TSLA Market Action: 2018 Investor Roundtable

[oneday]

Tornado phase, Tesla just raised price of AWD $1000. Which is actually a walk back of a walk back. Started at 5k, reduced to 4K, now its back to 5k.

 

[Thekiwi]

In reverse order:



He said that, but I confess I don't buy it. I simply don't believe they have stacks of PowerWalls that they can't install for lack of electricians. I mean, there may be a shortage, but I don't think that is the bottleneck. I'm way more inclined to think that they can't make the PowerWalls in the large numbers demanded by the market right now, simply because they can't source enough cells.



This one is really interesting, and it has really been a long-running phenomenon with Tesla. Customer service seems to be really disorganized and erratic, with no shortage of horror stories. But I don't regard it as a constraint on growth, and I am really, really not worried about it.

A while ago, I read this book (highly recommended) called Inside the Tornado by Geoffrey Moore (of Crossing the Chasm fame). He makes the striking observation that companies going through the 'tornado' stage (which, by my estimate, Tesla has just entered in Q2) should focus all their resources on themselves and not the customer. That doesn't mean shipping crappy product; quite the contrary, quality is essential to avoid returns and service expense. But you can afford to, or even should, ignore the customer! This stage is fundamentally a land grab. The only thing that matters is to ship.

His exposition matches Tesla to a tee (emphasis mine):

The market consequence of this stampede is that, virtually overnight, demand dramatically outstrips supply, and a huge backlog of customers appears. The financial implications of this backlog are hard to overstate. For not only does it represent a massive sales opportunity in and of itself, it also represents an even larger follow-on market opportunity. That is, since switching costs in high tech are so high, once customers settle on a particular vendor, they rarely switch. So each sale gained in a tornado really should be looked at as an annuity, and the total number of sales a company can garner while the tornado is in process sets the limits of their installed base and thus the boundary conditions on their future revenue from that marketplace.

In sum, the tornado is a hugely significant time. It is also a bit confusing for the marketing department. They are used to defining their value to the company as creating demand, but in a tornado there is no need for this service. So what should the marketing strategy be now?

To put it as succinctly as possible—just ship!

Don’t segment. Don’t customize. Don’t commit to any special projects. Just ship. It is like a sardine run. You don’t bait hooks, you just stick in your bucket, pull them out, and go back for more. Do anything you can to streamline the creation, distribution, installation, and adoption of your whole product. The more friction you can avoid, the more throughput you can achieve. Focus on supply chains and quality to ensure that as you ship you do not get caught up in returns. Don’t focus on the customer, in other words; focus on yourself. You, not they, are the gating item in this market.​

One of the premier embodiments of this principle was Oracle. In their tornado stage, their main competitor was Ingres. Oracle didn't care about the customer; Ingres put the customer first. The rest is history:

None of this was reflected in Ingres’s approach. They were the nice guys. They said, we simply cannot grow any faster than 50 percent and still adequately serve our customers. No one can. Look at Oracle. They are promising anything and everything and shipping little or nothing. Everybody knows it. Their customers hate them. They are going to hit the wall. They will implode, just wait and see. We are doing things the right way; we are going to stay our course.

Ingres was confident it was taking the high moral ground and would be rewarded. It turned out it was only half right. In 1991 Oracle did indeed hit the wall, but that was long after the critical market share competition was over. By that time, Ingres was a bewildered company that had lost its sense of direction and sold itself to ASK Computers. It simply could not believe what had happened. It was as if Darth Vader had slain Luke Skywalker, as if Bambi had met Godzilla.

What Ingres—as well as many of the rest of us at the time—did not understand is that, for pragmatist customers, the first freedom in a rapidly shifting market is order and security. That can only come from rallying around a clear market leader. Once the apparent leader-to-be emerges, pragmatists will support that company, virtually regardless of how arrogant, unresponsive, or overpriced it is. Thus the penalty for poor customer satisfaction in a tornado is negligible compared to the rewards for going out and getting the next customer.

And that brings us to the third and final lesson that Oracle taught.

Ignore the Customer

In a tornado, the correct marketing strategy really is to ignore the customer! The reason is that, in a tornado, customers are lining up for the hot product. They do not need—or want—to be courted—the problem is not to create demand: they need—and want—to be supplied. Anything you do to restrict the throughput of the supply process works against this goal. That is why Henry Ford not only could say, but was correct in saying, “You can have any color Model T you want as long as it’s black.”

To be sure, once the tornado was over, Ford ended up painting its cars in two-toned purple if that’s what the customer wanted. But that is not what the market requires or the customer desires during the tornado. They just want to get their first car, or their first telephone, or their first PC, or their first laser printer. They want the commodity. So your focus must be on getting them that item as quickly, easily, and cheaply as possible. This means becoming intensely internally focused on your delivery capabilities and not letting yourself get distracted by “secondary” factors such as an individual customer’s particular needs.​

The shorts retweet incessantly every bad Tesla customer service experience they can find and present it as evidence that Tesla is crumbling. This sounds somewhat perverse, but I see it as confirmation that they are doing the right thing. They are focussing all their resources on the single most important thing, which right now is not the customer, but their ability to ship.

Excellent post - thanks for sharing that!

 

[ggr]

TSLA shares gained 16% today, my total TSLA portfolio 27%.

Does anyone like to share their TSLA portfolio gain today as well?

Would be fun to find out who’s extremely leveraged, and how that played out today.

Day's gain 33.62% (somewhat leveraged).

 

[JRP3]

100% smiles all day

 

[MikeC]

The great Tamberrino shuffle lol.. raised PT by $15

Ah, the old GS back-handed upgrade. Why does it all feel like 2013 again?

Tesla Tumbles On Goldman Skepticism

 

[jhm]

You're thinking more short-term than I am.

I don't think it's going to constrain growth for *at least three years*, probably more like five, but it could be quite serious if it isn't fixed later.

You're absolutely right that Tesla will keep having customers, and awful customer service won't affect revenue, as long as nobody is making a competitive product. And right now, nobody is.

The trouble with building up an actual *reputation* for bad customer service is that when the competitive product shows up, you can lose your entire customer base as fast as they can switch. There is some evidence that this has been happening with Uber (vs. Lyft).



This is all pretty much right. But switching costs are much lower in cars than in databases or software formats, and there are *ongoing costs from using a product with poor service*.

If my 8-year unlimited Ranger service runs out and Tesla *still* hasn't built an upstate NY service center (Syracuse or Rochester), I'm probably going to buy a competitor's electric car (maybe a Bolt or whatever generation of Leaf they have by then) and not worry about the lack of Supercharging or other weaknesses. The costs of having to personally arrange to haul my car 200 miles every time it needs repairs -- both financial and in terms of time and trouble -- would be high enough to outweigh everything else.



Except... Oracle is now being killed by pretty much everyone, including free Postgres/Citus. Takes a while, but it's happening. The market's mature now, it's not a land-grab, and the worst possible platform to use is Oracle, because they still have a bad attitude. Those stuck on Oracle are trying to get off. So in the long run, this is an awful stupid strategy. Everyone hates Oracle. Switching costs are high, but companies WILL do it to get away from Oracle. (Just like companies paid a premium to get away from Microsoft, where switching costs were even higher). Oracle's been bleeding market share for five years.

So in the truly long term, the Oracle strategy is a plan for corporate death. It takes many years, but it happens. I want Tesla to be a 50-year-plus investment.

Tesla's already better off than Oracle because Oracle is openly customer-hostile (as was Microsoft!) and Tesla is *trying* to do a decent job. But it's important not to ever be like Oracle.

This is not exactly a land grab situation. Tesla is not confronted by competitors trying to capture EV market share before Tesla can get to it.

 

[SPadival]

Tornado phase, Tesla just raised price of AWD $1000. Which is actually a walk back of a walk back. Started at 5k, reduced to 4K, now its back to 5k.

Bears were saying no demand.

 

[BioSehnsucht]

I have to say, I'm not a big fan of that claim — which was indeed in the Tesla shareholder letter. They only compared to a handful of models, not the entire class.

Which vehicles did they leave out of their comparison?

 

[RobStark]

Which vehicles did they leave out of their comparison?

The also rans from Infiniti, Acura, Cadillac,Lincoln,Genesis,Jaguar,Volvo and Alfa Romeo.

 

[mickificki]

Thank you for posting this. Super awesome excerpt! Totally agree!

In reverse order:



He said that, but I confess I don't buy it. I simply don't believe they have stacks of PowerWalls that they can't install for lack of electricians. I mean, there may be a shortage, but I don't think that is the bottleneck. I'm way more inclined to think that they can't make the PowerWalls in the large numbers demanded by the market right now, simply because they can't source enough cells.



This one is really interesting, and it has really been a long-running phenomenon with Tesla. Customer service seems to be really disorganized and erratic, with no shortage of horror stories. But I don't regard it as a constraint on growth, and I am really, really not worried about it.

A while ago, I read this book (highly recommended) called Inside the Tornado by Geoffrey Moore (of Crossing the Chasm fame). He makes the striking observation that companies going through the 'tornado' stage (which, by my estimate, Tesla has just entered in Q2) should focus all their resources on themselves and not the customer. That doesn't mean shipping crappy product; quite the contrary, quality is essential to avoid returns and service expense. But you can afford to, or even should, ignore the customer! This stage is fundamentally a land grab. The only thing that matters is to ship.

His exposition matches Tesla to a tee (emphasis mine):

The market consequence of this stampede is that, virtually overnight, demand dramatically outstrips supply, and a huge backlog of customers appears. The financial implications of this backlog are hard to overstate. For not only does it represent a massive sales opportunity in and of itself, it also represents an even larger follow-on market opportunity. That is, since switching costs in high tech are so high, once customers settle on a particular vendor, they rarely switch. So each sale gained in a tornado really should be looked at as an annuity, and the total number of sales a company can garner while the tornado is in process sets the limits of their installed base and thus the boundary conditions on their future revenue from that marketplace.

In sum, the tornado is a hugely significant time. It is also a bit confusing for the marketing department. They are used to defining their value to the company as creating demand, but in a tornado there is no need for this service. So what should the marketing strategy be now?

To put it as succinctly as possible—just ship!

Don’t segment. Don’t customize. Don’t commit to any special projects. Just ship. It is like a sardine run. You don’t bait hooks, you just stick in your bucket, pull them out, and go back for more. Do anything you can to streamline the creation, distribution, installation, and adoption of your whole product. The more friction you can avoid, the more throughput you can achieve. Focus on supply chains and quality to ensure that as you ship you do not get caught up in returns. Don’t focus on the customer, in other words; focus on yourself. You, not they, are the gating item in this market.​

One of the premier embodiments of this principle was Oracle. In their tornado stage, their main competitor was Ingres. Oracle didn't care about the customer; Ingres put the customer first. The rest is history:

None of this was reflected in Ingres’s approach. They were the nice guys. They said, we simply cannot grow any faster than 50 percent and still adequately serve our customers. No one can. Look at Oracle. They are promising anything and everything and shipping little or nothing. Everybody knows it. Their customers hate them. They are going to hit the wall. They will implode, just wait and see. We are doing things the right way; we are going to stay our course.

Ingres was confident it was taking the high moral ground and would be rewarded. It turned out it was only half right. In 1991 Oracle did indeed hit the wall, but that was long after the critical market share competition was over. By that time, Ingres was a bewildered company that had lost its sense of direction and sold itself to ASK Computers. It simply could not believe what had happened. It was as if Darth Vader had slain Luke Skywalker, as if Bambi had met Godzilla.

What Ingres—as well as many of the rest of us at the time—did not understand is that, for pragmatist customers, the first freedom in a rapidly shifting market is order and security. That can only come from rallying around a clear market leader. Once the apparent leader-to-be emerges, pragmatists will support that company, virtually regardless of how arrogant, unresponsive, or overpriced it is. Thus the penalty for poor customer satisfaction in a tornado is negligible compared to the rewards for going out and getting the next customer.

And that brings us to the third and final lesson that Oracle taught.

Ignore the Customer

In a tornado, the correct marketing strategy really is to ignore the customer! The reason is that, in a tornado, customers are lining up for the hot product. They do not need—or want—to be courted—the problem is not to create demand: they need—and want—to be supplied. Anything you do to restrict the throughput of the supply process works against this goal. That is why Henry Ford not only could say, but was correct in saying, “You can have any color Model T you want as long as it’s black.”

To be sure, once the tornado was over, Ford ended up painting its cars in two-toned purple if that’s what the customer wanted. But that is not what the market requires or the customer desires during the tornado. They just want to get their first car, or their first telephone, or their first PC, or their first laser printer. They want the commodity. So your focus must be on getting them that item as quickly, easily, and cheaply as possible. This means becoming intensely internally focused on your delivery capabilities and not letting yourself get distracted by “secondary” factors such as an individual customer’s particular needs.​

The shorts retweet incessantly every bad Tesla customer service experience they can find and present it as evidence that Tesla is crumbling. This sounds somewhat perverse, but I see it as confirmation that they are doing the right thing. They are focussing all their resources on the single most important thing, which right now is not the customer, but their ability to ship.

 

[UnknownSoldier]

I am a little surprised NVDA didn’t have any selling pressure today due to the new Tesla chip announcement.

I was worried a bit about it but if you actually go to Nvidia's page for their tech and see just how many companies they are partnered with, your concern level will drop dramatically.

Accelerating Automotive Breakthroughs with NVIDIA DRIVE Partners

Basically everyone who isn't Google/Waymo, GM/Cruise, and Tesla are partnered with Nvidia. They are the company which is positioned to be the dominant third-party supplier of self-driving car technology.

 

[AudubonB]

COLD WATER-TOSSING MODERATOR:

First, Congratulations to all Longs, Leveraged or Otherwise (gee, my position rose only 16.19%)

BUT....

....in the euphoria of the past 24 or so hours, some truly unacceptable language has besmeared the thread and the Investors’ Sector. Clean it up, every last one of you. If not, my wife will be on your case....and trust me, you absitively, posolutely do not wish that even on MarkEismanSpiegelChanos.

 

[oneday]

COLD WATER-TOSSING MODERATOR:

First, Congratulations to all Longs, Leveraged or Otherwise (gee, my position rose only 16.19%)

BUT....

....in the euphoria of the past 24 or so hours, some truly unacceptable language has besmeared the thread and the Investors’ Sector. Clean it up, every last one of you. If not, my wife will be on your case....and trust me, you absitively, posolutely do not wish that even on MarkEismanSpiegelChanos.

Are you talking about the references to the past tense of twitting?

 

[AudubonB]

I shouldn’t have to provide any clarification - there are lots of different examples, however.

 

[dmckinstry]

First, Congratulations to all Longs, Leveraged or Otherwise (gee, my position rose only 16.19%)

Exactly as did mine. Are we the only two holding only common shares?

 

[schonelucht]

Make that three.

 

[Jayjs20]

Sentiment from /wsb/ bears seems to be to stay away from shorting TSLA for a few days.

 

[Open Interest]

It’s interesting that in perusing news headlines throughout the day it seems as if Elon’s apology generated more headlines than production, cash and guidance did!

Also noteworthy that this morning CNBC had two bulls on discussing Tesla’s results. I found it shocking they did not have a bear in there because the network has been so relentlessly negative of late. Maybe sentiment is changing, or CNBC thinks they have gone far enough with the bear story. Good news anyway as they do have influence.

 

[TrendTrader007]

$TSLA 16% high volume single day move with golden cross is not to be dismissed lightly This is just the start, the best is yet to come Staying super long for the next 6 months or so is the single best bet
Papa fox is right on mark

 

[omarsultan]

H/T to @bonnie for digging this up