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

[AcesDealt]

We didn't even much talk about 13k$ coming off the long range s and performance model. These are astonishing price cuts.

I think you have to be all in on the low profit, high market share, long term growth story at this point. I'm dubious about full year 2019 profit.

 

[Fact Checking]

- no confirmation of the margin on SR

They don't know the take rates yet, margins will depend on the mix and volume of the new battery packs and how many people choose the $3k AP. SR margin will depend on how the fixed costs of the new Grohmann machine (if they are using it) distributes among units.

- macro's climate: recession, car tariffs

These risks actually went down in the past few weeks.

- SEC hearing in a few days

There's no hearing yet, Tesla will file their (first) reply brief by March 11 where I expect them to mount a strong and convincing defense.

Nevertheless I have no idea how the stock price will evolve, so this is not advice.

 

[RobStark]

"The CEO doubled down on his defence against the SEC’s claims by reiterating comments he made on a Jan. 30 earnings call that Tesla would sell as many as 500,000 Model 3s this year.

“350,000 to 500,000 Model 3s is what I said in the earnings call,” Musk told reporters. “And we expect to make somewhere between 70,000 to 100,000” Model S sedans and Model X crossovers."

So Elon Musk is referring to Model X as a crossover instead of an SUV. Hmmm.

 

[tinm]

Man all I want is eps of 0.01 for Tesla.

What needs to be done to make it happen?

How about:

Every participant in this forum place an order, amounting to several thousand orders, for the new Roadster.

Founders Edition, that is.

That oughta help.

kthxbye

 

[avoigt]

Prediction : German automakers for the most part will only try to compete against S&X. With lower volumes, they may be able to do so with small losses. But they will have no answer to 3 for many years to come. Same for Y.

But the problem for the luxury car makers is that their ICE sales will fall as people shift to 3, as is already happening. So, then what will they do ?

They are in a really bad position to be in.

Right now I do not see how the can accelerate going into BEVs. They are yet not able to bring the specs that are required to compete against the already old S and X. If they would be it would create more losses per car than they have today like the e-tron with €3k per car loss.

Finally they have no secure battery supply and even if they would have a car that can compete they could not produce it in masses. If they would they will have higher losses as CATL and other own the supply and can define the prices while the Germany have to accept them.

It all starts with pace of innovation but pace of cost reduction is equally important.

German manufacturers thought all the time they are the master of mass producing with profit and completely overlooked that an ICE is not an BEV. Now they 3 eats their markt stare and customers ones bought a Tesla won't come back easily.

One strategic mistake after the other.... and Elon strategy works out just fine over the years.

He opened the books and everybody could read it but nobody except some us here believed it.

 

[avoigt]

It may have been asked before but does anybody have the transcript?

I read a lot in the press what Elon did say but would like to read it on my own...

 

[UnknownSoldier]

I just noticed that the FSD upgrade for my 3 is down to $3k, the same price it would have cost had I added it when I purchased the car. Tempting now that HW3 is about to hit.

Even more tempting to buy it during a quarter where Tesla could use the additional cash...

Where in your Tesla Account do you purchase software upgrades? I don't see it anywhere...

Edit: Never mind I found it. Wow....I get a discounted upgrade. That's a nice little offer for the early adopters. Very tempted...

 

[mblakele]

Pretty sure if all 3s upgraded to FSD that'd do it. Being facetious, but seriously. It would.

Not an advice.

Would it? I thought Tesla wouldn’t recognize FSD revenue until they ship the software.

 

[MXWing]

Would it? I thought Tesla wouldn’t recognize FSD revenue until they ship the software.

All they need is one function to declare revenue recognition.

Automated enabling of fart mode when image recognition reads a Taco Bell or Del Taco sign.

 

[Fact Checking]

Would it? I thought Tesla wouldn’t recognize FSD revenue until they ship the software.

I outlined it a few months ago that this would likely happen: Navigate on Autopilot and Advanced Summon are the first genuine full self-driving features, especially after March 15 when NoA will allow doing lane changes without prompting.

Tesla probably won't recognize 100% of the FSD related deferred revenue, but after March 15 they can recognize a fair chunk of it and it will improve Q1 results. Any deferred FSD revenue recognized will probably be a 100% margin item with no CoG component, improving both Q1 revenue and gross profits by an equal amount.

But Tesla will be free to delay this FSD (and any pending Autopilot) deferred revenue recognition to Q2 or later quarters.

 

[Singuy]

Bounce-backs are faster now for sure. Green by next week IMO. Lots to digest for the market. Upshot is positive as in world dominance of the industry - sooner. Moat city!

I still don't understand why now? Either demand is tapering, or it's steady and capacity is growing. Seems to me they could have just deferred the $35K until China could ship them globally without too much push back. Is there another line in the works we don't know about? And how is a SR available in 2-4 weeks? Where did the 300K demand go? That number better grow soon or I'll get concerned. I keep trying to order a new one and it's been 2-4 weeks all day.

The MR took a lot of 300K (or lets just say 100k US reservations) away. Many people were expecting the tax credit to be half again when the SR comes out, plus it'll have way less features like a panoramic sun roof. Might as well pull the trigger at around 44.9k which after tax credit difference, you are only paying around 2400 dollars more vs a 35k+5k PUP and you get the extra range and power.

 

[Carl Raymond]

Yes. I am reminded of that moment in a chess game where one considers all their options, then it slowly dawns there are zero options, your king is pinned and it's checkmate.
Very slowly over the coming months, it will dawn on investors that the ICEV industry's days are numbered. Well played Mr Musk.

 

[Tifighter]

I just noticed that the FSD upgrade for my 3 is down to $3k, the same price it would have cost had I added it when I purchased the car. Tempting now that HW3 is about to hit.

Even more tempting to buy it during a quarter where Tesla could use the additional cash...

Thanks for bringing this to my attention @Zaxxon . It cost me $3K. But, really, thanks...

 

[SOULPEDL]

The MR took a lot of 300K (or lets just say 100k US reservations) away. Many people were expecting the tax credit to be half again when the SR comes out, plus it'll have way less features like a panoramic sun roof. Might as well pull the trigger at around 44.9k which after tax credit difference, you are only paying around 2400 dollars more vs a 35k+5k PUP and you get the extra range and power.

LeMUR, of course that helped bleed some demand.
Don't all Model 3s have the panoramic roof now? It's not an option that I could find, I think it's standard now.

 

[Fact Checking]

I still don't understand why now? Either demand is tapering, or it's steady and capacity is growing. Seems to me they could have just deferred the $35K until China could ship them globally without too much push back. Is there another line in the works we don't know about? And how is a SR available in 2-4 weeks? Where did the 300K demand go? That number better grow soon or I'll get concerned. I keep trying to order a new one and it's been 2-4 weeks all day.

I believe Tesla pulled the plug on the SR and on the aggressive price reductions for the following reasons:

• The various recession and tariff war risks have gotten significantly lower in the past month, and especially one of Tesla's biggest growth markets (China) probably won't see punitive tariffs anymore. China tariffs were the worst for Tesla, as they were double-trouble: they increased both parts costs of goods, but also increased end customer prices and depressed Chinese demand. The effective tariff cost for Tesla's sold in China was around 65% in December, now it could be back to 15% after an agreement between China and the U.S.
  
• Tesla probably had two plans for two scenarios:
  • "global recession hunker-down", in which they'd do 7k/week Model 3's and high margin S/X's to generate cash and use existing demand even in a recession,
  • "global recovery/growth", in which they'd introduce the SR and grow aggressively, as the $35k version possibly doubles the addressable market. Price reductions increase the addressable market non-linearly, and a $35k price point could in principle capture more than 50% of all sedan automotive revenue in any particular market. (!) We are talking about Tesla products becoming readily affordable to an addressable market of over 10 million units per year, every single year, even without any EV incentives. Very lucrative.
• There's various hints for this in existing communications, for example Elon explained it during the conference call that their 2019 demand expectations strongly depended on whether there's a global recession:
  • Elon Musk:
    
    "Okay. And we expect that exponential to continue. So with the deliveries this year being - even in the face of - if there's a global recession - even if there's a global recession, we're expecting deliveries this year to be about 50% higher than last year. And this - it could be a lot more than that. But even with tough economic times, to see 50% growth is pretty nutty."
  • [...]
    "Yes. Maybe in the order of 350,000 to 500,000 Model 3s, something like that this year."
• And the "no global recession" outcome seems to be materializing, which allowed them to pull the trigger on the hyper-growth variant and the SR version which is at +40% higher production levels than the conservative baseline.
  
• Yesterday Elon also reiterated the guidance they gave in the conference call: 350k-500k Model 3's and 70k-100k S/X's, which are a production of 420k-600k - with a possible maximum combined production rate at the end of 2019 of nearly 12k+2k=14k units/week (!). This is almost the double of the very cautious, conservative guidance of 6k/week+1.5k=7.5k units/week in their Q4 shareholder letter.
• There's a lot of added benefits as well: all competing EV products pricing structures are in disarray, plus $35k puts a hard cap even on ICE (sedan) sales. There could be a lot of organic demand growth.

But bootstrapping this growth and expansion plan will probably turn Q1 GAAP profits/EPS red:

• there's one-time restructuring costs,
• plus probable fixed capital costs from the SR production line (the new, football field sized 'Grohmann machine' at the Gigafactory that is probably making the SR battery packs) will be distributed among just ~1 months of SR units, not ~3 months,
• there's also the fact that both Europe and China deliveries required a bootstrapping/ramp-up, so neither Q1 revenue nor cash flow will be (close to) 100% of what it could be in steady state,
• there could be higher opex from service and Supercharger expansion, which would be leading the revenue and income growth by a couple of months.

Anyway, if most of these expectations materialize and Fremont is able to keep up with production and there's no major macroeconomic or Tesla specific negative surprise, then Q2 could be something special...

Yesterday's changes has turned Q1 and Q2 modeling and estimates into a really difficult job. Again. Elon is certainly not the patient type. I'm curious what @ReflexFunds thinks about the income and cash flow impacts of these changes.

Also, the FUD will continue, which might delay recognition of these outcomes in the stock price until investors will start stumbling over the actual evidence, in a few months.

 

[Singuy]

LeMUR, of course that helped bleed some demand.
Don't all Model 3s have the panoramic roof now? It's not an option that I could find, I think it's standard now.

Yes, I was making a point about prior to today's announcement. Today's announcement brought a lot of surprises such as pano for the SR.

If MR purchasers knew pano was going to come with the SR as standard, I bet a few might just end up waiting.

 

[GeoX750]

We didn't even much talk about 13k$ coming off the long range s and performance model. These are astonishing price cuts.

I think you have to be all in on the low profit, high market share, long term growth story at this point. I'm dubious about full year 2019 profit.

This must make one recognize the lack of demand and financial distress Tesla must be under ?

 

[FrANce]

Something else I just thought up: any damage to the car in that time could gum up the works.

Speaking of which, I wonder what happens for various levels of damage to the car during the return period. Sugar happens.

I imagine the same as if you'd try to return a shirt with spaghetti sauce all over it.

 

[printf42]

I think today’s lineup changes reached the target balance of price and cost for Model 3 at least before GF4.

Next step for Tesla is to send the message that there will not be any further price cut for lower trims, and there might be updates and price hikes for higher trims.

Recent price drops might have made people think Tesla will drop price further, so they start to hold back orders, and they’re right to do that since SR+ is such a good deal.

If Tesla keep the price of lower trim stable for a while, people who were waiting on the side line would pile in, many will do the Tesla stretch to order higher trim and/or with FSD.

Edit:
Elon already said no further price drop, great:
Elon Musk on Twitter

 

[sundaymorning]

As a shareholder of Carvana, online car shopping growth is over 130% YOY. People are sick and tired of "let me go ask my manager, and maybe get two managers to fight each other for this price below "invoice"...you know we are losing money on every car". Yeah..people are not stupid. You treat them like they are stupid, they'll take their business elsewhere.

lol, I’ve experience this countless times. I hate dealerships.