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TSLA "Almost a Mass Psychosis" -- Lutz

M3BlueGeorgia

Active Member
Dec 10, 2018
1,386
1,089
Atlanta, GA
Defending the dealership model? That's a new one.

EVs barely need any maintenance, why on Earth would we want to keep dealerships? Add 10% to the price and opacity to the offerings?

No thanks. I'll take on-call service, preferably in my driveway and not designed to have 70% margins.

Ford's dealership network and their reliant on that business model is a massive liability for both them and their customers.

Edit: Not surprisingly MARKM3 marked 'disagree' on this, as he seems to be either a Ford shill, or someone employed by a legacy car dealership.
 
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adiggs

Active Member
Sep 25, 2012
4,566
12,947
Portland, OR
The dealership model is actually how consumers get better prices, not worse.

I respect your view on things, while disagreeing. So far the evidence I can see in the EV market is that Tesla is the one providing both the best cars in the market, along with the best value (by which I mean value / $ - clearly there are BEVs that are cheaper in absolute terms).

Something I realize I haven't made explicit - I consider the BEV and ICEV markets to be different markets. The make use of different technologies, different expertises, etc.. There are clearly overlaps in the markets. One of the ways we know they are related is that there is substitution between them - people choose to buy from 1 market in place of the other.

My observation is that substitution is nearly one way - people buy BEVs to replace ICEv' regularly - there is nearly nobody buying an ICEV to replace a BEV (both of these in absolute terms).


The behavior I see (talking USA here) in the dealership world with BEVs is that dealerships either don't carry their manufacturer's BEV, or they carry small #'s and anti-sell, and / or they carry and are untrained on basics like plugging it in so it can be used for a test drive. While it's theoretically possible to purchase a BEV from dealerships, in practice it's mostly a bad experience and is dependent on the consumer knowing what and why they want something, and pushing to get it.

One reason for this behavior, as best I can tell, is that economic incentive for dealerships is not only weak to sell BEVs - it's actively negative. Dealership profits primarily come from service, with F&I (Finance and Insurance) close behind (or maybe the two are reversed). Either way the service and F&I are effectively the reason for existence of new car dealerships, with new car sales more like the razor handle sold at cost in order to sell you blades later.

BEVs break the economics on the service side. To make that work for dealerships, they'll need to raise their sale's prices so that the New Car sales itself is a profit center.


You may be correct about dealership competition lowering prices for consumers in the BEV market. At some distant point in the future (multiple years at least - hopefully not decades) when there are so many BEV models in the market, and in such quantity, that we have real competition in the market again - then maybe yeah, the best prices will arise as a result of neighboring dealerships competing on their sales prices.

That day isn't today, and many consumers have quickly arrived at the conclusion that (for the market they are shopping in), Tesla's business model yields the best value.


Anecdotally - I've had bad experiences interacting with dealerships, and very good experiences dealing with Tesla. I'm one of the many conquest sales Tesla has made, where I have a hard time believing that I will ever seriously consider any other manufacturer's vehicle, while expecting to make 2+ additional Tesla purchases during my lifetime. I've historically been a buy and hold on my vehicles (as well as my investments) - prior to my Teslas, the previous car we drove was a Honda CRX. We sold it with about 170k miles and 27 or 28 years on it. This includes the brands most would consider luxury brands - my wife and I were never luxury car buyers prior to our Teslas ($20k max on a car prior); for us, the Teslas were so good, they moved us from a sub-$20k car buying range, to a used $80k sports car.

My original purchase expectation on the Model X is that we'd be driving it until we die. With the rapidly evolving technology, I have technology envy, so now I think we'll be replacing it when the 7 year auto loan is paid off (I think paying off the 7 year loan might be less beneficial financially, but it keeps me from doing 3 year leases and changing over cars even MORE frequently - the tech is moving really fast).


Overall, in the context of my investment thesis, I consider Tesla's sales model to be an advantage, while not according it much of any particular value to the overall thesis.

I consider the US dealership system to be an albatross hung around the necks of competing BEV manufacturers that is going to help several of those manufacturers into an early grave / bankruptcy. The best I can say about it is that in a world where other manufacturers are having a hard time finding any edge at all, the dealership model is a source of additional friction in the BEV market, and the manufacturers can't afford anything that makes the BEV market harder.

One reason for this is that the dealerships and their manufacturers have competing economic interests. Those competing economic interests, I believe, are going to help a bunch of both go bankrupt.
 

roblab

Active Member
Jul 15, 2008
3,556
2,626
Angwin (Napa Valley) CA
No, I think you are forgetting all the positives about the Dealership model. Within 50 miles of you there should be several ford dealerships, all owned and operated by different people with different managers with different levels of customer service. I've NEVER had bad service at a car dealership. The buying process is a pain, but they all have adapted.

For example, right now on your local ford dealership they have all the prices listed on cars in inventory. You can immediately go to the dealership, pay that internet price for the vehicle, and in about 3-4 hours be on your way.

So what is the big deal about going to a dealership? How is tesla model superior? How is it superior that they don't want to take my trade in unless it is a tesla, that they're two hours away, that their service is backed up 2+ weeks, that they don't have parts for 4 months, that they can't fix my squeaks, rattles, or paint?

First off, the main cars being sold at Ford are burners. They will actually steer you towards a burner before talking about EVs. And their EV inventory is usually kept in the back dirt lot against the back fence. And they don't like you to haggle the price like you do with a burner.

Secondly, you don't NEED any dealership or shop for an EV. Your local auto shop will replace windshield wipers, your tire shop will change and rotate tires. Other service? Negligible.

Tesla is superior because it is electric. You don't need their service department to put on windshield wipers, and you can buy them at Costco any day of the week. Most of us don't have squeeks or rattles or paint problems, but here again, take it to your local shop. Your insurance will pay. If you accepted it with problems, well, don't expect Tesla to fix it. Could be your fault.

I have had bad buying experiences. Anyone can walk away. You just don't need to with Tesla.

Or, you can buy a Ford. They don't call it Fix or repair daily or found on the road dead for nothing.
 
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adiggs

Active Member
Sep 25, 2012
4,566
12,947
Portland, OR
When we're talking about the scale of demand / need for batteries, a useful point of comparison to keep in mind is the overall scale of worldwide availability for batteries. Ordinarily, when I'm talking about markets, I think that revenue is the best measure of the market size as it captures both the unit demand and the $. That's important, for instance, when talking about Model S + X demand. It's "only" 100k units / year, but those are $100k units which is a surprisingly large number.

Anyway, for thinking about battery capacity / availability for building BEVs, I prefer to track GWh of capacity available / being used. This is due to the GWh of available batteries being the primary bottleneck that everybody has - including Tesla.

So here's a starting point:
https://ec.europa.eu/jrc/sites/jrcsh/files/jrc114616_li-ion_batteries_two-pager_final.pdf

According to this paper, worldwide capacity for Li-Ion batteries used in mobility and stationary applications (so not including consumer electronics which is itself a bigger) was 77 GWh in 2018.

My understanding is that Tesla is consuming 8 GWh from Panasonic Japan (for Model S + X - that really only supports 80k units/year) and producing another 34 GWh / year at the GF in Nevada (primarily for Model 3). They're now ALSO buying cells for the China GF from LG and/or CATL - I'd guess that'll be in the range of 7 GWh (for 100k vehicles, at 70 kWh per vehicle) in 2020. So that suggests Tesla is consuming maybe 50 GWh worth of cells this year. Maybe there's some growth in units this year that nudges that up to 60 GWh in 2020.

The point is that's what the single biggest consumer of batteries worldwide is using in 2020, and is something like 1/3 to 1/2 or more of the worldwide market. Anybody else that wants to compete directly with Tesla in units needs this scale of battery production - either from a supplier that will actually supply them, or under their own control.

These are big investments - billions to create a factory that can produce 10's or low 100's of GWh annually. Investments that companies talk about in press releases, and spend time talking about in quarterly earnings calls. None of these factories will just show up one day with less than 6 months heads up that they're coming.

There's some recent anecdotal evidence that the 3rd party suppliers prefer dealing with Tesla - maybe because the cells Tesla needs can be made with same / similar equipment as the equipment that makes cylindrical cells for consumer electronics (though I realize the cells aren't interchangeable any more with consumer electronics). Maybe because those 3rd party suppliers can readily see that Tesla is going to actually take delivery and pay for every cell they ask for, and they're asking for way more than anybody else.

(Sidebar - one way that Elon has talked about this dynamic before is in the context of technology advances in batteries. What he says is that if you have a better battery, bring him a working cell to look at and test. If it really is better, who do you want to sell to - Ford or Tesla? This is why Ford has to start building their own capacity that they control).


As long as Tesla is single handedly consuming such a large fraction of the worldwide battery output for mobility, they will continue to be the biggest maker of these things. Of course, this is backwards from what's happening. Tesla doesn't have the biggest market share because they're buying up the supply and locking others out - they're buying up all the supply because they have the demand for everything they can build, and a will to build rapidly escalating quantities.
 
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puckpurnell

Member
Dec 15, 2018
345
229
Connecticut
Bought 100 shares of Tesla in late June 2019 for $200 a share. It's now hovering at $800.

Why did we buy and what did we buy?

We bought a technology stock with a unique future that happens to make cars, trucks, solar panels and more. TESLA IS NOT A CAR COMPANY which is what most analysts think. It's a tech company with vision. Check what Jim Cramer has been saying since December. Starting running forward or get out of the way. ;)
 
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outdoors

Always roaming
Aug 10, 2014
1,673
2,859
in the moment
They reduced the price accordingly to the reduction in Tax credit, and I remember that vividly becasue I was apart of the 2018 EOY push to get them out before the Tax credit went away (or reduced greatly) 2019.


You were a part of. As in a new owner? An employee of Tesla?

Edit add: I see in your past post history you claim a reservation holder in 11/18. Never see a delivery or anything other than spite in your posts. Then a love for a Mach E.
 
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electracity

Active Member
Jun 8, 2015
4,028
2,531
60606
Touché. I should said an EV recently - specifically a Tesla that doesn’t have the problems he listed that EVs from other OEMs have compared with Tesla.

Lutz's primary Tesla complaint is about valuation. Is the stock stays high he is simply wrong. Tesla is not going to be valued like the car companies he knows.

The Volt is (was) a technologically superb car. It just never caught on.
 

defc0n

Active Member
Sep 30, 2016
1,318
3,914
Indiana
'Almost a mass psychosis': Tesla's 250% stock rally makes no sense, Bob Lutz says | Markets Insider

"Bob Lutz has no idea why Tesla stock has rocketed more than 250% in six months.
Neither do Wall Street's brightest minds, the auto-industry veteran — who sat on the boards of Ford, Chrysler, and General Motors during his career — said on the BBC Business Daily podcast this week.
"I talked to people at Goldman Sachs, who are usually the world's greatest experts on explaining stock prices, and they're now asking me whether I have any idea what the heck is going on with Tesla stock," he said.

Nobody can explain it, it's so far beyond any fundamental return that any shareholder could ever expect."
Elon Musk's electric-car startup currently boasts a market capitalization of $145 billion — dwarfing Ford, Chrysler, and GM's combined market cap of $103 billion. Tesla stock is no longer tethered to anything tangible, Lutz argued.
"It's driven purely by psychology or almost a mass psychosis," he said, warning the rally won't last. "Ultimately, the share price responds to financial fundamental reality, and that day will come."
An overstated growth opportunity
Lutz downplayed the market opportunity for electric vehicles in the interview. The shift from conventional to electric cars is "somewhat of a fiction," he said, as global demand for them is largely fueled by government subsidies.
Electric vehicles are expensive and unprofitable to produce, Lutz added, and inconvenient to use due to their long charging times. As a result, he expects them to only account for 15% of the global auto market by 2030.


Despite his bearish view on Tesla's industry, Lutz praised the automaker's products. "There's nothing wrong with the car," he said. "It is one of the best-driving, best-performing, best-looking premium sedans in the world."
Fund managers, short-sellers, and even politicians sounded the alarm on Tesla last week after its shares soared by a third in two days. "Watch out Tesla believers," former presidential candidate Ralph Nader tweeted.

Lutz and others aren’t taking into account the market is pricing in the probability of Tesla having an autonomous driving network in the nearish future. And that other manufacturers are unlikely to be able to compete with Tesla’s BEV margins in any respectable timeframe.
 

MitchMitch

Lurker In Chief
Sep 4, 2012
203
240
Colorado
The dealership model is actually how consumers get better prices, not worse.
In late 2011, as a 3rd generation of an exclusively GM driving family, I walked into the local GM Dealership and started paperwork on one of the first available Volts in the area. When they tried to tack on an unadvertised, non-negotiable $4,000 high demand vehicle fee (10% !) I walked away from GM forever.

Fortunately that event lead me to Tesla, where better (fair) pricing is inherent in the business model. Again, Tesla is about making transportation sustainable, not making money. Ironically, and especially in the in the long run, that philosophy will increase the fortunes of Tesla WAY beyond anything GM and their "deal"ers can wrap their minds around. - Thus the incomprehension on the part of Mr. Lutz et al.
 
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Mo City

Active Member
Jul 17, 2016
1,910
11,671
near Houston
Volt demand greatly exceeds production, and has done so for about the last year!
/s
How many Volts were produced last year, 20K? The bar is extremely low.

What are future production numbers supposed to be?

If the car is "high demand" why doesn't GM ramp production to meet it?

Final question: When will one of the "big 3" produce a competitive EV in high volume? 3, 5, 7 years? I'll yawn until then.
 

ggr

Expert in Dunning-Kruger Effect!
Mar 24, 2011
6,991
27,681
San Diego, CA
How many Volts were produced last year, 20K? The bar is extremely low.

What are future production numbers supposed to be?

If the car is "high demand" why doesn't GM ramp production to meet it?

Final question: When will one of the "big 3" produce a competitive EV in high volume? 3, 5, 7 years? I'll yawn until then.
"It's a joke, son, a joke, get it?" -- Foghorn Leghorn.

GM cancelled the Volt production outright at the end of 2018. The last ones were built almost exactly a year ago.
 

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