tweet, he said “What blows my mind is that peak pressure in regen chamber & nozzle is *far* above combustion pressure at over 800 bar or ~12,000 psi”
Elon Musk on Twitter

He has said it blows his mind that so many people don’t believe in global warming.

He said that it blows his mind that nobody used the techniques they developed for solar glass roof. Here Are Important New Details About Tesla’s Solar Roof – Fortune

So, I suppose that the battery “thing” that Elon Musk will unveil is better than what’s going on in GF1. And that the magnitude of the better ness is similar to the Tesla Semi over a traditional semi. So, it will not be incremental, something will double or fall by half or more. It will be very impressive. But I don’t expect something totally radical.

What is that battery thing? Its got to be dry cell, cell integrated in the battery pack. Assembly will be much faster and less expensive. I expect a high level of automation. It will be significantly cheaper with sufficient scale.

I’m obviously guessing!

it's amazing this list does not include landing of orbit boosters. Yet to meet one person who's not awestruck by the synchronized dancing of the two boosters.

 

[MartinAustin]

Would there be any wisdom to doing a stock split to allow retail investors on smaller budgets to get into the stock? $650 is really high all of a sudden.

Even a 10-for-1 split would only bring it down to $65. A 20-for-1 would be better.

 

[Remus]

Would there be any wisdom to doing a stock split to allow retail investors on smaller budgets to get into the stock? $650 is really high all of a sudden.

Even a 10-for-1 split would only bring it down to $65. A 20-for-1 would be better.

makes it harder for dollar cost average too.