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

[EVNow]

WOW - didn't expect this. Thought they would fight the Treasury ruling .... which they still may.

Margins under attack ....

 

[StealthP3D]

People buy super cars and hyper cars because nobody else can. Status symbol.

Some buyers of supercars fall into that category. Elon Bought a $1 million+ McLaren in 1999 because it was the pinnacle of automotive engineering, he wasn't trying to impress anyone. Elon appreciates things that have great engineering.

OK, truth be told, when he said "Watch this" right before he floored it and crashed, there is a small chance he was trying to impress Peter Thiel a little bit!

 

[ElectricIAC]

Margins under attack ....

Not just theirs. If other manufacturers play the price game as well, they may end up selling at a loss or forfeit market share.

 

[Thekiwi]

Astonishing price cuts all at once. I will definitely need to revise my 2023 earning model. Still looking good but not as bullish on automotive. On the other hand this might indicate that cost deflation is happening faster than I modeled for. COGS per vehicle in Q3 was $39.2k, which was 10% higher than the 2021 average of $35.6k, and even that average had extremely high shipping costs, expedite fees, and chip costs compared to a normal year. Also the new factories are coming into volume production and Tesla likely has a clearer understanding of cost at Berlin and Austin now. Hard to distinguish how much is due to a decline in demand vs an increase in supply.

@Todd Burch is right that some people will take advantage of the lower prices to buy extras, or to upgrade to more expensive variants, so a simple subtraction of the price drops from margins is likely too pessimistic.

Remember that $45/kWh battery credits are going to add an easy $3-4k back into margin this year for North American sales.

The biggest cuts were for Y, S and X which were earning well over 40% margin at the previous prices. Y matters most and it was basically earning about $29k per car if $68k average price and $39k average cost, and that was not even counting cost improvements in Texas and the battery subsidy. If 2023 Y ASP in the US is now going to be ~$55k and cost is going to $36k with deflation and Texas efficiency, profit per car is still going to be 55-36+3 = $22k for 40% gross margin. Both of these numbers are substantially better than Tesla’s global average vehicle profitability has ever been. This matters because Y will comprise the majority of sales volume for Tesla next year. Growth of Y production at the new factories plus hopefully a full year of smooth sailing at Shanghai remains the big story for 2023. Another equivalently huge price cut would be needed to reduce average automotive margin below 20%.

What a power move though. I don’t see how anyone can compete with this.

Astonishing was the word that popped into my head as well. Simply astonishing price cuts.

To be fair, the long term projections model I (and many others probably) had for Tesla ASPs I had made for 2023 back in 2019/2020 were about at these new prices anyway - although that assumption was with a big chunk of US models being Y SR models - that fact that they will instead be all LR models with a $7,500 tax credit for most buyers is amazing.

 

[thesmokingman]

Another way to look at this move is to look back at what Intel did to AMD in the 2000s. They undercut AMD, made illegal back end deals to prevent OEMs from buying AMD, granted Tesla is not doing the illegal p[arts, but essentially they are going to prevent sales for competitors. This move by Intel killed AMD for a decade and a half, spurring govt intervention via ant-trust.

Tesla's move to compress margins in order to saturate the market will give competitors no ability to make a profit so they cannot compete with Tesla. No profits means no R&D, no scaling, just dire straits.

I need to highlight the relative positions of AMD vs Intel back then. AMD was winning with their x64 chips, just smashing Intel. So Intel did what they did. However in our case Tesla is a juggernaut with the best tech, and they are laying down the hammer so the situation is a bit different this time.

 

[Silent Ludicrosy]

Do you honestly think in the next 4 we'll see some crazy economies of scale and we skyrocket?

Crazy economies of scale are exactly what Austin and Berlin were designed for. They should be able to produce 3&Y much cheaper than Fremont.

Raw materials prices are coming back down. Elon has mentioned this in his tweets several times.

A lot of the cars delivered in Q3 with 28% margins were actually ordered under the 2021 cheaper pricing. We haven’t even seen what Q4 margins are yet with with biggest price increases. If you look at the automotive gross margins at the end of 2021, they were 30% before the price increases. Tesla has really only dropped prices slightly lower than 2021 pricing, so I would not expect 2023 margins to be much lower than 2021.

 

[mongo]

Gross margin is just (revenue-cost) / revenue
revenue is sales * averageSalesPrice
Cost is labor + factories + cycle based depreciation + parts + other
If you're making more product with the same factories, revenue grows but factory cost doesn't.
If you're making more of the same product, parts cost per unit decreases.
If you're volume grows faster than your workforce, labor cost per unit decreases.

If you're product was profitable at low volume (Austin, Berlin), it will be even more so at high volume.

Plus, this is the US sales we're talking about (and I guess Canada? ), potentially until 'proposed guidance' in March.

 

[Ogre]

If you own a white Model Y you better start putting stickers on it. Pretty soon it will be darn near impossible to find your car in the costco parking lot

Nah mine is easy, it’s red. The red option price just increased a lot. It used to cost $2,000 to upgrade to red. Now the red ones will set you back $2,000 and disqualify you from the incentive. Boom, $9,500 upgrade.

So red Ys are going to be getting even more scarce.

 

[MrMoo]

How did you get an estimate of $1B profit per quarter?

I don't really want to say because it's just the dumbest way ever. But if you must know, I literally just took their 3 billion from the previous quarter and cut it by 2/3 because that's how much their auto profit just dropped by.

I welcome anyone who actually is willing to put in the time to do the math. There are far smarter people than I with actual spreadsheets that I would like to take a look at.

 

[heltok]

1year ago I wrote this post:

The tax rebate would increase demand for Tesla. But Tesla clearly has enough demand and could probably decrease prices with $10k anytime they want and still be profitable once Berlin and Austin is fully ramped and with FSD and insurance adding strong margins. But competition won’t be able to make EVs profitable in big volume without the subsidy. Short term this means fewer EVs being produced, but long term it means Tesla will be more dominant and very quickly their 50-80%/year growth will make up for their lack of competition. Tesla makes EVs way more efficiently than GM/Ford, it is just wasteful for the economy to have competition if competition is gonna be so bad. So I think Elon has decided that he will go for the nuclear option, electrify the entire world without any help from legacy industry.

 

[ElectricIAC]

I don't really want to say because it's just the dumbest way ever. But if you must know, I literally just took their 3 billion from the previous quarter and cut it by 2/3 because that's how much their auto profit just dropped by.

I welcome anyone who actually is willing to put in the time to do the math. There are far smarter people than I with actual spreadsheets that I would like to take a look at.

But you didn’t account for higher volume.

 

[betstarship]

2023 outlook: US will grow to be next battery battlefield

Battery makers have fired on all cylinders with expansion this year to meet the surging demand from EV manufacturers. Looking ahead to 2023, major Asian battery companies will keep leading the pack. The competition in North America will grow tense in the next few years as the US is determined to...

www.digitimes.com

Might be helpful. Some quotes:

"According to Ouyang Minggao, an academician with the Chinese Academy of Sciences, battery production in China will likely reach 1500GWh in 2023 and 3000GWh in 2025.

He said China may see a production glut in 2025 when considering the supply and demand balance, 21st Century Business Herald reported."

"In early November, the Tesla supplier broke ground on a cylindrical battery plant in Kansas. It will begin mass production of 2170 cells in 2025. Back in its factory in Japan, Panasonic is developing 4680 cells. In an interview with Bloomberg, Shoichiro Watanabe, Panasonic Energy CTO, said the mass production will start by the end of March 2024."

 

[MrMoo]

But you didn’t account for higher volume.

No I didn't. This is correct. If you assume all things as equal but a 50% volume increase then it would be 1.5 billion a quarter of free cash flow. Half of Q3 2022.
But again my numbers are so pathetically inaccurate that me just slapping a 50% volume number on it isn't really going to do much to make anyone believe it's credible. I'm sure someone smarter than me will have some mathing to do this weekend.

 

[AndrewZ]

I don't really want to say because it's just the dumbest way ever. But if you must know, I literally just took their 3 billion from the previous quarter and cut it by 2/3 because that's how much their auto profit just dropped by.

I welcome anyone who actually is willing to put in the time to do the math. There are far smarter people than I with actual spreadsheets that I would like to take a look at.

Eh I think you’re focusing too much on the nitty gritty and are neglecting other more important factors here that are more easily quantified at least in rough terms.

You’re speculating a $100 stock price for ~3 years because the stock price is currently around there right?

This is in an environment of 5%+ interest rates baked into the multiple. Every move like Tesla’s increases the likelihood that inflation will decelerate and the Fed can finally take their foot off the brake. When the brake releases, that is when multiple expansion will
occur.

Earnings can come down, and the multiple can expand in an environment of lower interest rates. Now I won’t presume that will happen soon, rates might even still be elevated 3 years from now. But multiples have come down, most of the talking heads expect earnings to come down next. The intersection of high rates and low earnings expectations is the buying opportunity.

 

[betstarship]

This is one heck of an economic transition!

 

[Accident]

If you own a white Model Y you better start putting stickers on it. Pretty soon it will be darn near impossible to find your car in the costco parking lot

Midnight Silver Metallic is back to costing $1000. If you upgrade to Induction wheels, then you don’t qualify for the tax rebate with a paid color option. I hope those stickers go with white.

 

[betstarship]

More:

North American EV battery production forecast to reach 1 TWh annually by 2030

Rust Belt states of the Midwest have estimated production capacity of 30 GW to over 100 GW per year of EV batteries, with California and Ontario adding capacity as well.

pv-magazine-usa.com

"Electric vehicle battery manufacturing capacity in North America is projected to increase to 1,000 GWh/year by 2030, representing a 20 times increase from 55 GWh/year of manufacturing capacity in 2021, thanks primarily to stimulus funding from the Inflation Reduction Act.

The majority of new EV battery plants are scheduled to begin production between 2025 and 2030. By then, production capacity will be capable of supporting the manufacture of roughly 10 to 13 million fully electric vehicles per year."

 

[ElectricIAC]

Midnight Silver Metallic is back to costing $1000. If you upgrade to Induction wheels, then you don’t qualify for the tax rebate with a paid color option. I hope those stickers go with white.

A possible solution.

Make all colors free and all wheel upgrades/exchanges post-sale.

 

[Accident]

I took a screenshot of the Norwegian ordering site in December. They also dropped the prices there. Not sure about other European countries.

Old:

New:

 

[StealthP3D]

Leasing documents describe the building as a warehouse with more than 300 trailer parking spaces, a large truck court and docking capabilities intended to enhance efficiency in loading and unloading products.

Tesla is advertising a handful of job listings in the Brookshire area for warehouse and logistics positions, too. One position for an associate manager in production control advertised on social media platform LinkedIn describes needing someone to oversee cell materials production with experience in handling, logistics and supply-chain management in a manufacturing environment.

My initial impression is a production facility for the first-generation Optimus. Being close to the city gives them access to plenty of assemblers which they will need for version 1, before they automate production.