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

[2daMoon]

Here we are a dozen days into Q1, historically a slow quarter, and it seems that some want Tesla to react to indicators of increased inventory and sales concerns by lowering prices and other mechanisms, immediately, in order to bolster deliveries. Much hand-wringing over acting NOW appears to be more about reacting over concern rather than about responding with effective execution.

I say hogwash to these concerns being called for so early in the year. There is no pressing motivation to justify Tesla doing anything at this point. In fact, with this being the first few days of the not-yet-resolved IRA introduction into the sales mix it would be premature for them to do anything but wait and see how things progress for at least a month or so. (unless they have already come up with a brilliantly clever plan )

Speaking of which (i.e: brilliantly clever plans), they have set a date for an Investor Day six or so weeks from now. This seems more in line with an appropriate degree of time at which to respond with a strategy to address their evaluation of how the IRA will best be leveraged in regard to Tesla sales and pricing. (among a plethora of other mindbogglingly stupendous announcements)

Meanwhile, we wait expectantly for that first whiff of the lovely, Singed, Burnt Hair fragrance we have been promised will come in Q1.

This quarter looks to me as if it may not be so Boring after all, and the tink, tink, tink of the hyper-tightened GigaSpring goes on in the background, ready to be released like a Kraken against the fleet of FUD ships basking in the sun on the surface of the water quite unaware of what their siren songs have raised from the depths.

HODL

I just want to follow up by thanking Murphy for responding to my bait by orchestrating the Blue Light Special on aisle T.

 

[Dikkie Dik]

Price cuts in the Netherlands also.

Y RWD drops 3K to 47K,
LR drops 11K to 54K,
P drops 10K to 60K.

3 RWD drops 7K to 45K,
LR drops 7K to 53K,
P drops 6K to 60K.

 

[keydiver]

That's freaking insane that they dropped the price of Model Y by 20%. That is a 13k hit to margins they just took. If auto margins were 30% on 65k wouldn't their profit now be $6.5k which is 12%? Rough calculations.

If I recall properly, that's still $1000 more than I paid for my Model Y LR a year ago. If commodity prices really have settled back down, are margins really taking that much of a hit? I don't think we will really know for a couple of quarters.

 

[AMN]

The carnage has officially commenced.

I suspect they will still guide for 18-20% margins given the new IRA battery credits to Tesla, much lower commodity prices, and higher production volume. Should be a fun earnings call.

 

[FireMedic]

Didn’t TSLA go up after the China price cuts? I thought it was Chinese auto stocks that dropped that day. I may be misremembering as there’s been so many BIG down days lately, so they all seem to run together.

It seems to me Wall Street could buy this move. Clearly signals increased volumes and COGS deflation.

 

[MrMoo]

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.

Well as we know nothing is in a straight line. We could go down, we could go up. But at the end of the day we need Tesla to get those earnings every quarter.

If we go from 30% Auto gross margin to 10%, investors will see this as a sign of weakness short term.

We talk about this killing the competition but we actually need this to happen before investors will believe it. No one is going out to buy Tesla stock today because they think Ford is on a one way trip to bankruptcy in 3 years.

As for the buying opportunity. I'm getting a little tired of buying opportunities. There seems to be a new one every few months. Why buy now when I can buy later. I'm sure a new one will come.

 

[StarFoxisDown!]

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.

Since you’re using Q3 as an example, you have to acknowledge the negative impacts of Berlin/Austin on both gross margins, operating income, and especially free cash flow.

I would recommend that you go back to the model 3 ramp and the model y ramp where gross margins were heavily negative in the first couple of quarters only to grow into industry leading gross margins once the factories associated ramped production up to 5k/ week. Going from 1k weekly to 2k to 4K to 5k has extraordinary impacts on all three factors and most importantly, free cash flow. Margins and net income continued to expand as lower ASP models were introduced. Tesla had two factories going through the same production ramp in Q3. When you see a factory go from 1k/week in Q3 to 5k/week in Q1, there will be drastic impacts on all 3 metrics listed. Now double that impact because both factories are going through the same ramp at the same time

Those elements combined with a material drop in COGS combined with the IRA credits directly to Tesla, I wouldn’t be surprised to see gross margins stay above 20% comfortably

 

[verystandard]

Here we are with the price cuts, Model 3 Standard are back in the game again in Canada!

Also for those of you who don't see this coming.....really? after what happened in China, it is just the matter of time to seeing these price cuts

Another lever besides tapping onto new market such as Thailand:

For Canada, if Model 3 SR+ can lowered it's price back below $55000 or less (Tesla raised it's price to $59990) once again, there will be surge of demand as it will qualify for $5000 federal incentive. Imagine this combines with new highland revised Model 3, or even better the new $30k USD new model comes, the demand would go over the roof.

Questions and answers

Questions and answers for consumers on zero-emission vehicles

tc.canada.ca

"The Manufacturer’s Suggested Retail Price (MSRP) has increased to $55,000 for base model passenger cars with higher trims of up to $65,000. The MSRP has increased to $60,000 for base models of station wagons, pickup trucks (light trucks), sport utility vehicles (SUVs), minivans, vans, and special purpose vehicles with higher trims up to $70,000."

View attachment 891729

 

[Roel1994]

This is great. This is what’s needed for the big transition to EVs. An EV just became a whole lot more affordable for people with smaller wallets. Will have to update my Wright’s law assumptions; I think this price cut means that production costs will drop far greater this year and in the following years than I anticipated. The war against ICE will see its first Great Battle now

 

[MrMoo]

If I recall properly, that's still $1000 more than I paid for my Model Y LR a year ago. If commodity prices really have settled back down, are margins really taking that much of a hit? I don't think we will really know for a couple of quarters.

Well we were at 28% in Q3 I think. You just need to do some quick math to know it'll be much lower than that.

Since you’re using Q3 as an example, you have to acknowledge the negative impacts of Berlin/Austin on both gross margins, operating income, and especially free cash flow.

I would recommend that you go back to the model 3 ramp and the model y ramp where gross margins were heavily negative in the first couple of quarters only to grow into industry leading gross margins once the factories associated ramped production up to 5k/ week. Going from 1k weekly to 2k to 4K to 5k has extraordinary impacts on all three factors and most importantly, free cash flow. Margins and net income continued to expand as lower ASP models were introduced.

I think i mentioned in some previous posts. Berlin and Austin opened up last year, over the last 3 quarters with their ramping, commodity prices, a few price rises, an increase of 40% volume production, we only saw auto gross margin fluctuate by single % points. I'm talking like 3-5%. Do we seriously believe we will see it go up 15% due to economies of scale? I mean lets be real here guys.

 

[Matias]

Price cuts in the Netherlands also.

Y RWD drops 3K to 47K,
LR drops 11K to 54K,
P drops 10K to 60K.

3 RWD drops 7K to 45K,
LR drops 7K to 53K,
P drops 6K to 60K.

And Finland

 

[MP3Mike]

If we go from 30% Auto gross margin to 10%, investors will see this as a sign of weakness short term.

I don't think the hit will be that big. 6 months ago I paid $1k less than the current Model Y price... ($6k less if you count FSD.)

 

[Thekiwi]

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.

The building is already there - so I think the clues that it is for cell manufacturing and/or stationary storage are likely right. It takes years to get permits and construction etc for new buildings, and Tesla is going to need to ramp cell reduction massively in short order.

 

[Singuy]

Well as we know nothing is in a straight line. We could go down, we could go up. But at the end of the day we need Tesla to get those earnings every quarter.

If we go from 30% Auto gross margin to 10%, investors will see this as a sign of weakness short term.

We talk about this killing the competition but we actually need this to happen before investors will believe it. No one is going out to buy Tesla stock today because they think Ford is on a one way trip to bankruptcy in 3 years.

As for the buying opportunity. I'm getting a little tired of buying opportunities. There seems to be a new one every few months. Why buy now when I can buy later. I'm sure a new one will come.

Teslas gross margin was 30+% q4 2021 when a model Y was 53k. We are now back to 53k.

So with this price cut, model Y owners cannot finance FSD and must buy after the fact. I probably see a down tick in fsd purchase and uptick in subscription

 

[2daMoon]

Well we were at 28% in Q3 I think. You just need to do some quick math to know it'll be much lower than that.


I think i mentioned in some previous posts. Berlin and Austin opened up last year, over the last 3 quarters with their ramping, commodity prices, a few price rises, an increase of 40% volume production, we only saw auto gross margin fluctuate by single % points. I'm talking like 3-5%. Do we seriously believe we will see it go up 15% due to economies of scale? I mean lets be real here guys.

Out of curiosity, how many successful new auto manufacturing companies have you run?

Asking for a friend...

 

[Ogre]

In another forum one of the guys on the EV room has been lusting after the Cadillac for months talking about how awesome it is and apologizing for it’s terrible efficiency. Talking trash about Tesla non-stop…

Suddenly he’s all ears about the Model Y. Almost instant, like that dog from Up.

If he’s changed his attitude this much. This is going to shake up the EV market in a big way.

 

[jamaatta]

Price cuts also in Finland, an example

 

[dhanson865]

Right, my mistake.

I have no idea why they couldn't make one. It's all the same hardware barring the brakes and suspension. I assumed it was just a choice to limit the number of offerings.

Brakes are the same now on P vs AWD, they just pop some Red covers over the calipers now.

 

[Zaxxon]

This was inevitably coming. To replace my 3.5-year old X yesterday with the same options would have cost $30k more than I paid in 2019. It was ludicrous, and not in the good way.

Tesla wants to get to 20M cars/year, and excessive prices aren't going to get them there. I think they rode the wave while they could, and now it's go time on volume with factory ramps hitting stride.

What's incredible to me is that after these cuts, the prices are still generally higher than they were less than two years ago. It's not like we're at bargain basement pricing.

Y LR now undercuts the closest Mach-e equivalent by something like $13k. Think Ford can eat $13k/car to match this?

 

[ElectricIAC]

In another forum one of the guys on the EV room has been lusting after the Cadillac for months talking about how awesome it is and apologizing for it’s terrible efficiency. Talking trash about Tesla non-stop…

Suddenly he’s all ears about the Model Y. Almost instant, like that dog from Up.

If he’s changed his attitude this much. This is going to shake up the EV market in a big way.

Money talks, walks.