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Since posting earlier today, I learned that Saudi Aramco actually has a cost per barrel of crude oil of $3, not $10 (link).
The best way to measure energy economics is price per MWh of actual useful work.
About 12% of the energy of crude oil gets lost at the refinery, some small percentage is lost in transporting the fuel, and about 70% of the energy is wasted as heat in whatever engine is consuming the gas/diesel. The net effect is that around 25% of the starting oil energy actually does anything useful.
In contrast, a system of solar PV connected to a local grid and electric motors is around 80% efficient from source to load.
For Saudi domestic gas/diesel engines, the effective energy cost per MWh of useful work applied to a load:
$3/barrel / 25% net efficiency / 1.7 MWh/barrel = $7/MWh
For Saudi domestic electric motors, the price is:
$10/MWh solar farm / 80% net efficiency = $12.5/MWh
If utility-scale solar photovoltaic costs continue to fall by about 15% each year, then solar --> electric motor systems will be roughly at cost parity with crude oil to internal combustion engines, even with a revolution in refining costs, by approximately the end of 2025, because this will also be around the time that EVs are at cost parity with ICEVs. Remember, this is using Saudi Arabia as the example which is the most favorable possible locale for cheap oil and I didn't even account for refinery and transportation costs, the longevity of EVs, nor the low maintenance costs of EVs. And the math is even more favorable for stationary motors which have no battery costs, like you'd have in factories.
If Saudi Arabia hits cost parity for EVs vs ICEVs around '25/'26, then nowhere is safe for oil & gas in this decade.
Except gasoline prices in Saudi Arabia are currently $0.62/gallon which at 34 kWh per gallon is $18MWh (edited by ggr upon request), so using crude oil as a proxy was actually far too generous to oil. Retail electricity prices there are $50/MWh today, but that will drop quickly as they replace their natural gas plants with solar and batteries. We really are in a game over scenario for oil & gas. I think the IPO of Aramco and rebranding of the country by the government was because they recognize what is happening here and want to pivot before it’s too late.
Even nations in the Middle East, which of course have a strong vested interest in the perpetuation of the hydrocarbon mining industry, have been installing solar PV projects at a furious pace. Moreover, even Saudi Arabia, which is an outlier for having the cheapest, biggest reserves of oil & gas on the planet where their cost is about $10/barrel (link), decided to IPO Saudi Aramco and as of 2021 is now installing solar for wholesale prices of $10/MWh and dropping (link). If I'm not mistaken that is a new world record for cheapest electricity ever. A barrel of oil is equivalent to 1.6 MWh, so at their production cost of around $10/barrel, they're getting energy from oil for about $6/MWh. This means at current rates of cost improvements, around 2027 Saudi Arabia will have cheaper energy from solar PV than from oil. Let that sink in. If you assume the electricity can be used at 80% net efficiency and the oil at 30% net efficiency, in a sense it's already cheaper today.
We will, when the time is right. I don't think the profit margins will be very large as a percentage of Supercharging revenues, but they should be building up in absolute dollars as the fleet expands and cars with free Supercharging for life become wildly outnumbered by cars that must pay. This happens as older cars crash or retire and also simply through the constantly growing size of the fleet with cars that do not have free SC'ing for life.
Is Elon planning on using the shorts again for some sweet revenge? I can see the possibility of several earnings catalysts lining up and management pulling a few other strings to release additional earnings catalysts in order that Tesla can report absolutely shocking numbers. The kind of earnings that wake up the people who doubted Elon's business acumen. In fact, I can sense just how right this feels. But I don't know which quarter to expect it. Best guess Q3.
Regarding price, believe it or not EU is a very competitive market. Tesla is in a good place, but it doesn't mean competition is absent. There is a continuum between price setter and price taker, and whilst Tesla is a price setter it is not an absolute. There is not another 10k to be had by upping price. Buyers might switch to VW etc, or might simply hold their clunker for another year. I am doing just that. ...
Even in Europe the competition is still mostly ICE cars, and that is no competition at all. This is due to the fact that Tesla can still expand production at will and sell them all with an enviable profit margin. There are not enough EV's to meet demand, even in Europe. I would not say that if Tesla's profits in Europe were marginal while legacy auto EV's were commanding high premiums. Instead, legacy auto is still using EV's to enable profitable ICE sales. That will all come crashing down over the next few years.
Tesla's new factory will lower the costs, both to produce and to deliver a car in Europe, and that amounts to another step change in the pricing advantage Tesla has. It's difficult for me to see the others as competition if all they can do is prevent Tesla from charging obscene amounts. Legacy auto has been charging obscene amounts, not because their profits were so high but because their production was so inefficient. Production efficiency should not be measured relative to other inefficient peers, but relative to what's possible using current, state-of-the-art manufacturing technology and methods. Tesla is just starting to illuminate that in a manner that will put legacy to shame as they try to transition to primarily EV's.
If Tesla were like "most companies" it wouldn't be worth investing in. You can, by way of drone videos, get some idea of what the innovations are. But you won't get anything about how to achieve a comparable pace of innovation. So, according to Elon, nothing truly important would be revealed.
People who steal technology never develop the underlying ability to develop it themselves. So they aren't actual competition.
Tesla's new factory will lower the costs, both to produce and to deliver a car in Europe, and that amounts to another step change in the pricing advantage Tesla has. It's difficult for me to see the others as competition if all they can do is prevent Tesla from charging obscene amounts. Legacy auto has been charging obscene amounts, not because their profits were so high but because their production was so inefficient.
What you describe paints an ugly picture for Legacy.
With Legacy's current inefficient EV production & distribution (as compared to Tesla), premium EV pricing is what will get Legacy their positive margins.
In the future, as Tesla's manufacturing & distribution costs per vehicle continue to decrease, they will have the option to take price cuts on all models.
If they did take price cuts, that would put Legacy in a tough situation. Whether Legacy follow with price cuts or not, they lose profits either way . . . either through less margin or less volume. Ouch!
CapEx – NET 6 months before running in a steady state at capacity
To a surprising extent, the market does not value the implications of capital expenditure and R&D, until it comes into view on the horizon of the next two quarters.
Until then, traders and managed funds discount the value because of risks, and/or are engaged in pursuing other, nearer-term opportunities to invest in other companies.
Your overall post was excellent and I want to highlight this particular insightful point that you made.
A person running a managed fund once told me that he may be bullish on a stock but if he sees it trading sideways for several months, he will put his money to work elsewhere until he believes the stock is ready to move up. The fund manager needs to earn a Return and does not want to watch assets trade sideways. While he is bullish in the stock and not yet invested, he will not "talk up' the stock to colleagues in the industry afraid that it may take off before he has had a chance to build a position.
So with Tesla, I believe there are fund managers that know there will be another huge leg up for Tesla but during this Q2 doldrum they need to make their money elsewhere. Then there will be a mad rush to get into this stock before the valuation runs away from them. When is that date? Could be any time now but I believe no later than Oct, likely sooner.
Just my opinion not investing advice.
Your overall post was excellent and I want to highlight this particular insightful point that you made.
A person running a managed fund once told me that he may be bullish on a stock but if he sees it trading sideways for several months, he will put his money to work elsewhere until he believes the stock is ready to move up. The fund manager needs to earn a Return and does not want to watch assets trade sideways. While he is bullish in the stock and not yet invested, he will not "talk up' the stock to colleagues in the industry afraid that it may take off before he has had a chance to build a position.
So with Tesla, I believe there are fund managers that know there will be another huge leg up for Tesla but during this Q2 doldrum they need to make their money elsewhere. Then there will be a mad rush to get into this stock before the valuation runs away from them. When is that date? Could be any time now but I believe no later than Oct, likely sooner.
Just my opinion not investing advice.
That's been my thesis since before the Shanghai shutdown, and remains.
I actually think the perceived 2Q doldrums is what will cause the next leg up.
It makes sense that MM's will want to run over CC (and call spread) writers to get retail shares cheap. They'll want to get out in front of hedge funds at a lower price and of course create maximum chaos in the options market.
I'm predicting perhaps some head fakes, but then MM's letting this thing start to rocket just before 2Q earnings. I've got us nearing $1550 by Thanksgiving.
The lockdown created 3 constraints for Tesla in Shanghai: Labor, Logistics and Parts.
I believe they now enter June with no constraints on labor and logistics; the only question is parts availability.
If all parts are available, we will see a huge June production number.
I'm keeping my eyes open for drone videos revealing an overflow of cars in the Shanghai logistics lot.
Not true! The banking business is global. Major European banks are deeply involved in all aspects of global commerce. Some. US banks are also in the same situation notable PPMorganChase and Citi. The Canadian clearing banks are almost all just as deeply committed. I disagreed with your post because your assertion is false. Bluntly, some scandal happens in all of them.
If anyone has the slightest doubt just look up the 2008 events. Those involved most major global banks in near-catastrophic events.
This is on-topic for us because, like it or not, Tesla is now so large and involved in global commerce that TSLA itself is susceptible to damage from failure or near-failure of major financial institutions.
If anybody doubts those assertions it would be prudent to do some review. Should internet search not provide copious proof just PM me or any of the other people on TMC who have had significant international finance experience. One of our mods is an excellent source, as are a fair number of others.
The lockdown created 3 constraints for Tesla in Shanghai: Labor, Logistics and Parts.
I believe they now enter June with no constraints on labor and logistics; the only question is parts availability.
If all parts are available, we will see a huge June production number.
I'm keeping my eyes open for drone videos revealing an overflow of cars in the Shanghai logistics lot.
I am pretty sure Tesla didn't in a hurry called in the second shift before this wide lockdown lift if they had part problems. They are not a fan paying OT for workers to sit around.
