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

[CorneliusXX]

What is understated here when people look at Rivian and Lucid is that Tesla has NEVER made a negative gross profit since IPO. They had positive profit margins every quarter no matter how small. Musk makes a point of never losing money on product they make after learning his lesson from roaster 1.0. Total company loss after expenses yes, but always positive when you minus COGS from revenue.

Tesla Gross Margin 2010-2023 | TSLA

Current and historical gross margin for Tesla (TSLA) over the last 10 years. The current gross profit margin for Tesla as of September 30, 2023 is <strong>%</strong>.

www.macrotrends.net

Is that the dividing line between success and failure? I wonder what Elon would have done if he had $15b in the back pocket before building a single vehicle. Presumably the ramp process would have been quite different.

We all know that Rivian is far more risky, but they have a product that people want and the social/regulatory framework is at their back. They might well fail if revenue and expenses remain out of line but if I were RJ I'd want to get big fast and that requires spending a lot of money very quickly.

 

[Krugerrand]

It's more risky but it appears that Rivian wants to have a faster ramp than Tesla (from what I've seen they want to get from 0 to 1m units p.a. in 9 years (target 2030). Rivian is gearing up for several hundred thousand vehicles from the get go. Tesla had staged volume production with only hundreds p.a. for the roadster 1, tens of thousands for S/X then hundreds of thousands for 3/Y. Rivian is trying to make those 3 leaps in one go. which means they need to spend more than Tesla did comparatively to accelerate the ramp. Tesla took 14 years (2008-22) to get to 1m p.a. Far higher R&D and SGA should be expected if timelines are accelerated.

There's also been more than half a decade of inflation since tesla was producing at similar volumes.

I'm not saying it will work out, but it's not unreasonable at this stage in their lifecycle while having those sorts of ambitions.

That seems like a good plan given we know Tesla has been going as fast as possible from the get go and Elon continues to say ‘spending money as fast as we can without wasting it’.

We’re about to see how fast money can be wasted.

 

[gtrplyr1]

I'm also invested in Rivian, unfortunately I got in too soon when it started to collapse but did buy some under the current SP as well. My reasons for investing are two fold:

1) The make a product that seems to be very well liked
2) The are selling into a market that growing at an astronomical pace and, industry wide, will not have enough product to meet market demand for a while.

That's about it (I'm a simpleton) .... some companies will make it and others won't so you pays your money and takes your chances.

I've got a VERY small portion in relation to my Tesla holdings but for Rivian to go 20x from here is way more likely than Tesla. Simple law of large numbers. Then again ... it could go bust and I'm well aware of that .... frankly I would suspect they would be a takeover target at some point as well.

 

[Singuy]

Is that the dividing line between success and failure? I wonder what Elon would have done if he had $15b in the back pocket before building a single vehicle. Presumably the ramp process would have been quite different.

We all know that Rivian is far more risky, but they have a product that people want and the social/regulatory framework is at their back. They might well fail if revenue and expenses remain out of line but if I were RJ I'd want to get big fast and that requires spending a lot of money very quickly.

We are only talking about revenue minus COGs which strips out them building 2 factories at the same time and all sorts of other stuff. Unless you think rivians first factory has a higher capacity than Fremont 1.0 and can generate more revenue than Tesla then rivian is really has a ridiculous burn rate.

 

[Krugerrand]

Looking at Rivian microscopically at this stage does not make sense, Big question is, can they ramp quickly ?, Rivian investment will not be pain free, Tesla lost money for good 10 years with Model S&X voulme around 100K, went almost under during Model 3 ramp.

Exactly. Yet, Rivian is somehow going to be able to do it under the guidance of someone far less capable.

Standing over here not holding my breath.

 

[Paul_SF]

I know it’s the weekend, but enough of this Rivian bs, go on a new thread or something!

 

[cab]

While it is fun to talk about the Rivians of the world and I think they may in fact make it (#AmazonMoneyIsFun), I used to think the various established automakers were the real threat to tesla. Now, however, it seems the real threat will come from the Chinese automakers. To be clear though, while there is some threat to Tesla (at least in terms of end state market share), they are primarily a threat to every other established auto maker.

In my own myopic thinking I never would have imagined such a rapid shift to an automaker eco system that consisted of Tesla and Chinese automakers...with the rest falling by the wayside or ending up as shells of their former selves. I predict a lot of "traditional automaker + Chinese EV maker" partnerships occurring over the next few years as they all try to "find their place" in this new world. Ironic given the recent "inflation reduction act" or whatever it is called and its "supposed" goal to bring more manufacturing back to the U.S.A., etc.

 

[Krugerrand]

Is that the dividing line between success and failure? I wonder what Elon would have done if he had $15b in the back pocket before building a single vehicle. Presumably the ramp process would have been quite different.

We all know that Rivian is far more risky, but they have a product that people want and the social/regulatory framework is at their back. They might well fail if revenue and expenses remain out of line but if I were RJ I'd want to get big fast and that requires spending a lot of money very quickly.

I don’t wonder because it didn’t happen and thus things have gone as they have. As I already mentioned, just because you have money doesn’t increase your odds of hanging onto the money, using it effectively, or succeeding.

Having to fight for every single day of existence is an exceedingly important reason Tesla succeeded. It forced them to be creative, scrappy, efficient, innovative etc…. Rivian not having to experience that is not in fact an advantage. It’s a bottomless pit of missed opportunity to learn. The road less traveled offers untold wisdom.

 

[Singuy]

I know it’s the weekend, but enough of this Rivian bs, go on a new thread or something!

I think it's important to compare and contrast. Perhaps some people still don't understand what gives Tesla the market cap it has but can be explained using competitors execution.

 

[Paul_SF]

I think it's important to compare and contrast. Perhaps some people still don't understand what gives Tesla the market cap it has but can be explained using competitors execution.

I was thinking the market cap can be explained by the printing of money the company is doing and will do for the next decades…

There are no competitors, or you started to believe the old bs of competition is coming. /s

 

[Singuy]

I think what is important here is that Musk strongly believes what he said about "carry our own salt". He does not believe in taking retail investor money without showing at least the capability of hitting a gross profit. This is why he mocked Rivian for ipoing pre-revenue, and refuse to ipo starlink until it is cash flow positive.

 

[CorneliusXX]

We are only talking about revenue minus COGs which strips out them building 2 factories at the same time and all sorts of other stuff. Unless you think rivians first factory has a higher capacity than Fremont 1.0 and can generate more revenue than Tesla then rivian is really has a ridiculous burn rate.

That's a simplistic view. All sorts of random stuff can be buried in COGS when you get down to the finer details. In this example the total factory operating expenses need to be allocated between COGS (that used to build the vehicles) and CapEx/SGA - the number can vary wildly depending on a few accounting decisions.

What do you consider Fremont 1? when they were optimising the S/X lines or when they were in production hell for M3? Arguably Rivian is in M3 production hell without the revenue benefit of the optimised S/X lines. What would the gross margins for M3 have been in September-17 if the S/X margins hadn't been absorbing the costs?

Again, they're risky but the numbers don't sound completely ridiculous if they're trying to jump to mass production from a standing start.

 

[Singuy]

That's a simplistic view. All sorts of random stuff can be buried in COGS when you get down to the finer details. In this example the total factory operating expenses need to be allocated between COGS (that used to build the vehicles) and CapEx/SGA - the number can vary wildly depending on a few accounting decisions.

What do you consider Fremont 1? when they were optimising the S/X lines or when they were in production hell for M3? Arguably Rivian is in M3 production hell without the revenue benefit of the optimised S/X lines. What would the gross margins for M3 have been in September-17 if the S/X margins hadn't been absorbing the costs?

Again, they're risky but the numbers don't sound completely ridiculous if they're trying to jump to mass production from a standing start.

Fremont 1 is s/x, Fremont 2.0 is when they added capacity. Also it doesn't matter if s/x was absorbing the cost because that was planned. Musk doesn't want a negative gross margin ever and waited till s/x can absorb the cost before going into mass production hell. Do you think Tesla would have made more cars if they had unlimited money to waste? Musk has declared they will be making less cars today if they brute forced CT into production this year. Everything has always been methodically planned to ride the balance of never being in the red froma gm standpoint as they balance supply chain, raw materials, and demand.

 

[CorneliusXX]

Fremont 1 is s/x, Fremont 2.0 is when they added capacity. Also it doesn't matter if s/x was absorbing the cost because that was planned. Musk doesn't want a negative gross margin ever and waited till s/x can absorb the cost before going into mass production hell. Do you think Tesla would have made more cars if they had unlimited money to waste? Musk has declared they will be making less cars today if they brute forced CT into production this year. Everything has always been methodically planned to ride the balance of never being in the red froma gm standpoint as they balance supply chain, raw materials, and demand.

Rivian presumably planned their ramp too. Just saying no negative gross margins doesn't mean much at all if the plans are different.

The reason Tesla said they would not make more vehicles introducing CT early is because they have chip/cell limitations and the capacity to product 3/Y to use up those limitations - this is in no way relevant to Rivian expanding capacity unless they have component shortages that stop them producing more than the effectively 0 vehicles they produced last year.

 

[Krugerrand]

That's a simplistic view. All sorts of random stuff can be buried in COGS when you get down to the finer details. In this example the total factory operating expenses need to be allocated between COGS (that used to build the vehicles) and CapEx/SGA - the number can vary wildly depending on a few accounting decisions.

What do you consider Fremont 1? when they were optimising the S/X lines or when they were in production hell for M3? Arguably Rivian is in M3 production hell without the revenue benefit of the optimised S/X lines. What would the gross margins for M3 have been in September-17 if the S/X margins hadn't been absorbing the costs?

Again, they're risky but the numbers don't sound completely ridiculous if they're trying to jump to mass production from a standing start.

Perhaps the point the other side is making is that it’s ridiculous to jump to mass production when your ducks aren’t even at the same pond, never mind lined up?

Successfully mass producing cars is a 12-step program, not a 3-step one.

 

[strangethingintheland]

I don’t wonder because it didn’t happen and thus things have gone as they have. As I already mentioned, just because you have money doesn’t increase your odds of hanging onto the money, using it effectively, or succeeding.

Having to fight for every single day of existence is an exceedingly important reason Tesla succeeded. It forced them to be creative, scrappy, efficient, innovative etc…. Rivian not having to experience that is not in fact an advantage. It’s a bottomless pit of missed opportunity to learn. The road less traveled offers untold wisdom.

This. I spend a fair amount of time selecting, investing in, and mentoring startups. Those who receive too much money I call the “victims of philanthropy,” borrowing a phrase from the historian Daniel Boorstin.

 

[cliff harris]

The difference between Tesla and rivian/lucid/whoever is very simple:

Tesla didn't have to compete with tesla.​

The real problem for lucid is that they will have to compete with both the F150 and the Cybertruck. Now granted, the aesthetics of the cybertruck are not for everyone (I doubt they could sell many in the UK, with our narrow roads and relatively conservative approach to BIG SCARY VEHICLES), but the fact that the cybertruck will soon be a reality, and will have real, measurable specs to compare against Rivian is definitely a problem for them.

Tesla's early days were hard in many ways, but competition was never an issue. My 2015 model S has massive panel gaps, pretty ropey range (by modern standards), slow charge rate (by modern standards) and a pretty cheap interior given its price. But in 2015 it was UNBEATABLE if you wanted an EV.

I can see people standing in a rivian/ford showroom arguing with the sales people saying "but look how cheap the cybertruck is dude..."

And yes... I agree that the real competition is Nio/BYD/XPeng.

 

[Singuy]

The difference between Tesla and rivian/lucid/whoever is very simple:

Tesla didn't have to compete with tesla.​

The real problem for lucid is that they will have to compete with both the F150 and the Cybertruck. Now granted, the aesthetics of the cybertruck are not for everyone (I doubt they could sell many in the UK, with our narrow roads and relatively conservative approach to BIG SCARY VEHICLES), but the fact that the cybertruck will soon be a reality, and will have real, measurable specs to compare against Rivian is definitely a problem for them.

Tesla's early days were hard in many ways, but competition was never an issue. My 2015 model S has massive panel gaps, pretty ropey range (by modern standards), slow charge rate (by modern standards) and a pretty cheap interior given its price. But in 2015 it was UNBEATABLE if you wanted an EV.

I can see people standing in a rivian/ford showroom arguing with the sales people saying "but look how cheap the cybertruck is dude..."

And yes... I agree that the real competition is Nio/BYD/XPeng.

The real competition is Nio/Byd/Xpeng **

**not in the US after congress nuked their ability to get tax credit and they have zero supporting infrastructure and brand recognition. We have zero evidence that Americans are lining up to buy a Chinese made car.

 

[Words of HABIT]

...I could see Rivian be able to 20x from their $20/share position while for Tesla the same multiple is more difficult as Tesla would have to be the largest company in the world by a factor of 6. I'm not saying Rivian is a better investment - The difference is that Tesla is almost guaranteed to go another 3x-4x at a minimum over the medium term IMO (as far as a guarantee is possible) and that Rivian could end up staying a minnow and blowing through their cash pile before reaching proper scale, or just not figure out manufacturing at scale economically. Given how well Tesla has already performed, if Tesla goes another 3x-4x I know I could hang up my investing boots for life and live in luxury so it's difficult to invest in anything else.

Rivian's share price is currently $38.90 ($34.4B market cap for a company that has produced 10,000 vehicles since inception, or $3.4M per vehicle). I do not share your potential for a 20X gain for RIVN (=$687.2B market cap). I'll make a gentleman's bet of $1 that TSLA has a far better position to obtain a 3x-4x share increase than that of a 3x-4x share increase of RIVN. Fully agree with you that it's difficult to invest in anything else but Telsa.

 

[zecar]

What if, gasp, Elon simply wanted out of TSLA? He could not have picked a better way to sell and keep the price up.

I think Musk wants business that can make new things. The success of Tesla with the 3/Y has likely turned Tesla into a chore. His excitement/interest in the semi and cybertruck probably peaked two years ago. FSD has become a burden.