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

[BornToFly]

As soon as the news of the upgrade hit, the NASDAQ dropped hard in an attempt to pull TSLA down with it. TSLA held up pretty well to the attack....

 

[Krugerrand]

Still too low a rating, but two questions:

1. This allows many of those funds to invest in TSLA now, right? Or is their bar higher?
2. Is this the signal to funds/hedgies/MMs that the retail investors have been sufficiently screwed over and it's time to start pushing in the other direction?

S&P's reasoning is nonsense. This upgrade came out and really Tesla hasn't "met" or changed with regard to any of their self-stated criteria.

Nevertheless, it's nice to finally see some good news to help pull us out of these doldrums.

It’s shocking that they actually skipped one level in BBB-!!! How incredibly generous. ******* ********!

 

[Discoducky]

Wasn't that Moody's that had the stated requirements of more models etc.? Anyone remember if S&P has stated any specific requirements for upgrades?

Yes and S&P usually follows Moody's as I've been listening to Alexandra (aka @TeslaBoomerMama on Twitter)

 

[printf42]

Saw a screenshot of a YouTube video that’s been removed since.

It seems to be the 9000 ton one for CyberTruck, title says built completed, testing completed!!!

 

[Knightshade]

Sorry it wont. Nature of Twitter and Elon wont make it go away once he has ownership. Could make it worse.

There's 2 different things though.

1) Financial overhang of Elon might need to sell TSLA to fund twitter purchase. THAT goes away in the next 3-4 weeks (barring a significant trial postponement) either way.

2) Concerns he tweets something unpopular and TSLA sells off. That'll be a perpetual risk, either accept it or find another investment.

 

[elasalle]

As soon as the news of the upgrade hit, the NASDAQ dropped hard in an attempt to pull TSLA down with it. TSLA held up pretty well to the attack....

Might be more like arbitrage rather than attempt to bring down TSLA. More like, they (MM/BOTS) know more monies from the pension funds are gonna flow into Tesla. Where is that money gonna come from cheers!!

 

[StarFoxisDown!]

As soon as the news of the upgrade hit, the NASDAQ dropped hard in an attempt to pull TSLA down with it. TSLA held up pretty well to the attack....

I'm not seeing the drop you're mentioning. In fact, TSLA since the news came out, has underperformed the Nasdaq in the past 5 mins.

 

[TheTalkingMule]

S&P can say whatever they want. My sources say Tesla is DOOMED!

Imagine sending your kid to Columbia school of journalism and getting this ^ in return.

 

[Gigapress]

Tesla has been trying to reduce wait times for something like two years now, by raising prices which has created the highest profit margins of any high-volume car maker. The wait times are a real problem for Tesla, especially from a customer satisfaction perspective, but also from a pricing perspective. It's a given that at some point their strategy of raising prices to reduce customer wait times, while increasing production constantly, will eventually successfully balance supply with demand. It's also likely that, as production continues to increase, prices will be adjusted as necessary to keep supply and demand as balanced as possible. Yes, that means adjusting prices lower to prevent the ever-increasing production from filling up parking lots.

That should be as easy to understand as controlling a car's throttle to maintain a steady speed when driving through rolling terrain. Because new car buyers are quite price sensitive - a lowered price is a powerful incentive to take the plunge while a higher price can serve to procrastinate buying. Yet there are still people saying there could be a demand problem. With the highest margins of any high-volume automaker, claims like this only serve to identify people who do not understand what they are talking about. If signs are pointing to Tesla having a "demand problem" then legacy auto has had a "demand problem" since the 1960's (as all those cars on dealership lots prove). It's shocking how many people don't understand such basic concepts and yet they are arrogant enough to call themselves "analysts".

I can almost guarantee that Tesla is increasing production so rapidly they will announce price cuts or incentives by the end of the year. That's a good thing as it will make EV's a viable option for a much wider swath of the motoring public. This is a given and should surprise no one. Yet analysts are guaranteed to call it a demand problem and act like it's a surprise and a reason to downgrade Tesla. I don't feed the bears and I don't listen to idiots. More EV's are a good thing. Tesla's goal is to flood the world with so many EV's, and at such low prices, that only people with more money than brains will buy ICE cars.

I agree with most of what you're saying but I think this analysis greatly discounts the effect of demand growth.

Tesla's production is growing exponentially, but the demand is too. If the backlog is defined as the delta between quantity supplied and quantity demanded at the price Tesla has set -- let's call it Qd - Qs -- then the question is: what does this look like as a function of time if price is held constant, and when does it equal zero? The first derivative is Qd'(t) - Qs'(t). If both Qd(t) and Qs(t) are exponential growth functions, then we need more information to answer our question because we don't know which one is growing faster. In reality they aren't perfect exponentials, especially the demand one which is profoundly influenced in the short term by random events like the enactment of the US clean vehicle credits policy, ICEV bans/restrictions, and $120/barrel oil, but this model is close enough for this purpose.

As we know, the more Teslas Tesla sells, the more Teslas Tesla sells. This is a huge reason pro analysts and casual retail investors have been so surprised by Tesla's ability to satisfy demand at ever-higher selling prices even as production has explosively grown in a short few years. During the last totally irrational stock price drop in Q1 2019 with the temporary demand blip from seasonality combined with the $7500 tax credit beginning phaseout and going to $3750, TSLA took a huge hit and dropped to levels that it hadn't been to since 2016, reaching a low of $12/share ($180/share at the time). However that was temporary and as Tesla's customer base kept on spreading the word about how much they love their Tesla and the EV lifestyle and provided social proof to the next phase of more risk-averse adopters, Tesla's demand kept rising with production.

Tesla also improves the product rapidly, so every year it's noticeably better than the last year in terms of range, acceleration, handling, features, noise, vibration and harshness and more. This too drives increased demand and may, if the effect is strong enough, result in demand growth continuing to outstrip supply growth for perhaps several years to come.

For 3/Y sales in the US in 2023, I expect the $7500 clean vehicle tax credit is probably going to bump demand to crazy levels as that's around a 13% discount on the car. There's only going to be around 0.85M 3&Y coming out of Fremont and Austin next year, and the US market could probably swallow all of that at even higher prices than today due to the tax credit, plus focusing on the domestic market minimizes shipping distance until Tesla has factories in Canada, Brazil, Mexico, or wherever else is next. I imagine it'll be a relatively slow year for deliveries in the Americas outside the US. Or maybe a slow decade if this policy proves sticky and stays on the books.

We also still have other demand increase factors at play that I think people are generally underestimating

• Vegas Loop making thousands (and growing) of people per day lose their riding-in-a-Tesla virginity while being chauffeured by a driver who is trained and practiced at answering FAQs about Tesla and BEVs in the most understandable and friendly way possible
• Tom Brady and Hertz advertising for Tesla
• Other automakers increasingly advertising and legitimizing BEVs, which is potent for stoking demand for Tesla as we saw with the Superbowl effect
• SpaceX major upcoming milestones and growing public awareness (Starlink deployment, Starship/Superheavy orbital launch attempt and landing attempt)
• Cybertruck deliveries to customers, social media virality and lots of in-person attention that leads to positive conversations about Tesla and their vehicles
• FSD improvement
• Growth of the Supercharger network, destination charging and non-Tesla charging makes owning a Tesla more convenient as time goes on, especially for those without at-home charging

For these reasons I think it's difficult to determine right now the relative pace of production growth vs. demand growth. For the last two years, clearly demand growth has been the dominant factor, but Tesla prices are currently out of a lot of people's affordability budgets so there is at a certain point a high price elasticity of demand where a small increase in price drastically reduces the quantity demanded.

 

[cusetownusa]

FYI...I just looked at the Tesla Find Us map and it looks like it was recently updated, at least for NYS. Tesla looks to be busy building out Superchargers across Upstate NY. I Counted 9 new ones for Upstate NY, 3 of which just went live and 6 that are scheduled to go live within the next few quarters. For someone that does a good amount of road trips across NY, these new locations will improve the road tripping experience and create a better sell for prospective Tesla buyers in my area.

However, there are still no Superchargers, or Public Fast Chargers, at any of the NY Thruway rest stops. Fingers crossed that they get added with this new federal charger money being handed out to the States. Most people that take the thruway prefer the convenience of the rest stops versus having to get off the highway and drive a mile or 2 to the nearest Supercharger.

Also, looks like they will finally be opening up a Service Center in my area. This is huge as I know a lot of people that won't even consider a Tesla because of this. Unfortunately, it is still a 4 hour drive to our closest Delivery Center.

 

[Cherry Wine]

There's 2 different things though.

1) Financial overhang of Elon might need to sell TSLA to fund twitter purchase. THAT goes away in the next 3-4 weeks (barring a significant trial postponement) either way.

2) Concerns he tweets something unpopular and TSLA sells off. That'll be a perpetual risk, either accept it or find another investment.

Agreed in that I think the first overhang you've listed carries far more weight. It's something that speculators can more reliably front run which has material effects on TSLA price.

With that said, while I agree that the second overhang exists whether Elon purchases TWTR or not, I will say his ownership raises the stakes in that it won't just be Elon's tweets that can be seen as unpopular, but rather the direction of the platform itself.

C'est la vie.

 

[StapleGun]

Troy tracks take rate for new car purchases here:

https://www.patreon.com/posts/tesla-full-self-69513620

Through Q2 2022 he has total NA FSD buyers (the only place FSDb is available) at 329,360...

I've seen Troy's estimates used a lot as a reference for FSD fleet size but I think that's a dangerous thing to do. People self-selecting to fill out his spreadsheet are almost certainly more likely to buy FSD than "normal" buyers.

We know Tesla just disclosed "Over 160,000" vehicles in the US and Canada have received FSD, and it is available to anyone with a safety score over 80. I'm guessing more than 90% of people have a safety score over 80 which would put the total fleet size at around 180,000.

 

[BornToFly]

I'm not seeing the drop you're mentioning. In fact, TSLA since the news came out, has underperformed the Nasdaq in the past 5 mins.

12:48 - 13:09

Edit: I WAS hoping for a stronger TSLA rally at this point, but maybe it takes institutions a few days to mobilize and start buying shares if they didn't know the upgrade was coming?

 

[thx1139]

There's 2 different things though.

1) Financial overhang of Elon might need to sell TSLA to fund twitter purchase. THAT goes away in the next 3-4 weeks (barring a significant trial postponement) either way.

2) Concerns he tweets something unpopular and TSLA sells off. That'll be a perpetual risk, either accept it or find another investment.

With his ownership it is no longer if he tweets something unpopular. All sorts of conspiracies and charges will be thrown at Tesla because of Elon owning Twitter. He hasnt done people that believe in the Tesla and SpaceX visions any favor.

 

[Skryll]

I understand and agree with your points. Reducing price is also reducing GM% unless BoM magic happens. Let me put some big simplifications and some big ifs on the table to try and get a grasp of the problem/opportunity here. Before I try and run a scenario in my 10-year model lets first try to agree what it might look like. Here is a first sketch as I would appreciate comment.

HISTORY
1. The relevant BEV market is split 1/3 : 1/3 : 1/3 between USA, China, and Europe. (sorry about the little'uns, but I need to simplify)
2. It was only a few years ago that Tesla really had no competition in China, and only a couple of years ago that Tesla opened the Shanghai factory.
3. During the last 2-3 years Tesla has been raising prices by $10k-$15k and in the process has gone from maybe 20% GM to maybe 30% GM.
4. During those few years Tesla BEV competition in China have gone from only being viable in non-Tesla segments to becoming viable and competitve at lower prices in Tesla-segments. So it takes 2-3 years for China to build capacity faster than Tesla does, and to play sufficient catch-up in product terms, for 1/3 of the relevant market.
5. US and European competition really aren't making a difference and so are not directly interesting to this analysis.

PROJECTION
- The Chinese continue to build capacity faster than Tesla and they progressively push harder at exports to Europe and USA. Within 2-years they either fully into Europe (or USA) or halfway into both. Within 4-years they are fully into both (i.e. they can overbuild at the rate of 1/3 in two years). Ignore incentve programs as they will come and go.

6. Competition starts to bite into Tesla margins and so Tesla cuts prices as the excess demand is run off - the GM of 30% declines to 20% over the next 5-years, and that includes income from NoA and FSD in automotive.
7. But Tesla are then able to hold BoM costs stable and to maintain a prestige brand position with GM% then steady at 20%. (so still unusually good)
8. But this also has a numerical effect on Tesla caacity build in the later years, with the max capacity build rate becoming capped at 2m/yr due to competition effects. This would mean Tesla reaches max 16m/yr in 2030, not 20m/yr, i.e. this effect starts to cut in as the GM% stabilises, likely due to internal Tesla discipline.

- One point to notice is that I assume the Chinese also in effect practice price discipline. There is however nothing to prevent them continuing to overbuild capacity and wiping out the entire market. But my guess is China would back off, likely holding about 30-40m/yr of the global market in 2030. This would leave 16m/yr for Tesla and 24m-34m/yr for everybody else (assuming constant market of 80m/yr).
- Ignore RoboTaxi completely for this examination.

Any comments on this as I might run it at the weekend to explore the share price implications. ?

Insurance and energy infrastructure and the synergy on the battery manufacturing will play a bigger role imho, offsetting the loss in margin on the car hardware by lowering battery cost and bringing additional revenue streams, energy arbitrage etc

 

[Knightshade]

I've seen Troy's estimates used a lot as a reference for FSD fleet size but I think that's a dangerous thing to do. People self-selecting to fill out his spreadsheet are almost certainly more likely to buy FSD than "normal" buyers.

We know Tesla just disclosed "Over 160,000" vehicles in the US and Canada have received FSD, and it is available to anyone with a safety score over 80. I'm guessing more than 90% of people have a safety score over 80 which would put the total fleet size at around 180,000.

You're missing a lot in your math there.

First- it did NOT go to everyone above 80 (see the FSD threads for people who have not gotten it and are above 80)--- just like folks who were above previous score minimums didn't all get it--- they appear to still be (as they did every previous time) cap total # in the beta in addition to a score minimum.

Second- it also did not go to anyone who did not request getting into the beta program- we don't know that number but it's non-zero.

Third- Folks with MCU1 but FSD can't get it at all- so they'd also be excluded but still be in the "owns FSD" fleet and I expect they'll get a free MCU2 upgrade once wide release happens. (DItto HW2.0 camera S/X owners who need newer cameras to get in but don't have them yet).

And that third group is most of the very-early adopters you were insisting were most likely in the beta- but can't be due to HW limits.

 

[Curt Renz]

The S&P raise of Tesla to BBB from BB+ was actually a jump of two levels passing through BBB- which is considered the lowest investment grade.

S&P Global Ratings - Full explanation of Tesla upgrade:

Research Update: Tesla Inc. Upgraded To 'BBB' From 'BB+' On Improving Production And Solid Cash Flow Prospects; Outlook Stable

 

[Drumheller]

2) Concerns he tweets something unpopular and TSLA sells off. That'll be a perpetual risk, either accept it or find another investment.

Yesterday, Elon tweeted that he had a video call with Putin last year. This morning, Elon insulted someone from Chinese State Media on Twitter.

Stock hasn't seemed to react to those and no one is discussing it in this thread so maybe some people are caring less about his tweets.

 

[30seconds]

Agreed in that I think the first overhang you've listed carries far more weight. It's something that speculators can more reliably front run which has material effects on TSLA price.

With that said, while I agree that the second overhang exists whether Elon purchases TWTR or not, I will say his ownership raises the stakes in that it won't just be Elon's tweets that can be seen as unpopular, but rather the direction of the platform itself.

C'est la vie.

Not a whole lot of reason to buy as long as Elon might be selling $Billions and bringing down the stock

 

[Captkerosene]

I'd suggest that you withdraw from the FSD Beta program, you are clearly not a good FSD beta testing candidate. Tesla wants intelligent, useful, and honest feedback from FSD beta testers. Your glib comments are also disrespectful to all the hardworking Tesla engineers who work on this life-saving technology.

Just guessing, Twitter censor?