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

[Drax7]

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. ?

Check the apple versus android history, something similar was feared but
did not materialize.

 

[Gigapress]

Isnt the market aware that consumers really cant choose not to use Saudi Aramco?

Also LodiEVFan I am right with you. It is so obvious how Big Oil F's with the world.

That's true. I just mean it in the sense that for some businesses like tobacco companies, the valuation is substantially suppressed not by poor earnings but by socially conscious investors and funds who don't want to help fund harmful business practices. Evidently the market isn't shunning Aramco stock very much because their P/E of 15 is slightly below the S&P 500 P/E of 18, which is about what I'd expect for a business showing anemic growth and profit margin inconsistency due to external factors the company can't control.

 

[TheTalkingMule]

Good information, but only thing I have to indicate is that Saudi Aramco is in an inevitable position. The world cant avoid making Saudi Aramco incredibly profitable at this time. Oil is traded on the global market and there is really no way for someone to say F Saudi Aramco I am not buying any of their oil.

No more so than Tesla products. If you want a high quality EV, which you(the avg global consumer) do, then you are currently "stuck" with Tesla.

Hell, we(the US) don't really buy any crude from Saudi Arabia anymore. Just a token shipment or two a week to keep things friendly.

That was unthinkable just 5-10 years ago and will likely never reverse.

 

[Discoducky]

I came across this executive summary of the clean vehicle credit aspects of the Inflation Reduction Act. I'm bookmarking this for reference because it's a lot easier to read and understand than the actual law, which is written in legalese instead of English.

https://crsreports.congress.gov/product/pdf/IN/IN11996

Great read and love the matrix, really helps put things in perspective.

And now I understand that it literally took Sherlock to figure this out...

"Author Information: Molly F. Sherlock, Specialist in Public Finance"

 

[Todd Burch]

I watch him more for amusement. I must say that he is very creative in bending certain figures to fit in his narrative, you must somehow admire that.

I admire only his suspenders and the game head (antlers?) hanging on his wall.

 

[StarFoxisDown!]

Check the apple versus android history, something similar was feared but
did not materialize.

Also, the benefits and subsidies Chinese EV makers get in China are not applicable to Europe, the US, and the rest of the world.

In fact, Chinese/Korean EV makers have essentially been crippled in the United States by the IRA and the strong US dollar. They've been pushing extremely hard to build up EV production in China but in reality, they should have focused somewhat less on local China manufacturing and instead, expanding the manufacturing across multiple continents at the same time.

They're at a massive disadvantage to Tesla in the United States, facing a direct $7500 disadvantage as well as Tesla enjoying a boatload of credits that they'll receive directly.

In Europe, Tesla's logistics costs will be a fraction of any Chinese EV makers thanks to Giga Berlin.

Add these two things up, and Tesla can easily take all of the additional margin from US/Europe markets to drop the price in the China considerably and wage a price war with the Chinese EV makers.

 

[StarFoxisDown!]

As if right on cue (and as someone pointed out earlier), new Twitter FUD is out saying that there's sticking point about the "pending debt financing". Even though that was the wording in the deal what was agreed upon. So it's literally a nothing burger. Exactly the FUD yesterday about banks pulling out of their debt obligations......even though they weren't the debtors in the first place

Not quite sure about this tweet's information that the deadline for debt financing is Oct 20th......but dear god let it be true. I don't care whether the debt financing comes through or not and thus whether the buyout goes through or not. Just for the love of God be done with it.

https://twitter.com/x/status/1578089655102103552

 

[Words of HABIT]

I would like to explain my rationale more on my aggressive investment strategy to get feedback from the TMC hivemind and to maybe give useful perspective for people.

Not that I'm giving advice anyway, but I want to say that I would absolutely not recommend that most people copy this strategy. I am doing things and thinking about things radically differently than most people, my situation is different than most people, and presently I have neither dependents to support nor a long-term partner whose feelings I need to consider when making investment decisions.

First of all, I should mention that the majority of my TSLA shares are safely tucked away in tax-advantaged retirement accounts with no debt or options shenanigans. I could liquidate these accounts in an emergency. The countless margin calls (literally...I have lost count of how many happened this year) are only occurring in my regular brokerage account. I checked in today and calculated that my net debt-to-equity ratio for my investment portfolio is about 40%, which is tolerable risk for my current preferences. If I were really fully leveraged on margin this D/E ratio would be much higher.

My overall personal net debt is probably much lower than most people here, because I don't own my residence and I have no student loans, medical loans or anything like that. I do have a car loan because I finally bought a Model 3 a couple weeks ago, but that debt is low-risk because it is approximately canceled out by the resale value of the car, which is quite stable compared to assets like TSLA, and the car itself is insured against catastrophic loss of value from stuff like damage and theft. I also have a few credit cards I'm maxing out, because I kept getting mail advertisement for no-strings-attached 0% interest for 18 months and I decided it would be irrational not to take advantage of that. Presumably they hope I'll just not pay the debt off at the end of the intro period.

Also, I still think people generally misunderstand something fundamental and crucial about the risk of margin, which is that you can lose extra money on the way down, but as long as the asset price eventually increases, then the same process works in reverse. As the stock price rises, the market value of my margin equity would increase in proportion to the TSLA price, which then increases my margin credit, which enables me to buy more shares to replace the shares I sold on the way down. This is a bit of an oversimplification and one important factor is that forced sales have tax consequences; I'm locking in a huge amount of long-term capital gains this year, which is not very tax-efficient, but oh well. Except for the tax stuff, I haven't identified any reason to care about margin calls as long as I am extremely confident that the underlying asset is eventually going back up to where it was and beyond.

That's why I don't complain or fret about Wall Street manipulation and misunderstanding; they are serving me a Golden Opportunity on a Silver Platter and I intend to exploit it hard. I will gladly take their capital because I have big ambitions for philanthropy projects I'd like to do when I'm older and I don't think the hedge fund managers would spend the money as well as I can. Alternatively, it's not the end of the world if my projections are totally wrong and I lose everything and end up as a washed-up 28-year-old engineer with good health, around $10k or $100k, and an employment history gap of one year in which time I put out 1000 investment analysis posts that are allegedly pretty impressive. I could do a lot worse than that, and I think I could recover quickly in such a scenario.

My overall financial risk is mitigated when I take into account other assets with less-tangible value that I can use to acquire more money in the future at the expense of the unemployed freedom I currently enjoy, such as:

• Health
• Engineering degree and employment history
• Knowledge & skills about all kinds of things
• US citizenship and passport
• Native English language fluency
• Boeing network (I know they would like me to come back)
• TMC network (If I needed a job, I think probably someone here would be able and willing to help)
• Being a white male
• Ability to get into good grad school
• No criminal record
• Enjoying working with computers
• Living in the 21st century with all its technological and infrastructural wonders like indoor plumbing, smartphones, cheap ubiquitous broadband internet, electricity, etc.

My net investment portfolio value is down approximately 80% since the peak last year. My assets as of today are definitely not enough to sustain this semi-retirement indefinitely with a 4% withdrawal rate. Back in January, I didn't anticipate this when I handed over my badge and laptop to my manager and said goodbye. However, with the way I have chosen to play this craziness, the 2022 TSLA market irrationality will actually end up being by far the best thing that ever happened to my finances, because TSLA call options have gotten so ludicrously freaking cheap (in my estimation) that the temporary annoyance we are experiencing may pay off by one or two orders of magnitude over the next two years. The more irrational the pricing error gets, the more aggressive I get. If actual bad stuff threatening the earnings explosion were happening then I would not be doing this, but I've concluded that the market doesn't understand what's coming and in many cases the market seemingly misinterprets very good news as disappointing. I mean, the stock dropped hard after Battery Day and after AI Day. Come on.

I think my risk of being wrong on TSLA/Tesla modeling is greatly mitigated by:

• Specialization. I know a lot about this one thing and related subjects due to obsessively researching it and spending thousands of hours crunching numbers and thinking.
• Formal educational background in electrical/computer engineering and economics and career in manufacturing/quality, which seems to be very important for deeply understanding this one thing.
• Past history since 2017 of generally understanding Tesla the company and the EV market and making generally accurate predictions about how the business would work out. (Actually, I underestimated Tesla in 2018 when I bought most of my shares.)
• Living in Seattle/Bellevue for the last several years and seeing the staggering growth with my own eyes
• TMC community. I learn things here every day. I hope I've successfully communicated that I want critical feedback and y'all follow through on that. This makes me less concerned that this place is an echo chamber where I'm just getting dopamine hits from likes for saying stuff merely because we all like the conclusion and want to rationalize it. Also, here at TMC the quality of the critiques, from those who aren't trolls, is much better than Reddit or real life or wherever else I try to have discussions. It's not efficient to debate with someone whose mind is filled with basic misconceptions about the topic at hand, like talking about orbital mechanics with a flat-earther.

@Gigapress, you have many supporters here on TMC and have our respect. You are 27 and have achieved millionaire status and drive a Tesla, are incredibly bright and hard working. You have confirmed your thesis on Tesla. Why not simply let TSLA take its bumpy course ride up for the next 10 or 20 years and be content with your current investment in TSLA, adding shares as able along the way? Be prepared for a change in your circumstances, finding your life partner, perhaps starting a family. Health is also not guaranteed. This from a cancer survivor (at 20 yrs.), heart attack survivor (at 42 yrs. and again 43 yrs.) and mental illness survivor (at 44 yrs.)

You are young and have a long life ahead of you. Sure your position and risk tolerance is different than someone who is in their sixties and/or with many dependants, however I find your statement "The more irrational the pricing error gets, the more aggressive I get." concerning. That is addiction talk. My recommendation for you is use your talents (at Tesla, SpaceX, Boeing or a charitable organization) to better humanity, and spend less time here on TMC. That would be our loss, but your gain, and society's gain. Wishing you all the best.

 

[AndrewZ]

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... of those since the change in FSD description to be clearly only promising L2 city streets (roughly March 2019) we have a little under 60,000 buyers.

So the vast majority came after that change.

In fact the first 2 quarters alone after the change we see more buyers than in the 2.5 years prior.

This make sense because even if overall take rate % has dropped (and it has) it's a percentage of a much larger # of total cars sold.


Note: I'm just going by what the buyer is actually promised when buying FSD, not whatever random "I think probably maybe..." stuff Elon tweeted on any given date.

Second note: Troy doesn't track post-car-purchase FSD buying--- nor subscriptions which didn't even exist after the change, so the % of pre/post L2 change is probably even larger in favor of the post-change folks.

I think we're on the same page with most of this stuff these days, I'm on board with the idea the website description was tweaked at points to reflect reality and that would cover Tesla's derriere. I think it might be a different picture if you mapped that take rate against the perception sold on Twitter, in interviews, on earning calls etc, and correlated it with how people were likely understanding these things that IMO were carefully worded to be interpreted in certain ways.

I'd also argue that the number of buyers past March 2019 doesn't necessarily mean that the additional buyers weren't buyers before the change as we know that repeat FSD purchases appear pretty common, I've encountered people on here who have bought FSD 5+ times across multiple vehicles over the years. Again the wording was changed along the way, but these repeat customers > March 2019 could have still been around for those earlier days and likely those earlier adopters are more inclined to buy FSD in the first place.

Brand new customers who are buying now, I think they have a better idea of what they're getting into. But this idea that nobody should be harsh on FSD because it's Beta and eeeeeeveryone knows to be careful, that it's in testing, etc etc... This was not always the case and it feels like a bit of revisionist history tbh.

 

[lafrisbee]

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

View attachment 860694

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

SO, you reeeeally think her parent(s) sent her to Columbia??????????

 

[ThisStockGood]

 

[M|S|M MYP]

Did i miss the good news today or there was not any? There must have been something i missed because $TSLA is only down 0.5% today

/s

 

[Todd Burch]

Did i miss the good news today or there was not any? There must have been something i missed because $TSLA is only down 0.5% today

/s

You may have missed that we dropped because, sadly, TSLA was upgraded several levels to investment grade. This, after a record quarter. Just one disappointing piece of news after another. /s.

 

[insaneoctane]

If Tesla emerges un-excluded and as a major - if not the major - recipient of IRA benefits, do you think you'll reconsider your insistence that the current administration has it out for Tesla?

No.

 

[ZenRockGarden]

The S&P rating move from BB+ to BBB should give some long-term lift to TSLA - a lot of big funds are forbidden from holding below-investment-grade securities even if they want to. Now it's an option for them. Might take a while for it to trickle in since large funds don't pivot quickly.

 

[verystandard]

On the plus side, at least we are not following NIO or LI today.........

 

[wipster]

You may have missed that we dropped because, sadly, TSLA was upgraded several levels to investment grade. This, after a record quarter. Just one disappointing piece of news after another. /s.

Let me add my informed viewpoint:

THIS SUCKS LIKE A FARE THEE WELL!!!

not /s

 

[geometro]

The S&P rating move from BB+ to BBB should give some long-term lift to TSLA - a lot of big funds are forbidden from holding below-investment-grade securities even if they want to. Now it's an option for them. Might take a while for it to trickle in since large funds don't pivot quickly.

I've seen this mentioned before, but can someone point me to something that validates this? Which entities aren't allowed to buy below-investment-grade securities?

 

[Singuy]

Check the apple versus android history, something similar was feared but
did not materialize.

Having a price war with other Chinese EV companies that are not even making money is NOT the right move. The Chinese likes brand prestige and would happily pay more. However Tesla must continue to provide top tier premium experiences like service and charging. They also need to continue to upgrade certain area of the car that provides luxury, premium, and value without dropping prices. Notice how the cars in China get all the premium features first, like the new wood interior trim and the new Ryzen processor. Keep the price up but sprinkle in upgrades is the way to go. This is the Apple model of doing business. Even though they may not have the best screen or having foldable screens, their camera remains top dog and their software integration is second to none.

 

[30seconds]

I've seen this mentioned before, but can someone point me to something that validates this? Which entities aren't allowed to buy below-investment-grade securities?

any mutual fund prospectus will describe grades of securities they can purchase.