tftf on SA. Tired of him yet?

[JRP3]

Because not every problem is solved by throwing cash at it. Tesla did the secondary when the price popped enough to allow them to do some key things at the time, like getting the government loan off the books, and off their backs, which was a big PR win. More cash right now won't let them do the Gen 3 that much sooner since the battery technology takes time to advance. They also don't have a battery supply issue now or in the near future, and there is a strong likely hood that existing battery companies will tool up to meet the demand. That said, if they took the opportunity to grab more cash because they think they can put it to good use I would be OK with it. Tesla management has done quite a bit to earn our trust at this point.

 

[tftf]

Because not every problem is solved by throwing cash at it. ... That said, if they took the opportunity to grab more cash because they think they can put it to good use I would be OK with it. Tesla management has done quite a bit to earn our trust at this point.

I have to disagree here. TSLA will need every cent it can get for the GenIII car in my opinion, the competition will be very intense and the margins lower - in addition, the financial markets may turn ugly well before the GenIII introduction date - making a secondary offer or debt financing harder. Right now, money is still cheap (see my comments on the FED exit above).

More general, I think it's a mistake to pursue the mass market with a GenIII car at or even below $35k. TSLA in my opinion should stay at the high-end (Model S, Model X and Roadster 2.0, maybe a high-end pick-up). I know that 99% of people on this forum will probably disagree, so I won't go into details. If you are interested you can read more over at SA ("The Porsche Exit").

To sum up, I don't think TSLA is doomed (remember I was once long TSLA when it traded below $30), I just think the company is

a) very overvalued right now in the stock market and
b) the future Gen III strategy is too risky

That's my take. But you heard that already so I will shut up now. We will see how things turn out.

 

[JRP3]

You do realize that the $35K is just the entry price for the base model, and that it will be optioned up to $50K+?

 

[aronth5]

I have to disagree here. TSLA will need every cent it can get for the GenIII car in my opinion, the competition will be very intense and the margins lower - in addition, the financial markets may turn ugly well before the GenIII introduction date - making a secondary offer or debt financing harder. Right now, money is still cheap (see my comments on the FED exit above).

More general, I think it's a mistake to pursue the mass market with a GenIII car at or even below $35k. TSLA in my opinion should stay at the high-end (Model S, Model X and Roadster 2.0, maybe a high-end pick-up). I know that 99% of people on this forum will probably disagree, so I won't go into details. If you are interested you can read more over at SA ("The Porsche Exit").

To sum up, I don't think TSLA is doomed (remember I was once long TSLA when it traded below $30), I just think the company is

a) very overvalued right now in the stock market and
b) the future Gen III strategy is too risky

That's my take. But you heard that already so I will shut up now. We will see how things turn out.

From everything we've heard Gen3 will target the BMW Series 3 line. I would not be at all surprised to see pricing in the 40K+ range with the tax credit (yes it will run 0ut) bringing the cost just below $40k. I do agree that Tesla should stay in the higher price range but a list priced in the low 40's for the Gen3 entry point should still give them adequate margin. I suspect the average Gen3 car sold will be well into the $40k range and with additional options approaching $60k. Don't think of Gen3 as a $35k car. The average will be much higher.

 

[tftf]

PS: Since I couldn't link my SA blog post, a detail. I took the GenIII base price right from a Musk tweet:

"$30k in 2013 $ (ie + inflation) w 200+ mile range w some really cool tech that we can't talk about yet."
twitter.com/elonmusk/statuses/315587176597426176

Yes, with options the ASP of a GenIII car may be higher and closer to $40-50k, but then volume sales may be much lower than optimists anticipate (for example, see spreadsheet in the "Tesla Motor Full Analysis 2.0" by Sal Demir over SA). $30-35k is an important upper psychological price barrier for car buyers in this price segment.

 

[Alfred]

As long as Tesla Model S supplies are production constrained it is hard to judge market success. Observing sales in Switzerland, with currently over 50 Model S on the road, initial uptake is significant in the large car market segment and competitors started to react - verbally. Limited range at higher speeds will certainly exclude some potential buyers, but whether these will represent a significant portion is less clear. Surveys relating to unknown products are notorious for their inability to predict outcomes.

Surveys so far do not permit to draw any founded conclusions. Those I have seen did not include cars with a range and performance envelope even remotely close to a Model S. There is lot's of room for speculation. The traditional market leaders here (VW) are getting nervous though - judging from pronunciations at the IAA in Frankfurt. The picture might become clearer by next spring and with the local appearance of Superchargers.

 

[aronth5]

...$30-35k is an important upper psychological price barrier for car buyers in this price segment.

For some sure but there are countless others who will look at a new Tesla for less than $50k as their entry point. Taken from a different perspective how many people will be interested in a new Tesla that is $40k+ less than the Model S and X? With the gas savings alone a lot more then you may think.

 

[Krugerrand]

I have to disagree here. TSLA will need every cent it can get for the GenIII car in my opinion, the competition will be very intense and the margins lower...

More general, I think it's a mistake to pursue the mass market with a GenIII car at or even below $35k. TSLA in my opinion should stay at the high-end (Model S, Model X and Roadster 2.0, maybe a high-end pick-up).

Feel free at any time to start your own car company and prove Tesla's plan as flawed. To this point, they've gotten it very right. I don't see any reason to doubt their plans moving forward.

 

[tftf]

Feel free at any time to start your own car company and prove Tesla's plan as flawed. To this point, they've gotten it very right. I don't see any reason to doubt their plans moving forward.

I know my limits, thanks. I didn't say Tesla's plan is flawed so far, they made it further than any new car company in Western countries in the past decades - that deserves praise. I would just follow a different, lower risk approach going forward - eschewing the sub $50k market for now and only sell lower volume, higher margin cars (Model S, X and Roadster 2.0 - no GenIII until after 2020 or maybe no GenIII at all).

Anyway, we will see how Tesla's mass-market entry works out before the end of this decade.

 

[kevin99]

Yes, he's very annoying, as is tomfrompv, Miro Kerfut or whatever his name is, and tippydog. There is another one who's name escapes me, all he does is talk about how the Model S can't work on the Autobahn in Germany. High volume FUD stirrers, the garbage ratio is getting so high I just stop reading the comments if I see them blitzkrieging them.

Here on TMC, you can add someone to your "ignore list". I have added a bunch and Wow, what a change in user experience! Everything is so much cleaner and now I can read the whole short term thread.

The downside of this is if someone is cursing me and belongs to my ignore list, I won't see it.

 

[Krugerrand]

I know my limits, thanks. I didn't say Tesla's plan is flawed so far, they made it further than any new car company in Western countries in the past decades - that deserves praise. I would just follow a different, lower risk approach going forward - eschewing the sub $50k market for now and only sell lower volume, higher margin cars (Model S, X and Roadster 2.0 - no GenIII until after 2020 or maybe no GenIII at all).

Anyway, we will see how Tesla's mass-market entry works out before the end of this decade.

And I didn't say you said that their plan was flawed, but how their plan has worked so far definitely goes as to whether it's reasonable for one to doubt or in your case, 'disagree' with further execution of that plan. On what are you basing a disagreement on? They've proven to this point that the plan is good.

 

[tftf]

On what are you basing a disagreement on?

Too much risk given the specific nature of the car industry. The probability of (further) disrupting the industry vs the risks involved.

In summary, my alternative strategy going forward would be:

Remain a high-end niche EV manufacturer with Model S, Model X and Roadster 2.0 with base prices above 50k USD - no Gen III car.

Sell 100k (around 2020) to 250k (long-term goal) cars per year, enough to cover ongoing R&D thanks to high margins per car and retain a high/desired brand value in the industry. Tesla would become the EV equivalent of Porsche in the ICE world:

Model S <-> Porsche Panamera
Model X <-> Porsche Cayenne/Macan
Roadster 2.0 <-> Porsche 911 and derivatives

A success would probably equal a less volatile share price of "only" 50-100 USD (obviously less than most TSLA bulls want or hope for today) but enable a dividend over time.

For more details, see my Instablog over at SA ("The Porsche Exit"). I won't comment further since almost all readers on this forum will most probably disagree with me and I'm not interested in picking arguments for the sake of it; especially since the CEO and CFO of TSLA obviously long set sail for the mass-market strategy in the real world and I'm just typing away on my keyboard - the Porsche exit not taken.

Considering the high risks of the Gen III strategy, it may still make sense to ask this "what if" question and consider the alternatives. We will see in a few years who was right.

 

[JRP3]

You consider the Gen3 to be high risk, the rest of us, including Elon Musk and Tesla, do not. Your plan would make Tesla a less valuable company and by your own admission cut the price of the stock dramatically. Great plan for a business

 

[Krugerrand]

Too much risk given the specific nature of the car industry. The probability of (further) disrupting the industry vs the risks involved.

I stopped reading at this point because it makes no logical sense. Too much risk; are you kidding me? It was too much risk to start a car company in the first place, then to make it an EV car company, then to make it an EV car company in California...well, that's about as too much risk as you can get without even considering a hundred other risky things they've done or deciding to start a rocket ship company. Who in their right mind would do either?

It makes no sense to be risk adverse at this point. All the biggest risks have already been taken; now it's just a lot of hard work going forward. If you haven't figured it out, Tesla went all-in. There's less than zero chance they'll ever play it safe, so a conservative (or settling) approach is not in the cards. Until the ultimate goal is reached, Tesla will continue on with the plan or die trying. Once you understand that, you'll have no reason to armchair coach.

 

[tftf]

Your plan would make Tesla a less valuable company and by your own admission cut the price of the stock dramatically. Great plan for a business

A failure in the Gen III execution would let the stock drop even more dramatically and may even spell the end imho. As for valuation, I obviously think the current valuation near $200 is not warranted fundamentally.

- - - Updated - - -

If you haven't figured it out, Tesla went all-in. There's less than zero chance they'll ever play it safe, so a conservative (or settling) approach is not in the cards. Until the ultimate goal is reached, Tesla will continue on with the plan or die trying. Once you understand that, you'll have no reason to armchair coach.

I have figured that out, I wrote above:

the CEO and CFO of TSLA obviously long set sail for the mass-market strategy in the real world

It's still worth contemplating the alternatives. Just because high risk was necessary in the past (to get the EV car company going at all up to Model S and X) doesn't mean high risk and "all in" must be the best strategy going forward.
Total disruption may have a higher probability of success in IT/Internet and related sectors, not necessarily in the car sector - especially given TSLA's direct sales model. We shall see.

 

[ckessel]

Considering the high risks of the Gen III strategy, it may still make sense to ask this "what if" question and consider the alternatives. We will see in a few years who was right.

No, it makes no sense to ask that at all. Why? Because Elon won't go that route. It's irrelevant if that's a strategy that might lead to a more secure business, because that's not Elon's goal.

You might as well ask if it'd the best strategy is to buy the moon. It's completely out of the question.

Now, if you enjoy meaningless academic alternate universe type of musings, then by all means indulge.

 

[aronth5]

It makes no sense to be risk adverse at this point. All the biggest risks have already been taken; now it's just a lot of hard work going forward. If you haven't figured it out, Tesla went all-in. There's less than zero chance they'll ever play it safe, so a conservative (or settling) approach is not in the cards. Until the ultimate goal is reached, Tesla will continue on with the plan or die trying. Once you understand that, you'll have no reason to armchair coach.

Well stated. I would much rather see Tesla push the envelope which may well include bumps along the way. So be it. And yes the stock may take some hits along the way but that does not mean play it safe.

 

[Grendal]

Yep. Elon has risked every cent he has on numerous occasions. The stock price is way down on his list of important things. Making money is only a means for him to achieve his goals. He can still achieve those goals at a stock price of $50.

Make the best car in the world come hell or high water. Keep making it better. The goal is to make an EV that most people can buy and is the best that it can be. That will be the Gen III/Model E. The fact that you can't believe that Tesla can do it will mean that you will join the crowd that absolutely thought it couldn't be done with the Model S. We don't hear too much from those people anymore. There are a few diehard naysayers around but they mostly look like idiots these days.

 

[Krugerrand]

It's still worth contemplating the alternatives. Just because high risk was necessary in the past (to get the EV car company going at all up to Model S and X) doesn't mean high risk and "all in" must be the best strategy going forward.

No, it's not worth contemplating alternatives unless you like to waste time talking about that which will never happen...oh, never mind.

 

[tftf]

The fact that you can't believe that Tesla can do it will mean that you will join the crowd that absolutely thought it couldn't be done with the Model S. We don't hear too much from those people anymore. There are a few diehard naysayers around but they mostly look like idiots these days.

Just to clarify, I didn't say TSLA can't do it (maybe they will need to raise more money or dilute the stock in between, but that's a detail) until the Gen III release day. I also didn't say the Model S and X couldn't be done or sold, otherwise I wouldn't have bought the stock in 2012 - but the current company valuation is long past that or intrinsic values, it's all about the Gen III being a massive success at stock prices near $200.

The issues imho could start once the Gen III is on sale, selling 25k cars with high margins is very different than selling 250k cars per year with low margins:

The competition will be much more intense in the mass market; Tesla also risks diluting its brand image with the Gen III. The current approach (Superchargers and the direct sales/service model) won't work so well imho with larger numbers of customers.

As for contemplating "useless" alternatives - maybe the Porsche exit has to be taken one day out of necessity, a good strategist always has a plan B or C.

Tesla will not always remain on the winning road - although investors may think so at the moment because of the recent stock performance. That's dangerous in itself, behavioral finance mechanisms again. As Warren Buffett once said - the dumbest reason in the world to buy a stock is because it is going up.