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

[Todd Burch]

I took a look at PACCAR Inc. financials. They are owners of DAF, Leyland, Kenworth and Peterbilt.
Their financials show GM% at 16.5%. I will double that for Tesla at 34%; however, I won't assume 34% until Q2 or Q3 2024.
I will probably start at -10% in Q4 2022, +5% in Q1 2023, +15% Q2 2023 and so on.
There is not much detailed support for my approach. I use 2 pieces of knowledge: Tesla delivers better margins than ICE and that it takes time to ramp to peak gross margins. I am likely conservative here.
Perhaps @unk45 or members with knowledge of this industry can help shed some light on this business.

I agree. Because it's a low volume product ON TOP of the fact that it will be ramping, Tesla won't be able to take advantage of manufacturing efficiencies of scale--there will be less automation overall. Therefore, I'd expect significantly lower gross margins initially, and probably less than other vehicle gross margins once they've fully ramped. Having said that, they may adjust pricing to hit certain gross margin goals, as I expect demand for the semi will be high.

 

[Artful Dodger]

This is ridiculously low and the SP is nearly guaranteed to go up from here over the next half year

RU effn joking?! Pres. Biden said within the past 24 hrs that the world is now closer to a nuclear exchange than at any time since the Cuban Missile Crisis.

I personally don't think it'll happen if the West keeps its nerve, but that is a FAR CRY from 'nearly guaranteed'.

Just for everyone else, DO NOT gamble any money you think you'll need in the next few years, DON'T use margin, and even consider keeping some cash and clean water at home.

 

[cusetownusa]

Jobs growth was lower than expected so that's good. (since we live in Bizzaro Fed world now) Unemployment still decreasing though.

Unemployment rate falls to 3.5% in September, payrolls rise by 263,000 as job market stays strong

Nonfarm payrolls in September increased 263,000 for the month, compared to the Dow Jones estimate of 275,000. The unemployment rate was 3.5%.

www.cnbc.com

I'm really skeptical of those MSRPS and range numbers from Kia. Very much agree that it's a gap in the current EV landscape. I have 2 kids and a small dog, my GF has 1 kid and a mini-horse (great dane mix) so the Model Y is very tight when we load up. Might have to upgrade her to an X at some point but the cupboard is a little bare right now and I'll already be buying my quad Cybertruck this summer.

I agree...still a lot of unknowns about the EV9 at this point which is why I said potentially. Either way, a very popular segment that hasn't really been filled yet. I also agree on the Model Y being tight. For our family of 4 we make it work and almost exclusively drive it over the Telluride, but the extra space and comfort of that vehicle is nice to have when needed. The R1S is also on our short list but the nearest SC is 5 hours away and I am not willing to take that risk of inconvenience at this point.

 

[heltok]

New Elon interview! Enjoy!

Elon Musk: ‘Aren’t you entertained?’

Removed paywall:

12ft |

12ft.io

 

[GOVA]

And a 500 mile EV is really 300 miles at highway speeds.

While I get your point, I still want to drive on your autobahns.

I am not so optimistic on the starting GM for the Semi.

Remember the Semi has a battery that could be 13x size of a Model Y but will be selling for 3-4x the price. Another way to look at it is they could sell 13 Model Y (approx $750K) with the battery capacity in the Semi.

I know not a perfect comparison considering 13 bodies for a Model Y and 1 for the Semi.

If they hit 10% to start it would be a win. The margin will increase a 4680 scales and they make other improvements. The numbers are going to be small to start so the initial margins will have little impact on the overall company.

In contrast, I am very optimistic about Tesla Semi Truck.

This is the product that is going to change Trucking Industry forever and this is very big deal.
Now, it will get delivered to many companies that can sample its advantages. Besides it being Tesla for all that it is, the first mover advantage helps as well.

I'd mentioned it years ago here, but need to reiterate - The Tesla Semi will matter more than we anticipate.

 

[thx1139]

RU effn joking?! Pres. Biden said within the past 24 hrs that the world is now closer to a nuclear exchange than at any time since the Cuban Missile Crisis.

I personally don't think it'll happen if the West keeps its nerve, but that is a FAR CRY from 'nearly guaranteed'.

Just for everyone else, DO NOT gamble any money you think you'll need in the next few years, DON'T use margin, and even consider keeping some cash and clean water at home.

Closer yes, but close no.

 

[StealthP3D]

IMO this is the approximate situation:-

• Gen 0 - Original Roadster
• Gen 1 - Model S/X
• Gen 2 - Model 3/Y
• Gen 3 - Chinese designed car and others. (2025?)

How we number the Generations isn't important, what is important is each successive Gen is designed to be cheaper and made in higher volumes than the previous generation.

The Gen3 car is talking longer than many might have expected, my best guess is Tesla needed raw materials, battery production, drivetrain efficiency and some other metrics to hit the right numbers.

Gen 3 is taking longer than expected because the volume of demand for the higher price points of Gen 2 was far stronger than expected and this is straight from Tesla management. So it has nothing to do with raw materials or drivetrain efficiency and is only related to battery production in that it makes sense to put the batteries in more valuable cars as long as there is a large enough market for more valuable cars. This is a good thing and contrary to Moody's wish for more model diversity, makes Tesla financially stronger, not weaker.

I also think when Tesla ran the numbers on the production costs of various designs, they realized the savings realized simply by making it smaller are pretty minimal because costs do not scale with size. Most of the cost is the battery and since even a much smaller car than the Model 3 only has around 10% less drag, the battery still needs to be 90% as big to get the same range (even though the interior space is 30% smaller). Also, both cars need a climate control system (as but one example) and it would cost more to make a slightly smaller system than it would to just use what they have. In other words, scaling things smaller does not save much money since raw materials are such a small part of the cost of a manufactured item. So, you end up with a car that is worth considerably less but only costs a little less to build.

To make a small car substantially cheaper, they have to also cheapen it up, something Musk is loath to do. He believes it's better to innovate new ways to make existing platforms cheaper, and to make more of them. They will eventually make a smaller car, but there is absolutely no pressure to push it out sooner. Making more EV's is the number one priority, not making smaller EV's.

Even with Robotaxis, Gen3 is still needed, in fact many Robotaxis might be Gen3.

Or putting it another way, it is important for the mission to make EVs as affordable as possible, and sell in high volumes.

For pricing, we want a price gap between Model 3/Y and Gen3, making a 20-30% margin on $25,000-$30,000 Gen3 car, is a better option than reducing Model 3/Y prices and trying to make even higher volumes of Model 3/Y.

When Gen3 is released, it and similar cars will be close enough to new car price parity with ICE, the limiting factor on sales volumes will be production.

With Model S/X Tesla hasn't tried to ramp production volumes beyond the long term market. When Gen3 does happen, building an scaling Gen3 production will be the next priority. Before that happens Model 3/Y production will be fully ramped, and perhaps close to their final capacity.

The Gen3 car will also expand the number of markets in which Tesla can sell cars, in turn supporting the sales of all other models in those markets.

Expanding to other markets is also a critical part of the mission and growing the business.

The smaller cars will come in time, but not anytime soon because Tesla is still only 2% of global auto demand, so the point at which it makes sense to enter that market, a market known for very challenging margins, is simply not as close as many people think. It has to make sense when considering all factors. That said, you can be sure Tesla is doing the necessary work, so they are not caught off-guard if market preferences undergo rapid change.

 

[Mengy]

Just for everyone else, DO NOT gamble any money you think you'll need in the next few years, DON'T use margin, and even consider keeping some cash and clean water at home.

I agree with this, but for me personally:

1) I have over a year's worth of funds in my credit union and I'm debt free with meager bills, so I'm not concerned with needing cash in a pinch
2) If I'd use margin I'd keep it a low percentage of my margin allowance. I'd never take on a margin upkeep I couldn't easily afford or pay off if need be.

I stay fairly risk free for the most part, I like sleeping peacefully at night. That said, my "fun" account is the one I could lose completely and it wouldn't hurt me financially at all. So I do take minor risks in it now and then.

 

[Nocturnal]

I'd mentioned it years ago here, but need to reiterate - The Tesla Semi will matter more than we anticipate.

One very nice thing about Tesla diversifying more into semis and energy is that they will be immune to FUD. Big companies won't care one bit if Elon is a jerk on social media if they can save hundreds of thousands of dollars in fuel per truck.

 

[SO16]

One very nice thing about Tesla diversifying more into semis and energy is that they will be immune to FUD. Big companies won't care one bit if Elon is a jerk on social media if they can save hundreds of thousands of dollars in fuel per truck.

And the vehicle deliveries will mean less as far as FUD goes.

 

[bkp_duke]

I took a look at PACCAR Inc. financials. They are owners of DAF, Leyland, Kenworth and Peterbilt.
Their financials show GM% at 16.5%. I will double that for Tesla at 34%; however, I won't assume 34% until Q2 or Q3 2024.
I will probably start at -10% in Q4 2022, +5% in Q1 2023, +15% Q2 2023 and so on.
There is not much detailed support for my approach. I use 2 pieces of knowledge: Tesla delivers better margins than ICE and that it takes time to ramp to peak gross margins. I am likely conservative here.
Perhaps @unk45 or members with knowledge of this industry can help shed some light on this business.

Just my 0.02 here - I expect Tesla to slow-roll Semi deliveries in Dec, and then really start pushing things hard come Jan.

Why? Any of their customers with a decent accounting team is going to want that 40k/vehicle IRA tax credit that goes into effect Jan 1, 2023.

 

[MadScientist23]

I can tell you from experience in aircraft development that taking a platform and shrinking it is not profitable in the long run. Derivatives going from smaller to larger are always more cost effective from a manufacturing standpoint. We can see that in the model 3 to model y here. Realistically they're the same base vehicle, just adapted to a larger form for the model y. Anything smaller would need a complete redesign from the engineering standpoint, not a derivative design from the model 3.

 

[cusetownusa]

The South Korean government must be heavily subsidizing Hyundai/Kia/Genesis and/or they're putting out loss leader after loss leader to change their image and perception before jacking up prices -- Genesis' lineup is starting to see big price jumps, for example with the G90 initially being the "value" buy against its competitors but the 2023 model is getting closer to price parity.

But that auto group is currently offering too much value for the price, I have a 2021 Genesis GV80 and legitimately don't know how they made money on it based on what I paid compared to the interior quality, warranty, and everything else.

I had similar thoughts about the Rivian vehicles...they seemed to offer too much value for the price. Seemed too good to be true. Then they raised the price which I expected, but I wouldn't be surprised that they still have them underpriced. I kind of wish I kept my pre price increase R1S order...the whole new car (and new company) and 5 hour drive to the nearest Service Center made me hesitant.

 

[Drax7]

Tesla fsd software when fully functional,
should help maintain gross margins at levels above 30%.
fsd has sustainable pricing power.

A fsd monthly subscription model , coupled with lower
insurance premiums, should make it even more compelling.

 

[StealthP3D]

If you look at the GM% on Energy (solar & storage) it is low. So either they are selling solar at a GM-loss to offset a GM-high on storage, or something else. Given that Musk is heavily against selling anything at a GM-loss I think something else.

You are looking at this incorrectly. It's well established that the primary way to increase gross margins is to increase the volume sold. Every major product Tesla has ever sold begins with negative gross margins until volumes grow high enough to get to break-even and beyond. Musk is not against selling anything at a loss, he knows that's inherent to varying degrees in every product ramp.

The reason GM's are low in the energy side of the business are because volumes are low and the reason volumes are low is because batteries are better used in vehicles. Recent comments from Tesla management that they finally have as many batteries as they need, points to growth on the energy side of the balance sheet, at least until they become battery constrained again.

 

[Nocturnal]

Not letting myself get excited, but this is plausible. Some here noted that credit wouldn't change until Tesla actually sought some debt.

https://twitter.com/x/status/1578339803304951809

 

[AndrewZ]

I had similar thoughts about the Rivian vehicles...they seemed to offer too much value for the price. Seemed too good to be true. Then they raised the price which I expected, but I wouldn't be surprised that they still have them underpriced. I kind of wish I kept my pre price increase R1S order...the whole new car (and new company) and 5 hour drive to the nearest Service Center made me hesitant.

Yeah I think the Rivian lineup is likely still underpriced today, the initial prices were an even crazier value.

Munro has some good commentary on tear downs of the R1T and they’ve said the components, manufacturing techniques, etc are at a level of quality you’d expect to see in the supercar price range rather than what they currently sell at.

 

[SOULPEDL]

It all depends on where you're driving. If I include my driving on the two-lane highway to the big city I'd say we're in agreement.

I'll try to quantify my morning commute for you: I live in the Rockies a few miles outside of a small town and drive to my hangar every day where my office is. The roads are hilly. The sun is bright and the pine trees cast long shadows. The centerlines are often unmarked. The edge of the roads are somewhat indistinct. The roads have multiple patches on them in one area. There is a small section where construction is taking place but it is well marked. One intersection is at the top of a rise where the stop sign is a little misplaced, there are four roads and a driveway all coming together at different angles. The speed limit changes after a turn without a sign. There is a short section of "twisties."

This morning I had 13 interventions or disconnects. I won't go through each of them. Some were minor (wrong speed) and a few were major where the system turned itself off or I was stopped on the road.

Additionally, I got to the airport but obviously the system can't get me through the security gate or navigate the airport taxiways to get me to my hangar. On my return trip, the car stops 100 yards short of my home even with the correct address in. I didn't count very small lurches or jerks but they are there and passengers will not like them. There was no opposite direction traffic today where normally I have to disconnect because on one stretch the car is too close to the centerline.

On the two-lane highway I drive my experience has been generally good. The car wanders a little during turns at 70 MPH and it doesn't slow down in time when transitioning through small towns being the obvious areas needing improvement.

Are your experiences really that different? Or are you just being a glass-half-empty kinda person and fixating on what it does wrong?

I'm absolutely focusing on the problems. FSD does a lot of things well. It seems to be working much better for people in big cities with well defined and marked roads.

You live in the wrong neighborhood. You should move for safety reasons.

 

[petit_bateau]

You are looking at this incorrectly. It's well established that the primary way to increase gross margins is to increase the volume sold. Every major product Tesla has ever sold begins with negative gross margins until volumes grow high enough to get to break-even and beyond. Musk is not against selling anything at a loss, he knows that's inherent to varying degrees in every product ramp.

The reason GM's are low in the energy side of the business are because volumes are low and the reason volumes are low is because batteries are better used in vehicles. Recent comments from Tesla management that they finally have as many batteries as they need, points to growth on the energy side of the balance sheet, at least until they become battery constrained again.

I've gone back to Q4 of 2015 and S/X was positive GM% at that time. Was it negative back towards 2012 ?

 

[betstarship]

One very nice thing about Tesla diversifying more into semis and energy is that they will be immune to FUD. Big companies won't care one bit if Elon is a jerk on social media if they can save hundreds of thousands of dollars in fuel per truck.

This is a bit of a side topic, but something I've learned in the last 2 years due to personal wealth generation:

1. People, who don't have wealth, will...
- talk about you and assume they know you based on hearsay.
- envy you whether they know it or not.
- love you if they care about you regardless of the wealth, so don't bring it up with them
- hate you if you bring it up too much in a general sense.

2. People, who do have wealth...
- won't talk about you and assume nothing for the most part other than worry about any concerning behavior or reminisce about similar things they've experienced with wealth generation (Good and Bad).
- usually end up making a choice: own the narrative of their lives and be open about their wealth...or just stay private (or "stealth").
- don't care about you as much as you think they do unless they're close family and friends
- are, more often than not, have good values, principles, and discipline

In regards to Elon Musk and my learnings about social reactions to wealth, he's obviously been managing and dealing with being rich and famous for a very long time...decades. There's subtlety to it, but I get the sense he's limiting the amount of people that's in his inner circle and constantly stress testing his ability to garner great amounts of information that strengthen his intuition (amongst the bevy of other things he does)...and trying to share what he learns as much as possible to the general public.

Mind you, he's managing a 107M person social media account..in a social media app that he's trying buy...where he poopposts a lot mixed in with reality defining news points. His IRL inner circle is probably way more simple and intricate in the long tails than any one of us understands based on how rich and famous he is and for how long he's been rich and famous. I'm assuming he's made a call out to separate himself from the large swath of people just based on his motivations and ambitions...while finding those that can provide the BEST sources of information and intuitive understanding of the general world as he can to support his motivations and ambitions.