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

[DFibRL8R]

Capitalism says you should price your products to maximize total profit, when all is said and done. When a company is not production constrained, as is the usual case, pricing is a fine balance of volume and profit margins. Typically, higher volumes reduces your cost to produce so small errors in the projected demand at different price points can have large impacts on profitability. In the auto industry, manufacturers typically make these projections and price the car to hit the sweet spot of profitability. If they over-estimate demand at a certain price point they discount the cars at the end of the year so they can avoid making fewer cars than anticipated because that would hurt profits more than selling the final cars at a steep discount.

Tesla is in a totally different situation. They know the sweet spot of profitability is at volumes they know are too large to manufacture. Lowering the price does not increase sales by even one car. That changes the pricing strategy to charging as much as they can with a good safety margin for ensuring they do not run out of buyers for their ever increasing production.

In other words, now that Tesla has strong positive margins and doesn't have to worry about running out of money if they sell them for less than the cost to produce, pricing has nothing to do with how much the product costs to manufacture because pricing them lower is not going to speed the mission as long as they continue to sell as many as they can make. The price is 100% determined by anticipated demand for their growing production numbers without regard for materials costs.

The current price increases have nothing to do with higher costs except for the desire of Tesla to avoid the appearance of profiteering from unprecedented demand by justifying the price increases with higher material costs. Tesla can use the rising costs of materials to ward off the narrative that Tesla is a greedy, price-gouging company. In other words, Tesla could have frozen the prices and still been profitable even with higher material costs. They don't do that because they don't have to. They will still sell everyone they can make at higher prices. That said, the price increases must be conservative enough that they don't run out of demand if the economy falters. Since no one can predict the future, the prices will fluctuate up and down to balance supply and demand as the economy (and therefore latent demand) fluctuates.

None of this has anything to do with material cost increases.

Great summary and I agree. However, I recall several years back Tesla was periodically reducing prices of some models. At times it seemed to correlate with a transition to a new trim line/feature (in order to move the older stock) but as an investor, I recall a sinking feeling that I was investing heavily in a company that was more focused on mission than profit. As they improved production efficiency, it seemed they might be passing along those savings to customers at the expense of profits to grow the business. This despite a deep waiting list for their vehicles that exceeded production capacity. Regardless, I HODL'd. I am pleased that they seem to be focused currently on profitability, I expect they will leverage that to grow bigger/faster and address affordability in other ways (future lower cost version or people who can't afford to buy will rideshare a robo taxi).

 

[Ogre]

Capitalism says you should price your products to maximize total profit, when all is said and done. When a company is not production constrained, as is the usual case, pricing is a fine balance of volume and profit margins. Typically, higher volumes reduces your cost to produce so small errors in the projected demand at different price points can have large impacts on profitability. In the auto industry, manufacturers typically make these projections and price the car to hit the sweet spot of profitability. If they over-estimate demand at a certain price point they discount the cars at the end of the year so they can avoid making fewer cars than anticipated because that would hurt profits more than selling the final cars at a steep discount.

Tesla is in a totally different situation. They know the sweet spot of profitability is at volumes they know are too large to manufacture. Lowering the price does not increase sales by even one car. That changes the pricing strategy to charging as much as they can with a good safety margin for ensuring they do not run out of buyers for their ever increasing production.

In other words, now that Tesla has strong positive margins and doesn't have to worry about running out of money if they sell them for less than the cost to produce, pricing has nothing to do with how much the product costs to manufacture because pricing them lower is not going to speed the mission as long as they continue to sell as many as they can make. The price is 100% determined by anticipated demand for their growing production numbers without regard for materials costs.

The current price increases have nothing to do with higher costs except for the desire of Tesla to avoid the appearance of profiteering from unprecedented demand by justifying the price increases with higher material costs. Tesla can use the rising costs of materials to ward off the narrative that Tesla is a greedy, price-gouging company. In other words, Tesla could have frozen the prices and still been profitable even with higher material costs. They don't do that because they don't have to. They will still sell everyone they can make at higher prices. That said, the price increases must be conservative enough that they don't run out of demand if the economy falters. Since no one can predict the future, the prices will fluctuate up and down to balance supply and demand as the economy (and therefore latent demand) fluctuates.

None of this has anything to do with material cost increases.

Tesla just made themselves an escape hatch for the Model Y anyhow. The 2 (soon 3?) cars they got approved by the EPA will give them a lot more pricing flexibility on the Model Y. Tesla could easily slot in the Model Y SR as the new base for $57k, the mid-range would be at $59k, and the current one at $63k. That would likely make some more palatable options for budget buyers. They can likely even push existing customers onto these new models by tempting them over with faster delivery.

Also, I can't help but think back to the earnings call when Musk was talking about how when FSD comes out Tesla can charge whatever they want for a car because utilization of the cars will be so much higher. Tesla slowly cranked up the cost of FSD, are they are slowly cranking up the cost of their cars for the post FSD world?



PS: I don't base my value of Tesla on FSD, I see it as a potential massive bonus. Much like Optimus.

 

[Singuy]

Is this the u tube guy who sold like $20M and is back in the market ?
some1 like him but with pink ..green hair ...?

Yes, he also ran for the governor of California and picked a bunch of high flyers and most likely sold a bunch of them at a loss.

 

[adiggs]

You have no idea what the term hyperinflation means, when you write like that. In hyperinflationary times, it is cheaper to take a taxi than it is a street bus. 99 TeslaPoints for the first to explain why, but @jbcarioca cannot play.

Because by the time you get to the store in the bus, the prices have increased more than the extra cost for the taxi.

You pay for the bus upfront. You pay for the taxi after. Used to know someone who survived Germany in the early 1920s.Nocturnal’s answer is better.

Aw, that's not fair. I wanna play too! Anyway bonus points awarded for person who can name the last five Brazilian currencies in order?
In hyper inflationary times, a $500,000 equivalent fixed rate 30 year mortgage could be paid off in full for US$ equivalent 5.50.
In hyper inflationary times a wheelbarrow full of banknotes was used to buy a single breakfast.
In hyper inflationary times several countries ahem eliminated their own currency entirely and adopted a Currency Board instead or just used a foreign currency.
Yje US has never even hinted at hyperinflation. The Confederate States of America did.

My contribution:
You take the taxi because the cost of the taxi ride can be, and is, adjusted much closer to real time than the cost of riding the bus. Maybe government gets more nimble about that sort of thing, but even daily adjustments would be awfully frequent for most governments (or other providers of public transportation). Price needs to be adjusted much closer to real time as the change in the value of money (inflation) is so high that daily or more frequent adjustments are needed.

Ooh - and the public transport may be running under cost controls that would ordinarily be designed to provide cheap transportation to a broad swath of society. Except the inflation is so high that public transport is suddenly the expensive way to get around.

Though I can't wrap my head around taking any amount of money to provide any service or good in such circumstances. The paper received is reasonably likely to be unable to purchase the stuff needed, such as the gas for the taxi, or a profit that can be used to purchase other stuff the seller of the taxi ride needs (like rent, food).


I would expect a barter economy to spring up quickly. Here's a pound of potatoes (that I grew in my backyard) if you'll take me cross-town - that sort of thing.

 

[dmvevguy]

According to this Forbes article, Tesla insurance has filed to start selling insurance in Virginia and Oregon, and will be first time the policies will be underwritten by Tesla General Insurance as opposed to partner companies in other states.

Tesla Prepares To Start Selling Auto Insurance In Florida

Tesla, led by high-profile billionaire Elon Musk, not only wants to manufacture your electric vehicle but it also wants to sell you the insurance for it. Austin, Texas-based Tesla is offering auto insurance in Arizona, California, Colorado, Illinois, Maryland, Nevada, Ohio, Oregon, Texas, Utah an

www.forbes.com

Damn! I just left VA to live in FL. I can't wait for this to come to FL!

 

[Zero CO2]

Strong market data point: Trade in offer from Tesla came in the highest for 3P-. Very pleased. Three years ownership, nearly 77% of value held onto. We had similar use out of our previous car, a Subaru, known for best resale, it was in the 60's, maybe used one year longer.

Strong market data point:

Tesla Trade-in offer for my 2017 MS was very low < 50% original value lowest by far (the fallacy of all Tesla models appreciating is real ... has AP and HW 2.5 could have been upgraded for FSD) ,

sold to local GMC dealer with Kelley BB instant cash , and got 68% of original value ... pre-owned low mileage MS 100D with FSD will be in my hands shortly ... within a week of CPO order with Tesla all similar Model S are gone... Used off lease Model S are selling like hot cakes ....

 

[kanweg]

Today is a good day for TSLA. I hope that it stops people from complaining about the holdings in their their 200.5 k account.

(stolen from Twitter)

 

[ZeApelido]

Elon was "invited" to come train in Chechnya.

What's in 2023, will he be invited to train in South Sudan?

https://twitter.com/x/status/1503828461235982339

 

[Favguy]

1923 German 20-million mark currency note:

View attachment 781328

I'll see your 20-million note Curt and raise you a 50-billion!!

 

[SOULPEDL]

Elon was "invited" to come train in Chechnya.

What's in 2023, will he be invited to train in South Sudan?

https://twitter.com/x/status/1503828461235982339

"Elona" (now Elona Musk on Twitter) takes on Putin single handed... literally!

"If he is afraid to fight, I will agree to use only my left hand and I am not even left-handed."

 

[StealthP3D]

Great summary and I agree. However, I recall several years back Tesla was periodically reducing prices of some models. At times it seemed to correlate with a transition to a new trim line/feature (in order to move the older stock) but as an investor, I recall a sinking feeling that I was investing heavily in a company that was more focused on mission than profit. As they improved production efficiency, it seemed they might be passing along those savings to customers at the expense of profits to grow the business. This despite a deep waiting list for their vehicles that exceeded production capacity. Regardless, I HODL'd. I am pleased that they seem to be focused currently on profitability, I expect they will leverage that to grow bigger/faster and address affordability in other ways (future lower cost version or people who can't afford to buy will rideshare a robo taxi).

I had an in-law in a restaurant partnership. On most nights, most of their locations had a line out the door waiting for a table due to the good value offered. One partner always wanted to raise prices, the other two felt that the low prices were a good insurance policy against a down-turn in the economy. That once the restaurant lost their reputation as a relative value, that it would be much harder to make it through a recession. They felt there is a time delay measured in more than a year from when prices are lowered to when people reset their perceptions again that they offered a good value and it was not an irresponsible splurge.

I would suggest that some of the same dynamic exists with Tesla pricing and that the lowered pricing in 2019 was pre-emptive, in case demand fell off in the future. Tesla was in a much more tenuous position financially and could not afford to be hit by low prices and low volume simultaneously. So, they were lowering prices to reduce risk. In hindsight I think it was a mistake, but hindsight is 20/20. I think Tesla tends to be conservative about pricing, But now, Tesla is in a very strong economic position and that will move the risk bar and pricing forward a notch or two. Tesla is very pragmatic that way and the cost of production is low enough that it is no longer part of the equation.

In 2019, the cost to produce played into their pricing because their survival was much more dependent upon ramping volumes and being able to match buyers to the production at a profit. They had room to lower prices, so they did. It helped de-risk them going forward. At that point in time the cost to produce was a part of the equation. That dynamic was left behind quite a while ago.

 

[inconel]

Today is a good day for TSLA. I hope that it stops people from complaining about the holdings in their their 200.5 k account.

(stolen from Twitter)

Well the price is .802 k today...

 

[Prunesquallor]

Today is a good day for TSLA. I hope that it stops people from complaining about the holdings in their their 200.5 k account.

(stolen from Twitter)

Maybe MMs have *all* the shares now and we will be allowed to proceed.

 

[Ipcress]

Sellable production Y's are now coming off the lines at Giga Berlin (Well according to Sawyer's source haha)

https://twitter.com/x/status/1503743656263626764

If true, given that they've been able to test the lines, I would imagine they'll hit the ground running. Might deliver 1,000-1,500 Y's in Germany before the end of March.

Also, if you watch the Giga Austin drone videos, seems like cars are being moved/gone. Noticeably big chunk of Y's are now gone. I've noticed over the past week to week and half that car locations have seemingly been moved many times, for really no apparent reason. Could be that the cars weren't moved, they were taken away and new cars replaced them.

Aren't those drones capable of reading VIN numbers?

 

[M|S|M MYP]

• General Motors announced Tuesday it will begin production next week on customer units of its EV crossover, called the Lyriq.
• The Lyriq, starting at $59,990, is the first of a new lineup of electric cars and SUVs for the brand as it plans to exclusively make all-electric vehicles by 2030.
• Rory Harvey, vice president of Cadillac, said it has seen “massive” interest in the Lyriq, citing more than 220,000 “hand raisers,” or people who have asked for additional information on the vehicle .......but.....

"He declined to comment on how many reservations Cadillac has received."

 

[elasalle]

View attachment 781430

• General Motors announced Tuesday it will begin production next week on customer units of its EV crossover, called the Lyriq.
• The Lyriq, starting at $59,990, is the first of a new lineup of electric cars and SUVs for the brand as it plans to exclusively make all-electric vehicles by 2030.
• Rory Harvey, vice president of Cadillac, said it has seen “massive” interest in the Lyriq, citing more than 220,000 “hand raisers,” or people who have asked for additional information on the vehicle .......but.....

"He declined to comment on how many reservations Cadillac has received."

Tesla Berlin party pooper wannabe

 

[Ogre]

View attachment 781430

• General Motors announced Tuesday it will begin production next week on customer units of its EV crossover, called the Lyriq.
• The Lyriq, starting at $59,990, is the first of a new lineup of electric cars and SUVs for the brand as it plans to exclusively make all-electric vehicles by 2030.
• Rory Harvey, vice president of Cadillac, said it has seen “massive” interest in the Lyriq, citing more than 220,000 “hand raisers,” or people who have asked for additional information on the vehicle .......but.....

"He declined to comment on how many reservations Cadillac has received."

Almost replied to this with snark, but consider for a moment "The Mission" is all about competition converting. Calillac getting their feet wet here is a good thing. It's a long way from the $30k EV GM promised us, but it's a good start.

Aside from that, gotta have something for TSLAQ EV fans to drive right?

 

[nativewolf]

Almost replied to this with snark, but consider for a moment "The Mission" is all about competition converting. Calillac getting their feet wet here is a good thing. It's a long way from the $30k EV GM promised us, but it's a good start.

Aside from that, gotta have something for TSLAQ EV fans to drive right?

Right, I mean any and every EV now is great. Putin just made it all the more startlingly obvious. Distributed renewable energy and EVs. Sooner the better. There is not competition, only friends and I say that as someone that really dislikes GM.

 

[Prunesquallor]

https://twitter.com/x/status/1503843900884201480

I would submit that the mano-a-mano is underway.

 

[MontyFloyd]

View attachment 780820

here in Idaho we've perfected the means of growing and transporting potatoes. But to be fair, I really think we should be able to pay for our plaids based on total potato mass rather than number...

Plug a copper pipe and galvanized pipe in it, will power your Tesla!