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

[MP3Mike]

Update from Jack:

Only a half hour.

 

[Electroman]

I don't like those trees are being cut. All that greenery gone replaced with ugly concrete buildings There you go I said it.

i want to go and hug them one last time.

 

[jerry33]

Will be interesting to see how it handles typical NYC taxi situation where two people are fighting for the same taxi!

That would add a new meaning to bio-defense mode.

 

[KarenRei]

Sorry it's at 1:16:45. I thought I had shared the link with relevant timestamp but obviously code didn't transfer across.

Thanks. I stand corrected. Beats me how they plan to get even half a million cars out of there a year, let alone a million "eventually". But if they can do so, that'd be amazing. And makes me wonder how many they could get out of the far larger, presumably more automated GF4

 

[lklundin]

Sorry it's at 1:16:45. I thought I had shared the link with relevant timestamp but obviously code didn't transfer across.

That's one of the TMC quirks you learn from posting.

Thanks - and welcome to TMC!

 

[KarenRei]

To be fair he said 30% of the on road fleet by 2030, not 30% annual sales.

I know. Still not ambitious, let alone a "painful revolution".

Your average European country could ban all new ICE sales by 2025 (plenty of time for building abundant new gigafactories and their associated supply chains, if there's a firm policy in place that will ensure demand for cars from them), and do an incremental phaseout of on-the-road ICE registrations over the next five years, and be entirely ICE-free by 2030. Not just "ICE free in new sales" - 100% ICE free on the roads.

30%, in 10 years, painful? No.

 

[KarenRei]

Update from Jack:

Only a half hour.

He as expected made money last week. But he's entered this weekend in predominantly very-OTM PUTs.

We'll see how the market responds to the China subsidy news on Monday. In theory it should be considered huge positive news, but speculation/profit taking noise might overwhelm actual signal like that these days.

 

[MC3OZ]

cybering everything and only offering that vs conventional style would be a disaster

We don't know what products make sense for Full-Cyber, Partial-Cyber or Classic (conventional) design.

Fair bet Model S/X, Model 3/Y, Roadster, and perhaps a Gen4 car will remain conventional.

We don't know if Tesla is making if Gen4 car, or if it will be painted.

My best guess is they will make one, and it may or may not be painted, but will be conventional, or Partial-Cyber...

I agree with Karen, Partial-Cyber has lot of interesting design possibilities.

A mix of Full-Cyber, Partial-Cyber and Classic give Tesla a range of products with sufficient variety, while retaining their classic design language. Variety also gives customers more choice, and people want different things..

For Robo-taxis I don't think customers particularly care what the car looks like from the outside, they will not spend much time looking at the outside... Non-painted and hard-wearing exterior makes a lot of sense for Robo-taxis...

 

[MaChiMiB]

BMW veteran from the nineties: "German Auto wins 2020"

Google Translate

Apparently Telsa sucks because they don't sell gas, diesel, natural gas, and of course hydrogen!!! cars.
And nobody buys electric cars.


Interesting to see that he still believes in the order of the last century, now that even Lutz gets an idea about Telsa.

 

[ZachF]

It's sort of a mismatched comparison, as Tesla's automotive revenue is global. But interesting regardless!

I'm talking about the production side of things. Yes it's revenue is global but for the most part they are made here, and the US is a net importer of automobiles, so Tesla's share of US automobile manufacturing is mch higher than their share of US sales.

 

[Thekiwi]

Thanks. I stand corrected. Beats me how they plan to get even half a million cars out of there a year, let alone a million "eventually". But if they can do so, that'd be amazing. And makes me wonder how many they could get out of the far larger, presumably more automated GF4

Perhaps they could slowly start introducing more automation at GF3 as margins & technology improves. And/or squeeze in a third manufacturing building on the land leftover after the present layout is complete (maybe a CT style vehicle which won't need the paint shop and stamping presses)

 

[Fact Checking]

Unfortunately, this doesn't really shed any light on when FCA would need to pay Tesla for sales of pool vehicles. To get an accurate answer, FCA/Tesla should wait for the final sales figures for 2020 and do the calculation with and without the inclusion of the Tesla ZEVs, and use that as a basis of payment. This would indicate that payment for 2020 Tesla sales wouldn't be assessed until 2021.

But that may not be how the agreement was structured. An estimate of the ZEV penalty reduction value could have been stipulated with payments from FCA to Tesla upon report of Tesla 2020 ongoing sales figures, perhaps on a monthly basis. This would allow much earlier realization of 2020 FCA revenues. Unfortunately, I have seen nothing on the wording of the pooling agreement.

I found something interesting in the FCA Q3 transcript:

Yeah, I guess the fines and payments are in EUR too.

So I was reading through the recent FCA Q3 ER conference call transcript, and FCA executives absolutely didn't want to talk about how much they'll be paying to Tesla in 2020:

Edited Transcript of FCA.MI earnings conference call or presentation 31-Oct-19 1:00pm GMT


Adam Michael Jonas, Morgan Stanley, Research Division - MD [46]

"First, I just want to say I just have this image in my mind of Sergio up above, taking a nice long drag looking down on you and saying, Mike, Richard and John, proud of you, well done. A couple of questions on -- couple of questions on EVs. Can you possibly be specific on how much you're actually paying Tesla for the pooling credits? There's just so many while I have seen numbers ranging from EUR 200 million to EUR 2 billion. Can you just help us and genuinely to help with that delta from '19 to '20 on that? My first question, and then I have just have one follow-up."

Michael M. Manley, Fiat Chrysler Automobiles N.V. - CEO & Executive Director [47]

Love you to death, but no.​

And I believe FCA doesn't want to talk about those costs is because they are variable and FCA considers it a hedge:

"So I viewed the Tesla relationship somewhat as a hedge because we begin to launch obviously our electrified vehicles next year and into '21, technically, we could with very high penetrations in '21 reach compliance on paper. The reality is, it's still not entirely sure, even though I made positive comments, which I do believe at the beginning of this call, still not 100% sure of take rates [in] real price and recovery. So for me, the Tesla was a hedge, but it's done in '21."​

Reading between the lines, FCA doesn't know how much they are going to pay Tesla in 2020: it depends on the emissions of the fleet they are going to sell, it depends on how well their own EVs are going to sell. They'll only purchase the absolute minimum number of credits from Tesla, to move them into compliance to reach 90g/km emissions in 2020 across all their EU sales.

I also suspect that the maximum payments to Tesla might be so high that they didn't want to disclose them... Instead they have rosy expectations for 2020. Which payments to Tesla they might have to adjust, upwards.

I believe the payments involve a formula of how many CO2 emissions penalties the Tesla vehicles delivered save FCA: this is not something FCA can estimate in advance, as nobody knows how many vehicles Tesla is going to deliver in the EU in 2020, nor how bad the PSA-FCA emissions are going to be.

They also expect to not require Tesla's help by the end of 2021.

I believe FCA management might be deluding themselves if they think that a re-spun Fiat e500 is going to be competitive in 2020, that a BEV Alpha platform will be competitive in 2021, and they might also be overly optimistic about how much they can reduce emissions of their existing gasoline vehicles. This is true of the PSA-FCA merged company too I believe.

(Paging @Prunesquallor and @generalenthu.)

The most interesting part is this disclosure from Michael M. Manley, FCA CEO:

"We still carry in our plans just as a matter of record about a 60% recovery."​

Here's the context:

• "Plans" means their 2020 guidance, with 2020 pooling costs. This was confirmed in a follow up question.
• "60% recovery" I believe means that FCA plans to sell enough EVs this year to not be charged with (I.e. they are able 'recover') 60% of the projected EU CO2 fines.
• They refused to say, but arithmetics and logic dictates that FCA buys 40% of the remaining missing ZEV credits from Tesla, to not face any EU penalties.

This means, I think, 40% of €1.8b for 2020, I.e. €720m, purchased from Tesla at a discount.

If the discount is 50%, then Tesla would be paid €360m, or around $400m - $100m per quarter.

Note that this sum is close to the leaked "low hundreds of millions of Euros" number back in February.

But, this means the ZEV credits would be front loaded: FCA pays as Tesla reduces their (estimated) liability. At the end of the year they can net it out to the real impact. Since FCA provided the €720m estimate, it would IMO be harder for them to refuse immediate payments to Tesla.

Btw., €720m would be from the non-supercredit portion. If the per vehicle bounty is €9,000, then €720m is exactly 80,000 Tesla vehicles: 20,000 per quarter.

The timing is uncertain, but I'd guess Tesla insisted on quarterly payments, in proportion of deliveries. This also explains why Tesla was willing to starve all other EU markets and focused on the Netherlands mostly. 2020 deliveries generate +$5,000 additional income.

Based on these I'm reasonably (80%) certain that we managed to decode the "FCA pooling secret": Tesla gets $400m in 2020 for 80,000 EU deliveries, +$5,000 per car- a nice 10% increase in gross margins ...

Note that the PSA merger makes Tesla even more valuable to FCA-PSA in terms of penalty reduction savings, but it's unclear to what extent Tesla can use this in Q1.

 

[KarenRei]

I don't like those trees are being cut. All that greenery gone replaced with ugly concrete buildings There you go I said it.

i want to go and hug them one last time.

I know the feeling. Doesn't matter that they're a plantation, or that an actual forest will get planted in their place; I sympathize with the trees.

(Though I don't find Tesla's buildings ugly. Well, Fremont is ugly, but...)

But, it is what it is. This is the place in the Berlin area that's been allocated for large-scale industrial development, where they've been trying to get a factory for years. I'm sure that Tesla didn't go into this saying, "Hey, what we'd really like to do with this new factory is knock down a bunch of trees...."

 

[ggr]

I think someone ( @neroden ?) made some noise over this open source issue years ago. Needless obscurity security in my opinion, and instead opens up attack vectors of a judicial nature, as opposed to hacks and cracks that they tried to avoid.

Just release the dam code and abide by the conditions. Or pick a secretive distro if preferred, and pay a small fee for it.

But what do I know, right?

I'm pretty sure it wasn't him, a bit less sure that it was @wk057 (Jason Hughes).

 

[ByeByeJohnny]

This is a response to Prunesquallors post above. Not sure what happened to my quoting.


But that may not be how the agreement was structured. An estimate of the ZEV penalty reduction value could have been stipulated with payments from FCA to Tesla upon report of Tesla 2020 ongoing sales figures, perhaps on a monthly basis. This would allow much earlier realization of 2020 FCA revenues. Unfortunately, I have seen nothing on the wording of the pooling agreement.[/QUOTE]

This is obviously not some 2 page contract, every possible variation in deliveries, dates, ZEV valuation, change in the EU rules etc will have been covered.

As has been mentioned the agreement was reached well before the deadline. Tesla had all the time in the world as they had several potential suitors. FCA really only had Tesla that could help with a significant part of their fees.

Unless FCA is giving Tesla something like 100% of the value there is little chance Tesla would agree to anything that doesn't include payments earlier than the official numbers confirmed by EU 15 months from now.

I would expect Tesla to get something like 75-80% of the minimum total payed out monthly or quarterly over the full period. Starting in January or end of Q1. Anything above that will probably be payed out based on the number of Teslas delivered with some delay. Probably a quarter or two later.

If it's supposed to be 2 billion over 2 years I would expect Tesla to get something like 1.5 billion / 24 months = 187.5 million per quarter starting in Q1. And likely going up slowly from there.

 

[Prunesquallor]

I found something interesting in the FCA Q3 transcript:



The most interesting part is this disclosure from Michael M. Manley, FCA CEO:

"We still carry in our plans just as a matter of record about a 60% recovery."​

Here's the context:

• "Plans" means their 2020 guidance, with 2020 pooling costs. This was confirmed in a follow up question.
• "60% recovery" I believe means that FCA plans to sell enough EVs this year to not be charged with (I.e. they are able 'recover') 60% of the projected EU CO2 fines.
• They refused to say, but arithmetics and logic dictates that FCA buys 40% of the remaining missing ZEV credits from Tesla, to not face any EU penalties.

This means, I think, 40% of €1.8b for 2020, I.e. €720m, purchased from Tesla at a discount.

If the discount is 50%, then Tesla would be paid €360m, or around $400m - $100m per quarter.

Note that this sum is close to the leaked "low hundreds of millions of Euros" number back in February.

But, this means the ZEV credits would be front loaded: FCA pays as Tesla reduces their (estimated) liability. At the end of the year they can net it out to the real impact. Since FCA provided the €720m estimate, it would IMO be harder for them to refuse immediate payments to Tesla.

Btw., €720m would be from the non-supercredit portion. If the per vehicle bounty is €9,000, then €720m is exactly 80,000 Tesla vehicles: 20,000 per quarter.

The timing is uncertain, but I'd guess Tesla insisted on quarterly payments, in proportion of deliveries. This also explains why Tesla was willing to starve all other EU markets and focused on the Netherlands mostly. 2020 deliveries generate +$5,000 additional income.

Based on these I'm reasonably (80%) certain that we managed to decode the "FCA pooling secret": Tesla gets $400m in 2020 for 80,000 EU deliveries, +$5,000 per car- a nice 10% increase in gross margins ...

Note that the PSA merger makes Tesla even more valuable to FCA-PSA in terms of penalty reduction savings, but it's unclear to what extent Tesla can use this in Q1.

If I am interpreting your interpretation right, reducing FCA’s 2020 penalty by 60% on their own implies they plan to sell about 100,000 ZEVs this year (by my computations).

Something’s not right.

 

[KarenRei]

If I am interpreting your interpretation right, reducing FCA’s 2020 penalty by 60% on their own implies they plan to sell about 100,000 ZEVs this year (by my computations).

Something’s not right.

The other way they can "recover" money is by paying Tesla less than they'd have to pay in fines. I'd think that would be the majority of the "recovery"

 

[Davmal]

Thanks. I stand corrected. Beats me how they plan to get even half a million cars out of there a year, let alone a million "eventually". But if they can do so, that'd be amazing. And makes me wonder how many they could get out of the far larger, presumably more automated GF4

Yeah I think a million is wildly optimistic but we know Elon is usually delivers his optimistic targets eventually. However I'll be more than happy if they can ramp up to 500k out of there in the next 2 years. Exciting times ahead.

 

[Fact Checking]

If I am interpreting your interpretation right, reducing FCA’s 2020 penalty by 60% on their own implies they plan to sell about 100,000 ZEVs this year (by my computations).

Something’s not right.

FCA execs talked about this, and from their words and from reading between the lines I got this impression:

• FCA will reduce some of their emissions via ICE technology tweaks. (You can pollute a bit less by reducing engine power and other tricks. Since every ICE maker is forced to do this there's no competitive disadvantage in the first approximation - the EU is now pricing pollution.)
• They'll get rid of some outliers by not selling some models in Europe (pickup trucks, etc.),
• They have rosy expectations about their ability to sell their own EVs,
• They have no real plans to use the Tesla skateboard and powertrain,
• They'll pay Tesla for any shortfalls.

I.e. selling more EVs isn't the only method to reduce emissions, but they are planning that too.

I also had the impression that FCA doesn't really know, and that they consider Tesla as "insurance" against having to pay the full 100% penalties and paying the marketing/political cost of being "fined" for pollution ...

 

[ByeByeJohnny]

By the way. The 2 billion number comes from the Financial Times (actually the headline says 1.8 billion euros). The article is behind a paywall and I don't think I've actually seen it so not sure what the wording is but the Financial Times doesn't really make up stuff they don't have reliable sources for.

The headline says

Fiat Chrysler to spend €1.8bn on CO2 credits from Tesla

It says to spend, not to save or recover. Sure, wording and headlines aren't always correct but this isn't written in a way to give doubt.