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

[AndrewZ]

Raising prices the day after a 75 point hike suggests not good things to me in terms of where inflation could still be headed and what further interest rate hikes might
be required to tame the demand beast

 

[Discoducky]

Gone in 130 seconds: New Tesla hack gives thieves their own personal key

You may want to think twice before giving the parking attendant your Tesla-issued NFC card.

arstechnica.com

There is a video here.

FYI, a video is not evidence of a security vulnerability; The preponderance of evidence is much higher.

 

[StealthP3D]

Tesla's finance team likely has auto gross margin estimates/targets for the next 3 years (broken down by quarter) embedded in their long term plan.
For example, their targeted auto margins could be 32% for 2022, 33% for 2023, 34.5% for 2024.
These margin increases come mainly from labor efficiencies and lower fixed overhead per vehicle and some from lower prices on parts as they continue to scale. Higher raw material price inflation would eat into the labor and overhead efficiencies.

Some observers are surprised that Tesla will comment that they are raising prices due to supplier price increases and yet show margin improvements quarter after quarter. When we see Tesla taking price increases, it is to stay on track with their growing margin targets so that raw material inflation does offset the hard work they are doing on labor and overhead productivity.

First principles thinking would seem to favor adjusting the set price of each model to manage demand vs. trying to hit a preconceived gross margin estimate. It's undesirable to either have waiting lists of a year or more or to have finished product building up with no willing buyers. Tesla is currently so far away from losing money on each sale that it makes no sense to base selling prices on anything but demand. This makes managements job easier because the game is to simply make as many cars as possible and then adjust pricing as needed to manage sales demand.

This leaves gross margin projections fulfilling only one role, that of financial and product planning within the company. They need a reasonable idea of what their finances will look like a year or two down the road. Tesla publicly links price increases to supplier price increases mostly for optics. It makes sense to people that when suppliers raise their prices, that Tesla should as well.

It's also true that one disadvantage of having waiting lists is that the company is taking on commitments to sell a car a year down the road at a certain price while the buyer can walk away at any time. If demand suddenly drops, as unlikely as that may be, Tesla will lower prices to increase demand, irrespective of their cost to produce or the number of non-binding reservations they once had. When a manufacturer lowers pricing it's never because they are passing on the savings of lower supplier costs to their customers, no, it's to increase demand for one of two reasons: to move unsold product (real or anticipated) or to increase production and ensure large enough demand will be there based on company estimates and projections.

Unprecedented demand for EV's has found Tesla selling them for well below actual market value. That is evidenced by used cars selling for more than new cars. In hindsight, management should have raised prices sooner and more aggressively, but hindsight is 20/20. I can't fault them for this because it's not realistic to expect anyone to be able to forecast future demand perfectly and it's better to err on the side of giving people a good deal vs. creating a situation where they are scrambling to lower prices as reservations are cancelled and inventories build up. Always err on the side that causes less problems if you are wrong.

 

[Discoducky]

First principles thinking would seem to favor adjusting the set price of each model to manage demand vs. trying to hit a preconceived gross margin estimate. It's undesirable to either have waiting lists of a year or more or to have finished product building up with no willing buyers. Tesla is currently so far away from losing money on each sale that it makes no sense to base selling prices on anything but demand. This makes managements job easier because the game is to simply make as many cars as possible and then adjust pricing as needed to manage sales demand.

This leaves gross margin projections fulfilling only one role, that of financial and product planning within the company. They need a reasonable idea of what their finances will look like a year or two down the road. Tesla publicly links price increases to supplier price increases mostly for optics. It makes sense to people that when suppliers raise their prices, that Tesla should as well.

It's also true that one disadvantage of having waiting lists is that the company is taking on commitments to sell a car a year down the road at a certain price while the buyer can walk away at any time. If demand suddenly drops, as unlikely as that may be, Tesla will lower prices to increase demand, irrespective of their cost to produce or the number of non-binding reservations they once had. When a manufacturer lowers pricing it's never because they are passing on the savings of lower supplier costs to their customers, no, it's to increase demand for one of two reasons: to move unsold product (real or anticipated) or to increase production and ensure large enough demand will be there based on company estimates and projections.

Unprecedented demand for EV's has found Tesla selling them for well below actual market value. That is evidenced by used cars selling for more than new cars. In hindsight, management should have raised prices sooner and more aggressively, but hindsight is 20/20. I can't fault them for this because it's not realistic to expect anyone to be able to forecast future demand perfectly and it's better to err on the side of giving people a good deal vs. creating a situation where they are scrambling to lower prices as reservations are cancelled and inventories build up. Always err on the side that causes less problems if you are wrong.

Very well said and it is in stark contrast to legacy ICE reducing prices for their EVs (Bolt) as a demand lever and then stealerships applying 'markups' as demand levers. The divergence is sweet irony.

 

[StealthP3D]

FYI, a video is not evidence of a security vulnerability; The preponderance of evidence is much higher.

More accurately, a video can be evidence of a security vulnerability, but it is not necessarily convincing evidence nor is it conclusive. Obviously, fake videos are made and distributed. If the claimed vulnerability was more difficult to fix, I would erase one of our four key cards and either verify or disprove the vulnerability in about 10 minutes.

But the fact is, the claimed vulnerability is a big nothing-burger because the time and cost to verify and fix the supposed vulnerability (if required) is basically zero. It doesn't matter at all, so I won't waste my time.

 

[jkirkwood001]

OK folks, the Fed is done. Elon is done selling shares. There's a meeting tomorrow with Twitter employees where hopefully a revised deal gets announced at a slightly lower price. Or maybe even the original offer.

Either way, we very likely get to put a bow on this entire chaotic downswing in less than 24hrs. With any luck, far less uncertainty on the other side of these Twitter comments.

I want everyone dressed, focused, and in rally mode 8:30am Eastern tomorrow!

You were saying..?

We're with you in spirit, though, @TheTalkingMule !

 

[henchman24]

https://static.nhtsa.gov/odi/rcl/2022/RCLRPT-22V412-2331.PDF

If I’m understanding this recall notice correctly, this was a serious mistake on Ford’s part. Disappointing because the Mach-E looked like it might be one of the best non-Tesla EVs a few years ago.

I’ll await more info but it’s really not good to get this wrong. When you’re designing a machine powered by a battery, one of the most basic engineering decisions is picking wiring and contacts appropriate for connecting the battery to the motor. This would be less egregious if it were a manufacturing defect caused by improper electrical bonding, but NHTSA is saying it’s a design error. If they actually just misjudged the peak current load and picked the wrong wire size, that’s simply pathetic.

Number of potentially involved : 48,924 Estimated percentage with defect : 100 %​

​

Direct Current (“DC”) fast charging and repeated wide open pedal events can cause the high voltage battery main contactors to overheat. Overheating may lead to arcing and deformation of the electrical contact surfaces, which can result in a contactor that remains open or a contactor that welds closed.​

​

The design and part-to-part variation of the high voltage battery main contactor is not robust to the heat generated during DC fast charging and multiple wide open pedal events.​

Reading this... I feel like this can easily be solved by an over the air update and Ford will trumpet that at every chance they get. But here's the thing... the fix is going to be a combo of limiting fast charging rate and full throttle acceleration. The vehicle is going to be a good chunk worse instead of better with this update.

 

[Ratanpara]

In some respect Tesla's vehicles price increase is worry some, commodity price increase taking toll on cost of producing car but with this price increases has more complexity, we have never seen $5.00/gallon gas across the nation, California used to be the state with $4.00 plus gas, now this is happening accross the nation and worldwide, sure people with smaller commute could absorb higher gasoline price easily, people with longer commute looking for alternate to gasoline power vehicle. Tesla has so many elements in their new factories ,Berlin and Austin , to reduce cost per unit , let's say if demand slightly slow and Tesla need to reduce price their margin will go down but competition will go out right bankrupt.

 

[ggr]

Assuming this is a valid attack and the appropriate vectors and surface vulnerability was shown/demonstrated, I would also expect an OTA update fix.

Remember, Tesla has specific requirements for submitting security issues. If this does meet those criteria, a fix will be made and I hope those responsible for submitting get a bounty.

The white hacking community is the best way to keep software strong long term and I know Elon believes that as well.

What's the threat here? Some time in the last 130 seconds, the attacker had a valid card key, authorized unlocking, that is capable of authorizing a new key by just putting it on the cupholder. Presumably he still has it. Relay attacks don't work well with NFC.

 

[-=buzz=-]

What's the threat here? Some time in the last 130 seconds, the attacker had a valid card key, authorized unlocking, that is capable of authorizing a new key by just putting it on the cupholder. Presumably he still has it. Relay attacks don't work well with NFC.

No, within 120sec of the owner using his card, the attacker can turn his own NFC card into a valid card key for this car.
He could later enter the car like a regular owner.

 

[JRP3]

Reading this... I feel like this can easily be solved by an over the air update and Ford will trumpet that at every chance they get. But here's the thing... the fix is going to be a combo of limiting fast charging rate and full throttle acceleration. The vehicle is going to be a good chunk worse instead of better with this update.

That's not really a fix.

 

[Atomsla]

Russia shutting down the north stream 1 gas supply to europe because of, uh, technical issues, cant be great for confidence in the markets right now.

 

[Gigapress]

I don't know if we have a clear understanding of the impact of inflation on Tesla's COGS. Many of the inputs are purchased via long term contracts, so hopefully it is minimal, however we don't know what is buried in the details - there could be inflation escalators or other clauses that allow for the price to increase.

In my industry some suppliers have come cap in hand saying that if they sell for the contracted price they'll go broke - this has lead to changes in the agreements for higher prices as it is better to keep the suppliers in a sustainable position than to hold them to the contract and have them fail.

I'm Not saying there will be a large uptick in COGS but I will be reading the next quarterly report with that on my mind.

Yeah, inflation is a big question. I expect CoGS to increase but probably only by around $3-6k, far less than the price increases.

CoGS is substantially influenced by S&X volume. If S&X cost on average $60k to produce, then we can calculate that average CoGS for 3/Y is down $5.4k per car since pre-COVID (see table below). This figure has ticked up a bit in the latest two quarters, but in Q1 ‘22 it was still slightly below Q1 ‘21.

I can think of only a few major reasons, which are not mutually exclusive, why this might have happened:

1. Shanghai is vastly less expensive per car than Fremont is
2. Tesla’s inflationary pressures have a lag of well over a year somehow
3. Switching RWD 3/Y variants to iron phosphate cathodes saved a bunch of money
4. Other manufacturing cost savings saved a bunch of money
5. Model Y, with its rear mega casting, Supertub, wiring improvements, etc. actually costs a bit less than Model 3

Even if the lag due to fixed price contracts means that a staggering 25% inflation awaits us from here, that’s only $35.3k * 0.3 = ~$9k extra cost per 3/Y, which is about how much their prices have increased since last July. Then, a significant portion of that $9k would be canceled out by the upcoming savings from the new factories, shorter vehicle delivery distances, easing chip supply constraints, Battery Day tech, etc. Thus, even in a nightmare inflation scenario, it’s still extremely likely that gross profit per 3/Y is set to increase by thousands of dollars.

Moreover, substantial parts of the cost structure are fixed. Depreciation and amortization are, to my knowledge, based on the cost originally paid for the factories and equipment, and this totaled $880M in Q1, most of which probably was for the auto business.

Shipping expenses, which are probably at least $1k per car on average, are most likely paid based on current market prices and have little to no lag for long-term contracts.

With Y/S/X share increasing and all the other positives coming, I seriously can’t generate a plausible scenario for 2023 where overall auto gross profit per S3XY car is less than $22k, and $27k seems most likely. The only thing that really makes me question this is the fact that I seem to be the only one projecting numbers this high.

At this point, second place does need a telescope to see us.

	Auto CoGS ($M)	Vehicle deliveries	S&X Deliveries	Avg CoGS per Vehicle ($k)	QoQ Change in CoGS/veh ($k)	CoGS/veh for 3&Y, estimated with S/X CoGS of $60k ($k)
Q4 2019	$4,934	112,095	19,475	$ 44.0		$ 40.7
Q1 2020	$3,821	88,496	12,230	$ 43.2	$ (0.8)	$ 40.5
Q2 2020	$3,862	90,891	10,614	$ 42.5	$ (0.7)	$ 40.2
Q3 2020	$5,506	139,593	15,275	$ 39.4	$ (3.0)	$ 36.9
Q4 2020	$7,070	180,667	18,966	$ 39.1	$ (0.3)	$ 36.7
Q1 2021	$6,617	184,877	2,030	$ 35.8	$ (3.3)	$ 35.5
Q2 2021	$7,307	201,304	1,896	$ 36.3	$ 0.5	$ 36.1
Q3 2021	$8,384	241,391	9,789	$ 34.7	$ (1.6)	$ 33.7
Q4 2021	$11,085	308,650	11,766	$ 35.9	$ 1.2	$ 35.0
Q1 2022	$11,322	310,048	14,724	$ 36.5	$ 0.6	$ 35.3

 

[Zero CO2]

In some respect Tesla's vehicles price increase is worry some, commodity price increase taking toll on cost of producing car but with this price increases has more complexity, we have never seen $5.00/gallon gas across the nation, California used to be the state with $4.00 plus gas, now this is happening accross the nation and worldwide, sure people with smaller commute could absorb higher gasoline price easily, people with longer commute looking for alternate to gasoline power vehicle. Tesla has so many elements in their new factories ,Berlin and Austin , to reduce cost per unit , let's say if demand slightly slow and Tesla need to reduce price their margin will go down but competition will go out right bankrupt.

nope... not worrisome for Tesla
yes worrisome for those with ICE vehicle and realizing they must move to EV ...

watch this

 

[Drax7]

Wonder when affordability becomes an issue.
Apparently tesla is not worried given the waiting list
for deliveries. That indicates strong demand.
Strong demand is bullish.

I would take that signal seriously, given
the fed is looking for aggregate economic
demand destruction.

 

[30seconds]

Sure - Diess could be disingenuous about saying he can scale the BEV output to pass Tesla without having contracts in place for the batteries. If that turns out to be true then VW shareholders should revolt (or worse).

VW/ Audi has been highly disingenuous about their EV production goals for about 10 years now.

 

[Words of HABIT]

Raising prices the day after a 75 point hike suggests not good things to me in terms of where inflation could still be headed and what further interest rate hikes might
be required to tame the demand beast

Don't worry. GM has lowered the pricing of the Bolt, so it will all average out.

Seriously, what I expect to happen soon, if not already occurring, is for all ICE auto manufacturers to be lowering their car prices. No sane person in this economy with >$5/gallon gas is buying a Cadillac Escallade or a Chevy Suburban. Look what happened during the 1979 oil crisis. It obliterated the US domestic car market of oversized gas guzzlers, and broke open the market for small compact cars from Japanese rivals which up until then had been laughed at. Here we are in 2022 in exactly the same scenario, another oil crises, except instead of oversized gas guzzlers being replaced with small compact cars, they will be relaced with BEVs which up until now have been laughed at. The oil and gas industry is playing Russian Roulette, and ironically in their quest for profits in their declining industry, they have significantly expediated their own demise. Give it some time to play out. Time is on our side.

 

[MP3Mike]

No, within 120sec of the owner using his card, the attacker can turn his own NFC card into a valid card key for this car.
He could later enter the car like a regular owner.

No, they aren't authorizing their own NFC card, they are authorizing a BLE device. Essentially they are authorizing a fob from a distance after they unlock the vehicle with an NFC card. Which if it is true Tesla should fix, but I imagine it would be a really easy/quick fix for them.

 

[Ratanpara]

nope... not worrisome for Tesla
yes worrisome for those with ICE vehicle and realizing they must move to EV ...

watch this

Short term Tesla will be fine, Elon and Tesla understand price elasticity very well, they will do the right thing balancing profit, demand, cost. They have a order book we don't, they taking action based on real time data.

 

[Words of HABIT]

Enough talk already about Tesla vehicles security vulnerability. Take it to another thread.

So far in 2022 in the Greater Toronto Area there have been close to 4,000 vehicles stolen, and not a single one was a Tesla. We know this because if there was even a single Tesla stolen, the paid media would be plastering it all over their front pages and electronic feeds. 'Nuff said.