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

[StarFoxisDown!]

The bloomberg article quotes Denholm as saying


Bloomberg - Are you a robot?

This doesn´t sound as if it is only about sales.

Your response does nothing to invalidate my response or ReflexFunds

 

[humbaba]

The bloomberg article quotes Denholm as saying


Bloomberg - Are you a robot?

This doesn´t sound as if it is only about sales.

But you´re right, by the end of the year could mean any time between now and Dec 31. However, still doesn´t sound as if she is very certain they´ll even get it by end of the year.

I expect that is certificate to manufacture for sale as they have already obtained other manufacturing permits. I don't see this is an unexpected redtape, that is just the current FUD. Oh, look, their brand new expensive factory that was build in record time can't make anything! Oh noes, woe is me!

 

[M3Rider]

Anyone know what exactly the hang-up is on the sales approval for GF3? Seems everything was fast-tracked, now all of a sudden there's some red tape?

I re-posted like a week ago, there's a step where the first trial vehicles have to be evaluated and then certified, seems like that's what she's talking about.

This post:
Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable

 

[StealthP3D]

Buying disposable shares of NIO in the $1.50’s is turning out to be a gold mine so far.

Even unprofitable gold mines have a good week now and then. I'm not bashing Nio, just saying that a bump in share price is not really indicative of anything. While I'm not going to address the likelihood of Nio failing, I will say that all failing companies share prices have volatility as they go down. It's never smooth.

 

[KarenRei]

1. Ok, good point cooking is not the right word. But you changed my words and attacked it.

2. Yes, let's all care about global demand, it is not in the projected growth rate due to mostly FUD. FUD works in a lot of places, not only NA.

Here, let's simplify it for you. A gross oversimplification to explain the concept.

There's EV markets of varying sizes. For simplification purposes, let's say that each subsequent market is half the size of the original. Each market builds up pent-up demand waiting for delivery. For oversimplification, let's say that a quarter spent feeding pent-up demand delivers vehicles at double the rate as a quarter feeding sustained demand, and that it typically takes one quarter to meet pent-up demand.

So what does the progression look like if we expand by one market per quarter? Let's call the sustained demand in our first market "X" (say, the US), and remember that they're starting at double their nominal rate:

1) 2 * X = 2X

Now we add a new market (say, LHD Western Europe + Scandinavia), which is meeting pent-up demand, while the first market drops back down to normal levels.

2) X + 2 * (1/2 X) = 2X

Huh, still the same total! Next market, with the previous one settling down.

3) X + 1/2 X + 2 * (1/4 X) = 2X
4) X + 1/2 X + 1/4 X + 2 * (1/8 X) = 2X
...
N) X + 1/2 X + 1/4 X + ... + 2 * (1/2^N X) = 2X

Notice how demand keeps falling in each market as backlog is met, yet the total remains the same. Except:

• X isn't constant. Globally, the global EV market grows every year - pretty dramatically. While there's a ton of noise within individual markets, from quarter to quarter, year to year, the overall trend is dramatically upwards. So the total doesn't remain at "2X", it goes 3X, 4,5X, .... and so on up.
• It more often than not takes more than one quarter to feed pent-up demand.
• Sustained demand has generally been a lot higher than halving of the initial delivery wave's levels. There's a ton of noise between markets and timeperiods (changes in incentives, etc) - some have more than halved - but overall, halving seems to be overly pessimistic for the general case.
• Random "noise" is currently rigged to favor positive effects in the biggest markets. Tesla gets almost no federal subsidies in the US and Germany, and historically has gotten none in China (while paying tariffs). These are three of Tesla's largest potential markets, yet they work largely against Tesla at present. There's little potential for noise to the downside, while a lot of potential for noise to the upside. In China, Tesla is already well en route to a dramatic upside (more on that in a second).
• The above assumes that Tesla's share of the global marketplace remains constant. While the TSLAQ thesis is of course that they'll lose market share, the reality is that the opposite is setting up to happen. In the world's biggest EV market - China - domestic manufacturers are losing their subsidies, which is proving devastating for them (BYD barely posts a profit anymore, for example). Tesla never got the subsidies, and instead had to pay 10% import taxes on top of international shipping costs, while building vehicles with much more expensive labour rates. That entire situation is now reversing. It doesn't take a genius to figure out what's going to happen with Tesla's market share there. A lesser version of this will happen when Tesla launches GF4 in Europe, avoiding shipping and import tariffs. In the meantime, while yes, other manufacturers continue to launch new EVs, so does Tesla - getting ready to launch Model Y and Plaid S in 6-9 months, Semi at the end of next year, Roadster the following year, and Pickup at some unknown point which we'll find out soon enough.

Shorts have been consistently wrong about Tesla's demand growth, and until they grok the above, they will continue to be wrong about it. The only thing they've been more consistently wrong about has been how much COGS would decline, due to their failure to understand that if you produce dramatically more vehicles without hiring more people or building new production lines, your COGS inherently declines precipitously.

 

[hobbes]

Yeah the way I understand it is they need the license to sell the cars they've manufactured.

“We’re working with the local government to get our manufacturing certification, which we hope we will be able to get by the end of the year,” Denholm said.

Your response does nothing to invalidate my response or ReflexFunds

If they are missing a manufacturing certification, they cannot manufacture.

 

[StarFoxisDown!]

“We’re working with the local government to get our manufacturing certification, which we hope we will be able to get by the end of the year,” Denholm said.



If they are missing a manufacturing certification, they cannot manufacture.

There are ways to get around it and what is allowed to start production verses what isn't. Agree to disagree.

 

[Curt Renz]

Electrek - this morning: Germany increases EV incentives - making less expensive electric cars even cheaper - Electrek

 

[StealthP3D]

I didn't drill down into what exactly is being burned, but sugar cane is being burned in poor countries before being harvested(manually, so sharp leaves don't cause cuts). In U.S. it's harvested by machinery, so burning is not needed.

When I read article about that smog, it said fields are being burned in preparation for the next year, so this did not sound like harvesting the sugar cane.

There's actually an interesting episode on sugar cane in season 2 of Rotten on Netflix.
It's a great show about the life cycle of some of the produce we consume, very educational.

Also, Mars season 2 just came out, also highly recommend.

I'm not sure what your point is. It doesn't matter *when* the cane is burned (yes, just before harvest) it matters *why* it is being grown. And it's primarily for ethanol. Don't parse the words of a journalist to try to say sugar cane burning couldn't be part of the problem because we know from other sources that it is a large part of the problem.

My point is a transition to EV's will clean the air in India on multiple fronts and in staggering ways. Oil refining, tailpipe emissions and, yes, a lot less agricultural burning to make ethanol.

 

[capster]

Sorry if this was discussed earlier today, didn´t find anything in a quick search.
Tesla is still in need of a manufacturing license in China, hopes to get it by end of the year - Electrek

Seems we can only expect production output from GF3 Shanghai *next year*, according to Denholm. So that would mean all the employees and manufacturing equipment won´t make any money until then - any estimates whether this will put profitability in danger?

Hmmm, hard to imagine that China’s leadership, once aware, will be willing to lose so much face and have China be viewed as an unreliable, possibly dastardly, partner in such a high visibility project.

Then again, it also makes you wonder how high this goes, who’s involved, and what is wanted in return for the license.

edit: Guess the missing license thing might be a red herring. I dunno. Sigh, never a dull moment.

edit 2: Guess it likely is a thing, but expected and not new news, according to subsequent posts referring to an earlier post.

 

[Dan Detweiler]

Sorry if this was discussed earlier today, didn´t find anything in a quick search.
https://electrek.co/2019/11/05/tesla-need-manufacturing-license-china/

Seems we can only expect production output from GF3 Shanghai *next year*, according to Denholm. So that would mean all the employees and manufacturing equipment won´t make any money until then - any estimates whether this will put profitability in danger?

For me, with 6 Billion in the bank, I don't really care if they show profitability in Q4 or not. As long as the growth is there and they are showing continued signs of ramping Model Y and Giga 3 I'm ok.

Dan

 

[mongo]

“We’re working with the local government to get our manufacturing certification, which we hope we will be able to get by the end of the year,” Denholm said.



If they are missing a manufacturing certification, they cannot manufacture.

I think you are misinterpreting the term. The vehicles produced need to be validate to meet China's requirements. That certifies their manufacture and allow sales.
Tesla already have approval to build cars:
Tesla Gets Government Approval To Build Electric Vehicles In China

The same process happened with the made in Fremont 3s that were imported.

 

[shootformoon]

Well I am not sure if you meant to reply to my quoted post or other people's, but lets discuss anyway.

1. Yes, pent up demand is not what we should pay attention to, the order flow after that is the better measure of demand. That is exactly my point. tsla looking at the m3 order flow from each market constantly and decides the future capacity built up rate, which leads to the current no built up in fremont decision.

2. m3 should increase the EV market share because, well, the competing products are much inferior and people slowly realize that due to FUD

3. The entire EV market demand could grow faster if people know what is exactly being offered. Even other problems like charging facility could be solved in a much faster fashion if general public's mind is up to date and request it. Again it is growing too slowly due to FUD.

Here, let's simplify it for you. A gross oversimplification to explain the concept.

There's EV markets of varying sizes. For simplification purposes, let's say that each subsequent market is half the size of the original. Each market builds up pent-up demand waiting for delivery. For oversimplification, let's say that a quarter spent feeding pent-up demand delivers vehicles at double the rate as a quarter feeding sustained demand, and that it typically takes one quarter to meet pent-up demand.

So what does the progression look like if we expand by one market per quarter? Let's call the sustained demand in our first market "X" (say, the US), and remember that they're starting at double their nominal rate:

1) 2 * X = 2X

Now we add a new market (say, LHD Western Europe + Scandinavia), which is meeting pent-up demand, while the first market drops back down to normal levels.

2) X + 2 * (1/2 X) = 2X

Huh, still the same total! Next market, with the previous one settling down.

3) X + 1/2 X + 2 * (1/4 X) = 2X
4) X + 1/2 X + 1/4 X + 2 * (1/8 X) = 2X
...
N) X + 1/2 X + 1/4 X + ... + 2 * (1/2^N X) = 2X

Notice how demand keeps falling in each market as backlog is met, yet the total remains the same. Except:

• X isn't constant. Globally, the global EV market grows every year - pretty dramatically. While there's a ton of noise within individual markets, from quarter to quarter, year to year, the overall trend is dramatically upwards. So the total doesn't remain at "2X", it goes 3X, 4,5X, .... and so on up.
• It more often than not takes more than one quarter to feed pent-up demand.
• Sustained demand has generally been a lot higher than halving of the initial delivery wave's levels. There's a ton of noise between markets and timeperiods (changes in incentives, etc) - some have more than halved - but overall, halving seems to be overly pessimistic for the general case.
• Random "noise" is currently rigged to favor positive effects in the biggest markets. Tesla gets almost no federal subsidies in the US and Germany, and historically has gotten none in China (while paying tariffs). These are three of Tesla's largest potential markets, yet they work largely against Tesla at present. There's little potential for noise to the downside, while a lot of potential for noise to the upside. In China, Tesla is already well en route to a dramatic upside (more on that in a second).
• The above assumes that Tesla's share of the global marketplace remains constant. While the TSLAQ thesis is of course that they'll lose market share, the reality is that the opposite is setting up to happen. In the world's biggest EV market - China - domestic manufacturers are losing their subsidies, which is proving devastating for them (BYD barely posts a profit anymore, for example). Tesla never got the subsidies, and instead had to pay 10% import taxes on top of international shipping costs, while building vehicles with much more expensive labour rates. That entire situation is now reversing. It doesn't take a genius to figure out what's going to happen with Tesla's market share there. A lesser version of this will happen when Tesla launches GF4 in Europe, avoiding shipping and import tariffs. In the meantime, while yes, other manufacturers continue to launch new EVs, so does Tesla - getting ready to launch Model Y and Plaid S in 6-9 months, Semi at the end of next year, Roadster the following year, and Pickup at some unknown point which we'll find out soon enough.

Shorts have been consistently wrong about Tesla's demand growth, and until they grok the above, they will continue to be wrong about it. The only thing they've been more consistently wrong about has been how much COGS would decline, due to their failure to understand that if you produce dramatically more vehicles without hiring more people or building new production lines, your COGS inherently declines precipitously.

 

[StealthP3D]

I expect that is certificate to manufacture for sale as they have already obtained other manufacturing permits. I don't see this is an unexpected redtape, that is just the current FUD. Oh, look, their brand new expensive factory that was build in record time can't make anything! Oh noes, woe is me!

Do not trust Bloomberg for your information. Tesla already has all the manufacturing permits they need according to a Reutgers article who quotes this:

This means “the green light is fully given to Tesla for production in China,” said Yale Zhang, head of the Shanghai-based consultancy Automotive Foresight. Tesla can start production any time, he said

Tesla gets approval to start manufacturing in China

You might have noticed that Bloomberg provides a timeframe for some of Denholm's quotes but not for the ones about "manufacturing certification". She could have made those quotes at another venue at another time? Is it bad journalism to not specify when certain things were said? Yes, but this is Bloomberg we're talking about here.

 

[M3Rider]

I'm not sure what your point is. It doesn't matter *when* the cane is burned (yes, just before harvest) it matters *why* it is being grown. And it's primarily for ethanol. Don't parse the words of a journalist to try to say sugar cane burning couldn't be part of the problem because we know from other sources that it is a large part of the problem.

My point is a transition to EV's will clean the air in India on multiple fronts and in staggering ways. Oil refining, tailpipe emissions and, yes, a lot less agricultural burning to make ethanol.

My point was that specifically for sugar cane, replacing manual labor with machinery when harvesting removes the need to burn.
So, EV is not the only solution, although could potentially help.

 

[hobbes]

Sorry if this was discussed earlier today, didn´t find anything in a quick search.
https://electrek.co/2019/11/05/tesla-need-manufacturing-license-china/

Seems we can only expect production output from GF3 Shanghai *next year*, according to Denholm. So that would mean all the employees and manufacturing equipment won´t make any money until then - any estimates whether this will put profitability in danger?

Seems to me this is not a surprising development to Tesla, Q4 letter sounds as if they are expecting it could still take a while:

We have cleared initial milestones toward our manufacturing license and are working towards finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai.

Also, in the financial projections thread @Doggydogworld and others were wondering about a new credit line for vehicles in transit to China: Near-future quarterly financial projections Might it be that they are sending vehicles to hedge for delayed production start of GF3?

 

[jerry33]

Hmmm, hard to imagine that China’s leadership, once aware, will be willing to lose so much face and have China be viewed as an unreliable, possibly dastardly, partner in such a high visibility project.

Then again, it also makes you wonder how high this goes, who’s involved, and what is wanted in return for the license.

It's the same as here. Every bureaucrat and politician wants to make sure you know exactly how powerful they are.

 

[humbaba]

Do not trust Bloomberg for your information. Tesla already has all the manufacturing permits they need according to a Rutgers article who quotes this:



Tesla gets approval to start manufacturing in China

You might have noticed that Bloomberg provides a timeframe for some of Denholm's quotes but not for the ones about "manufacturing certification". She could have made those quotes at another venue at another time? Is it bad journalism to not specify when certain things were said? Yes, but this is Bloomberg we're talking about here.

Agreed. Assuming there is anything to this latest "hold up" it is the certification that manufactured vehicles meet China's requirements and can be sold.

 

[hobbes]

Do not trust Bloomberg for your information. Tesla already has all the manufacturing permits they need according to a Rutgers article who quotes this:



Tesla gets approval to start manufacturing in China

You might have noticed that Bloomberg provides a timeframe for some of Denholm's quotes but not for the ones about "manufacturing certification". She could have made those quotes at another venue at another time? Is it bad journalism to not specify when certain things were said? Yes, but this is Bloomberg we're talking about here.

Thanks - was alreading going, wow, everyhting ok, don´t worry...

However, then I realized the article you quote is from Oct 17. If that it is true they have all the licenses they need to start manufacturing, why would they write in the Q3 update letter (Oct 23):

We have cleared initial milestones toward our manufacturing license and are working towards finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai.

UPDATE: This is obviously relevant: Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable
So it looks like they need to have the first batch of Model 3 inspected before they can start mass production and that is what they are waiting for.

 

[mongo]

Thanks - was alreading going, wow, everyhting ok, don´t worry...

However, then I realized the article you quote is from Oct 17. If that it is true they have all the licenses they need to start manufacturing, why would they write in the Q3 update letter:

They may not have bothered updating that sentence in the 7 days between the 17th and the earnings call.
Plus there are other conditions listed:

We have cleared initial milestones toward our manufacturing license and are working towards finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai.

Finalizing may also include the approval of the produced vehicles (and line).