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

[JusRelax]

Tesla China price reduction on all vehicle makes/models by 14k rmb (~$2k USD):

Edit: I haven't seen any other notice regarding this price cut, so consider it just a rumor for now.

https://twitter.com/x/status/1781917590786642255

 

[Singuy]

I don't see that in the numbers. Remember that Tesla gets the extra benefit of having no dealers. A dealer gets 10-15% margin on the retail price, margin that would be instead seen in Tesla's financials (minus the relatively small cost of operating a website and minimally staffed delivery centers in each country). In my country, Tesla operates the sales component with essentially 1% of the people of all the BMW dealers (excluding service components for both) while selling the same number of cars. That obviously shows conventional manufacturers where they could extract extra margin from, but also shows that Tesla's manufacturing is not such a marvel as some might think.

Correct me if I'm wrong, but the extra margins you are talking about is being saved in the operating expense, not COGS. So the gross margin only deals with COGS, which is the cost of PRODUCING the product. We see Tesla's gross margins on EV is industry leading by miles. Many Chinese companies using Chinese labors couldn't even hit a positive gross margin, and US EV companies are far from positive.

 

[alexxs88]

Excellent post. This is exactly why going balls to the wall for autonomy is such a blindingly obvious move.

We are going to see massive improvement at a very fast pace. I don't see how Tesla gets to another local maximum any time soon unless they run into hardware limitations. But even then, a hardware limitation can be overcome in the dedicated robotaxi vehicle.

I'm having trouble seeing how autonomy is not achieved relatively soon.

Wouldn't Tesla be wide open to a class action if they do that? It's pretty widely known that the public commitment was that all cars have the HW required to act as robotaxis.

Secondly, how are you so sure autonomy will be solved soon if nobody has done it yet? Arguably Waymo is the yardstick and their stack / car is 100k in cost, albeit has excellent miles/disengagement performance compared to similar competitors and about 70x Tesla's.

 

[alexxs88]

Correct me if I'm wrong, but the extra margins you are talking about is being saved in the operating expense, not COGS. So the gross margin only deals with COGS, which is the cost of PRODUCING the product. We see Tesla's gross margins on EV is industry leading by miles. Many Chinese companies using Chinese labors couldn't even hit a positive gross margin, and US EV companies are far from positive.

Yes, but the price at which the BMW factory sells their cars will be much lower compared to Tesla's. So as you point out, although the sales cost come from OPEX in Tesla's case, for BMW they come out from the factory's sales price.

 

[rentierparasit]

I don't see that in the numbers. Remember that Tesla gets the extra benefit of having no dealers. A dealer gets 10-15% margin on the retail price, margin that would be instead seen in Tesla's financials (minus the relatively small cost of operating a website and minimally staffed delivery centers in each country). In my country, Tesla operates the sales component with essentially 1% of the people of all the BMW dealers (excluding service components for both) while selling the same number of cars. That obviously shows conventional manufacturers where they could extract extra margin from, but also shows that Tesla's manufacturing is not such a marvel as some might think.

Hi, Alexss88 --

> A dealer gets 10-15% margin on the retail price,

Too lazy to double-check, but I believe dealer *gross* margins on new vehicle sales are in the 5%-6% range. You need to go the filings or earnings reports to see this, data service financial summaries don't provide enough detail. I suspect that the DTC model gives Tesla a small competitive advantage. Note that the dealership structure is used in tons of other industries, from boats to tractors to commercial laundry equipment, presumably there's some good reason for this.

Given the crap margins on "Services and Other", I've always assumed that Tesla is shuffling some costs/revenues around to flatter auto gross margins. Note that I'm not accusing them of any wrongdoing! This is more like, "This could go here or here, it make more sense it for it go in the first here, but since it makes auto gross margins look better, let's put it in the second here."

Yours,
RP

 

[alexxs88]

Honestly, one of the challenges here on this forum is you have a mix of folks who were in during the "is Tesla gonna even make it (with single digit stock prices" days and the "I went all in at $380" days. For the record, I'm in the latter camp...ouch. One could easily argue those in the former camp had a MUCH greater chance of watching their investment go to zero, BUT for the same total dollar amount of investment their possible ROI is waaaaaay higher. Indeed, they are already up so far, the current moves seem almost irrelevant. Those of us in the latter camp dream of simply getting back to "even" and the "hyped" future numbers might get to 5 or 10x of the current price

When I was long Tesla in 2019, my model was simple. Tesla was heavily discounted on the challenge of building a car. A challenge that had been overcome essentially by tens of other companies, using methods 10-20 years old. And they very smartly leveraged out the dealership model, adding extra profit on each car. The risk-reward, as I saw it, was extremely favorable. That not being such a hard challenge is proven by the plethora of Chinese EV companies that sprung up and are doing the same thing. And they of course solved it.

Fast forward to 2023, Tesla's valuation prices to perfection not only scaling and covering all segments of the car market, but also problems that nobody has actually solved: robots and FSD. That seems crazy to me.
1. FSD - judging by the data available, FSD has a disengagement rate about 70x higher than Waymo (the company which I think is the only real competitor). I'm not an AI expert (am a SW engineer though) and I think it's an incredibly risky bet to think it's solved in the near future. Waymo hasn't really been progressing and also doesn't seem to be posting crazy revenue numbers on the subset of the problem they have solved.
2. Optimus - although I do believe there'll be a future in my lifetime where I'll be able to get devices that automate some household chores that aren't yet automated, those are not very high value. The commercial applications are more interesting, but I don't have any reason to believe Tesla will be a serious competitor in that space.

 

[alexxs88]

Hi, Alexss88 --

> A dealer gets 10-15% margin on the retail price,

Too lazy to double-check, but I believe dealer *gross* margins on new vehicle sales are in the 5%-6% range. You need to go the filings or earnings reports to see this, data service financial summaries don't provide enough detail. I suspect that the DTC model gives Tesla a small competitive advantage. Note that the dealership structure is used in tons of other industries, from boats to tractors to commercial laundry equipment, presumably there's some good reason for this.

Hi RP,

I asked a friend who used to be in the top brass of the financing arm of the BMW importer in my country. So that's how I got my numbers. Granted, they might be different in higher volume countries. But even at 5-6%, it's still a gain. The other side of the coin is what has been happening in the past 12 months. Dealers can easily hide and take care of over supply, whereas with Tesla, any price change makes it international news.

 

[Singuy]

Yes, but the price at which the BMW factory sells their cars will be much lower compared to Tesla's. So as you point out, although the sales cost come from OPEX in Tesla's case, for BMW they come out from the factory's sales price.

Now to your point, I don't believe Tesla's gross margins are better than any premium gas cars. Notice I am only saying EVs. The supply chain for EV is still in its infancy, hence why when you compare these companies' EVs only, Tesla is miles ahead even at a time when it's at its infancy.

The contrast is incredibly stark. Tesla managed a positive NET margin on the Roadster and Model S 2nd year into production. Batteries were about 10x the price vs today and the supply chain was non-existent. Today none of the legacy auto makers have hit any kind of positive gross margin on EVs while enjoying a much more robust supply chain and battery pricing. So as Tesla continues to build out this supply chain and scale into millions, we should see some dramatic drops in COGS going forward. It's an incredible feat to have a positive net margin while having the car be comparable in price to ICE which has a century head start.

 

[alexxs88]

Respectfully, you're changing the subject now. I only said Tesla's gross margins are inflated by the fact they're doing their own distribution. The advantage compounded because when dealers were charging premiums over MSRP during the pandemic, Tesla was pocketing that money. Now we can all see the other side of that, where the whole world is tuning in on Tesla dropping prices.

Legacy auto companies are not really interested in mass manufacturing EVs right now. They can switch at their own pace and they'll delay doing so as much as the market allows them to. Remember that they're essentially assemblers of supplier parts and their negotiating power is incredible. There's nothing to make me think they won't be able to reach Tesla's gross margins on EVs once they are producing sufficient numbers of it. And remember, we are on the investor thread, does Tesla have a sufficient and unrecoverable margin advantage over traditional OEMs to justify the huge valuation premium? I strongly believe the answer to that is "no". BYD operates at a gross margin very similar to Tesla's while having an ASP that's roughly half. To be honest, BYD's numbers are actually impressive (given the much lower selling price of the cars), but the fact we have two relatively high volume manufacturers achieving similar gross margins shows there's no moat to be had. Unless you think coincidentally that the only two companies that achieved high volume EV manufacturing are also the ONLY ones that will be able to have the secret manufacturing sauce in the long term.

 

[AndrewZ]

The big carmakers have historically not made money on new car sales, they sell cars at cost and then make money over the long term by selling parts and service to the existing fleet after vehicles leave warranty -- you can listen to Elon talk about this dynamic on several occasions and how it is the biggest challenge to new car companies. The very profitable companies are those with obscene servicing costs, think Mercedes / BMW / Audi etc.

The additional challenge with EVs is that they require far less servicing compared to ICEs so the revenue stream for out-of-warranty vehicles won't be the same, which is why Elon believes the combination of electrification + autonomy is so important.

EVs selling at cost without additional revenue streams because they lack the service/maintenance angle, well that clearly can lead not good places when competing with the huge ICE manufacturers who can sell at cost because they don't make money there anyways.

 

[alexxs88]

The servicing profits are mainly at dealership level. One of the reasons dealerships are reluctant to push EVs. I've seen dealership margins on parts and they are really obscene. But retail prices for parts are very similar between Tesla and other premium manufacturers.

 

[AndrewZ]

The servicing profits are mainly at dealership level. One of the reasons dealerships are reluctant to push EVs. I've seen dealership margins on parts and they are really obscene. But retail prices for parts are very similar between Tesla and other premium manufacturers.

Where do dealerships get their parts from? And why are OEM parts such a big deal.

The existing fleet is THE profit stream for the big carmakers, and Elon has elaborated on it many times in the past. People can say a lot of things about Elon, heck I say a lot of things about Elon, but he knows car manufacturing and I’d recommend listening to what he says about this lol.

The FSD subscriptions are Tesla’s attempt to fill that gap as the vehicles move closer and closer to being sold at cost — which is something Elon also said they would be fully willing to do.

 

[Optimeer]

I am interested in buying a Model 3 SR and can say that the price in Switzerland was just lowered by 2000 CHF. The price of the Model Y RWD was not changed. I am not able to say what happened with the other configurations/Models in Switzerlands and in other European markets. There was no price reducion for Enhanced Autopilot and Full Potential for Autonomous Driving.

 

[15Peter20]

About time! Here we go!

https://twitter.com/x/status/1781856306242175382

I presume this X App for Tesla is a native app which runs on the car OS. Will be interesting to see how they handle embedded video. Will be even more interesting to see if the X app uses one of the Tesla neural net NN cores to run a large language model LLM.

Cheers!

Whoopie doo. Another way for me to ignore crappy social meeja.

 

[Ellec]

https://twitter.com/x/status/1781936532099633537

Bit early in the quarter to be making that prediction

 

[Quesder]

China Tesla cars Price drop is confirmed. Most Chinese investors/traders in FUTU forum consider this as a bad news and expecting the SP to drop on Monday.

 

[Quesder]

Fundamentals have changed.
Robotaxis will be a thing on 8/8
Model 2 next gen vehicle will be revealed soon.
Cybertruck is in production.
Optimus is cooking.

Interest rates are in the 7-8% and incentives have vanished so demand slowed down exactly like Elon expected couple earning ago.

The only thing that has permanently changed is that we don’t hear about Gordon Johnson in the news anymore.

How come you can take the M3 MY demand drop so easily? That alone has caused probably $50 SP decrease, and we don’t see the problem going to be alleviated in Q2.

Regarding interest rate, that is not that bad in China, but the Tesla car sales is still decreasing.

 

[Artful Dodger]

Sold out for 2024 cannot be true. I sat on my invite since Jan 19th, configured on Mar 24th, and have an April-June delivery window. I don't believe Tesla sold out the last six months of 2024 production since Mar 24th

That's from Tesla themselves on the q1 earnings call. Did you miss that?

Tesla to potentially sell out all 2024 Cybertrucks it builds

Tesla's Cybertruck is already a sell out for 2024, although it remains to be seen when it will be in Australia.

thedriven.io

 

[alexxs88]

The existing fleet is THE profit stream for the big carmakers, and Elon has elaborated on it many times in the past. People can say a lot of things about Elon, heck I say a lot of things about Elon, but he knows car manufacturing and I’d recommend listening to what he says about this lol.

I prefer to get my data straight from the source. I've seen the prices at which dealerships buy parts, they get huge margins, between the huge discount and the fact that the manufacturer buys the parts from a supplier, that isn't really the moneymaking source for them. It absolutely is for the dealers though. Secondly, BMW sells complete service packages for around $3000 over 5 years for models comparable to the Model 3. That's dealer pricing, so expect the margin for BMW to be 30%, if that. That's only 1000$ on a car that costs new $50-60,000. It's negligible. Thirdly, it's not like Tesla isn't making money on servicing old cars, maybe even more so than conventional manufacturers. For several reasons:
1. There are loads of indy garages specialized in luxury European cars. Much fewer for electrics/Teslas.
2. Servicing is done directly by Tesla, so remember that huge margin I was saying the dealerships get on parts? That remains with Tesla.

Let's agree to disagree! I can certaintly see (and agree) to a part of your perspective.

 

[alexxs88]

Regarding interest rate, that is not that bad in China, but the Tesla car sales is still decreasing.

Other manufacturers have reported good YoY values for Q1 2024. It's blatantly obvious it's not (just) the interest rates. If BMW can increase their sales 2.5% YoY for Q1, there's no reason to not expect Tesla, who's expecting double digit average annual growth, to do the same.