Making a new thread so people can add/refute some specifics. This isn't a response to anyone in particular.
For some of these arguments, Bears need to pick their issues and stick with their thesis. I see too many complaints that aren't self consistent. For instance I tune out when people complain that model S/X is an expensive toy for the rich and in the same breath say that we should all be worried about gross margins later due to competition. If TM has pricing power to command $135k pricetags then you cannot pitch gross margin concerns in the same thesis.
Here are some other Bear arguments:
On the model X:
There are two things to hate about the model X, but they are mutually exclusive. Pick one. If you pick both it undermines your argument.
Model X bear gripe #1: The model X is late. It was promised years ago and the rollout shows execution problems. Even now they released it and weeks later few, if any, have been delivered. This means we can extrapolate that the model 3 will also be late, maybe very late, and therefore your valuations should not include high volume revenue until years later. Without success in the master plan, TM is in effect just a small niche manufacturer and should be valued as such.
Model X bear gripe #2: The model X is a stupid distraction. It largely cannibalizes sales from the model S, another large expensive car with a lot of seating. The model X has difficult to manufacture features that will cause the ramp to be slow. they should have used these resources and time to work on the model 3 instead.
The breakdown:
If you say the X is a distraction, (argument #2) then you concede that it wasn't necessary for the master plan. That the model S sales would have bridged financially to the model 3. If so, it doesn't matter how late the X is. Elon has said he gave copious schedule slip to make it "perfect". He is saying that it was not necessary for the master plan. So you cannot in the same breath whine that it is late. It doesn't matter by your own argument, and the priority was correct.
If you say the X is late and an execution disaster (argument #1) then you are saying it is necessary for the master plan. That the infusion of model X demand is probably necessary to make it to 2017/2018 when model 3 sales can potentially begin in the best case. You cannot then argue that it is a dumb distraction and they should not have added fancy distinguishing features. The car and it's features must be necessary for revenue creation by your own argument.
Bull response: The model X provides demand insurance in case there is slack in demand on the model S. If they had never made the X bears would be screaming about how TM was a one-trick pony and writing obituaries for the "dated" model S on the daily. The model X ramp will be bumpy but in 6 months they will be shipping in volume and all will be forgiven. The model S ramp was similarly bumpy.
The model 3 will not necessarily be late (or very late) based on the model X experience. Elon learned his lesson and they plan to make the model 3 simpler.
On battery supply risk:
Again, there are 2 bear thesis you can pick from. You cannot pick both or you undermine your own argument.
Battery supply crisis #1: LG is a mature, leading battery maker. They supply lots of automakers right now. They are signing supplier deals with major automakers. They will tool up and make a large number of cells at high quality and low cost, enabling any automaker to make slightly modified models and compete with TM, which has no pricing or quantity advantage any more.
Battery supply crisis #2: At any time, some new technology, chemistry etc will come along and render the large investment in the TM Gigafactory obsolete. Any automaker will be able to buy these new superior cells and TM will have no advantage and a dead asset in the desert.
The breakdown:
If you believe that global LiIon supply will catch up (theory #1) then you cannot also list #2 as a risk, since ALL manufacturers will be caught equally flat-footed trying to catch up with the new wonder solid state tech or whatever. LG will also have stranded assets.
If you believe in #2, no one should be making cells or EV's at all. Better to sit on the sidelines. That makes LG's investment the height of folly too, like TM.
Bull response: The scale of the GF is larger than LG's production even with plausible increases. Then the other automakers may indeed have 10 "competing" Bolt/leaf vehicles. But they will all draw from a battery supply which is smaller than the TM/Panasonic partnership. There could be 1000 competing nameplates and it wouldn't matter. This is even true if a competitor makes a GREAT car. Like someone makes an attractive, sporty, BMW 3 type car for 60k that goes 250 miles and has TM type acceleration. That car would have a long waiting list but volume would be limited by supply. Counting makers and models is not relevant. If some new technology pops up, I trust that TM will be the ones to move quickly and utilize this tech. After all, the GF is conceived as a marketplace for suppliers to set up shop under their roof and provide cells to TM. That is a custom-made concept for any new breakthrough tech. If you made a new superior battery who would you call first? The only reason that TM is building a GF is that the industry would not move to create the capacity. They would have preferred to just pick up the phone and buy billions of cells but could not. To the extent that the industry is chasing, they are reacting to the market leader TM, firmly in control of the industry. Elon would be happy if this develops. Also, if the non GF industry creates copious high quality cells, Tesla can just buy them too. True, the asset looks dumb but that is sunk cost. Tesla wouldn't be the first car company to mothball a factory.
Also, in scenarios where another battery tech was just a little better, GF output could be used for stationary storage forever. That is essentially a bottomless market.
[Edit 11/5/15: It seems unlikely that LG is matching the TM price point, or their $150/kwH or whatever that slideshow said is accurate. During the Q3 ER call JB and EM shrugged that off as an unlikely price point.]
Below are some bear arguments that come in one flavor, I think.
On future competitors:
Bear argument: Tesla does not have a monopoly on EV's. New cars from Nissan, GM, BMW and others will be just as compelling as Tesla cars, boxing out TM of the growth that investors expect. It is easy to call up LG and get great cells and make an EV. Currently LG can already match the pricepoint and density of panasonic. All the other OEM's have to do is tool up, which they can easily do in this capital intensive industry, better than TM which doesn't have deep pockets. Fast forward to say 2020 and there will be MANY EV's and TM will be a bit player, and should be priced accordingly. The stock should be $50/share and bulls are deluded.
Elons response: Great! We need to save the planet.
Bull response: Great! EV's are not competing with each other as much as with ICE vehicles. Even if the non-Tesla offerings were TWICE TM's volume (unlikely) that would mean that TM was the dominant automaker in the hottest, fastest growing segment in global transportation. (33% TM, 66% other, split 3 or more ways still means TM is the largest EV maker). Tesla investors WANT 100% EV adoption at some point in the future. None of us thinks it will be 100% Tesla, Tesla doesn't even think that. It is far better for major manufacturers to join the party. Again, they are chasing TM, the dominant market driver. These concepts, vaporware, and real products prove that TM is on the right path, more or less.
Just because there are some competitors doesn't spell doom for these reasons:
On massive Capex requirements:
Bear argument: Tesla will need *billions* of new capital, and years, to build out the factories to build a significant number of cars. This implies they will not really grow and or there will be massive dilution. This isn't like software or phones. It is really hard making cars. The other OEM's will eat their lunch in just a few years. TM will be lucky to be a small niche player, and should be valued as such.
Bull response: Yes there are many factories to build and it will take years. That does not imply that dilution or risk from competitors. Your argument concedes that EV's are a growing market that other OEM's will get into. They TOO have to invest billions to make cells, and retool their existing factories to make the new EV models. Worse, the other makers have to abandon their bread and butter, the engine and transmission lines. This has gradually become the core of automotive manufacturing, with much of the other assembly being outsourced. GM, Nissan, BMW have to reinvent themselves as EV makers which will cost billions and take years. There is no reason to think that TM is in an inferior position. TM is a pure-play with no legacy costs and investments.
Raising capital in a secondary to build a factory is not dilution. The new shares are balance by new value, the factory and it's production capacity. The new buyers get a share in the more valuable company, and existing shareholders also get a share in the new value.
It is kind of funny to note that there are a few bear arguments that don't show up any more and we don't have to refute. I introduce the Bear argument graveyard:
EV's are expensive toys for the rich and early adopters. The global market is small and may be saturated.
No one is seriously arguing this any more. Every maker is scrambling to put a plug on anything that rolls. A car with a plug is synonymous with the future.
EV's are not really green. They use coal/dirty power and this is greenwash by Elon and other leftwing nuts.
Never true, and ignores the fact that gasoline powered cars are always dirty. Also rendered obsolete now that the general public is on board with the better argument: EV's are just superior cars and driving experience. Fast, silent.
EV's will never be popular. People want the rumbling engine. Real men drive cars that are noisy.
See above. That has never resonated. People get the appeal of silent power. Men, women, young, old.
EV's are dangerous. They burst into flames.
I still have people snark about this. ICE cars burn all the time. EV's have an excellent safety record.
Special TFTF list. : (edit Jan 6, 2016)
1) TM will need capital to build factories in the future, thus will do capital raises, which will cause dilution which will cause the stock to go down. (Yes it will do raises, no it won't tank the stock.)
2) If the majors enter the EV market TM will fail (they won't, and it wouldn't)
3) If other startups enter the EV market TM will fail (it wouldn't, competition is all transport).
4) the EV change if it happens will be really slow, since factories take a long time to build (True, so what? The yield on our ever increasing stock will be somewhat lower? up is up. The competition will not be able to do it faster so the speed is not relevent.)
5) If another battery company makes cells TM will fail (it won't, more the merrier).
For some of these arguments, Bears need to pick their issues and stick with their thesis. I see too many complaints that aren't self consistent. For instance I tune out when people complain that model S/X is an expensive toy for the rich and in the same breath say that we should all be worried about gross margins later due to competition. If TM has pricing power to command $135k pricetags then you cannot pitch gross margin concerns in the same thesis.
Here are some other Bear arguments:
On the model X:
There are two things to hate about the model X, but they are mutually exclusive. Pick one. If you pick both it undermines your argument.
Model X bear gripe #1: The model X is late. It was promised years ago and the rollout shows execution problems. Even now they released it and weeks later few, if any, have been delivered. This means we can extrapolate that the model 3 will also be late, maybe very late, and therefore your valuations should not include high volume revenue until years later. Without success in the master plan, TM is in effect just a small niche manufacturer and should be valued as such.
Model X bear gripe #2: The model X is a stupid distraction. It largely cannibalizes sales from the model S, another large expensive car with a lot of seating. The model X has difficult to manufacture features that will cause the ramp to be slow. they should have used these resources and time to work on the model 3 instead.
The breakdown:
If you say the X is a distraction, (argument #2) then you concede that it wasn't necessary for the master plan. That the model S sales would have bridged financially to the model 3. If so, it doesn't matter how late the X is. Elon has said he gave copious schedule slip to make it "perfect". He is saying that it was not necessary for the master plan. So you cannot in the same breath whine that it is late. It doesn't matter by your own argument, and the priority was correct.
If you say the X is late and an execution disaster (argument #1) then you are saying it is necessary for the master plan. That the infusion of model X demand is probably necessary to make it to 2017/2018 when model 3 sales can potentially begin in the best case. You cannot then argue that it is a dumb distraction and they should not have added fancy distinguishing features. The car and it's features must be necessary for revenue creation by your own argument.
Bull response: The model X provides demand insurance in case there is slack in demand on the model S. If they had never made the X bears would be screaming about how TM was a one-trick pony and writing obituaries for the "dated" model S on the daily. The model X ramp will be bumpy but in 6 months they will be shipping in volume and all will be forgiven. The model S ramp was similarly bumpy.
The model 3 will not necessarily be late (or very late) based on the model X experience. Elon learned his lesson and they plan to make the model 3 simpler.
On battery supply risk:
Again, there are 2 bear thesis you can pick from. You cannot pick both or you undermine your own argument.
Battery supply crisis #1: LG is a mature, leading battery maker. They supply lots of automakers right now. They are signing supplier deals with major automakers. They will tool up and make a large number of cells at high quality and low cost, enabling any automaker to make slightly modified models and compete with TM, which has no pricing or quantity advantage any more.
Battery supply crisis #2: At any time, some new technology, chemistry etc will come along and render the large investment in the TM Gigafactory obsolete. Any automaker will be able to buy these new superior cells and TM will have no advantage and a dead asset in the desert.
The breakdown:
If you believe that global LiIon supply will catch up (theory #1) then you cannot also list #2 as a risk, since ALL manufacturers will be caught equally flat-footed trying to catch up with the new wonder solid state tech or whatever. LG will also have stranded assets.
If you believe in #2, no one should be making cells or EV's at all. Better to sit on the sidelines. That makes LG's investment the height of folly too, like TM.
Bull response: The scale of the GF is larger than LG's production even with plausible increases. Then the other automakers may indeed have 10 "competing" Bolt/leaf vehicles. But they will all draw from a battery supply which is smaller than the TM/Panasonic partnership. There could be 1000 competing nameplates and it wouldn't matter. This is even true if a competitor makes a GREAT car. Like someone makes an attractive, sporty, BMW 3 type car for 60k that goes 250 miles and has TM type acceleration. That car would have a long waiting list but volume would be limited by supply. Counting makers and models is not relevant. If some new technology pops up, I trust that TM will be the ones to move quickly and utilize this tech. After all, the GF is conceived as a marketplace for suppliers to set up shop under their roof and provide cells to TM. That is a custom-made concept for any new breakthrough tech. If you made a new superior battery who would you call first? The only reason that TM is building a GF is that the industry would not move to create the capacity. They would have preferred to just pick up the phone and buy billions of cells but could not. To the extent that the industry is chasing, they are reacting to the market leader TM, firmly in control of the industry. Elon would be happy if this develops. Also, if the non GF industry creates copious high quality cells, Tesla can just buy them too. True, the asset looks dumb but that is sunk cost. Tesla wouldn't be the first car company to mothball a factory.
Also, in scenarios where another battery tech was just a little better, GF output could be used for stationary storage forever. That is essentially a bottomless market.
[Edit 11/5/15: It seems unlikely that LG is matching the TM price point, or their $150/kwH or whatever that slideshow said is accurate. During the Q3 ER call JB and EM shrugged that off as an unlikely price point.]
Below are some bear arguments that come in one flavor, I think.
On future competitors:
Bear argument: Tesla does not have a monopoly on EV's. New cars from Nissan, GM, BMW and others will be just as compelling as Tesla cars, boxing out TM of the growth that investors expect. It is easy to call up LG and get great cells and make an EV. Currently LG can already match the pricepoint and density of panasonic. All the other OEM's have to do is tool up, which they can easily do in this capital intensive industry, better than TM which doesn't have deep pockets. Fast forward to say 2020 and there will be MANY EV's and TM will be a bit player, and should be priced accordingly. The stock should be $50/share and bulls are deluded.
Elons response: Great! We need to save the planet.
Bull response: Great! EV's are not competing with each other as much as with ICE vehicles. Even if the non-Tesla offerings were TWICE TM's volume (unlikely) that would mean that TM was the dominant automaker in the hottest, fastest growing segment in global transportation. (33% TM, 66% other, split 3 or more ways still means TM is the largest EV maker). Tesla investors WANT 100% EV adoption at some point in the future. None of us thinks it will be 100% Tesla, Tesla doesn't even think that. It is far better for major manufacturers to join the party. Again, they are chasing TM, the dominant market driver. These concepts, vaporware, and real products prove that TM is on the right path, more or less.
Just because there are some competitors doesn't spell doom for these reasons:
- They are limited by cell capacity. Even if LG is building a secret factory the exact same size as the massive GF, that isn't a problem for TM. Why would it be? The global ICE market is vast. LG: please build 5 gigafactories. Tesla will probably happily buy some.
- They need to build a network of DC charging stations. Admittedly they could, with pocket change. Phone me when they do.
- Bears forget about Tesla's actual competitive advantages:
- in house tech. Most makers offshore that to Bosch, Continental, LG, etc.
- Owned dealer network. No middlemen markup, no haggling. best in class purchasing experience.
- owned repair network. No profit motive to make cars which fail. No frustrating maintainance upselling.
- tighter than normal supply chain. Particularly with in-house batteries they will control a huge amount of thier own content.
- young, fast moving non union Si Valley workforce.
- No legacy retirement or debt costs.
- Automakers have not shown great seriousness about EV's to date. Compliance wierdmobiles like the BMW i3, even the Nissan Leaf is hard to love. It is commonly understood that this is the "innovators dilemma" problem with the incumbent makers. If GM gets serious about EV's, say they make a great Bolt that gets 200 miles, and costs $40k before incentives. That car would be a wild success. that is similar in spec to the model 3 and would be a serious cause to cross-shop. Reservation lists would be very long. GM could sell as many as they could make, for many years. Initially they will be production limited. They might even invest in a worldwide DC fast charging network. They might get frustrated in the lack of battery supply and consider funding a new battery factory. In other words, GM in 2017 is Tesla in 2013, but far worse, because that new EV GM is eating old GM alive. Sales for ICE cars which look terrible in comparison would plummet. The sales of 20k Bolts per year might cost them *millions* of sales of ICE cars while customer prefer to sit on a wait list rather than buy another ICE. GM knows this, which is why they will not heavily promote the new EV tech. They cannot fully invest in EV's without killing their business that keeps the lights on. The dealer networks will downplay the great Bolt. All the majors are in this position.
On massive Capex requirements:
Bear argument: Tesla will need *billions* of new capital, and years, to build out the factories to build a significant number of cars. This implies they will not really grow and or there will be massive dilution. This isn't like software or phones. It is really hard making cars. The other OEM's will eat their lunch in just a few years. TM will be lucky to be a small niche player, and should be valued as such.
Bull response: Yes there are many factories to build and it will take years. That does not imply that dilution or risk from competitors. Your argument concedes that EV's are a growing market that other OEM's will get into. They TOO have to invest billions to make cells, and retool their existing factories to make the new EV models. Worse, the other makers have to abandon their bread and butter, the engine and transmission lines. This has gradually become the core of automotive manufacturing, with much of the other assembly being outsourced. GM, Nissan, BMW have to reinvent themselves as EV makers which will cost billions and take years. There is no reason to think that TM is in an inferior position. TM is a pure-play with no legacy costs and investments.
Raising capital in a secondary to build a factory is not dilution. The new shares are balance by new value, the factory and it's production capacity. The new buyers get a share in the more valuable company, and existing shareholders also get a share in the new value.
It is kind of funny to note that there are a few bear arguments that don't show up any more and we don't have to refute. I introduce the Bear argument graveyard:
EV's are expensive toys for the rich and early adopters. The global market is small and may be saturated.
No one is seriously arguing this any more. Every maker is scrambling to put a plug on anything that rolls. A car with a plug is synonymous with the future.
EV's are not really green. They use coal/dirty power and this is greenwash by Elon and other leftwing nuts.
Never true, and ignores the fact that gasoline powered cars are always dirty. Also rendered obsolete now that the general public is on board with the better argument: EV's are just superior cars and driving experience. Fast, silent.
EV's will never be popular. People want the rumbling engine. Real men drive cars that are noisy.
See above. That has never resonated. People get the appeal of silent power. Men, women, young, old.
EV's are dangerous. They burst into flames.
I still have people snark about this. ICE cars burn all the time. EV's have an excellent safety record.
Special TFTF list. : (edit Jan 6, 2016)
1) TM will need capital to build factories in the future, thus will do capital raises, which will cause dilution which will cause the stock to go down. (Yes it will do raises, no it won't tank the stock.)
2) If the majors enter the EV market TM will fail (they won't, and it wouldn't)
3) If other startups enter the EV market TM will fail (it wouldn't, competition is all transport).
4) the EV change if it happens will be really slow, since factories take a long time to build (True, so what? The yield on our ever increasing stock will be somewhat lower? up is up. The competition will not be able to do it faster so the speed is not relevent.)
5) If another battery company makes cells TM will fail (it won't, more the merrier).
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