TSLA Market Action: 2018 Investor Roundtable

[Nocturnal]

My take is that the car volume will reduce dramatically in the west - with individuals owning cars almost as exotic as people listening to music on Vinyl with SET amps & horn speakers. All cars will be bought by ride sharing companies.

This is not just me saying it - all legacy manufacturers believe in this - from what my consultant friends who talk to c-suite tell me.

Predicting the future tends to make fools of us all, but I just don't see it happening in huge way for some time. The only group that is interested in that model right now are younger millennials and gen Z. We would need other cultural changes to make it even feasible. If 90% of people (made up number) still commute during regular rush hour then the fixed costs of shared cars won't be much less than everyone owning their own car. We would need to see more off schedule commuting or remote work. (which is definitely possible) Even just building out the infrastructure if we had the tech right now would take a long time. Of course even a 20% reduction in ownership would be devastating to auto makers.

 

[Right_Said_Fred]

Tesla must be very confident about Model 3 margins at the moment, at least for the high end models LR AWD and P, to be able to offer those in Europe at about the same price as in the US. They are absorbing most of the transport costs and import tariffs (10% for complete cars, 5% for any parts that are imported seperately and installed in Tilburg).

They must have realised that 18-22% VAT is a hefty surcharge. If the ‘Europe premium’ would have been too high it would have put the high end models out of reach for too many people, which in the end would hurt Tesla more than absorbing these costs does.

And margins must be improving every week. When they start building these cars in January margins will be higher again.

 

[Chartered321]

Configuration emails have already started to be sent for European reservations

Got mine too!! It says in Italy deliveries should start in February! So excited

 

[avoigt]

I am delighted to see that first analysts start to understand the changing industry.

(...) Nelson stated that there would likely be “limited impact” from competition, particularly as Tesla is poised to undercut rival carmakers with the rollout of the highly-anticipated $35,000 base Model 3. The CFRA analyst’s updated $420 price target is an 11% increase from the firm’s previous PT of $375.

“We expect unit costs to continue to fall, reflecting improved operating efficiencies and fixed cost absorption,” Nelson wrote. (...)

Tesla gets $420 price target over Model 3 efficiencies, "limited impact" from rivals

 

[JRP3]

Tesla must be very confident about Model 3 margins at the moment, at least for the high end models LR AWD and P, to be able to offer those in Europe at about the same price as in the US. They are absorbing most of the transport costs and import tariffs (10% for complete cars, 5% for any parts that are imported seperately and installed in Tilburg).

They must have realised that 18-22% VAT is a hefty surcharge. If the ‘Europe premium’ would have been too high it would have put the high end models out of reach for too many people, which in the end would hurt Tesla more than absorbing these costs does.

Obvious lack of demand, TSLAQ incoming

 

[Chickenlittle]

Car ownership is definitely on a downward path for several reasons. IMO it won't be anything drastic. Another point to consider is that as we move towards self driving that may have a positive pressure on car ownership as people who can't/won't drive on their own are able to. (old people, drunks, etc)

Having less than 1% of market means that the upside is not limited by a total decrease in entire market

 

[Unpilot]

Anyone else wish the market was open today?

 

[avoigt]

Jin SEO on Twitter

Another short has covered.

#4

 

[KarenRei]

Anyone else wish the market was open today?

I swear, way too many people here are incapable of seeing the market from a non-bull perspective.

Bears do not see Tesla opening European orders as good. They see it as a sign of a lack of demand. In their view, Tesla's US orders are "exhausted", just a trickle - and now Tesla will quickly exhaust its European and Asian orders - which they think have "waned" - and then be stuck with only a trickle of orders.

It's nonsense, but you need to be able to step out of this bubble, because it's not just bears that decide how the market moves.

 

[Fact Checking]

Having less than 1% of market means that the upside is not limited by a total decrease in entire market

Also note that even if total unit count of new car sales continue to drop, what matters is total revenue, which might as well rise significantly:

• Even without AutoPilot a Model 3 is already an amazing package of additional utility, compared to a similarly priced ICE:
  • No gasoline stink on your hands, no weekly or bi-weekly refueling distraction, an 'always fully tanked' car in the morning.
  • No engine noise, which makes for a more relaxing commute to work and back home: which is money invested into your career and into your family. ("No engine" also makes the car more likeable to women.)
    
  • In Europe, where ~80% of new cars are still sold with manual transmission, having an "automatic", continuous acceleration car with no fuel economy downsides of automatics will be a new experience to the large majority of Europeans.
  • Superior safety that beats even ICE market-leading Volvo who is specialized in safety.
• I.e. dollar for dollar there's a lot of value added by an EV, and I'd not be surprised the U.S. trend to continue globally: new car buyers will be willing to spend 2x-3x on a car that actually offers utility and value.
• Much better depreciation curve, which will eventually make EV leases more affordable than ICE leases of similarly priced cars. Since in the U.S. 30% of new car sales are leasing, this is a huge factor.

I'd not be surprised if during the global EV transition there's going to be a significant economic boom (the 4th Industrial Revolution), combined with the utility increasing effects of ever increasing self-driving features. Global automotive+autonomous revenues could easily rise from the current ~3 trillion to 5-10 trillion per year, i.e. up to about 10% of global GDP...

(Side note: I think Ueber's valuation will come crashing down from the current ~100 billion to somewhere around zero - I don't think Ueber is prepared for the reality that car manufacturers are going to control the resulting self-driving driven sharing economy.)

 

[Buckminster]

15 individuals have voted for this poll so far:
SP Poll March to May 2019
The majority have selected this:
SP >$400 on 1st March 2019 and $400-$600 on 30th May 2019
Perhaps no surprise. In addition, very few selected any of the following:

1. S&P inclusion won't happen May 2019
2. Tesla won't announce 3rd quarter in a row of profits in May 2019
3. Tesla won't be P/E positive for the first time in May 2019
4. Model Y won't be announced in March 2019

The forum members are indeed very bullish at the moment.

 

[Rarity]

This kind of 'spike' and macro-resilience in relatively illiquid holiday trading might be a sign of one (or several) big buyers being present who are accumulating $TSLA regardless of the macro environment. It could be $TSLA S&P 500 addition accumulation arbitrageurs (they'll need up to 5-10 million $TSLA shares by next May/June, depending on the weight Tesla gets when it gets added to the S&P 500), large funds buying, really big shorts covering - or the combination of all of them.

The short above who covered correctly identified this dangerous price action pattern.

This has occurred several times in the past, such as when Tencent and Saudi Arabia were accumulating. But that short apparently didn't exit during those episodes. So there must be other reasons for the exit.

 

[Cherry Wine]

Jin SEO on Twitter

Another short has covered.

I went down the rabbit hole of "$TSLAQ Twitter" vis-à-vis that link. One of the topics of conversation was divergence between the TSLA stock price and bond yields -- ie., there is not a corresponding increase in the 2025 bond yields in correlation with the stock price increase since Q3 ER. The theory for this divergence is that the SP is being influenced by covering among shorts, and that it will come back down to levels more equal with that of its bond yields after that covering is done.

I'm hesitant to bring up what is likely FUD on this board, but I'm curious if anyone can give an alternative explanation from the one above. Are bond yields and the stock price not as intricately linked as has been portrayed? Are bond yields a lagging indicator? Something else entirely?

 

[Unpilot]

I swear, way too many people here are incapable of seeing the market from a non-bull perspective.

Bears do not see Tesla opening European orders as good. They see it as a sign of a lack of demand. In their view, Tesla's US orders are "exhausted", just a trickle - and now Tesla will quickly exhaust its European and Asian orders - which they think have "waned" - and then be stuck with only a trickle of orders.

It's nonsense, but you need to be able to step out of this bubble, because it's not just bears that decide how the market moves.

umm...no I just wish the market was open ...I enjoy the show.

 

[Artful Dodger]

Right. Not when the LR cost ~$18K in parts and ~$10K in labor to manufacture.

That labor estimate was based on a 10K/wk run rate. At 5K/wk you'd estimate $20K/car in labor, and at 7K/wk you'd estimate ~$14,300/car

Further, the current bty cell cost is approx. $100/KWh so the Medium Range Model 3 (L3MUR w. 267mi rge) costs approx $2,650 less due to containing fewer bty cells.

So the current cost of a L3MUR can be estimated to be about:

Dec 2018 L3MUR Cost = (18,000-2,650) + (14,300) = $29,650​

Add in Tesla's Q3 Gross Margin at +20.4% to get a base selling price of $35,700

So, Tesla likely could already sell the L3MUR for $35.7K before options and be just as profitable as in Q3 (based on the German teardown cost estimates).

Clearly, Elon has his profit goals set *slightly* higher than 2018Q3.

Cheers!

 

[Fact Checking]

Bears do not see Tesla opening European orders as good. They see it as a sign of a lack of demand. In their view, Tesla's US orders are "exhausted", just a trickle - and now Tesla will quickly exhaust its European and Asian orders - which they think have "waned" - and then be stuck with only a trickle of orders.

Bears are seeing every major Tesla event as proof of lack of demand, so that statement alone contains very little information.

But this particular one isn't self-consistent even according to the rules of their own reality distortion: exactly how does it help shorts that Tesla is now selling several thousands of high-trim, high-price, high-margin units per month on the European (and Chinese) markets?

Even assuming that there's zero followup demand (which is nonsense IMO - Tesla barely tapped into the real reservoirs of demand), that's at least 4 quarters of record-breaking sales and profits to come. Exactly how does that help the short thesis?

The short thesis needs something bad to happen to Tesla financials in the next 1-2 quarters, and I think their only realistic hope right now is a particularly messy BRExit that stops air travel and spooks global trade.

 

[ZeApelido]

Just listening to the local radio on my drive this morning, and they were chatting in more detail about the DUI / sleeping dude using Autopilot. Let me just say any portions on Tesla & Autopilot were very positive.

Thanks for the free advertisement!

 

[Unpilot]

Also note that even if total unit count of new car sales continue to drop, what matters is total revenue, which might as well rise significantly:

• Even without AutoPilot a Model 3 is already an amazing package of additional utility, compared to a similarly priced ICE:
  • No gasoline stink on your hands, no weekly or bi-weekly refueling distraction, an 'always fully tanked' car in the morning.
  • No engine noise, which makes for a more relaxing commute to work and back home: which is money invested into your career and into your family. ("No engine" also makes the car more likeable to women.)
    
  • In Europe, where ~80% of new cars are still sold with manual transmission, having an "automatic", continuous acceleration car with no fuel economy downsides of automatics will be a new experience to the large majority of Europeans.
  • Superior safety that beats even ICE market-leading Volvo who is specialized in safety.
• I.e. dollar for dollar there's a lot of value added by an EV, and I'd not be surprised the U.S. trend to continue globally: new car buyers will be willing to spend 2x-3x on a car that actually offers utility and value.
• Much better depreciation curve, which will eventually make EV leases more affordable than ICE leases of similarly priced cars. Since in the U.S. 30% of new car sales are leasing, this is a huge factor.

I'd not be surprised if during the global EV transition there's going to be a significant economic boom (the 4th Industrial Revolution), combined with the utility increasing effects of ever increasing self-driving features. Global automotive+autonomous revenues could easily rise from the current ~3 trillion to 5-10 trillion per year, i.e. up to about 10% of global GDP...

(Side note: I think Ueber's valuation will come crashing down from the current ~100 billion to somewhere around zero - I don't think Ueber is prepared for the reality that car manufacturers are going to control the resulting self-driving driven sharing economy.)

This is the part I find so ...well...strange about our current "leaders" The opportunity is RIGHT HERE, RIGHT NOW to create a amazing amount of job's and wealth. Charging ahead with changes to the grid and green tech WILL happen. Lets help it along!

 

[scaesare]

That labor estimate was based on a 10K/wk run rate. At 5K/wk you'd estimate $20K/car in labor, and at 7K/wk you'd estimate ~$14,300/car

Further, the current bty cell cost is approx. $100/KWh so the Medium Range Model 3 (L3MUR w. 267mi rge) costs approx $2,650 less due to containing fewer bty cells.

So the current cost of a L3MUR can be estimated to be about:

Dec 2018 L3MUR Cost = (18,000-2,650) + (14,300) = $29,650​

Add in Tesla's Q3 Gross Margin at +20.4% to get a base selling price of $35,700

So, Tesla likely could already sell the L3MUR for $35.7K before options and be just as profitable as in Q3 (based on the German teardown cost estimates).

Clearly, Elon has his profit goals set *slightly* higher than 2018Q3.

Cheers!

Yes true on the run rate... thanks for mentioning that.

However, there are fixed costs associated such that I don't think you can double the labor cost at half the run rate. For example, if you have to open another line (as they did with the tent), then you may be supplying additional labor for the increased run rate. Thus, if the cost is $10K at 10k/week, it might be $15K at 5K/week...

Nonethless, I think we are both in agreement that the numbers support the theory that Elon's "$38K cost for SR" comment includes profit margin... it's not their cost to build.

 

[Sunlight]

What they see as 'the end' is when they will be ready with some reasonable EVs and they have got their money back from their last ICE products. The real end (for them) is coming somewhat sooner - See Zac and Jesse's coverage of Ross Tessian's article in SA:

I absolutely get the argument and am excited about the prospect.

I just wonder if the world can produce enough batteries in that timescale?! It'd be a massive amount and the factories all still need to be built etc. The rest is fairly straight forward.

But I agree that a LOT of people (I know many already...) who will just hang onto their current ICE cars until they can hop over to EV. We did that and stayed with our 2002 Jeeps way past their 'sell-by date' waiting for a suitable EV and then we bought an 'unsuitable' EV - an i3 (we live on a farm miles from anything!)

It's been fine for 90% of our use anyway - we kept the Jeeps! But hardly use them...