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

[Knightshade]

Tesla, planning to grow 50% or more annually, had large chip orders in place.

And never reduced them.

(bearing in mind even their "high" order # is only a fraction of the # of chips GM, Ford, Toyota, etc would order too).


All the legacy companies on the other hand planned LONG shutdowns during 2020 for Covid, and -cut their orders-


Chip fab space is a commodity. One generally reserved many months (or years) in advance.

When you cancel or reduce an order, you lose your spot in line.

Demand for chips for lots of OTHER stuff remained insanely high even while GM had plants shut down last year- so these fabs switched to making chips for consumer goods and whatnot-- where demand was surging.

Add on the various shutdowns and problems in the actual chip MFG supply chain from covid and the knock on effects slowing things down even more.


It's not JUST car companies that can't get parts after all. Major PC OEMs have order backlogs on some machines longer than Teslas backlog on new cars, let alone Fords backlog for whatever rando chips they need.



None of this requires any conspiracy, or hiding of a demand crash nobody can show any evidence for.

Just a supply chain that was fragile and waiting for a perfect storm like this to screw things up... and folks who tried to be overly conservative and got out of line for chip supply last year are having it worse than those who stayed in line.

(Plus, again, Tesla needs less chips per car, and still even at 1 million a year produces far less cars in total)


Occam's razor is a thing folks.

 

[StealthP3D]

That tweet reply was from June, things have certainly moderated by now. And hoarding doesn't speak to a shortage, just the potential for a shortage.

I think the fact these carmakers are actively pushing out the chip shortage to next year is proof enough. They're pinning a lack of desire to produce vehicles, for whatever reasons you like, on a chip shortage that couldn't possibly be this impactful for this long.

Weren't triple lumber prices supposed to be the "new normal" for a while too? I find this all way too convenient.

Exactly! In normal times they try to to minimize supply problems and tell us they have it all under control. Now it's all chips, chips, chips. Next year is not that far off and by then the chip makers will be telling us about low demand due to over-supply.

 

[StarFoxisDown!]

The argument you made is incorrect. Sales units in August were down 13% y/y and new vehicle prices were up 9%, so revenue would be down about 4%, not even factoring in that some of the higher sales price is likely retained by the dealer.

You clearly are not getting what myself and some of the others like Stealth are saying here. You keep listing those numbers and that's fundamentally not the argument we're making. Pretty much, we're simply saying that organic demand is not good. ICE makers know this. If they return production to normal levels, they'll oversupply, killing their ASP, and have ICE vehicles sit on lots while the auto market is transitioning to EV's. Those ICE vehicles sitting on lots will continually lose their value and become dead weight and a huge write off. It would devastate their finances, which are already on the edge.

I'd also advise you on how gross margin works here. Selling fewer vehicles but that are all highest trims and thus higher ASP can be lower revenue but higher profits/earnings.

 

[jw934]

I am not sure if I am to read that China just gave Tesla $329 million for cars sold in 2020, or was that amount given in 2020.

If it is the former then that is an additional cash amount for Q3 earnings report.

I think that may be the case because Excel columns 企业申请清算资金 ("amount applied"), and 应清算补助资金 (amount calculated for reimbursement) have different amounts, implying it took the government 9 months to do the calculation, and the fact the report was issued yesterday v.s. much earlier in 2021.

Note that since Tesla did not sell any China made cars until 2020, so none of the reports for previous years would have included Tesla.

Tesla gets $329 million subsidies in China for vehicles sold in 2020, 327% more than Nio

Tesla received Chinese state subsidies for 101,082 vehicles sold in the country in 2020, for a combined amount of RMB 2.123 billion ($329 million).

cnevpost.com

Original government notice published yesterday: (in Chinese) https://www.miit.gov.cn/zwgk/wjgs/art/2021/art_99ae13aa81d04a358e0443700fe100ce.html
(Click on item 5 for the 2020 Excel for all Chinese EV companies and their 2020 China sale volume)

Edit: This sentence in the document soliciting feedback within timeframe could mean the amount has not been given yet pending input. 请在公示期内将意见反馈至工业和信息化部装备工业一司。

 

[Crowded Mind]

You clearly are not getting what myself and some of the others like Stealth are saying here. You keep listing those numbers and that's fundamentally not the argument we're making. Pretty much, we're simply saying that organic demand is not good. ICE makers know this. If they return production to normal levels, they'll oversupply, killing their ASP, and have ICE vehicles sit on lots while the auto market is transitioning to EV's. Those ICE vehicles sitting on lots will continually lose their value and become dead weight and a huge write off. It would devastate their finances, which are already on the edge.

I'd also advise you on how gross margin works here. Selling fewer vehicles but that are all highest trims and thus higher ASP can be lower revenue but higher profits/earnings.

You seem to ignore that lower production and sales units hurt margins too, regardless of trim. Fair enough to move on as it seems we will not agree. I personally don’t believe automakers are acting with as much foresight as you suggest, their actions have given us no reason to expect that. You believe automakers are being proactive to avoid being oversupplied. I believe automakers will try every last option, including over supplying the market, to maximize short term sales.

 

[fiveten]

The delay of the cybertruck could because of the chip shortage correct? Maybe Tesla just decided to delay that so that they could continue building as many S3XY cars as possible.

 

[StealthP3D]

They, collectively, are highly incentivized to maximize sales in the short term. Purposely constraining inventory is detrimental to sales, there is almost no argument against this and it is supported by the fact that revenue is down despite ASP rising. Higher prices are not offsetting lower unit sales.

Cathie’s argument fails to address these things. No has argued that EVs are having no impact, the debate is to what degree. It seems clear to me that the chip shortage is a much, much more significant factor and it doesn’t rely on the assumption of excellent foresight industry wide (which is the exact opposite of precedent…).

I believe you are conflating sales with profits. In normal times maximizing production and sales creates the most profit. But now they are risking a wholesale collapse in prices if they over-produce and word gets out that no one wants ICE cars any longer. Because perceptions like this are contagious and would spread through the media like wildfire.

It's much better for automakers to remain in control of the narrative that cars are in high demand. This doesn't require too much vision at the point in the game so, no, it's not a stretch that they are smart enough to realize this. The chip shortage was a godsend for them and they will milk it for all it's worth.

Tesla will probably not say anything to counter this narrative even as chips are becoming more available because it's good for them too. Record production and delivery numbers are going to shock the analysts as they scramble to raise projections and price targets.

 

[SOULPEDL]

That tweet reply was from June, things have certainly moderated by now. And hoarding doesn't speak to a shortage, just the potential for a shortage.

I think the fact these carmakers are actively pushing out the chip shortage to next year is proof enough. They're pinning a lack of desire to produce vehicles, for whatever reasons you like, on a chip shortage that couldn't possibly be this impactful for this long.

Global chip shortage will easily drag into 2022 -Stellantis CEO

The global semiconductor chip shortage that has hit automakers around the world and constrained vehicle production will easily drag into next year, the chief executive of the world's No. 4 automaker, Stellantis (STLA.MI), said on Wednesday.

www.reuters.com

Chip shortage will last 'well into 2022' and the impact will go beyond cars: Bain Partner

Bain & Company Partner and Head of America’s Technology Practice Anne Hoecker joins Yahoo Finance Live to discuss how the semiconductor shortage is impacting auto production.

news.yahoo.com

Why should the chipmakers push any other narrative. Imagine the pricing they're able to get right now. Here's a cute headline from back in May.

The global chip shortage could last until 2023

Glenn O'Donnell, a vice president research director at advisory firm Forrester, believes the shortage could last until 2023.

www.cnbc.com

Weren't triple lumber prices supposed to be the "new normal" for a while too? I find this all way too convenient.

I'm from the chip-as-excuse-for-automotive camp as well. But from a buyer's side, I still can't find the chips I need unless I pay 10x and still not much inventory there either. So the shortage is real but also conveniently timed and Auto is probably milking it for as much as they need to regulate their narrative. It's the perfect excuse, but not the main issue as they try and recover from one hell of an inventory issue. And when they're ready to ramp, suddenly the chip shortage will not matter so much.

 

[StealthP3D]

The delay of the cybertruck could because of the chip shortage correct? Maybe Tesla just decided to delay that so that they could continue building as many S3XY cars as possible.

No, Cybertruck delay is in line with producing 4680 cells in volume.

 

[Crowded Mind]

I believe you are conflating sales with profits. In normal times maximizing production and sales creates the most profit. But now they are risking a wholesale collapse in prices if they over-produce and word gets out that no one wants ICE cars any longer. Because perceptions like this are contagious and would spread through the media like wildfire.

It's much better for automakers to remain in control of the narrative that cars are in high demand. This doesn't require too much vision at the point in the game so, no, it's not a stretch that they are smart enough to realize this. The chip shortage was a godsend for them and they will milk it for all it's worth.

Tesla will probably not say anything to counter this narrative even as chips are becoming more available because it's good for them too. Record production and delivery numbers are going to shock the analysts as they scramble to raise projections and price targets.

See my other reply, I’m not conflating anything. Automakers have sales targets, margin targets, and earnings targets. All are important, but sales above all even if that’s not how it should be. Sales is market share, and greater sales allows for greater amortization of fixed costs. A higher gross margin doesn’t automatically mean higher net income.

 

[Singuy]

I believe you are conflating sales with profits. In normal times maximizing production and sales creates the most profit. But now they are risking a wholesale collapse in prices if they over-produce and word gets out that no one wants ICE cars any longer. Because perceptions like this are contagious and would spread through the media like wildfire.

It's much better for automakers to remain in control of the narrative that cars are in high demand. This doesn't require too much vision at the point in the game so, no, it's not a stretch that they are smart enough to realize this. The chip shortage was a godsend for them and they will milk it for all it's worth.

Tesla will probably not say anything to counter this narrative even as chips are becoming more available because it's good for them too. Record production and delivery numbers are going to shock the analysts as they scramble to raise projections and price targets.

I don't think automaker wants to be in the position they are in today. We saw that Ford couldn't make a profit once their economy of scale fell last Q. So these companies projecting a 40% reduction in production is nothing but pain.

The only guys making a killing are car dealers. They are tacking on all sorts of BS fees while also making a killing selling used cars. Margins are through the roof for them.

 

[Curt Renz]

Craig Johnson is the chief market technician at Piper Sandler. In early 2013 he recommended Tesla, which inspired me to buy my first shares. In today’s newsletter he has Tesla shares listed among his five most positive actionable ideas, and has it as his first choice among automobile manufactures with a + notation indicating positive technicals. That’s the same manner in which he described Tesla in early 2013.

 

[TheTalkingMule]

I'm from the chip-as-excuse-for-automotive camp as well. But from a buyer's side, I still can't find the chips I need unless I pay 10x and still not much inventory there either. So the shortage is real but also conveniently timed and Auto is probably milking it for as much as they need to regulate their narrative. It's the perfect excuse, but not the main issue as they try and recover from one hell of an inventory issue. And when they're ready to ramp, suddenly the chip shortage will not matter so much.

Not to mention labor costs are rising and threatening to go far higher as the economy "reopens". Pretty good time to shut down for a bit from that angle too.

Not much different than a bunch of small businesses in my Philly neighborhood. The ones that can *sugar* down for the summer because it simply wasn't worth the aggravation and far higher than usual cost to barely break even.

 

[StealthP3D]

See my other reply, I’m not conflating anything. Automakers have sales targets, margin targets, and earnings targets. All are important, but sales above all even if that’s not how it should be. Sales is market share, and greater sales allows for greater amortization of fixed costs. A higher gross margin doesn’t automatically mean higher net income.

I know. And higher production doesn't automatically mean higher net income. Because there is a cost associated with selling all those cars.

 

[TheTalkingMule]

I don't think automaker wants to be in the position they are in today. We saw that Ford couldn't make a profit once their economy of scale fell last Q. So these companies projecting a 40% reduction in production is nothing but pain.

The only guys making a killing are car dealers. They are tacking on all sorts of BS fees while also making a killing selling used cars. Margins are through the roof for them.

This kinda feels like the crude tanker conversation from the oil thread a year ago! This is all a part of the shakeout. Who's gonna be able to squeeze who as ICE gets permanently displaced.

Tanker companies were able to gouge oil producers and traders because they needed storage for excess supply. Now they're backed to being doomed of course, but it was good times for about 10 months.

Today's winners are chipmakers and dealers. Dealers, as we know, have no medium term fate but painful obsolescence.

 

[StealthP3D]

I don't think automaker wants to be in the position they are in today. We saw that Ford couldn't make a profit once their economy of scale fell last Q. So these companies projecting a 40% reduction in production is nothing but pain.

The only guys making a killing are car dealers. They are tacking on all sorts of BS fees while also making a killing selling used cars. Margins are through the roof for them.

And that is a message I can agree with 100%!

 

[wipster]

I had a front row seat to the transition from Mainframe computers to PCs and local area networks. In 1990, I dated a woman a woman with a cellphone; she used both hands to lift it to her ear. In both cases, I was astonished how quickly the disruption took place.

We are sitting in the front row seat, watching the demise of the internal combustion engine. It will happen fast — we are in the fits and throes of dying — most won’t see it coming.

Well stated Jack, I was there myself. Also the conversion from strictly cell phone to smart phone. I swear I use my phone for fracking everything! 10 years ago, I just made phone calls with it, now phone calls are the last thing I do with my "Information Appliance."

While I love it, it's just wild how quickly the transition has occurred. ICE vehicles are so the same. You drive them, you live a Tesla and other BEV's.

 

[StealthP3D]

Tesla cam doesn't lie!

Outsmarted by a car? Man caught on camera allegedly faking injuries after being “hit by a Tesla” in Slidell

SLIDELL, La. (BRPROUD) – The Slidell Police Department was called to the scene of what seemed to be a hit-and-run on Friday, September 3. At approximately 4 p.m., officers responded to a park…

www.klfy.com

 

[redan]

Elon getting friskier as the stock price rises. The rivalry with Bezos is definitely real.

https://twitter.com/x/status/1435295986805583884

 

[CorneliusXX]

This kinda feels like the crude tanker conversation from the oil thread a year ago! This is all a part of the shakeout. Who's gonna be able to squeeze who as ICE gets permanently displaced.

Tanker companies were able to gouge oil producers and traders because they needed storage for excess supply. Now they're backed to being doomed of course, but it was good times for about 10 months.

Today's winners are chipmakers and dealers. Dealers, as we know, have no medium term fate but painful obsolescence.

Agree - the fractured tipping point strikes again.

Specific quotes and replies that seem rather prescient now:

But, that’s not how the free market works, you can’t put a hold on innovation, right?

In respect to this transition, the incumbent automakers effectively have the opportunity to act as an oligopoly. This is not necessarily a matter of explicit acts of collusion. Rather, the barriers of entry are so large, the number of players small enough, and the process of developing new vehicles so time and capital intensive, that all these incumbents can see what each other is doing. As long as no one else is jumping off the cliff (i.e., getting board approval to build a few gigafactories), that’s it, we’re all hanging out here up on the cliff for another few years making profits selling ICE vehicles.

I think Tony Seba may be right about all new cars being electric by 2025. Not because there's enough supply to meet demand -- oh no! But because anyone who is sitting on an ICE car will put off buying a new car, hanging on to their old car for a few extra years, rather than buying a new ICE car which they don't really want and which will become instantly worthless.

If you notice, this scenario ends up being even more positive for Tesla. The profits for the ICE incumbents crash before the electric car market is saturated, making it harder for them to convert over, and Tesla continues to be production-constrained and able to charge premium prices during this period.

The ICE car companies may manage to sell new ICE cars by discounting them deeply but that just eats into their profits and gives them less cash to transition with.

Globally we're at the point of EV penetration where the S curve starts to accelerate - this necessarily drives a reduction in ICE production. While not proven, It would be a perfectly rational defence mechanism to constrict supply to earn larger margins on vehicle sales when legacy OEM's know the writing is on the wall (low demand) and any other path forward would cause profits to evaporate.