Just a theory bro. On the other hand, they could have announced the $35K model instead.
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The coming Tesla cash cow and the short burn of the century
- Thread starter DaveT
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Mario Kadastik
Active Member
The 35k$ model is only going to be made once the line is running at full efficiency. This much Elon has stated in a previous conference call outright as well I think on twitter. He has promised AWD and performance by Q3 and the options were announced today. Air suspension I think he said Q4 or early 2019. What they will do is ramp the line up as they go, get to 5k/week and start adding variations and options to it until they have most of the planned options in the production line. Once there and demand is still there keep going, but over time start to make also small batches of the 35k car, but only as the line is going full speed.
dhanson865
Well-Known Member
The $35k model 3 doesn't matter until the reservation queue is empty for anything more expensive.
I don't have a reservation because I like to pay cash for cars and I'll decide how much to splurge or not when the reservation queue is empty. Maybe I get the $35k build + blue paint. Maybe I add Dual motors. Maybe if I'm really doing well I get more.
Others that can't afford anything more than the $35k build will be saving up money for the down payment. The longer they wait the more money they have to make a bigger down payment (if not they probably shouldn't be buying new, they should wait and get a used Model 3 later. If their savings are dwindling a "new" new car purchase isn't wise).
I'm sure some of those will be upset when the tax credit dwindles or goes away but anyone that can only afford the $35k option didn't have the income required to get $7,500 tax liability and then wouldn't get $7,500 tax credit. There probably aren't 10,000 people in the us in the overlapping groups of
* Makes enough to owe $7,500 a year in federal taxes
* Wants to buy a Tesla
* Can't afford to pay more than $35,000 even with a loan.
But there are hundreds of thousands if not millions that can afford to pay more than $35,000 and can take the full tax credit.
I don't have a reservation because I like to pay cash for cars and I'll decide how much to splurge or not when the reservation queue is empty. Maybe I get the $35k build + blue paint. Maybe I add Dual motors. Maybe if I'm really doing well I get more.
Others that can't afford anything more than the $35k build will be saving up money for the down payment. The longer they wait the more money they have to make a bigger down payment (if not they probably shouldn't be buying new, they should wait and get a used Model 3 later. If their savings are dwindling a "new" new car purchase isn't wise).
I'm sure some of those will be upset when the tax credit dwindles or goes away but anyone that can only afford the $35k option didn't have the income required to get $7,500 tax liability and then wouldn't get $7,500 tax credit. There probably aren't 10,000 people in the us in the overlapping groups of
* Makes enough to owe $7,500 a year in federal taxes
* Wants to buy a Tesla
* Can't afford to pay more than $35,000 even with a loan.
But there are hundreds of thousands if not millions that can afford to pay more than $35,000 and can take the full tax credit.
I certainly don't disagree... I was attempting to respond to the folks who felt that range was too high.
I should have said "at least $42K..."
dhanson865
Well-Known Member
Nah, you had it covered because 42 is the answer to "Life, The Universe, and Everything".
Now if you picked 41 or any other number below 42 then "at least" would most certainly be required.
Reciprocity
Active Member
He made that prediction before production and deliveries started. Once people started to defer, they would mark which option they wanted. I'm sure they have a much more accurate idea what asp will be based on that new info. My guess is $49k in 2019 going forward. $65k for 2H 2018. Remember, margins are more dominated by units delivered then sale price at this point but high asp certainly won't hurt. At 10,000/qtr, amortized expenses are very high, but at 40,000 then 60,000 in Q3 and Q4, margins will go up a lot. But conversely, because more model 3s will be delivered then higher margin model S/X they will impact the overall rate more. This should cause margins to be fairly flat until the deliveries move ever closer to 10k/w, which is when Tesla will have finally leverage all of it's investment. The difference can be as large as $10,000 per car. Which is why margins suck at this point.
Calling the Model 3 ramp botched shows a profound misunderstanding of the true picture.
The only measurement against which the ramp is botched is Elon's timeline. If you remember, Tesla's original goal was to hit 500k/year by 2020 and start production in late 2017. This goal was deemed nearly impossible.
After the unprecedented demand demonstrated after the unveiling, Tesla moved the impossible 500k/year goal forward by 2 years to 2018. Now the goal has changed from impossible to ludicrous.
I realize that a good "rule of thumb" for judging most companies is to grade them versus their guidance. Tesla completely breaks this paradigm. Elon intentionally picks impossible goals, knowing full well his team will miss, but understanding that even in their "botched rollout" they will exceed their competition. If you follow or understand Tesla in the least, you should know that "their guidance" ranges from impossible to ludicrous.
So, what does it mean when Tesla misses their own goals? It means they have failed to meet impossible deadlines. Is this important if Tesla guidelines are so far ahead of the rest of the industry? What any informed investor (or short) should do is measure Tesla's actual deliveries vs. the competition. This is the true measurement that will determine failure or success.
In reality what Tesla has pulled off is a modern day manufacturing miracle. They have no previous mass production experience, yet with the Model 3 they are steadily moving up the charts of vehicle sales of all types in the U.S. Pulling all of this off while also trying to reinvent the manufacturing process itself.
Anyone who only looks at Tesla from a financial viewpoint and judges Tesla against their own timelines is really, really, really missing the big picture. I believe almost all of the shorts come from a financial background only and have no concept of engineering, product design and what disruption really looks like. And they surely don't realize that judging Tesla against their own deadlines makes no sense whatsoever.
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When you say you think 25% is possible only with super high ASP, do you have data to back it up? I am pretty sure Tesla management does and that they know far more than you.
The shorts vs. bulls really boils down to a trust (or lack thereof) in Elon.
The shorts can point to missed deadlines and promises not fulfilled.
Speaking as a bull, I think the missed deadlines are because they are super optimistic and ambitious and I’m ok with missed deadlines as long as the end result leads the rest of the industry.
The promises not fulfilled I can justify as pivots that make sense in light of new information.
E.g. Elon said he was 100% certain they would hit 500k/week before 2019. It seems like this will not happen, but my reading is that they are choosing not to aim for this because it will be smarter to wring out the most optimum manufacturing line design at 5k/week before progressing to 10k/week.
I’ve seen so many interviews with Elon where he talks about how to have the maximum positive impact for humanity. As far as I’m aware, almost every action is aligned with this goal. I really don’t understand how shorts can view him as a con artist. It literally boggles my mind.
When you say you think 25% is possible only with super high ASP, do you have data to back it up? I am pretty sure Tesla management does and that they know far more than you.
The shorts vs. bulls really boils down to a trust (or lack thereof) in Elon.
The shorts can point to missed deadlines and promises not fulfilled.
Speaking as a bull, I think the missed deadlines are because they are super optimistic and ambitious and I’m ok with missed deadlines as long as the end result leads the rest of the industry.
The promises not fulfilled I can justify as pivots that make sense in light of new information.
E.g. Elon said he was 100% certain they would hit 500k/week before 2019. It seems like this will not happen, but my reading is that they are choosing not to aim for this because it will be smarter to wring out the most optimum manufacturing line design at 5k/week before progressing to 10k/week.
I’ve seen so many interviews with Elon where he talks about how to have the maximum positive impact for humanity. As far as I’m aware, almost every action is aligned with this goal. I really don’t understand how shorts can view him as a con artist. It literally boggles my mind.
Singer3000
Member
It’s perfectly possible to have a deep appreciation for the long term vision and be a sticky long, and still think that the ramp was botched. I’m a little surprised to hear anyone claim otherwise.
Of course it was botched. After the widely successful unveiling, Tesla raised additional capital to accelerate the timeline and deployed those proceeds into capex and increased opex, in support of the new production goal. That the ramp is at least 6 months behind that goal, means at the least there has been wasted opex. For some capital investments, the under-utilisation for half a year may also have translated to more than just accounting depreciation losses (for example mobile service centres). And finally, a lack of fuller testing has led to write down of some investments (e.g. the conveyor system at Freemont likely at some point), as well as (temporarily?) higher wage costs of production (e.g. semi automated line at Giga).
There are real consequences of failing to meet an “impossible internal deadline”. You may also have noticed that it’s impacted on the ease of Tesla’s access to the capital markets, through a lower share price and increased bond yields. I can believe that Tesla does not “need” another capital raise, while still recognising that unless reversed, the crosswinds in capital markets for Tesla probably slows future growth.
Now you may take the view that it was all still worth it, to try and jump ahead of the competition. On balance I do. But to pretend there have been no real world negative consequences from Tesla missing their guidance is frankly a little odd.
K_Dizzle
Member
dhrivnak
Active Member
Until Tesla I never spent over $35k for a car. And the jury is out if Tesla was a good move. Just because someone could spend more does not mean one should spend the extra. Wealth is built on not what one makes it is built by what one saves.
The $35k car is very important for Tesla as it shows the company stands by its promises.
dhanson865
Well-Known Member
To date I still haven't spent over $25,000 for a car. The last time I bought one new was around 2001 or 2002 and back then I got a Mid Size Sedan below $25,000.
It remains to be seen how much I'll pay for my first Tesla and when I'll pull the trigger.
Today I went on the Tesla Club LA's drive to the observatory at Mount Wilson... it was a nice drive and great getting a private tour, but that's quite irrelevant. I had a conversation with someone who pointed out something I hadn't thought of myself. It's quite clear that Elon can't tell the employees one deadline and the press another. And if he tells the press "2 years" the employees will make sure it takes 2 years. So he has to tell the employees the "aspirational goal" of 1 year (his own terminology from the earnings calls) but has to tell the press the same goal, then get hammered when his aspiration is 3 months late. This conversation made it really clear to me.
It was only late by Elon’s timeline.
Don’t you realize no one has even announced a competitor. It was a staggering achievement to be producing 3k Model 3’s / week by now.
No one else is even within 5 years of this.
You keep going back to the Dec. guideline.
Again, how was it botched (except being late against a deadline that is 5 years ahead of the rest of the industry)?
There is a great TED talk on how setting impossible deadlines causes achievement way beyond what is possible with realistic deadlines.
There is no point in comparing it to what would have happened had they succeeded, because no company on earth could have succeeded. That’s the point.
Elon says if you’re not failing, you’re not innovating fast enough. It is a key reason behind the incredible rockets and cars.
By your definition of botched, Space-X has botched their way to being the top launch provider in the world. They’ve been late (or botched the ramp) on every single rocket.
You two betting against this man (and some of the top tech talent in the world) makes you very brave indeed.
Your narrow viewpoint has you focusing on quarter financials and ignoring the elephant in the room. A company exists to provide great products.
If you want to short Tesla betting that even though they might be a huge success in the long run, the stock will drop in the short run that just seems like gambling.
What if they do attain the cash cow status postulated by this thread?
Singer3000
Member
Hello Brian,
Locations: Yes, I agree it's the sizes of service locations that's probably making most of the difference on costs, rather than the outright number. I think you are right that the standard locations are mostly leases. Leasehold improvements have averaged only 8% of fixed assets since March 2017 and are depreciated over 15-30 years. I make it that it would probably be max $14m of quarterly depreciation for leasehold improvements in total, not all of which relates to Service/Other of course. So you are right, depreciation is probably not too significant a component of COGS for this segment. Though there will also be machinery etc... that I can't think of a way to estimate, as well as the Mobile Service facilities, which I would imagine would be owned. We'll see how things shake out after a couple of quarters of 5k/wk production I guess.
Bodyshop repairs: I really have no idea I'm afraid, it's not a business I have any understanding of but what you say sounds logical. I suppose the underlying point is that as various components of past MS/MX sales come off warranty, you'd expect Service margins to improve, as you would with the size of fleet and utilisation rates.
Warranty: the accounting treatment changes make my head hurt on a Monday. Another quarter or two of data should make things easier to read.
Singer3000
Member
What makes you think I'm "betting against this man"? I am a long-term long and will be adding to my position when markets open on Monday, at what I think is a knock down price for TSLA.
I well understand everything you have said about going fast and breaking things, the competition and stretch goals. But financial quarters ARE important, when considering a venture capital type business as Tesla, as the long term vision can only be achieved if the growth happens on a sound footing. The question that ShortSeller asked me to answer (he/she really is a short seller), is why I thought Sales and Service had a deteriorating gross margin (negative 44%). Presumably this is because he/she thinks there is a structural loss cooked into Service & Other, that will scale with production (i.e. growth on an unsound footing). The answer as provided by Tesla's management, is that these losses are mainly a direct consequence of failing to meet their ramp target on the 3. And hence my view that when the ramp completes, these losses should abate.
As I said above, one may conclude that this destruction of capital is a small price to pay, to get things to where they're likely to be at year end. Perhaps it's my choice of language that has upset you, I dunno. But we should be able to call a spade a spade and call out misses when they happen, and be able to think through what segment losses and cash outflows actually mean. To me this is preferable than assuming that there's something inevitable about Tesla gliding above Apple and Amazon in a few short years but each to their own.
You don’t believe you’d achieve a better rate of return investing the money that you’re not immediately spending on your vehicle after factoring in the interest rate you’re paying on an auto loan?
dhanson865
Well-Known Member
I'm not ruling out the possibility of a low interest rate loan changing my habit, but I'm not relying on it either. How the money is invested until then is immaterial and a decision about a short loan with super low interest rate vs just buying outright would be made when I'm ready to pull the trigger.
Obviously if I were offered a 0% period or even a sub 2% loan I'd be better off taking the loan and getting some sort of payback on the money for a time. Easy enough to get CDs around 2% vs reducing the size of the loan. At higher loan rates I'd be less likely to bother.
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