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

[Anstandswauwau]

Yeah, you might be right, and I have no idea what they intend to introduce - we'll see. I suspect they'll try to start simple, with low capital costs.

What do you think? Is Tesla Insurance a hidden capital raise scheme? Is Elon playing 4D chess again?

 

[Pras]

I’m finally caught up on this thread, which is rare for me nowadays.

My biggest concern after the P/D report, and still after the earnings report, is S/X demand. It isn’t as bad as the Q1 numbers make it look, but it needs to be better. The Raven drivetrain should help a lot. 370 miles of range is mind-blowing & enables nonstop trips that previously required a Supercharger.

The new suspension has the potential to differentiate S/X from the 3/Y, set Tesla apart from other luxury brands as a tech leader in yet another area, and give buyers a more luxurious ride that many want at that price point. This is a slower, longer-term driver of demand, since buyers need to be educated on it— unlike the range improvement, which is immediately clear to buyers.

Finally, the progress on FSD features should drive demand as well, especially for existing Tesla owners with pre-HW2 vehicles. Unfortunately, it doesn’t differentiate S/X from the 3, but it does differentiate pretty dramatically from other brands.

S & X aren’t growth areas anymore, but they’re still incredibly important to Tesla’s financial health.

On S&X, there is nearly 1-2k cars currently from the previous version sitting on the us inventory. They have been marked down already (e.g. S 75D is for 72k) and the losses from mark down is already in the book. So the sales should grow because of cheaper inventory also.

But many on the sideline waiting for refresh should help.

 

[Fact Checking]

IMHO, the trade-off between building Model Y in Fremont vs Reno/Sparks comes down to:

A) Model Y production @ GF1 (Reno/Sparks) comes at higher capital investment costs (only battery packs are shared with 3 production, every other component of production has to be replicated).

B) Model Y production @ Fremont comes at the cost of lost production of S/3/X (mostly 3) during the build-up phase as they have to make re-arrangements in the factory, so non-trivial shutdown times are unavoidable for existing production.

Solution A may result in faster release time-line of Model Y, but at the cost of lower S/3/X production and sales in the meantime. Their decision will come down to cost-affordability and demand (3 vs Y) considerations.

I think there are a couple of other factors as well that complicates the Fremont vs. GF1 Model Y factory decision:

• Staffing: according to Carsonight the Reno job market is really overheated and tight - so Tesla might have trouble attracting enough qualified employees for a car factory. The "Tesla effect" attracted a lot of other high-tech companies to Nevada, which effect is now working against Tesla.
• Scale: Tesla alluded to a 1m/year Model Y initial production target, for which there's likely no space in Fremont. In GF1 there's enough space, but as you said higher capital requirements and longer delay to ramp it up.
• Shanghai Gigafactory: in GF3 they are probably going to include Model Y capacity (or at minimum make it really easy to do) right from the beginning - there will be enough space left for Model Y specific stations, stamping capacity, etc. I.e. somewhat counter-intuitively it could be simpler to clone the Shanghai Gigafactory in the GF1 extension, than to append Model Y capacity to Fremont.
• Concept: Elon wants GF1 to become to prototype Dreadnought factory, with cell and vehicle production in the same place. Integrated factories have numerous advantages beyond the shorter logistics chains, and I suspect it's hard to give up that concept, at least temporarily.

In the earnings call they said that they already have all the Model Y tooling ordered. I'd guess this means that they probably already have a candidate site, if GF1 is expanded then I think they'll have to use new paint booths and new stamping machines, they cannot just use the existing Fremont capacity with new dies.

 

[Fact Checking]

What do you think? Is Tesla Insurance a hidden capital raise scheme? Is Elon playing 4D chess again?

I don't think that's likely as the first step, the large amounts of capital that insurance companies have is basically built from decades of insurance flows and the ~cash pooling is required to offset some of the systemic risks, and might also be a regulatory requirement as @schonelucht pointed it out - and couldn't be commingled with general corporate funds.

But by offering Tesla Insurance, even if it's initially just piggybacking to a reinsurance company, creates additional income and reduces purchase friction: Tesla could be a one stop shop - and it could also make it easier for 'all Tesla families' which are increasingly more common. There's also interactions with other Tesla activities such as body shop repairs.

I.e. I imagine it more like an Apple Care work-alike - and Tesla could assume more and more of the risk as their insurance products mature and they gain experience in that segment. As much as people hate insurance companies it's a non-trivial business and the second largest employer of mathematicians IIRC.

 

[Fact Checking]

I’m sorry, but F*** the Saudis

With a bone saw ...

IMHO actively mixing up with the Saudis at this point would be public relations nightmare for Tesla, and it wouldn't be a fake concern this time around... It would be absolutely, utterly, insanely toxic.

The whole "Considering taking Tesla private. Funding secured." tweet was I think the result of Elon effectively trying to avoid a hostile (or de-facto) Saudi takeover of Tesla, by tweeting the offer Elon opened a bidding process. By August ~24 they had a counter-offer in place with 30 billion dollars of funding, which did not include the Saudis.

(IMHO the SEC totally misread Elon's actions there - any short squeeze was not the main motivation, it was just a happy side effect, at most. Meanwhile, having seen Sheryl Crumpton's inane arguments in court I'm not surprised about it anymore, the SEC lawyers are really that incompetent, naive, overzealous and easy to manipulate - but I digress.)

So I think Elon was acutely aware of the dangers of a Saudi buyout even back in August of 2018, when the Saudis were just a random dictatorship, not a random dictatorship caught on tape chopping up Washington Post journalists.

 

[Causalien]

I think there are a couple of other factors as well that complicates the Fremont vs. GF1 Model Y factory decision:

• Staffing: according to Carsonight the Reno job market is really overheated and tight - so Tesla might have trouble attracting enough qualified employees for a car factory. The "Tesla effect" attracted a lot of other high-tech companies to Nevada, which effect is now working against Tesla.
• Scale: Tesla alluded to a 1m/year Model Y initial production target, for which there's likely no space in Fremont. In GF1 there's enough space, but as you said higher capital requirements and longer delay to ramp it up.
• Shanghai Gigafactory: in GF3 they are probably going to include Model Y capacity (or at minimum make it really easy to do) right from the beginning - there will be enough space left for Model Y specific stations, stamping capacity, etc. I.e. somewhat counter-intuitively it could be simpler to clone the Shanghai Gigafactory in the GF1 extension, than to append Model Y capacity to Fremont.
• Concept: Elon wants GF1 to become to prototype Dreadnought factory, with cell and vehicle production in the same place. Integrated factories have numerous advantages beyond the shorter logistics chains, and I suspect it's hard to give up that concept, at least temporarily.

In the earnings call they said that they already have all the Model Y tooling ordered. I'd guess this means that they probably already have a candidate site, if GF1 is expanded then I think they'll have to use new paint booths and new stamping machines, they cannot just use the existing Fremont capacity with new dies.

Simple solution. Build in Gigafactory 1. There is currently no rush to deliver Model Y. TSLA need to sort out the efficiency problem and show that demand isn't a problem, unwind the wave and fulfill all the high end AWD and Performance version of Model 3 in all territory first. If TSLA must raise capital for it, so be it. Bringing model Y forward will just increase capital cost and will demand a capital raise to fund it either way. So doing this slowly is fine in space specifically designed for it but do it right.

Of course, this is moot if Model 3 has a demand problem. Then ya, TSLA need to raise and raise and rush model Y.

 

[Artful Dodger]

250wh/kg to 300wh/kg is a 20% increase, with that you could push the S (LR/SR) to 420/370 while actually reducing pack size ~10%, provided volume doesn't change much.

A 20% increase would push the M3 to 400/330 with the same pack size.

Indeed, the volume is fixed by the can, but we need to know both the gravimetric energy density (ie: 300 Whr/Kg) and the volumetric energy density (Q: # Whr/Liter?) to esitimate the specs on a new pack with simple 1:1 cell replacement.

I'll report back if I find specs on that.

Cheers!

 

[Causalien]

With a bone saw ...

IMHO actively mixing up with the Saudis at this point would be public relations nightmare for Tesla, and it wouldn't be a fake concern this time around...

The whole "Considering taking Tesla private. Funding secured." tweet was I think the result of Elon effectively trying to avoid a hostile (or de-facto) Saudi takeover of Tesla, by tweeting the offer Elon opened a bidding process. By August ~24 they had a counter-offer in place with 30 billion dollars of funding, which did not include the Saudis.

(IMHO the SEC totally misread Elon's actions there - any short squeeze was not the main motivation, it was just a happy side effect, at most. Meanwhile, having seen Sheryl Crumpton's inane arguments in court I'm not surprised about it anymore, the SEC lawyers are really that incompetent, naive, overzealous and easy to manipulate - but I digress.)

So I think Elon was acutely aware of the dangers of a Saudi buyout even back in August of 2018, when the Saudis were just a random dictatorship, not a random dictatorship caught on tape chopping up Washington Post journalists.

We all agree now that this whole thing, wouldn't have been such a big deal if it was handled better. What Elon need to understand is that he need to start seeking opinion from others and trusting other's opinion on this. He need to understand that he is not alone in this fight. Just look at the reddit/twitter effort to give TSLA free advertising in Timesquare.

Probably anybody in the C level position could've told him to wait till the end of the day to respond with a full letter with details. All the misunderstanding probably came from how limited twitter is in its msgs and opens things up to wild misinterpretations. Hostile take over takes a long time. One thing I did not understand is that even if this account of event is true, why rush to counter the hostile buying? no way 50bil worth of stock can be bought up in one day. All the mistake and attempt to create the mistake afterwards originated from a single point of failure in the beginning. Not reflecting on the potential impact of a tweet.

 

[Tslynk67]

You should have tried that with a Model X!

Tell me about it...

 

[Pras]

Simple solution. Build in Gigafactory 1. There is currently no rush to deliver Model Y. TSLA need to sort out the efficiency problem and show that demand isn't a problem, unwind the wave and fulfill all the high end AWD and Performance version of Model 3 in all territory first. If TSLA must raise capital for it, so be it. Bringing model Y forward will just increase capital cost and will demand a capital raise to fund it either way. So doing this slowly is fine in space specifically designed for it but do it right.

Of course, this is moot if Model 3 has a demand problem. Then ya, TSLA need to raise and raise and rush model Y.

In fremont I assume they can build both 3 and Y using same or some common lines, given they share many common parts. So capital saving.

Also building in one location can help manage variations in demand for 3 vs Y (if there is any cannibalization), use common logistics. Benefit of 70% common part can help not just in design and pricing but production also. One reason why model 3 production is now plateaued at 5-6k could be to leave the extra capacity for net 10k volume for 3 + Y.

Elon said global demand for model 3 is nearly half a million. Between Shanghai and Fremont they can easily build both 3+Y eventually. Now if you add Germany factory, they don’t need GF1. Three major factories building all models for their respective regions.

 

[schonelucht]

He works for the same Investment Bank (adviser) that Tesla retained in 2016 to justify the buy-out of SolarCity.

Sobering thought of the day for those who still think that the SolarCity buy was a smart financial move : second quarter in a row that the solar VIEs tap income from Tesla instead of taking away losses. Oh. And they've been bleeding net cash too for a bit longer.

 

[schonelucht]

Elon is a great risk taker/disruptor but it doesn't seem anyone internal to Tesla including him, his General Counsel nor the BoD appreciates the implications of embarking on this path

Tesla is not the company where you can fundamentally disagree with the CEO and hope to stay on. Maybe that's part of why the full financial and legal executive team revolved the last 6 months.

 

[Ocelot]

Your opinion that the Y is ugly is an opinion. Make sure you understand that. My opinion is that it's pretty badass. I want one. But I'll still probably get a 3 after my current lease ends this Nov.

Um.ok. You did keep reading, so when I say polarizing, that would mean there are others on opposite poles, no? ‘Make sure you understand that.’

Gonna spend the weekend thinking on how my opinion, is subjectively not objective.

 

[Fact Checking]

Zhelko’s criticisms of Elon have shown to be prescient over and over.

(I like most of Zhelko's comments when they are not about Elon, FWIIW. But his comments about Elon are correct in the 'broken clock' sense in my opinion: Zhelko has been basically non-stop raging against Elon for a long time, which tends to be 'prescient' in hindsight only whenever Elon messes up for real. (Which does happen.) But what's behind it is IMO just venom and dislike of the man, which isn't based on logic and there's no analysis nor predictive power in it AFAICS - he's just assuming bad faith or incompetence from Elon whenever possible. According to Zhelko's arguments no way can any company led by Elon ever land orbital rockets on a drone ship ... wait a minute.)

But this is much better argued in terms of actual arguments and events, such as his recent comment unilaterally blaming Elon and only Elon for the delay in the negotiations with the SEC, which was a SMH moment ...

 

[Causalien]

In fremont I assume they can build both 3 and Y using same or some common lines, given they share many common parts. So capital saving.

Also building in one location can help manage variations in demand for 3 vs Y (if there is any cannibalization), use common logistics. One reason why model 3 production is now plateaued at 5-6k could be to leave the extra capacity for net 10k volume for 3 + Y.

Elon said global demand for model 3 is nearly half a million. Between Shanghai and Fremont they can easily build both 3+Y eventually. Now if you add Germany factory, they don’t need GF1. Three major factories building all models for their respective regions.

That synergy is moot from my point of view. If Giga 3 is already going to have 3 + Y lines then there is no need for Fremont to have the same setup. Giga3 can be used as the mixed factory to adjust load and Fremont serve as baseload for Model 3 while Giga1 serve as baseload for Model Y.

Building at Giga 1 has another benefit, you can then slowly move the Model 3 line to Giga 1 once China capacity has been brought up. Freeing up Fremont to be used as the orignal testing ground for new line or be used to build the truck or other builds that require less mass automation, but more customized build. This specializes Fremont into the tech knowledge center and jack of all trade for manufacturing of all kind of stuff while the other Giga factories specializes in improving efficiency of Model 3 and Y.

 

[schonelucht]

I think the most likely reason for decline in deposits is that Tesla has, through incompetence and chaos, proven to customers that placing a deposit doesn't get you a damn thing, not even priority in line. I'm surprised they're as high as they are.

I am not. A high percentage of those cars in transit in the EU at least were paid up full before the end of quarter and therefore contribute to the customer deposit line.

 

[Pras]

That synergy is moot from my point of view. If Giga 3 is already going to have 3 + Y lines then there is no need for Fremont to have the same setup. Giga3 can be used as the mixed factory to adjust load and Fremont serve as baseload for Model 3 while Giga1 serve as baseload for Model Y.

Building at Giga 1 has another benefit, you can then slowly move the Model 3 line to Giga 1 once China capacity has been brought up. Freeing up Fremont to be used as the orignal testing ground for new line or be used to build the truck or other builds that require less mass automation, but more customized build. This specializes Fremont into the tech knowledge center and jack of all trade for manufacturing of all kind of stuff while the other Giga factories specializes in improving efficiency of Model 3 and Y.

Your Fremont plan doesn’t make sense.. all the capital invested in production lines should be left unused?!!

 

[schonelucht]

Superficial perhaps, but this didn't help the cash balance:View attachment 400661

I know. I just posted a remark on that before I got to your highlighting this section of the skeletons in the closet. It's all mouse nuts if you are making $7B/quarter revenue with 25% GM, but if you don't : it hurts.

 

[Causalien]

Sobering thought of the day for those who still think that the SolarCity buy was a smart financial move : second quarter in a row that the solar VIEs tap income from Tesla instead of taking away losses. Oh. And they've been bleeding net cash too for a bit longer.

Eh? Where can I find this in the reports? I kind of just gave up the fight on this after the merge vote is completed. One of those "nothing you can do now" thing.

 

[Fact Checking]

A note of caution when trusting Elon on anything related to FSD.

Yeah, so a regular CEO would keep the promise and release Advanced Summon in 6 weeks regardless of whether it's ready. There's corporate face saving and personal pride at stake, which must be protected at any cost!

just overly confident/hubristic

So Elon humiliating himself and losing credibility by not keeping an optimistic release date promise is hubris? Really?

Also, Elon also indicated that Falcon Heavy would probably be ready in about 6 months - for about 5 years, non-stop. Falcon Heavy got delayed, re-designed, delayed and re-designed again - and then it got launched, gloriously.

Would you have preferred Elon to force a launch regardless of whether the rocket is ready, just because he was asked about an expected launch date and he answered? Do you consider his promises that orbital rockets can be landed untrustworthy as well, based on his wildly optimistic timelines?

Or can you possibly just accept him as he is, who openly admits that his timelines are "aspirational", "best case" guesses, and who admits whenever he's wrong?

I.e. I see you attacking Elon for timing guesses and you often escalate "Elon's timelines are untrustworthy" into an "Elon is untrustworthy" generalization and character attack, but what is your argument?