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

[Ogre]

No, perspective is what I meant. Perceptive is good too. When I am saying I want Elon to have perspective, I am saying I want him to see what others will read into what he says, and understand the impact of those statements. He has had that at most times in the past and I'd like him to have it in the future. Perspective, perceptive, whatever. I've owned TSLA since 2011 and a Tesla since 2012 (I have F00014 of the Model S), so I have that perspective, which makes me somewhat perceptive (I think).

That’s an interesting perspective.

I’d be interested to hear Musk perspective on it.

 

[Gigapress]

Those who anticipated production and delivery growth at ~40% YoY for 2022 may very well be reasonably predicting 2023 YoY growth to be ~40% or so as well, and potentially the same for 2024, etc.

40% YoY production growth expectation for 2023 is not reasonable at all.

Tesla is already, right now, making cars at around 1.9-2.0M annualized run rate, which is ~40% more than 2022 production of 1.37M cars. Projecting 40% YoY growth therefore implies projecting that production output will not increase at all in 2023.

While Tesla certainly could produce more than this via ramping up production at their 4 existing S/X/3/Y factories, adding a full 3rd shift, etc, it is within the range of possibilities that Tesla would choose to grow production at 40% rather than 50% for various (valid) reasons, depending on macroeconomic / pandemic / geopolitical / branding / margin / etc considerations. Likewise, Tesla certainly could adjust pricing / margins / free Supercharger usage / add new paint colors / etc to produce more than enough demand in 2023 and 2024, it is within the range of possibilities that Tesla would choose to grow demand at 40% rather than 50%.

This is more speculation when Tesla management in recent months has repeatedly stated that Tesla will be going full speed ahead with production growth.

For example, here is a quote from the CEO on Dec 22nd, per Tesla Daily:

Or how about unchanged guidance on the Q3 update?

"We plan to grow our manufacturing capacity as quickly as possible. Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries."

More importantly, there is one sole overarching consideration for Tesla: Maximizing the rate of transition to sustainable energy. For Tesla's automotive business, it mostly comes down to making as many cars as possible, as quickly as possible. Slowing down to protect 30% margins in the short term hurts the mission.

If nothing else, the company is planning on solving autonomous driving in the next few years and so the overwhelmingly important goal is having the maximum number of vehicles collecting training data and ready to go when the switch is flipped. Elon mentioned the importance of software upgradeability on the same Twitter Spaces conversation as one reason to pursue maximum growth even in a severe recession.

Taking any rational approach to valuation, if the preponderance of the data leads an investor to view 40% YoY growth rate and 25% margins as the likely future for the next 1-3 years, then PE compression was absolutely justified. NOTE: 40% and 25% are not altogether that much of a stretch from the 50% and 27%-30% benchmarks, and 40% and 25% are ABSOLUTELY levels that Tesla (or in fact most any company) should be very proud of! However, it does definitely lead to a different PE, hence compression from the prior PE.

Zooming in on the next 1-3 years of earnings is a rational approach to valuation for a company whose annual profits in the next 1-3 years are probably at least an order of magnitude smaller than their annual profits in the next 10-30 years? Really?

TSLA was deeply undervalued at $400 and now it's just at crazy levels.

It does not have to be either extreme; humans find extremes / all-or-nothings as easy and comforting, but reality almost always exists in between, with a great deal more nuance and hidden cause-and-effect than just taking everything in the world around you at face value or at no value. It does not have to be "This was just Tesla unwinding the wave, no demand issues" nor does it have to be "This is all demand issues and Tesla executive leadership has been misleading (or worse).

I did not make a black and white statement about it being all due to the wave. What I said was, "To assert that Tesla's gap in deliveries and production was primarily caused by limited demand is to assert that Tesla's corporate communications on the matter have been misleading to the point of arguably being outright fraudulent."

Tesla has said that demand had softened globally in recent months for them and the whole car industry, and I believe them. That doesn't mean weak demand is the main cause of Tesla's inventory buildup, which many people are saying.

Consider, for example, why did Tesla choose to unwind the wave at this time? PURE CONJECTURE: A reasonable middle-ground scenario that could have played out was in 2022 Q3, Tesla executive leadership began to see risk on the demand side due to a combination of internal (massive 2022 price increases) and external (massive macroeconomic / geopolitical / pandemic / etc) factors. Based on the data available to them at the time, and faced with choices such as "We can push thru it by doing <x, y, z>" or "We can allow the wave to partially unwind rather than jumping thru those <x, y, z> hoops", both of which would be valid choices, they chose the latter. During 2022 Q4, after experimenting with various demand levers (most especially in China, where some are projecting the bulk of the current production-minus-deliveries gap to be), the costs of various demand levers became more clear, and throughout the quarter Tesla executive leadership decided to continue to unwind the wave rather than push thru it with the <t, u, v> levers which were available to them then. Both in 2022 Q3 and 2022 Q4, Tesla leadership chose to communicate the action they were taking (unwinding the wave) and point out some specific benefits of doing so (avoiding higher end-of-quarter costs, avoiding potential negative customer experience in that rush, etc) without going into detail of ALL the factors (such as potential weakness in demand) which led them to make that choice now (vs earlier in 2022 Q1 or Q2, or later by waiting until 2023, etc).

Consider: why generate a paragraph of your own conjecture about why Tesla chose to unwind the wave starting in Q3, given that Tesla already has directly provided the answer to this question?

• "...we've started to experience limits on outbound logistics capacity which we didn't anticipate. This issue is particularly present for ships from Shanghai to Europe and local trucking within certain parts of the U.S. and Europe."

• "Fundamentally, there weren't enough boats, there weren't enough trains, there weren't enough car carriers to actually support the wave because it got too big. So, whether we like it or not, we actually have to smooth out the delivery of cars intra-quarter because there aren't just enough transportation objects to move them around."

Q3 production of 366k was 20% higher than the previous record of 306k, so it's reasonable to infer that Tesla must have been close to the limit on peak shipping capacity and then the Q3 production spike caused them to hit the limit. If I presume Tesla was being honest then that's the only way I see to interpret their comments.

On both the Q3 earnings call and Q3 report Tesla clearly mentioned strong demand, selling every car they can make in Q4, and production growth of 50% per year is still the plan with strong operating margins in doing so. If Tesla's decision to unwind the wave starting in Q3 was actually due in part to projections on demand falling, then they were willfully deceiving shareholders. Is that what you actually think?

 

[generalenthu]

Some investigative analysis from I believe a former TMCer. Guess this is in line with what other folks here guessed. While it looks easy on paper, it probably affects a whole bunch of things, (like making the aero worse with higher ride height), and needs additional validation too for safety testing.

I think generally much easier said than done. An air suspension would make the whole car more complicated with additional plumbing and always tough to execute on your highest volume product.

That said I believe its unlikely Tesla walked into this eyes closed despite all the noise everyone is making in the last 2 days. After all it was Tesla who had to designate which cars qualified based on the default guidelines.

https://twitter.com/x/status/1610068587456118786

 

[sdtslafan]

After mulling over the IRA exclusion of the 5 seater Model Y, I think Tesla should just include 7 seater free on all orders. They will of course take a hit on margin, but it will be smaller that the hit they would take if they drop the price to 55k. They may need to still offer up to a 7.5K discount to spur demand. But I believe this effective 15K discount will be enough to bring US demand to equal supply in a recession. I think they will still make a good profit once Texas is fully ramped. And they probably should start advertising as soon as they come up with this type of a gameplay especially as Texas continues to ramp up.

 

[FastEddieB]

Q4 earnings call is a giant tinderbox right now. It’s very likely to cause either a huge run up or deepen and extend the trough a bit.

Wow! What a useful prediction!!!

 

[StealthP3D]

I said previously—worth repeating—there is a lot of frustration, lots of feelings of betrayal (largely misplaced IMO), and scapegoating right now. The number of people cut by this is quite large and many of them the most loyal to the brand.

He’s not the only one in the community who I’ve seen turn into a bear short and long term.

I built my TSLA position in the first 6 months of 2019, when an oddly similar dynamic was taking place. This has turned out very well for me.

A lot of investors don't know that you shouldn't judge the "smartness" of your investments by the immediate direction of the share price movements instead of basing it on the execution of the company. They also tend to associate their self-worth with the same misguided metric (share price direction). It makes no sense given that no one can reliably time the market. People shouldn't beat themselves up so badly for things beyond their control.

 

[oldTAVguy]

For me, this week may be taking advantage of another sale.

 

[StealthP3D]

Link to petition to change language in IRA to include all versions of Model Y (currently 15,000 signatures as of this posting):

Sign the Petition

Fix the Inflation Reduction Act EV Tax Credit

www.change.org

When I signed it yesterday, it was below 5,000 signatures. Now it's already over 16,000! It only takes a minute.

 

[Mengy]

On both the Q3 earnings call and Q3 report Tesla clearly mentioned strong demand, selling every car they can make in Q4, and production growth of 50% per year is still the plan with strong operating margins in doing so. If Tesla's decision to unwind the wave starting in Q3 was actually due in part to projections on demand falling, then they were willfully deceiving shareholders. Is that what you actually think?

I think things may have changed since the Q3 earnings call. There is obviously some degree of demand issue given the huge number of cars in inventory after Q4 plus the sudden pushing of various incentives at the end of Q4. Such incentives would not be needed if demand was still "off the charts".

And now, the MY 5-seater will not get the IRA rebate at all either. Price equates to demand, and if ID4's and many hybrids can be bought for less than a MY then that will impact demand for the MY-5. Whether it's enough to result in unsold cars or not is unknown, but with production ramping in 2023 and around 2 million Tesla's looking to be sold this year (levels of supply Tesla has never seen before), plus a potential deep recession, it's reasonable to assume we could possibly see some demand issues for Tesla in 2023. Assuming it's NOT possible is sheer hubris.

So given all of that, I don't think it's unreasonable to assume Tesla's Q3 statement of "strong demand" could have changed since then. Particularly given the Q4 P&D numbers we just saw. I think we need to be more open to the possibilities and less blindingly bullish.

 

[Gigapress]

I think things may have changed since the Q3 earnings call. There is obviously some degree of demand issue given the huge number of cars in inventory after Q4 plus the sudden pushing of various incentives at the end of Q4. Such incentives would not be needed if demand was still "off the charts".

And now, the MY 5-seater will not get the IRA rebate at all either. Price equates to demand, and if ID4's and many hybrids can be bought for less than a MY then that will impact demand for the MY-5. Whether it's enough to result in unsold cars or not is unknown, but with production ramping in 2023 and around 2 million Tesla's looking to be sold this year (levels of supply Tesla has never seen before), plus a potential deep recession, it's reasonable to assume we could possibly see some demand issues for Tesla in 2023. Assuming it's NOT possible is sheer hubris.

So given all of that, I don't think it's unreasonable to assume Tesla's Q3 statement of "strong demand" could have changed since then. Particularly given the Q4 P&D numbers we just saw. I think we need to be more open to the possibilities and less blindingly bullish.

William was proposing that Tesla may have planned the initial wave unwind during Q3 in part due to an expectation of declining demand, and this came before the comments on the Q3 call. This is the claim I was responding to.

The price of the Y has increased by far more than $7500 in the USA in the last few quarters. The margins are crazy good right now. If they have to drop to only 25% I'm not going to lose any sleep over it. 3s and Ys only cost like $36k to make after the deflation and manufacturing improvements return COGS back to 2021 levels. Also, the majority of Ys are going to be sold outside the US anyway and the $45/kWh battery subsidies will make up for $3k of any lost margin.

 

[2daMoon]

No, one expensive Superbowl ad doesn't do that. Have you looked at legacy auto's sales and financials in the last several years? It would be a negligent use of corporate funds and would damage the brand more than it would help it. The last thing Tesla wants to do is to appear to be more like legacy auto in the eyes of consumers. The last thing they want to be seen doing is spending millions of dollars during a Superbowl. Bad optics.

I can scarcely believe people are still suggesting this. The consumer landscape has changed dramatically in the last 50 years, things don't work how they used to.

I disagree.

That last Superbowl had ads worth millions that were successful at getting viewers to learn more about Tesla, didn't it?

Let's just make sure we always get someone else to pay for them.

Edit: See @thesmokingman chart above

 

[thesmokingman]

I disagree.

That last Superbowl had ads worth millions that were successful at getting viewers to learn more about Tesla, didn't it?

Let's just make sure we always get someone else to pay for them.

The more legacies advertising EVs the better. Cuz when the randos go to look at said EV and find there are none... who you gonna call? It ain't Ghostbusters!

 

[traxila]

I don’t put much credence in overseas stock price action for companies listed in the USA, but one has to admit that TSLA finishing up 5.5 % on the day may signal that investors expected much worse, which would be the main reason for that nasty relentless sell off we witnessed. Maybe anything over 400K was not expected.

We will find out soon. Hopefully the macros are neutral at least.

TL0 Stock Price | Tesla Inc. Stock Quote (Germany: Xetra ) | MarketWatch

TL0 | Complete Tesla Inc. stock news by MarketWatch. View real-time stock prices and stock quotes for a full financial overview.

www.marketwatch.com

 

[2daMoon]

After mulling over the IRA exclusion of the 5 seater Model Y, I think Tesla should just include 7 seater free on all orders. They will of course take a hit on margin, but it will be smaller that the hit they would take if they drop the price to 55k. They may need to still offer up to a 7.5K discount to spur demand. But I believe this effective 15K discount will be enough to bring US demand to equal supply in a recession. I think they will still make a good profit once Texas is fully ramped. And they probably should start advertising as soon as they come up with this type of a gameplay especially as Texas continues to ramp up.

Yes, and maybe design the 3rd row back seat to be a quick-release for easy removal.

Because it is Tesla, it should also have fold-down legs so it may be used as a place to sit for the garage, campsite, back yard, etc.

 

[StealthP3D]

I think things may have changed since the Q3 earnings call. There is obviously some degree of demand issue given the huge number of cars in inventory after Q4 plus the sudden pushing of various incentives at the end of Q4. Such incentives would not be needed if demand was still "off the charts".

And now, the MY 5-seater will not get the IRA rebate at all either. Price equates to demand, and if ID4's and many hybrids can be bought for less than a MY then that will impact demand for the MY-5. Whether it's enough to result in unsold cars or not is unknown, but with production ramping in 2023 and around 2 million Tesla's looking to be sold this year (levels of supply Tesla has never seen before), plus a potential deep recession, it's reasonable to assume we could possibly see some demand issues for Tesla in 2023. Assuming it's NOT possible is sheer hubris.

So given all of that, I don't think it's unreasonable to assume Tesla's Q3 statement of "strong demand" could have changed since then. Particularly given the Q4 P&D numbers we just saw. I think we need to be more open to the possibilities and less blindingly bullish.

The conversation wasn't about whether demand problems could develop in the future, it was about whether the cars remaining in inventory were due to demand problems that would likely carry into Q1 and beyond, or the stated reasons, unwinding the wave, cars in transit.

I think the answer is pretty clear but please make your investment decisions based on whatever analysis seems most realistic to you.

 

[StealthP3D]

I disagree.

That last Superbowl had ads worth millions that were successful at getting viewers to learn more about Tesla, didn't it?

Let's just make sure we always get someone else to pay for them.

Edit: See @thesmokingman chart above

It's good when Tesla benefits from legacy advertising but that's not what was proposed.

 

[jw934]

I don’t put much credence in overseas stock price action for companies listed in the USA, but one has to admit that TSLA finishing up 5.5 % on the day may signal that investors expected much worse, which would be the main reason for that nasty relentless sell off we witnessed. Maybe anything over 400K was not expected.

P&D came out minutes after the TL0 market closed, hence the price drop was during the aftermarket. At least it didn’t drop as much as I feared.

source

 

[mongo]

I don’t put much credence in overseas stock price action for companies listed in the USA, but one has to admit that TSLA finishing up 5.5 % on the day may signal that investors expected much worse, which would be the main reason for that nasty relentless sell off we witnessed. Maybe anything over 400K was not expected.

We will find out soon. Hopefully the macros are neutral at least.

TL0 Stock Price | Tesla Inc. Stock Quote (Germany: Xetra ) | MarketWatch

TL0 | Complete Tesla Inc. stock news by MarketWatch. View real-time stock prices and stock quotes for a full financial overview.

www.marketwatch.com

Note that Frankfurt had a short trading day Friday, so it missed some of the run up.
Still, $122.37 equivalent (114.60 euro) after hours isn't terrible given the $123.18 close we had Friday.

 

[Skryll]

My aunt bought a Corolla with just $18k a few years ago. With current price, I think she might be able to sell it break even, or with a little profit lol

Probably sooner rather than later as that price may drop hard

 

[Singuy]

Tesla produced 1.37M cars, delivered 1.31M cars. They delivered 95.6% of the cars they made. Looks like demand problem to me. Next time I am hoping Tesla purchase some teleportation devices for their gigafactories so we can have 0 cars in transit.