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

[KarenRei]

I thought I remember that part of the outcome of the last bout was that they established the penalty for future times he violates the order would be making Elon pay fines that get larger with increased number of violations... if that’s the case, then any action they would take shouldn’t really impact Tesla in any way.

That was what they sought, not what they got. What they got was weaker than what they started with.

 

[mrdoubleb]

EV Sales: Global Top 20 June 2019


Model X at #16 and Model S out of the Top 20.

Thanks! According to these numbers the S should be just around the edge of the top 20 with 13,904 sold.

 

[aubreymcfato]

OT, but relevant to climate change.

"The best estimate of US military greenhouse gas emissions from 2001, when the wars began with the US invasion of Afghanistan, through 2017, is that the US military has emitted 1,212million metric tons of greenhouse gases (measured in CO2 equivalent, or CO2e). In 2017, for example, the Pentagon’s greenhouse gas emissions were greater than the green house gas emissions of entire industrialized countries as Sweden or Denmark."
https://watson.brown.edu/costsofwar...Climate Change and the Costs of War Final.pdf

The sooner US get out of oil addiction (and wars to sustain this addiction), the better for the world.

 

[SPadival]

Even Boone Pickens Is Falling Out of Love With Oil

The venerable oil baron’s ETF abandoning Brent crude for renewables says it all.

Btw, the author Liam is an absolute Tesla FUDreporter scum.

 

[ReflexFunds]

EV Sales: Global Top 20 June 2019


Model X at #16 and Model S out of the Top 20.

BYD pure EV car sales were 96k in the YTD (they also sold 45k PHEVs and 82k ICEs) so Tesla really racing ahead at 160k.

 

[Fact Checking]

Wow, what a find:

"Like Audi and Mercedes, BMW is struggling to make money on cars that retail at less than €40,000, and roughly the same amount in U.S. currency. The rear-wheel-drive 1 Series, the 2 Series, and lower-trim 3 Series variants contribute very little if anything at all to the bottom line, and the company has established a list of doomed models. "​

I don't think I've seen this leaked before. If true then Tesla is hurting BMW, Daimler and Audi big time.

Only indirectly.

The European Commission and the Chinese Communist Party is putting a hurt more directly on Audi,BMW and Mercedes with CO2 grams per kilometer legislation and New Energy Vehicle quotas.

In the past regulators would back down when all automotive CEOs said low/zero emission vehicles could not be sold profitably. They needed massive subsidies to be desirable.

Tesla is proving that wrong.

Edit Also the new equipment to lower emissions to comply with regulations is a very small percentage of the cost of 40k Euro cars. On smaller cheaper cars it is eating up all the profits.

Yeah, so this is what I meant:

• I don't remember any prior leak that specifically called out the BMW 1-series, 2-series and lower-trim 3-series, and their Audi and Mercedes equivalents, as generating effectively near zero total income at and below ~$40k and ~EUR40k.
• This is not just a low margin versus high volume statement: the above quote, from an otherwise very well informed article, suggests that those model lines are not making any income worth speaking of, which is why they are being axed. (I doubt this is primarily emissions related - the penalties are not that high.)
  
• Per model profitability is a closely held proprietary secret at the German carmakers, presumably because it makes it easier for competitors like Tesla to target them. (I wish Tesla stopped disclosing per model gross margins - it's a competitive disadvantage and FUD fodder.)

All this means that indirectly Tesla's Model 3 and Model Y pricing strategy is basically perfect: with ~$40k and ~EUR45k entry pricing they are competing with all the profitable German models of BMW/Audi/Mercedes directly, in the price segments that are the bread and butter of the German auto industry. All of these manufacturers have a lot of models in the 20k-40k price range, but we now know that those models don't matter to net income.

I.e. the argument that "most of BMW, Audi's and Mercedes's sales are in lower price segments that Tesla cannot reach yet" is false: because those price segments are not generating BMW (and Audi and Mercedes) any substantial income either, according to this leak.

This is huge IMO, it means Tesla can dominate much of the income generating segments in western auto markets with their current line-up, the "Model 2" with the $25k entry price won't be necessary to reach the volume of the German car industry ...

All Tesla needs is the Model Y (and maybe a wagon version of the Model 3) and they are golden.

 

[jerry33]

Truck buyers are going to be a harder nut to crack than midsize sedan and midsize crossover buyers.

Some truck buyers will be, but I believe the majority of noncommercial pickup truck buyers are just folks who purchased a pickup rather than a car. (The penchant for buying pickups started in the mid-1970s when pickups had more performance than cars and cost the same). You just never hear about them because they don't stand out.

 

[Right_Said_Fred]

All Tesla needs is the Model Y (and maybe a wagon version of the Model 3) and they are golden.

When they build GF4 - hopefully in Poland (a country with reasonable wages and high work morale) - they should definitely introduce a wagon version of Model 3. In many northern European countries (Germany, The Netherlands, Belgium, Scandinavian countries) wagons are very popular. They are what pickup trucks are to the American car market. In the first half of 2018 wagons had a market share of 23% in Scandinavia, 19% in Germany, 14% in Eastern Europe, 13% in The Netherlands, Belgium and Luxemburg, 6% in Italy and 5% in the UK. It would at least double the adressable market for Model 3 in some of those countries.

 

[Pras]

When they build GF4 - hopefully in Poland (a country with reasonable wages and high work morale) - they should definitely introduce a wagon version of Model 3. In many northern European countries (Germany, The Netherlands, Belgium, Scandinavian countries) wagons are very popular. They are what pickup trucks are to the American car market. In the first half of 2018 wagons had a market share of 23% in Scandinavia, 19% in Germany, 14% in Eastern Europe, 13% in The Netherlands, Belgium and Luxemburg, 6% in Italy and 5% in the UK. It would at least double the adressable market for Model 3 in some of those countries.

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Isn’t model Y the right choice? It is not a bulky looking suv so I think that will fit the purpose just right.

 

[Stars aligned]

When they build GF4 - hopefully in Poland (a country with reasonable wages and high work morale) - they should definitely introduce a wagon version of Model 3. In many northern European countries (Germany, The Netherlands, Belgium, Scandinavian countries) wagons are very popular. They are what pickup trucks are to the American car market. In the first half of 2018 wagons had a market share of 23% in Scandinavia, 19% in Germany, 14% in Eastern Europe, 13% in The Netherlands, Belgium and Luxemburg, 6% in Italy and 5% in the UK. It would at least double the adressable market for Model 3 in some of those countries.

View attachment 436061

This looks beautiful, is practical and would be a huge success, I'm certain. Would it be brought to the market, I'd have one very soon. Would probably replace the Skoda Octavia as the standard family car for median and sub median incomes where I live.

Not everyone wants a SUV type car like the Y. Many here prefer sedans and wagons.

 

[Fact Checking]

When they build GF4 - hopefully in Poland (a country with reasonable wages and high work morale) - they should definitely introduce a wagon version of Model 3. In many northern European countries (Germany, The Netherlands, Belgium, Scandinavian countries) wagons are very popular. They are what pickup trucks are to the American car market. In the first half of 2018 wagons had a market share of 23% in Scandinavia, 19% in Germany, 14% in Eastern Europe, 13% in The Netherlands, Belgium and Luxemburg, 6% in Italy and 5% in the UK. It would at least double the adressable market for Model 3 in some of those countries.

View attachment 436061

Yeah, although as a European I have to say the Model 3 already comes with generous storage space: ~350 litre trunk, ~50l frunk, and the rear seats can be folded down flat like on wagons.

This compares to 320-360l trunks on similar wagons: Volvo V40, Audi A3, etc. - and is smaller than the Volvo V60 or Audi A4 wagons that are ~500l - but no major difference. (Tesla's trunk is so large because there's no gas tank at the bottom.)

The main advantage of a wagon versus a Model 3 is the flat trunk that makes it easier to access, and a wagon trunk is higher, for oversized items. Wagon is also a "family car" symbol in Europe, signalling a practical compromise between husband and wife.

Anyway, this is why I tagged it a "maybe": many Europeans will find the Model 3 much larger and more practical than they'd expect from a "sedan", and the Model Y SUV can fill most of the roles of a wagon. We'll see how consumer preferences evolve.

 

[Sunlight]

Maybe Tesla could add a 'wagon' version of the Model Y too (so a boxy SUV) which would satisfy a huge number of people who would willingly sacrifice a bit of range for more practicality in the long run.

I've always imagined that we'd end up with a Model Y as the most suitable for our needs (X way too big and complicated) but when it got shown the first thing my wife said is that she didn't want a SUV with a sloping back (we use it for lots of square-shaped things!)

The S; X; 3 (sedan and wagon) plus the Y (hatchback and wagon) would cover just about all the needs for the whole market. I wonder whether Tesla even needs to go into the small/supermini class of car (leave that low margin cheap category to others - most probably Chinese in the future!)

Pick-up truck and a wagon S and we're done...….

 

[KarenRei]

When they build GF4 - hopefully in Poland (a country with reasonable wages and high work morale) - they should definitely introduce a wagon version of Model 3. In many northern European countries (Germany, The Netherlands, Belgium, Scandinavian countries) wagons are very popular. They are what pickup trucks are to the American car market. In the first half of 2018 wagons had a market share of 23% in Scandinavia, 19% in Germany, 14% in Eastern Europe, 13% in The Netherlands, Belgium and Luxemburg, 6% in Italy and 5% in the UK. It would at least double the adressable market for Model 3 in some of those countries.

(/QUOTE)


Problem: gently tapered rear ends: they're not just for aesthetics:

Tesla will not do anything that will destroy their excellent drag coefficients, because they've very rightly decided that they're critical to making a good EV. Bad efficiency means:

If you keep the pack size the same:

• Higher charging cost, particularly on trips
• Less range
• Less range charged per minute spent charging at a given-power charger
• Hitting taper at a lower level of range charged
• Shorter battery life
  • More cycles needed to drive a given distance
  • A deeper daily depth of discharge
• Lower top speed

If you grow the pack size to compensate:

• Higher charging cost, particularly on trips
• Higher purchase price
• Lower production capacity from a given cell supply
• Less range charged per minute spent charging at a given-power charger
• Worse performance and handling
• Lower top speed.
• Weight lowering efficiency even further, worsening everything even more

Bad efficiency just ruins EVs.

 

[jbcarioca]

Yeah, so this is what I meant:

• I don't remember any prior leak that specifically called out the BMW 1-series, 2-series and lower-trim 3-series, and their Audi and Mercedes equivalents, as generating effectively near zero total income at and below ~$40k and ~EUR40k.
• This is not just a low margin versus high volume statement: the above quote, from an otherwise very well informed article, suggests that those model lines are not making any income worth speaking of, which is why they are being axed. (I doubt this is primarily emissions related - the penalties are not that high.)
  
• Per model profitability is a closely held proprietary secret at the German carmakers...

Actually this have long been known and very well documented but is also misleading because of the technicalities of accrual accounting. Basically all automakers, not just the German ones allocate development costs and other fixed costs along model classes rather than specific sub-models. That means the base versions of nearly all vehicles generate no fully-allocated gross margin. That is nearly always true for every manaufacturer.

However, a huge however, is that the marginal cost of the base models is nearly always much less than the marginal revenue. Thus, discontinuing, say, the base BMW 3-Series, would actually cost money because the fixed cost absorption would necessarily be spread among fewer vehicles.

Periodically some ‘genius’ discovers this situation and ignores the entry level model role so discontinues some of them, whereupon the fallacy re-emerges soon thereafter.

Where this concept does have merit it is because the base model has entirely different legacy running gear that no longer meets regulatory requirements so would necessitate new capital investment. That has been true of such long-lived but primitive models as the BMW 316, the original A-class MB and nearly all vehicles of the former Opel/Vauxhall lines. Despite that there are now numerous shared developments among manufacturers, especially for entry level models that effectively resolve some of that marginal cost problem.

In sum, the profitability by model GM equation is not inherently simple. One of the rare exceptions is the Tesla Model 3 LR AWD vs the P3D. There the marginal cost is virtually identical for both, but the P3D warranty costs will be higher because of usage, not inherent structure. Obviously, the P3D with 20” wheels will have higher cost, but nowhere remotely close to the ~$5000 charged for the wheels, tires and Brembo brakes plus the trim pieces. The highest rim models of competitors are somewhat analogous since the prices are vastly higher than the sum of the incremental changes.

Repeat, none of this is secret. It is buried in detailed disclosures in one place or another but is widely known within the industry.


FWIW, base models tend to be sold mostly in less well developed markets, producing volume that would not otherwise be likely, usually at higher prices than the same model would produce were it available in more developed markets. This is easily seen with VAG which continues to produce Audi, VW, Seat and Skoda models that are near-clones but at very distinct pricing and positioning. Capex spreads almost totally among all four brands.

Don’t be deceived about apparent new disclosures from BMW or DB. They are playing with their German shareholders and influencers to help buy time since they are ill prepared for required new regulations. OTOH, Tesla does have some serious advantages now that they are in the process of sharing much running gear among all their models. VAG is trying hard to catch up...

 

[Carl Raymond]

Tesla will not do anything that will destroy their drag coefficients, because they've very rightly decided that they're critical to making a good EV.

And that’s the thought that is raised whenever Musk describes the pickup as different, cyberpunk. It’s bound to be different in a way that reduces drag. He’s mentally preparing us to expect a shape we don’t normally associate with pickups.

 

[PaulusdB]

OT

Spookily enough I emailed them yesterday about this.

It’s all because of EU reg MIFID II, which prevents European residents from buying any ETF that doesn’t come with a Key Investor Information Document (KIID). From what I understand, this essentially shut the European market to US ETF manufacturers in 2018. A deliberate bit of non tariff barrier trade protectionism if you ask me.

Anyway, ARK say they’re working on it with their legal counsel. If it was a quick fix, one suspects we wouldn’t be talking about it. Anyone in asset mgmt compliance care to add further?

My similar mail to my Dutch broker Binck was from last Saturday. Basically I got the same answer.

Meer informatie
Om de transparantie van beleggingsproducten te vergroten ter bescherming van de belegger, is vanaf 1 januari 2018 de Europese verordening PRIIPs geïntroduceerd. PRIIPs staat voor Packaged Retail and Insurance-based Investment Products. Als gevolg van PRIIPs dienen ontwikkelaars van deze producten het Essentiële-informatiedocument (Eid) op te stellen en ter beschikking te stellen. Dit document helpt beleggers bij het doorgronden en vergelijken van deze producten. Voor meer informatie over de Europese verordening PRIIPs verwijzen wij u naar de website van de Autoriteit Financiële Markten (AFM) via: www.afm.nl/nl-nl/professionals/onderwerpen/priips.

[Translated]
More information
In order to increase transparency of investment products for protection of investors, the European regulation PRIIPs was issued on January 1st 2018. PRIIPs being Packaged Retail and Insurance-based Investment Products.
As a result of PRIIPs, developers of such products need to compile and publish an essential information document (Eid). This document assists investors in understanding and comparing these products. For more information on the PRIIPs European regulation we refer you to the website of the [Dutch] Autoriteit Financiële Markten (AFM): www.afm.nl/nl-nl/professionals/onderwerpen/priips
[/Translated]

The Dutch AFM site has an English version, but with only minimal mention of PRIIPs. MiFID II - Investor protection - Transparency of costs | MiFID II | AFM Professionals
There is, however, a specific e-mail address available on the subject: priips (a) afm (dot) nl.

As of today, there seems to be no US ETF fund that complies. Would be very nice to see ARK being first to do so.

 

[Fact Checking]

Repeat, none of this is secret. It is buried in detailed disclosures in one place or another but is widely known within the industry.

Nice and informative comment, but I'd like to quibble with this one: I tried to find per model line profitability disclosures in VW, BMW and Daimler financial disclosures, but couldn't find anything beyond worthless non-numeric characterizations and way too coarse multi-model summaries. I stand by my comment that per car model EBITDA cash margins are not disclosed. I'll change this understanding if falsified with contrary evidence.

(Shout out to @ReflexFunds, @brian45011, @schonelucht and @EVNow.)

I am also not quite sure to what extent I'd trust conventional wisdom within the auto industry: for example their understanding of EVs is terminally broken or fundamentally dishonest.

Also, please note that the leak was limited to BMW, Audi and Mercedes: for all we know the 20k-40k price segment might be generating little if any EBITDA for them, because Volkswagen's non-Audi and the other non-premium carmakers are dominating that segment.

 

[Christine69420]

I know Semi & The Megachargers haven't launched yet. But I just read about a project where they would fit in very well.

China is building a Highway between Shanghai and Hamburg. Lot's of the traffic there will be large trucks hauling goods. Would be perfect to have megachargers along the road and do all of this hauling without exhaust.

Perhaps Tesla could load balance production in GF3 and GF4 and move cars between continents? 8000 km is close to 5000 miles. I do not know how long a Semi on autopilot would use? But definately be faster than shipping.

It's estimated to take upto 14 years to complete - so 2033. But parts of the highway will be opened much earlier - and parts exist already.

New 1,250 mile motorway stretching across Russia given the go-ahead

The 8000 km long highway would be perfect for my TMX at some point too. Norway to Hamburg would add another 1400 km. But then across Poland, Belarus, Russia, Kasakhstan, Tajikistan, Kyrgyzstan, Usbekistan and finally Shanghai in China would be a fantastic road trip!

This is in the news now after China earlier this month signed the agrreement with Russia and have started working on the stretch across Russia. Some of this is on existing roads but the news is that China is connecting the dots and constructing new roads where needed.

Russia Approves ‘Shortest’ Europe-China Highway – Reports - The Moscow Times

PS! Semi & The Megachargers sounds like a decent band name!

 

[AlexS]

When they build GF4 - hopefully in Poland (a country with reasonable wages and high work morale) - they should definitely introduce a wagon version of Model 3. In many northern European countries (Germany, The Netherlands, Belgium, Scandinavian countries) wagons are very popular. They are what pickup trucks are to the American car market. In the first half of 2018 wagons had a market share of 23% in Scandinavia, 19% in Germany, 14% in Eastern Europe, 13% in The Netherlands, Belgium and Luxemburg, 6% in Italy and 5% in the UK. It would at least double the adressable market for Model 3 in some of those countries.

View attachment 436061

I think it was hinted that they will build GF EU close to Hamburg. I think Germany is a good choice as made in Germany sound really good for German buyers and it is biggest market. You don't have to bother about wages as GF will be highly automated. And Polands is running out of water if you haven't heard.

 

[PhaseWhite]

Just another buying opportunity. Relax.

I don’t disagree about equity. My post was about the risk to short term option holders.