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

[neroden]

I can't wrap my head around these price cuts. I still believe world-wide demand > production for the Model 3. So why lower margin?

Yes, one of Tesla's goals is to get as many EVs out there as quickly as possible, but lowering price won't speed that up if demand > production.

Another side of the above goal is to expand manufacturing as quickly as possible, but no matter how I look at it, lower margins means less capital for expanding.

Not to mention that Tesla must want to shut down the FUD, so any additional margin that can go towards FCF/profitability would be really helpful for public image, S&P 500 inclusion, etc.

The only rational reason I can think of to lower prices would be if production > demand.

The only way that would be great for us longs is if production radically increased. Or maybe Tesla's not as confident about demand as I've been (they of course have better visibility).

I guess that's my conclusion: there's still a *sugar*-ton of demand (100k/quarter for one car model is a *sugar*-ton), but with the previous pricing there wasn't enough excess demand to guarantee they could sell everything they made in the countries where the cars ended up.

I believe that supply is running ahead of the order book for certain variants for certain markets, yes. Not for every variant or every market, obviously (hence the price increases).

 

[Jwbj]

Prediction: we will close green, macros permitting, as manipulations are unwound and reality sets in that yesterday's price cuts imply Q2 margins were strong af.

View attachment 431275

 

[neroden]

8 things I would like to hear discussed during Tesla's Q2'19 earnings call

I wrote a short blog post about what I'd like to see discussed during Wednesday's conference call.

#4, Service, all the way. Should be #1 IMHO. Apart from that, great blog post.

 

[neroden]

And to lose everything, you bet 100% of every penny you have on a single stock as Frenchboy has done, when it moves against you.

Nonsense. Concentration in a single stock is fine, as Warren Buffett will tell you, if you really know that stock.

To lose everything, you bet money you don't have. Borrowed money, or money you need to spend on living expenses soon. That can kill you even if the company you invested in wins.

There's a difference between investing and gambling.

Yes.

 

[neroden]

@SnazzyQ @tailosivetech Basic white adds too much to service repair complexity. Team convinced me better to go with pearl white.

Elon Musk on Twitter

So multi-coat white it is!

Weird. They still have to support my basic white Model S.

I guess they like to know that if a white Model 3 comes into the shop, it is pearl white, without having to check the paperwork. This shows how bad their internal information tracking systems are, though. This is a very expensive (extra paint layers, extra time in the paint shop, more expensive paint repairs) patch on Tesla's broken communications.

It's a bad sign. It would be better to actually fix the damn communications problems so that they had no problem checking the car's paperwork for the paint color.

 

[neroden]

Like I said.

It’s been very predictable regarding Tesla pricing and tax credits expiring when it comes to buying a Tesla car. It just gets cheaper the more you wait, particularly with the P trims. A regular 90D from couple years ago cost pretty much the same as a P100DL now with better autopilot hardware/software. And the P3D is now more than $10K+ cheaper than last year.

P trims are basically donations to Tesla from people who want to give Tesla extra money, so their pricing isn't representative of normal supply and demand. Though it does tell us something about how many people are willing and able to throw money at Tesla.

 

[Mars ☰mperor]

This freaking news has been on CNBC for more than 3 days, still front and center Tesla news.

They say it's updated, yet I don't see no updated sugar whatsoever.
They just want it to be the first thing normal people see about Tesla.

So obvious, so blatant misinformation campaign.

 

[neroden]

Some companies use a “Margin Alley” to guide decisions. I think the idea is:

If you are serving a market that is attractive to competition,

There is a dollar return on investment threshold at which you invite competition.

Therefore companies will act to get back into the alley.

In commodity markets it might maximize contribution dollars over time.

Don’t know about here.

Tesla has always wanted other companies to make EVs, so they are happy to invite competition by having high margins. Other companies just won't do it...

 

[Stars aligned]

Yeah I wonder if there would be too much liability or something for diy. Deferred revenue comes out of revenue but normally warranty reserves would be taken from cash, not revenue. Does that % come out of revenue or cash?

They book Deferred Revenue on the balance side vs. Warranty services on the P/L side. Not going so far that they would take a bag of dollars in cash and put it in a reserve coffer....

 

[neroden]

It's also quite valuable even if you don't include your Tesla in the robotaxi fleet.

I'm presently spending about $3,000 on metro fares per year for a 10 mile journey to work. Paying for a parking space in the city would be about the same. But completing that trip four times per day (drop me and the wife off at work, return home to park, pick us up in the evening and take us home) would cost me about $300 in electricity per year. Saving $2,700 per year in commuting costs for a safer, cleaner, easier commute would be amazing, if Tesla can get regulatory approval within the lifetime of our 3.

You won't save that much. Adding extra car trips to a congested city is going to be tolled. Google "congestion charge" -- coming soon to an urban area near you.

 

[Stars aligned]

Pretty sure the short view is that is a liability if Tesla can't deliver on FSD... I'm long and I worry about this too.

Every time Elon sets a new date for some FSD related milestone and misses, shorts gets excited. That's how he keeps their interest and position high.

 

[neroden]

It doesn't matter if everyone wants to or not. Just that enough people do. You gave the example of a high mortgage; lets follow that logic. We've seen that in areas with high amounts of tourism, AirBnB has flourished. As that happened, both monthly rent amounts *and* housing prices have shot through the roof. Of course, not everyone wants to rent out part of their house. The problem is that they're competing on buying those houses with tons of people who do. This has happened to the point that many metropolitan areas have started putting in strict limits on AirBnB's in order to lower the demand on housing for that purpose and, therefore, open up housing affordable to residents.

In every one of these areas, the actual problem is that there are very strict government regulations preventing the construction of new housing -- "zoning" regulations.

If governments start prohibiting Tesla from manufacturing more cars, it'll be comparable. As long as that doesn't happen, it won't be.

 

[StealthP3D]

P trims are basically donations to Tesla from people who want to give Tesla extra money, so their pricing isn't representative of normal supply and demand. Though it does tell us something about how many people are willing and able to throw money at Tesla.

People have been paying a lot of money for more performance/power long before Tesla hit the scene. In fact, Tesla has made more power cheaper, not more expensive. It's not a donation, it's a splurge. The number of people who put a premium on having more power than the next guy is actually quite high so Tesla should have a high take rate on this Stealth Performance configuration.

Unlike a gas car, getting more power does not cause a 35% hit to your fuel economy. In fact, comparing it to the non-performance AWD with the same tires and wheels, there is zero hit to your economy (unless you actually use the extra performance).

Power is expensive and people who want it will have to pay. No donations here.

 

[Mars ☰mperor]

Weird. They still have to support my basic white Model S.

I guess they like to know that if a white Model 3 comes into the shop, it is pearl white, without having to check the paperwork. This shows how bad their internal information tracking systems are, though. This is a very expensive (extra paint layers, extra time in the paint shop, more expensive paint repairs) patch on Tesla's broken communications.

It's a bad sign. It would be better to actually fix the damn communications problems so that they had no problem checking the car's paperwork for the paint color.

Man, these assumptions seem too pessimistic.

Elon said the Team convinced him. First Elon is not easy to convince, you have to use hard numbers to talk the man down. Second, Tesla engineers are of high quality.

I'm not sure if this can be traced back to communications issue.

 

[neroden]

People have been paying a lot of money for more performance/power long before Tesla hit the scene. In fact, Tesla has made more power cheaper, not more expensive. It's not a donation, it's a splurge. The number of people who put a premium on having more power than the next guy is actually quite high so Tesla should have a high take rate on this Stealth Performance configuration.

Unlike a gas car, getting more power does not cause a 35% hit to your fuel economy. In fact, comparing it to the non-performance AWD with the same tires and wheels, there is zero hit to your economy (unless you actually use the extra performance).

Power is expensive and people who want it will have to pay. No donations here.

Fair enough, I'll change my description to "P trims are selling crack to acceleration addicts, and only tells you how many of those addicts there are and how much money they have to feed their addiction".

Acceleration on normal Tesla trims is so good that you really have to be an addict to want a P trim.

 

[neroden]

Man, these assumptions seem too pessimistic.

Elon said the Team convinced him. First Elon is not easy to convince, you have to use hard numbers to talk the man down. Second, Tesla engineers are of high quality.

I'm not sure if this can be traced back to communications issue.

In what possible way can having a simpler white paint add to "service repair complexity"? Only one. Bad service/delivery communications. Which we *know is a Tesla problem*.

Simpler white paint actually makes paint repairs faster. But in Tesla's broken repair system, faster repairs add to "service repair complexity"?!?

So this is definitely the communications issue. Pretty sad, really.

 

[neroden]

Anyway, ABS is an unfair analogy to FSD since the latter is the first of technologies that removes driver responsability whatsoever.

Therefore we can't learn from historic precedent. We are facing an entirely new problem legally.

That's why I looked at driverless trains for historic precedent. They literally have "train captains" who do nothing but "be responsible" and reassure people on Docklands Light Rail.

This is why law is a very interesting subject, at least to us lawyers

 

[neroden]

This law might be applied to ABS which is a "known vehicle property", but can it be applied to the airbag scenario I outlined:



?

The outcome of the airbag exploding into your face is not something you could have anticipated in advance, especially if it was marketed as a "safety feature".

There is very little the old lady can possibly do to avoid the negative scenario. It's a pure statistically driven benefits versus disadvantages trade-off, measured and decided by the vehicle manufacturer.

Before airbags were legislated to be mandatory did cars with airbags come with a "if you buy this vehicle the airbags might kill you in some circumstances" disclaimer that was legally enforceable against claims of injury/death?

I'm genuinely curious how the product liability angle was treated for airbags and ABS, because I think that gives us a good answer to how Tesla might approach FSD liability - which is I believe the primary gating factor to unlock driver-less FSD revenue.

The discovery that airbags had been optimized to protect large men who weren't wearing seatbelts and designed to kill small women who were wearing their seatbelts was an actual scandal, and was followed up by a class action lawsuit which settled for a lot of money. This might be a starting point in your research. (Also, airbags were redesigned at that time.)

 

[jeewee3000]

Informative interview. Musk is mostly right, but...


This is flat out wrong. He still doesn't understand "rush hour". Well, I guess he's never worked a 9-5 job.

Indeed, people won't start heading off to work at 11 am and return home around 9 pm just so they can get more value from their autonomous Model 3.

 

[neroden]

• If the price holds up a huge number of PUTs (420,000 of them) will expire worthless, including over 130,000 bankwuptcy bets at $100 and lower.

I am pretty sure those aren't bankruptcy bets; those low-strike puts are held by sellers of short puts at higher strikes as a way to gain more leverage. I bought some in order to prevent margin calls in the case of a change in the marginability of TSLA. The extremely round numbers are a hint. Each $100-strike put is roughly equivalent to $10,000 of extra margin capacity to sell higher-strike puts.