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

[DutchDriver]

You have to like the headline. Basically going through what we all know about Tesla's labor cost structure compared to the big 3. Even explaining that Tesla line workers get stock options as an incentive for the company to do well. Paywalled.

Whatever the UAW Strike Outcome, Elon Musk Has Already Won

The Detroit automakers entered labor talks at a cost disadvantage to Tesla.

www.wsj.com

Here is a excerpt.

The Detroit companies’ labor costs, including wages and benefits, are estimated at an average of $66 an hour, according to industry data. That compares with $45 at Tesla, which isn’t unionized and was founded 20 years ago. Meeting all of Fain’s initial demands would boost average hourly labor costs to $136 for the Detroit companies, Wells Fargo estimated.

Copy the link and paste it in Archive.ph

 

[AndrewZ]

For the folks who seemed surprised by the ESPP, it's not an uncommon benefit with tech companies.

I worked for one publicly traded non-tech company a few years back that had an ESPP but still wasn't aware that it was effectively buying new shares issued by the company, although would need to dig into their documentation to see if that was the case with them as I wouldn't be surprised if the rules are different in Canada.

Wasn't too deep into investing or business finances at the time either, this is most definitely the first time this has clicked in my brain in terms of how it all flows -- that is such a crazy advantageous setup, almost can't believe it's a legitimate thing (even though it's old news to many here)

 

[ggr]

You have to like the headline. Basically going through what we all know about Tesla's labor cost structure compared to the big 3. Even explaining that Tesla line workers get stock options as an incentive for the company to do well. Paywalled.

Whatever the UAW Strike Outcome, Elon Musk Has Already Won

The Detroit automakers entered labor talks at a cost disadvantage to Tesla.

www.wsj.com

Here is a excerpt.

The Detroit companies’ labor costs, including wages and benefits, are estimated at an average of $66 an hour, according to industry data. That compares with $45 at Tesla, which isn’t unionized and was founded 20 years ago. Meeting all of Fain’s initial demands would boost average hourly labor costs to $136 for the Detroit companies, Wells Fargo estimated.

Doesn't make sense to me. The $66 is made up of worker wages (I think I heard figures of about $20/hr average) plus other overheads such as payroll taxes, 401k, workers' compensation insurance, health insurance, and amortized costs like electricity to keep the lights on and the lines running. A 40% raise to the workers would add $8 to the direct cost, and maybe a few dollars more to the worker-related costs. So how do they go from $66 to $136?

I guess that another factor is reducing the working week from 40 to 32 hours, which means you need 20% more workers or to pay more overtime, but I still can't make the numbers work out. And I won't read WSJ .

 

[CyberShy]

Update: no Cybertruck at the Detroit Auto show. Tesla is not there in any official capacity.

 

[AndrewZ]

Doesn't make sense to me. The $66 is made up of worker wages (I think I heard figures of about $20/hr average) plus other overheads such as payroll taxes, 401k, workers' compensation insurance, health insurance, and amortized costs like electricity to keep the lights on and the lines running. A 40% raise to the workers would add $8 to the direct cost, and maybe a few dollars more to the worker-related costs. So how do they go from $66 to $136?

I guess that another factor is reducing the working week from 40 to 32 hours, which means you need 20% more workers or to pay more overtime, but I still can't make the numbers work out. And I won't read WSJ .

You'd hope productivity would increase with shorter work weeks, the sudden higher pay, benefits, etc, could help offset the need for OT

Wage increases are digested more easily if they're accompanied by increased productivity, one of the concepts people are using as ammunition for the idea that average wages can increase without increasing inflation/rates as long as productivity is going up

 

[insaneoctane]

Doesn't make sense to me. The $66 is made up of worker wages (I think I heard figures of about $20/hr average) plus other overheads such as payroll taxes, 401k, workers' compensation insurance, health insurance, and amortized costs like electricity to keep the lights on and the lines running. A 40% raise to the workers would add $8 to the direct cost, and maybe a few dollars more to the worker-related costs. So how do they go from $66 to $136?

I guess that another factor is reducing the working week from 40 to 32 hours, which means you need 20% more workers or to pay more overtime, but I still can't make the numbers work out. And I won't read WSJ .

I'm not speaking to the legitimacy of the numbers, but they are asking for 40% wage increase while reducing work weeks by 20% ((32-40)/40). That makes the net wage increase 50% (40%/80%) alone. Next they want to reinstate defined benefit pensions. That could be a huge ask, depending on the specifics. Increased profit sharing too. Not sure of the costs for the increased job security for all the drive train jobs we know are going away? It would be interesting to see the breakdown of how they calculated that the labor costs would more than double...

 

[wws]

I worked for one publicly traded non-tech company a few years back that had an ESPP but still wasn't aware that it was effectively buying new shares issued by the company, although would need to dig into their documentation to see if that was the case with them as I wouldn't be surprised if the rules are different in Canada.

Wasn't too deep into investing or business finances at the time either, this is most definitely the first time this has clicked in my brain in terms of how it all flows -- that is such a crazy advantageous setup, almost can't believe it's a legitimate thing (even though it's old news to many here)

Very common for tech companies. It is a reason some like to work for startups for relatively little pay. If the company is eventually successful the stock is worth a fortune. "Bill and Dave" (Hewlett and Packard) were early proponents of such compensation. One of the benefits is to spread ownership so that everyone has an enhanced stake in the success of the company - rather than simply collecting a paycheck.

In the ever present question of whether Tesla is an Automotive company or a Tech company, in this sense it is very much a Tech company. A lot of the factory workers are Teslanaires as a result. No wonder the UAW has been kept at bay.

 

[UrsS]

See Moderator post below.

 

[wws]

Update: no Cybertruck at the Detroit Auto show. Tesla is not there in any official capacity.

Doesn't surprise me. Tesla doesn't even bother to show up at the San Jose Auto Show.

 

[jerry33]

Doesn't surprise me. Tesla doesn't even bother to show up at the San Jose Auto Show.

Auto shows are almost always run by dealers. They won't let Tesla attend. It's not a matter of Tesla not bothering to show up, it's a matter of Tesla vs dealer cartel.

 

[AudubonB]

View attachment 974362

Posts like the above have crossed the line from "possibly or spectacularly insightful" to "of zero utility in a Tesla/TSLA thread". It also adds insult to injury by being a meme and nothing but a meme, and even many more worser, by being extremely factually-challenged. ===>NO MORE LIKE THIS<===

 

[DarthPierce]

As far as I can tell GM did not make $22B last year. It was 9.9B or 14.5 EBIT adjusted.

Should only the ~50k UAW employees get a huge raise or should the whole ~167k employees get a raise? If you gave everybody that 80k, now you're at 13.4B of salary increase instead of 4B, bringing profit to negative 3.5Billion. Everything is fine.

 

[Stretch2727]

Doesn't make sense to me. The $66 is made up of worker wages (I think I heard figures of about $20/hr average) plus other overheads such as payroll taxes, 401k, workers' compensation insurance, health insurance, and amortized costs like electricity to keep the lights on and the lines running. A 40% raise to the workers would add $8 to the direct cost, and maybe a few dollars more to the worker-related costs. So how do they go from $66 to $136?

I guess that another factor is reducing the working week from 40 to 32 hours, which means you need 20% more workers or to pay more overtime, but I still can't make the numbers work out. And I won't read WSJ .

Having worked at Ford I understand some of this. The health care cost are quite high which add $15K-$20K per worker. They also have some legacy retirement health care, pensions, 401k, etc. There are a certain number of paid UAW members they pay but are not actually working. Sick and vacation is considered benefit that adds to the hourly cost. There is even more I likely forgot. It does not include any plant costs such as lighting etc.

So basically this is how they do a loaded calculation.

All in Hourly Costs/Actual Hours worked = Average hourly cost.

The actual hours worked is much smaller than the actual hours paid.

One tidbit that stood out when I was there. The overtime costs in the plant I worked in were actually lower than the regular time costs. The reason was the benefits were more than 50% of the typical hourly wage and all accounted for in the base loaded rate.

 

[phoggy123]

I bought a used 2022 Model 3 back in May. I financed with Tesla as it was like 6% which on a used vehicle is very good. I ended up getting matched so to speak with BMO on this loan. It appears this company has exited consumer auto lending. I know US bank is a prime lender for Tesla, but I'd be curious to know how many are left for Tesla to work with.
https://x.com/GuyDealership/status/1702792637265149985?s=20

I am seeing this as a risk for all non captive lending auto companies. I hope Tesla has a plan to offer Tesla direct financing. I have said no less than 3 times on this forum I think Tesla needs to evaluate Leasing at much lower rates and potential auto financing. Tesla has a unique position where I believe most wholesalers and auto auctions are nervous taking on Tesla's given the price reductions at will. This then negatively impacts trade in a depreciation costs for buyers.

If Tesla were to take this in house they have a massive advantage in marketing used Teslas to new buyers that specifically want an EV, along with zero cost additions in EAP + FSD + Acceleration boost. If I run the Lease numbers on a new 3 for 36 months I am essentially paying for more than half of the value of the car and Tesla gets to keep the tax credit. Should the buyer not pay, repo it, sell it used with their service center network. You tack on any software additions and boom...massive gross margins.

Tesla gets maligned for moving prices around but they and Rivian are the only true auto companies with immediate transparency. the other automakers have the same problem but they get the benefit of the reservoir that are new car dealers. Once the dam breaks though they are in much worse shape.

 

[Ipcress]

Doesn't make sense to me. The $66 is made up of worker wages (I think I heard figures of about $20/hr average) plus other overheads such as payroll taxes, 401k, workers' compensation insurance, health insurance, and amortized costs like electricity to keep the lights on and the lines running. A 40% raise to the workers would add $8 to the direct cost, and maybe a few dollars more to the worker-related costs. So how do they go from $66 to $136?

I guess that another factor is reducing the working week from 40 to 32 hours, which means you need 20% more workers or to pay more overtime, but I still can't make the numbers work out. And I won't read WSJ .

From the WSJ article:

"Fain this past week sounded annoyed when asked about Tesla’s cost advantage. “Competition is code word for race to the bottom, and I’m not concerned about Elon Musk building more rocket ships so he can fly in outer space and stuff,” Fain told CNBC on-air Wednesday."

If this quote represents his level of awareness of Tesla as a company, and its threat to ICE OEM's (and their union), he's got a lot of catching up to do. This bodes poorly for his goals.

 

[unk45]

Having worked at Ford I understand some of this. The health care cost are quite high which add $15K-$20K per worker. They also have some legacy retirement health care, pensions, 401k, etc. There are a certain number of paid UAW members they pay but are not actually working. Sick and vacation is considered benefit that adds to the hourly cost. There is even more I likely forgot. It does not include any plant costs such as lighting etc.

So basically this is how they do a loaded calculation.

All in Hourly Costs/Actual Hours worked = Average hourly cost.

The actual hours worked is much smaller than the actual hours paid.

One tidbit that stood out when I was there. The overtime costs in the plant I worked in were actually lower than the regular time costs. The reason was the benefits were more than 50% of the typical hourly wage and all accounted for in the base loaded rate.

One principal aim of auto company bankruptcy was the offload of defined benefit retirement plans plus a large portion of retiree health benefits early all fo which was offloaded onto the federal government. Decades ago when I was dealing with cost accounting issues for a couple major US industrials the rule fo thing was that direct salaries and wages were around 40% of the total cost. Ridding themselves of defined benefit pensions helped reduce the load, as did two tier wage structures that paid new employees much less than the older ones. These calculations being thrown around now are typical of every union negotiation, with large disputes over all then 'fringes'.

This time, though, not too much is being said about the "elephant in the room". The union third demand to protect the powertrain and engine builders is a gigantic issue far beyond the general perceptions. Why? Because those workers are the most skilled and most highly paid both for the UAW and for IG Mettal members. They all are acutely aware that their jobs will disappear and have far more clout than their numbers would suggest. If the IG Mettal stories are repeated they'll refuse to consider any other work, which they think is beneath them. Keeping mind that for the low volume high prices ICE the engine builders frequently have their names inscribed as authors of each engine, a practice that is not uncommon for AMG, Porsche and others. That probably was one reason Porsche chose to have a two speed transmission for their BEV, and eschewed regenerative braking for the most part. One crucial issue is that all that legacy pride of ICE technology is deeply influential now. GM, Ford and Stellantis are paying for that now and will certainly keep paying.

When we consider the inherent advantages to Tesla and BEV specialists we regularly understate the cost of lethargy. Studebaker was one of the few that made the transition from buggy to automobile. This change is far more difficult. Even more so for the US is that the President of the US himself has all the symptoms for being mired in the 1950's, in this respect.

It may well be that people who understand all that, like the dear departed Mr. Diess, are discarded.

 

[Tony73]

I worked for one publicly traded non-tech company a few years back that had an ESPP but still wasn't aware that it was effectively buying new shares issued by the company, although would need to dig into their documentation to see if that was the case with them…

Wasn't too deep into investing or business finances at the time either, this is most definitely the first time this has clicked in my brain in terms of how it all flows -- that is such a crazy advantageous setup, almost can't believe it's a legitimate thing (even though it's old news to many here)

The proceeds from ESPP typically does not move the needle much at companies that offer the benefit. The objective is to motivate workers.
Many times, the same companies are doing share buybacks at the same time. The money spent on buybacks often dwarfs anything they could realize from ESPP.

 

[bpjod]

One principal aim of auto company bankruptcy was the offload of defined benefit retirement plans plus a large portion of retiree health benefits early all fo which was offloaded onto the federal government.

So if they get their defined benefit pensions again, then the OEMs file for bankruptcy again because they fail to transition to the post-ICE age, who’s going to cover those pensions this time?

Do the taxpayers get to vote on this deal?

 

[Blue horseshoe]

I bought a used 2022 Model 3 back in May. I financed with Tesla as it was like 6% which on a used vehicle is very good. I ended up getting matched so to speak with BMO on this loan. It appears this company has exited consumer auto lending. I know US bank is a prime lender for Tesla, but I'd be curious to know how many are left for Tesla to work with.
https://x.com/GuyDealership/status/1702792637265149985?s=20

I am seeing this as a risk for all non captive lending auto companies. I hope Tesla has a plan to offer Tesla direct financing. I have said no less than 3 times on this forum I think Tesla needs to evaluate Leasing at much lower rates and potential auto financing. Tesla has a unique position where I believe most wholesalers and auto auctions are nervous taking on Tesla's given the price reductions at will. This then negatively impacts trade in a depreciation costs for buyers.

If Tesla were to take this in house they have a massive advantage in marketing used Teslas to new buyers that specifically want an EV, along with zero cost additions in EAP + FSD + Acceleration boost. If I run the Lease numbers on a new 3 for 36 months I am essentially paying for more than half of the value of the car and Tesla gets to keep the tax credit. Should the buyer not pay, repo it, sell it used with their service center network. You tack on any software additions and boom...massive gross margins.

Tesla gets maligned for moving prices around but they and Rivian are the only true auto companies with immediate transparency. the other automakers have the same problem but they get the benefit of the reservoir that are new car dealers. Once the dam breaks though they are in much worse shape.

This was specifically addressed by Elon (forget if it was the earnings call or investor day presentation). Tesla cannot do this alone. The financial burden would be too high

 

[mongo]

Auto shows are almost always run by dealers. They won't let Tesla attend. It's not a matter of Tesla not bothering to show up, it's a matter of Tesla vs dealer cartel.

Turns out Tesla (the company) isn't at the Detroit Auto Show, only Tesla (the cars) are. The show bought an S, 3, X, and Y to give rides in.