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

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While I agree with your thought that the quoted comments might be seen in a negative light by some investors who were expecting big profits soon, I think the comments were probably seen in a different sort of negative light in the HQs of every other car manufacturer. Tesla, which is already vastly more efficient at building EVs than everyone else, especially on a cost/range basis, is not satisfied with their already cheaper cars (vs other automakers Loss making vehicles), wants to keep lowering prices as much as possible.

The inevitable conclusion of Tesla trying to forever lower prices at an unmatchable pace is that it ends up with massive marketshare.

I think the immediate impact is being overlooked somewhat.

For instance if Tesla delivers 140k vehicles this quarter at 25% gross margin, that would likely mean $7 billion+ revenue and thanks to operating leverage (gross margin increasing vs relatively static fixed costs) would result in something in the range of $500 million Pre-tax profit that represents room to cut prices, which in turn drives higher demand, which in turn increases operating leverage again, which leads to more profit, which enables further price cuts....

in terms of Q3, $500 million profit would leave room for a 7% drop in vehicle prices. Conceivably we could see a $35k Model 3 SR+ by year end.

I also think people are taking Elon's comment too literally. I don't think Elon worded things as well as he could've. I bet that if Zach had answered the question, he'd have said that Tesla's main goal is to grow, and that they plan to continue to drive prices down through cost savings, but that strong profits will also follow due to growth and operating leverage.

I don't believe that with more operating leverage Tesla will drive down gross margins. I only think that Tesla will drive down prices when gross margins grow, and thus will keep gross margins more or less steady.

Considering operating margins are going to grow tremendously going forward (internally they're modelling low teens percentage wise), Tesla's bottom line profits will grow massively, and also it's gross profits. The only thing that might not is gross margin.

For instance if Tesla delivers 140k vehicles this quarter at 25% gross margin, that would likely mean $7 billion+ revenue

I think it'll be $9Mish. Very likely $10M+ in Q4.
 
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I'm wondering whether Elon's response to Toni S.'s question on the F'20 Q2 CC noted below was a prime factor in the recent blow off the top. I'm all for the Tesla Mission, however hoping Tesla can show a 1% - 2% profitability each quarter on top of any ZEV credits or incentives received, just to let everyone know who is driving the bus.

Anyone selling because Elon guided towards a profit that is a small percentage of total revenues doesn't understand where the value of Tesla is and/or what Elon is really saying here.

Namely, that Tesla will be plowing all the profits back into growing auto production along with other initiatives like batteries and solar (and who knows what else). Saying they want to make the cars more affordable is another way to say say they want to have a huge market share. To have more than a small profit, after R&D expenses, expanding production capability and entering new markets, would be to say they don't know how to deploy the capital to achieve a larger share of more industries on the road to a sustainable future. The value is in the enterprise. Cash is just cash. This is the path to shareholders becoming even more wealthy than if they had large profits that they decided to give back to shareholders as quarterly dividends (or worse, just let it build up to a ridiculously large hoard of cash on the balance sheets). And to be clear, he's not saying they will never have large profits and dividends, he can only project so many years into the future.

It's also possible that Elon emphasized "small" profits to keep greedy idiots away, the idiots who don't understand the profit is in building the largest and most profitable business the world has ever seen. It doesn't have to show big profits to get there.
 
Congrats and def well deserved @FrankSG! You will no doubt succeed and maybe graduate top of class and possibly by then, Tesla will have expanded to Singapore and you can run their finance or Business Intelligence department after! :)


Thank you!!

Current plan is to:
  1. Go into venture capital
  2. Learn more
  3. Eventually use TSLA money to achieve long term goals. I'd really like to improve education, which imo is the biggest problem in society. Am also considering starting a VC firm that has positive impact as its main investment criteria instead of maximizing ROI.
But if Tesla has expanded further to Singapore, a job at Tesla might be too tempting yeah, So perhaps I'd go for that instead of VC if Tesla's expansion goes quite fast. Currently they don't have enough interesting positions.

I wonder if they'd consider paying me 100% in stock options :rolleyes:
 
Index funds need Tesla more than Tesla needs index funds, but maybe there is a price Index funds can't afford to pay...
Lol, that literally can not be true. When a new component is added, a previous component is dropped, the weightings are adjusted, and lastly the S&P Committee calculates a new 'divisor' to keep the value of the SPY index consistent across the change.

So index funds buy and sell to adjust their holdings, but the capitalization remains the same. It is literally no difference to them.

The amount of misinformation around this topic is staggering. It's NOT the boogeyman, and it IS helpful to apply some basic reasoning skills.
 
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I hear what you are saying Dodger, but why do they have concerns around liquidity, and why do they sometimes ask for a secondary raise?

Fair chance it is when they think a liquidity squeeze might make the share price take off like a rocket.. after they have done their calculation... What the funds sell has to pay for what they buy...

If they recalculate afterwards, then they need to sell more other stuff to buy Tesla....

IMO this isn't the first rodeo for the committee, the index funds, and wall street, they would have faced this situation before and handled it..
Funds need to look after their investors who are generally ordinary people with retirement investments, committee needs look after the funds to some extent...

The funds also don't want Tesla going to the moon just before they buy and crashing back to earth afterwards,..... sufficient liquidity prevents that scenario... they will know what the number of liquid shares has to be.

If Tesla say no to a secondary raise the other option is to adjust the weightings so funds need to buy fewer shares... IMO logic says the committee will look after the interests of funds.. because otherwise they would never be concerned about liquidity..

This is still a great outcome for Tesla longs, however it plays out...
 
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Weekend OT: traveling through Germany today. Stumbled upon the gigantic Supercharger Hilden under construction. How’s that for gentrifying Mordor!
 
Posting on weekend with Artful's permission ; )

I'm wondering whether Elon's response to Toni S.'s question on the F'20 Q2 CC
noted below was a prime factor in the recent blow off the top. I'm all for the Tesla Mission, however hoping Tesla can show a 1% - 2% profitability each quarter on top of any ZEV credits or incentives received, just to let everyone know who is driving the bus. As investors we need to understand that not everyone is here for the Mission, and those selling now are missing the point. I've made that mistake myself before to much dismay. Stay true. Stay long. There really is no alternative.

Toni Sacconaghi -- AllianceBernstein -- Analyst

Thank you. And if I could just follow up. Elon, you've talked a lot about the mission of the company and really trying to drive EV adoption globally. So how do you think about that trade-off between driving toward industry-leading profitability yet trying to make your cars more affordable and broader? It feels like, historically, you've always picked the path of I'd rather drive more growth and more adoption because, ultimately, that's the mission of the company.

And we even saw it a little bit this quarter with price reductions. You could have probably kept price where it is, sold some units and had better profits, but that's been an ongoing choice that Tesla, as a company, has made. So how do you personally think about that trade-off between -- even if you were to get to industry-leading margins, wouldn't you be inclined to give more of that back to drive a greater adoption more quickly?

Elon Musk -- Co-Founder and Chief Executive Officer

Well, I think we actually achieved both when you factor in autonomy. I think we can go way beyond industry margins and have the car be affordable to more and more people and potentially almost everyone when you're factoring in autonomy, but that was really a mega game changer, giga game changer, yes. But I mean, it is important for people to distinguish between two things. There's value for money that our product has, and then there's affordability.

And even if you have real-life money and have value for money, like infinite, if people don't have enough -- if people do not have enough money in their bank account to buy the car, they simply cannot. So then you used to have this cycle or something that nobody can buy, so it is important to make the car affordable. And we will not succeed in our mission if we do not make cars affordable. Like the thing that bugs me the most about where we are right now is that our cars are not affordable enough.

We need to fix that. So we're all making progress in that regard, just sort of steadily gaining progress. So yes, we need to not go bankrupt. Obviously, that's important because that will fail in our mission, but we're not trying to be super profitable either.

Obviously, profitability is like 1% or something, this 1% or 2%. It's not crazy. Last quarter, it was only like 0.1%. So we want to be profitable.

Like I think just we want to be like slightly profitable and maximize growth and make the cars as affordable as possible, and that's what we're trying to achieve.

I've been thinking about this query for the last day or so and what I was hung up on initially was how do you make cars both:
  1. affordable (i.e. cheap enough that as many people as possible actually have the money to buy one), and
  2. earning industry leading margins (i.e. getting more money per dollar of asset cost than other OEMs).
At first glance this sounds impossible as by definition achieving 2 means reducing 1. If you are selling a product at a higher margin than necessary to break even (not go bankrupt) then fewer people can afford the vehicle than they otherwise could. So this is my attempt and dumbing down the idea as much as possible to get comfortable with the outcome.

I think the better way of considering affordability is: Money purchaser has > price of vehicle

So to make the vehicles as affordable as possible you either need to increase the LHS or decrease the RHS.
  • RHS:
    • Tesla's scaling, cost efficiency and manufacturing prowess are working on reducing this as we see with regular price cuts while maintaining reasonable margins. Nothing new to the well informed TMC member
  • LHS:
    • Traditional levers like financing/leasing increase this by using the purchasers future revenue to cover the current price of the vehicle
    • Autonomy dramatically increases this side if the vehicle is put on the Tesla network - now the LHS is (money purchser has + money vehicle earns) - leaving Tesla with the opportunity to keep the RHS high and earn industry leading margins.
The above definitions are constrained by supply and demand characteristics of the market. The equation only needs to work for the exact number of purchasers as there are vehicles to sell. Therefore the target price of the vehicle isn't "as low as possible", it's only as low as needed for all vehicles to be sold. If the cost of making the vehicles decreases faster than the new equilibrium affordability price (allowing for production increases and market saturation) then margins can expand while still maintaining the required affordability.

This is all a longwinded way of saying that margins may never be industry leading before autonomy is complete (even if that's the goal), but that depends on just how fast Tesla can ramp production and reduce the cost of production; and how many people want to buy the vehicle at any given point in time. If demand greatly exceeds supply then Tesla will keep margins wider.

Elon's response doesn't actually say they are targeting industry leading margins right now, only that it can be achieved with autonomy.

Then regarding the value for money aspect of the question - this is just a substitute for demand - how many of the people that can afford the vehicle will actually want to purchase the vehicle. If value for money increases then the price of the vehicle can remain higher while still allowing Tesla to sell all their supply as more the the people that can afford the vehicle will purchase it.

Why are these concepts important - Because these factors define the maximum growth rate sustainably achievable by the company. There's no point in scaling production at a rate any faster than value for money and affordability can create demand.
 

The exposure Marques provides is great, however it's a shame that we keep seeing these fit and finish issues on reviews when every other aspect of the vehicle is rated so highly. Marques could get his fingers in some of those panel gaps, and the rear spoiler was loose. This should be an easily solvable problem relative to the miracles Tesla performs, yet it leaves open an easy avenue for criticism. Sandy Munro had similar issues with his tear down.

I guess it's not that important as Tesla are still selling these vehicles like hotcakes, but why kick an own goal.
 
I have slightly different take on HODL, "hang/hold on for dear life."

There is a lot of money and effort going into attempts to shake loose shares from people’s hands. It is possible to be a strong long and still listen to the howling of the voices of the void, their moaning through the shutters, and the tearing at the shingles.

It’s hard to escape FUD in the media and from friends and loved ones who don’t know what’s what wrt Tesla but still feel the need to parrot what they hear out of misplaced concern.

Take today for instance. Those of us who have been holding for years did not enjoy the drop last summer to $177 though I am pleased that I bought a few shares around $186 (would that the bulk of my shares had been purchased at such a low price). Today was probably hard for some longs who are new to the, ah, excitement.

But I’ve never sold a single share. I’ve been using the term ‘golden ticket’ here over the years to remind myself of the future value.

I enjoy this thread and I like to keep abreast of the stock price. It is nice to not have to watch it too which is a perk of being a simple long.

Also, even though I don’t plan to sell, I do find the SP, the FUD, and the commentary here helps inform me about the larger picture including making connections well beyond what relates to Tesla.

As an FYI. hold on for dear life is a bacronym from a bitcoin post back about 10 years ago where someone was drunk ranting on the internet and misspelled hold. Here's a link to the original post.

I AM HODLINGI AM HODLING

I type d that tyitle twice because I knew it was wrong the first time. Still wrong. w/e. GF's out at a lesbian bar, BTC crashing WHY AM I HOLDING? I'LL TELL YOU WHY. It's because I'm a bad trader and I KNOW I'M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro. Likewise the weak hands are like OH NO IT'S GOING DOWN I'M GONNA SELL he he he and then they're like OH GOD MY ASSHOLE when the SMART traders who KNOW WHAT THE **** THEY'RE DOING buy back in but you know what? I'm not part of that group. When the traders buy back in I'm already part of the market capital so GUESS WHO YOU'RE CHEATING day traders NOT ME~! Those taunt threads saying "OHH YOU SHOULD HAVE SOLD" YEAH NO *sugar*. NO *sugar* I SHOULD HAVE SOLD. I SHOULD HAVE SOLD MOMENTS BEFORE EVERY SELL AND BOUGHT MOMENTS BEFORE EVERY BUY BUT YOU KNOW WHAT NOT EVERYBODY IS AS COOL AS YOU. You only sell in a bear market if you are a good day trader or an illusioned noob. The people inbetween hold. In a zero-sum game such as this, traders can only take your money if you sell.

so i've had some whiskey
actually on the bottle it's spelled whisky
w/e
sue me
(but only if it's payable in BTC)
 
How about just running all out? Doesn't need to be more than that...
That's not going to capture more mindshare. We can do better. Who doesn't remember these catch phrases from Politics, Sports, the Movies, and Advertising over the years?
  • 1940s: "Who’s on First?"
  • 1950s: "I Like Ike"
  • 1960s: "We Choose to Go to the Moon", "Float like a Butterfly, Sting like a Bee"
  • 1970s: "Houston, We Have a Problem", "May the Force be with you"
  • 1980s: "I'll Be Back", "I Feel the Need, the Need for SPEED!"
  • 1990s: "To Infinity and Beyond!", "Show me the money!"
  • 2000s: "My Precious"
The art of creating these slogans is big business. Here's some pointers for success:

Guidelines to Create Great Slogans
  1. Identification. A good slogan must stay consistent with the brand name either obviously stated or strongly implied. It’s better to include the name of your business to it.
  2. Memorable. Some of the best taglines or slogans are still being used today, even though they were launched several years ago.
  3. Beneficial. Reveal your purpose and benefits of the product by conveying the message in consumer language. Turn bad into good. Suggest the risk of not using the product. Create a positive feeling for the consumers.
  4. Differentiation. In an overcrowded market, companies on the same industry need to set themselves apart thru their creative and original tagline or slogan.
  5. Keep it simple. Use proven words and short keywords. One word is usually not enough.
 
The exposure Marques provides is great, however it's a shame that we keep seeing these fit and finish issues on reviews when every other aspect of the vehicle is rated so highly. Marques could get his fingers in some of those panel gaps, and the rear spoiler was loose. This should be an easily solvable problem relative to the miracles Tesla performs, yet it leaves open an easy avenue for criticism. Sandy Munro had similar issues with his tear down.

I guess it's not that important as Tesla are still selling these vehicles like hotcakes, but why kick an own goal.

This is a direct result of Elon's land grab 50% CAGR mentality.*

As opposed to the Japanese/German OEMs measure 4x cut once mentality.



* Some TMCers want to go even faster. Raise $20B, build 20 GF simultaneously and just Shanghai local town folks around the GF as workers.o_O
 
That's not going to capture more mindshare. We can do better. Who doesn't remember these catch phrases from Politics, Sports, the Movies, and Advertising over the years?
  • 1940s: "Who’s on First?"
  • 1950s: "I Like Ike"
  • 1960s: "We Choose to Go to the Moon", "Float like a Butterfly, Sting like a Bee"
  • 1970s: "Houston, We Have a Problem", "May the Force be with you"
  • 1980s: "I'll Be Back", "I Feel the Need, the Need for SPEED!"
  • 1990s: "To Infinity and Beyond!", "Show me the money!"
  • 2000s: "My Precious"
The art of creating these slogans is big business. Here's some pointers for success:

Guidelines to Create Great Slogans
  1. Identification. A good slogan must stay consistent with the brand name either obviously stated or strongly implied. It’s better to include the name of your business to it.
  2. Memorable. Some of the best taglines or slogans are still being used today, even though they were launched several years ago.
  3. Beneficial. Reveal your purpose and benefits of the product by conveying the message in consumer language. Turn bad into good. Suggest the risk of not using the product. Create a positive feeling for the consumers.
  4. Differentiation. In an overcrowded market, companies on the same industry need to set themselves apart thru their creative and original tagline or slogan.
  5. Keep it simple. Use proven words and short keywords. One word is usually not enough.

“The Power of Genius“
 
This is a direct result of Elon's land grab 50% CAGR mentality.*

As opposed to the Japanese/German OEMs measure 4x cut once mentality.



* Some TMCers want to go even faster. Raise $20B, build 20 GF simultaneously and just Shanghai local town folks around the GF as workers.o_O

I think 50% per year is great, Elon and Tesla know what expansion rate is best better than any of us here who don’t think about it 80h per week and have 10+ years experience of growing the business. Sure they make mistakes, but they fix them, they learn from them and very soon they are making fewer mistakes than competition. Some people want the newest Tesla and are okay with it having a few minor issues that can be fixed, other people wait a few more months and get a car with much fewer issues.