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

[Krugerrand]

From various statements by management (including Elon's tweets) it's pretty clear to me that Tesla is working with one of Space-X's metal foundries to develop and produce the material for the Cybertruck. I will also speculate that the CT will be made of at least two different SS sheet products as well as high pressure aluminum castings. Even though the material for the Cybertruck is proprietary, it's a safe bet that it will be manufactured on the same equipment that is used to make other cold-rolled SS sheet products. This means ramping production of the sheet metal will not be difficult and will be based upon supply contracts signed with Tesla.

What foundry is that? How big are they? How much investment and expansion is required to ramp tens of thousands of tons of stainless steel cold rolled 30xs?

 

[dc_h]

So does Apple.

That said, the dividends Apple, Microsoft, Nvidia, and AMD pay are relatively small. They are more like tokens of appreciation than actual investment income, so to speak. The so-called S&P 500 “Dividend Aristocrats” are typically very stable companies in mature, non-growing industries.

Dividend Aristocrats: List & Definition | The Motley Fool

These are the companies that I will one day hold my portfolio in and live off the dividends as my retirement income. But that day is still far in the future for me, today I still need to grow until I have an actual retirement sized portfolio and that means TSLA and my other tech holdings.

I encouraged friends to dump Verizon years ago, when Microsoft was $34 and VZ was $50. VZ had a higher dividend, but MS was growing faster and sped]nding only 1/3 of free cash flow on dividends. They could afford to grow dividends. MS is now 200 a share and still pays 2%. If MS was still $34, it would be paying 14%. Any successful company should, over the long term, find it more effective to pay dividends versus reinvesting internally. Berkshire has become so big, it’s hard to outperform the market and the leader/s who make these companies leaders age and lose the innovative edge that made them great. If Tesla fulfills it’s mission, it can become the worlds biggest company. Somewhere along the way, it should be generating more cash then it can reinvest internally. A decade of 50% CAGR would be a 1.5 trillion revenue company making about 100 billion or more per year. Governments would push breaking up Tesla into energy and auto and maybe AI services well before Tesla has a trillion in revenue. If Tesla is making 20 or 30 billion and pays no dividend, it seems hard to believe it could invest all its spare cash and hard to think Elon himself wouldn’t want to spin some of those funds to invest more in Mars or other space exploration efforts. it’s only a few years since Apple was convinced to pay dividends and they pay more overall than any other company.

 

[StealthP3D]

What foundry is that? How big are they? How much investment and expansion is required to ramp tens of thousands of tons of stainless steel cold rolled 30xs?

I don't think Tesla or Space-X has disclosed that. But it's probably not secret.

 

[Krugerrand]

• 
  
  I’m not sure the distance argument applies in this situation. to build the first C/T production line, what difference does it make whether it’s in a new building at Fremont vs a new building in Austin? The same Tesla team of people will be designing the production line of the C/T for the first time regardless of whether it is in Austin or Fremont. I’m not completely disagreeing with you about the fact that Tesla might start Y production first, but one can argue that since Tesla is already shipping the Y in the US that the C/T should be the priority for the Austin factory In terms of creating a vehicle that expands the total addressable market faster (especially in truck loving Texas and surrounding states).

You’re confusing the points made in a stream of discussion.

The reason for Y first in Texas is to print money asap out of a new factory; get it paying for itself. Efficient use of limited capital.

 

[dc_h]

What foundry is that? How big are they? How much investment and expansion is required to ramp tens of thousands of tons of stainless steel cold rolled 30xs?

SpaceX material science group works for Tesla and spacex. I don’t think they have their own foundry, like chips, they design the materials, but they don’t produce them.

 

[UnknownSoldier]

Elon just having fun on Twitter now. It's obvious at this point the blamestream media can't touch him anymore because of his tweets.

https://twitter.com/elonmusk/status/1287485282124804098?s=21

 

[Krugerrand]

I don't think Tesla or Space-X has disclosed that. But it's probably not secret.

I don’t think it exists. I think they hand make or make it themselves or have a small shop with a roll press hand making it for them in the small quantities they use as SpaceX.

 

[Bet TSLA]

Just one example, but Apple management said at the time that the primary reason why they chose to pay a dividend was due to the fact that there were a significant number of investment funds that represent a large amount of funds under management that have rules that state they can only include stocks In their portfolio that pay a dividend. This made more sense for Apple than some other large cap tech stocks as Apple normally at that time traded at a significant discount to the market (In regards to earnings multiple) so was very attractive to “value” funds, many of which couldn’t invest In Apple due to the lack of a dividend.

keep that in mind when looking at reasoning for some companies to pay a dividend, sometimes it is just a token amount done to broaden the pool of available investors.

Indeed I would be willing to forgive Tesla starting to pay a dividend if it were merely pro forma and the amount was a drop in the bucket. But the moment they demonstrate that their pace of innovation is flagging, I'm out. Currently I feel quite confident that Elon has ideas for Tesla that can soak up arbitrary amounts of capital.

I had pretty much my entire portfolio in AAPL when they started paying a dividend. I thought Apple's reasons made some sense, and they had many years of maintaining a growing cash hoard. Different company, different approach. In any case, neither company is anything Wall St. people will ever be capable of understanding. Not chasing profit, but profiting handsomely as a side-effect of building great products. That's what I want to invest in.

 

[capster]

I don’t think it exists. I think they hand make make it themselves or have a small shop with a roll press hand making it for them in the small quantities they use as SpaceX.

Just a thought, maybe Elon chose the same steel for the Cybertruck as SpaceX is using for rockets in order to create volume and, hence, drive down costs for SpaceX.

 

[Krugerrand]

SpaceX material science group works for Tesla and spacex. I don’t think they have their own foundry, like chips, they design the materials, but they don’t produce them.

That’s exactly what I think, but I also think it’s a tiny place hand making a small quantity for them not some major steel supplier. Wouldn’t be cost effective for a regular steel supplier.

 

[MC3OZ]

Just one example, but Apple management said at the time that the primary reason why they chose to pay a dividend was due to the fact that there were a significant number of investment funds that represent a large amount of funds under management that have rules that state they can only include stocks In their portfolio that pay a dividend. This made more sense for Apple than some other large cap tech stocks as Apple normally at that time traded at a significant discount to the market (In regards to earnings multiple) so was very attractive to “value” funds, many of which couldn’t invest In Apple due to the lack of a dividend.

keep that in mind when looking at reasoning for some companies to pay a dividend, sometimes it is just a token amount done to broaden the pool of available investors.

I think what the debate is lacking is some suggested rules around when dividends would be paid and the amount.

My intention was always token and symbolic, also assuming a secondary issue for S&P 500 inclusion.

Example Rules:-
1. Tesla only pays a dividend when cash on hand exceeds $15B.
2. A dividend never reduces cash on hand.
3. A dividend is always less than Gap EPS (and requires a profitable quarter)...

So my operating assumptions were : - cash on hand $23B-$25B, dividend amount $1-$2 per share...

Reasons:-
1. Shot across the bow of shorts.
2. Christmas bonus for shareholding employees...
3. Symbolic milestone...

Had the token nature of the proposal been explained in more detail, we might not have had the heated debate.

But it was interesting to see how strongly held opinions were on this topic..

 

[Krugerrand]

Just a thought, maybe Elon chose the same steel for the Cybertruck as SpaceX is using for rockets in order to create volume and, hence, drive down costs for SpaceX.

I can believe that. The problem is nobody makes it in the required CYBRTRCK quantity. A company has to be convinced to invest sizable income to expand their business to be able to make quantities for Tesla/SpaceX and only for them as no one else is using the metal in quantity. That’s the point I made earlier today. Elon has to do what he did on the ER call - ‘Somebody mine more nickel for Tesla so we can give you a big contract.’

I think most people don’t understand how the likes of Alcoa and others work.

 

[Sudre]

I encouraged friends to dump Verizon years ago, when Microsoft was $34 and VZ was $50. VZ had a higher dividend, but MS was growing faster and sped]nding only 1/3 of free cash flow on dividends. They could afford to grow dividends. MS is now 200 a share and still pays 2%. If MS was still $34, it would be paying 14%. Any successful company should, over the long term, find it more effective to pay dividends versus reinvesting internally. Berkshire has become so big, it’s hard to outperform the market and the leader/s who make these companies leaders age and lose the innovative edge that made them great. If Tesla fulfills it’s mission, it can become the worlds biggest company. Somewhere along the way, it should be generating more cash then it can reinvest internally. A decade of 50% CAGR would be a 1.5 trillion revenue company making about 100 billion or more per year. Governments would push breaking up Tesla into energy and auto and maybe AI services well before Tesla has a trillion in revenue. If Tesla is making 20 or 30 billion and pays no dividend, it seems hard to believe it could invest all its spare cash and hard to think Elon himself wouldn’t want to spin some of those funds to invest more in Mars or other space exploration efforts. it’s only a few years since Apple was convinced to pay dividends and they pay more overall than any other company.

A little tongue and cheek but to that point how do you break up a company whose headquarters is on Mars?
Send space force?

 

[Beltsbear]

Do you know the bed length of the R1T? It looks like it's only 4 feet. I've never seen a pick-up bed that short (unless perhaps the Avalanche). Wouldn't a "mid-sized" pickup truck need at least 5 1/2 feet (if not 6')?

I call it a vestigial bed.

 

[StealthP3D]

That’s exactly what I think, but I also think it’s a tiny place hand making a small quantity for them not some major steel supplier. Wouldn’t be cost effective for a regular steel supplier.

I'm confident SpaceX has a small foundry to develop the proprietary alloys they use in their rockets and this is probably where Tesla gets their advanced metallurgy from. But the Cybertruck will need huge volumes, likely above what any SpaceX foundry can do and they will likely contract it out to a large commercial foundry that already has big production cold rolling equipment. In the quantities Tesla will be ordering it will not be much more expensive than off-the-shelf materials because the production runs will be huge.

I'm not sure why you are concerned with how long it will take, Tesla has had a long time to talk to competing foundries and sign letters of intent or actual agreements.

 

[HG Wells]

Do you know the bed length of the R1T? It looks like it's only 4 feet. I've never seen a pick-up bed that short (unless perhaps the Avalanche). Wouldn't a "mid-sized" pickup truck need at least 5 1/2 feet (if not 6')?

I call it a vestigial bed.

Is this for vestal virgins ?

 

[Thumper]

Krug, I think you probably have more fabrication experience than me but Small and Rolling Mill seems like an oxymoron. Same goes for special alloy billets. I suppose it is all relative

 

[Jack6591]

Is this for vestal virgins ?

I just turned a whiter shade of pale.

 

[kbM3]

The nerd in me want the phrase to be:
"Pulling on All Poles"
.

Perhaps because that was an oft occurring activity, since nerds are not known to be prolific daters?

 

[Knightshade]

What foundry is that? How big are they? How much investment and expansion is required to ramp tens of thousands of tons of stainless steel cold rolled 30xs?

SpaceX does have a foundry but I don't expect it to be churning out cybertruck parts-

https://twitter.com/elonmusk/status/1076686201061404672

Elon mentioning their superalloy foundry was almost operational in late 2019



https://twitter.com/elonmusk/status/1096722006450462721?

Video from said foundry in early 2019




https://twitter.com/elonmusk/status/1176009705099071488

Elon mentioning in late 2019 the foundry was used exclusively for advanced alloys/shapes for Raptor (in response to a question about if it was used for Starship)