Long-Term Fundamentals of Tesla Motors (TSLA)

[ItsNotAboutTheMoney]

I have never loved the "free for life" model. It wouldn't change the value proposition that much if you took out the reserve from the car's price, whatever that is, and just had the car charge you some nominal fee when you charge. It wouldn't have to be any harder, swiping a card or anything, just have a credit card attached to your Tesla account and charge something for your usage. Almost any mechanism you pick would work, like a nominal $.10/kWh flat, rounded down. That for example would probably not fully offset the cost, so it is still a bargain. The cost of road tripping is still very, very low and seldom used anyway. But this nominal charge would eliminate the possibility of unintended consequences down the line. There are scenarios it is not hard to imagine where unlimited for life becomes untenable. Suppose that Model S' really do last for a long, long time. After 15 years and 4 owners a typical car might be going for 20k and be all beat up but still running. Those cars will still be eligible for free supercharging and eventually you can have a situation where every car has taken more than the purchase price put into the system. It works only if the company is growing endlessly. If, heaven forbid, growth slowed and they became a mid-major producer in 2020 with let's pretend flat production, the fleet size would continue to grow endlessly while receipts would not. It is a little like social security, if half of the population lived forever.

Rate of return on capital.
Costs of ongoing account management and financial transactions.
Law that prevents charging by kWh.
Law that requires alternative method of payment.

 

[austinEV]

Given his position, I think he's smart enough to know the three are strongly correlated and, as such, he's simply manipulating.

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$2500 option for supercharging

$2500 / (kWh / $0.10) = 25 MWh prepaid

25 MWh * (mi / 300 Wh) = 83,333 miles

So you've prepaid 83,333 miles of supercharging. I'm quite confident that most buyers will not consume that much supercharger juice in 8 years or even for the life of the vehicle.

Well, that 2500 is being spent in a variety of ways. Is it for energy or for buildout of the supercharger network? Regardless, I don't think it is going into a SC electricity trust fund to provide liquidity forever in case TM goes out of business right? It just goes into the cash flow and they pay the bills with cash. It just seems like an accounting headache. Even if your right, this is another way that TM is making it unnecessarily difficult to understand the business and make hater/enemies. If an ICE driver hears someone offering "Free gas for life" they should know it's a scam because there is no way that could be, so when people hear "Free electric driving for life" it similarly sounds fishy.

My ENTIRE point isn't that this is a wrong way to do it, but rather I wish they had financed in another clearer, more conventional way. It would strike something off of the list of things we have to "defend" from detractors.

 

[dalalsid]

Well, that 2500 is being spent in a variety of ways. Is it for energy or for buildout of the supercharger network? Regardless, I don't think it is going into a SC electricity trust fund to provide liquidity forever in case TM goes out of business right? It just goes into the cash flow and they pay the bills with cash. It just seems like an accounting headache. Even if your right, this is another way that TM is making it unnecessarily difficult to understand the business and make hater/enemies. If an ICE driver hears someone offering "Free gas for life" they should know it's a scam because there is no way that could be, so when people hear "Free electric driving for life" it similarly sounds fishy.

My ENTIRE point isn't that this is a wrong way to do it, but rather I wish they had financed in another clearer, more conventional way. It would strike something off of the list of things we have to "defend" from detractors.

think of it like social security in the US - current workers pay retired workers. current buyers pay for existing owners if that makes it easier

 

[austinEV]

think of it like social security in the US - current workers pay retired workers. current buyers pay for existing owners if that makes it easier

Yes, exactly. And people (in the US) are beat over the head with how risky that technique is and how in the future it will need to be fixed or reduce pay outs. Rather than copying social security, just make it a conventional commercial transaction. People get that.

I understand it isn't up to me and we aren't voting on the future of supercharging. I just have an opinion.

 

[FANGO]

Tesla BEV Competition Developments

You are all forgetting that supercharging is a form of advertising. It's a billboard, it's customer satisfaction, etc. if it doesn't cost tesla much in the scheme of things, and I'm sure it doesn't, then it is a worthwhile expenditure. How many of you consider supercharging to be the thing that sets tesla apart? If this is costing tesla 1% of their total revenue (no idea what the real number is but I feel like 1% is overshooting it), is that worth it? I say yes. Heck it could even become a revenue stream with grid balancing and solar. Not to mention it's illegal to charge by kWh as a previous poster said. So why nickel and dime people? Just make it free. No big deal.

 

[brianman]

this is another way that TM is making it unnecessarily difficult to understand the business and make hater/enemies.

I disagree. Let me give you an example. Suppose I told you that I eat out at least once a week (but don't really "schedule" it) and then you said, "Well how can I accurately account for how much you're spending on eating out?" My answer: I don't know and I don't care; you're making it more difficult, not me. I don't bookkeep how often I supercharge and, AFAIK, Tesla probably doesn't bother either. It's not that they can't or "shouldn't" but that they have better things to spend resources on than small ball.

 

[eloder]

The supercharging model is superior, if only due to human psychology.

Just think about how many people buy hybrids or diesels today, when many drivers are likely never to recoup those costs when compared to the normal gas models.

I further expect that in order to maximize the psychological superiority of the supercharger network, Musk will always include supercharging baseline with every vehicle going forward, and he won't be disclosing the fact that such a feature is itemized out in internal accounting to make sure supercharging doesn't cause them to lose money. It's a win-win-win situation; the average consumer thinks they get free charging for life and doesn't think they're paying for it, the company on average will bring in more money than it will through the hidden "supercharger surcharge", and the network is effectively self-funded and self-sufficient.

The best part is that since Tesla (supposedly) has cheaper batteries than the competition, even if you had two identical vehicles with Model 3 v. Bolt at similar prices and similar features, Tesla will still have its supercharger network available for "free". Consumers desire value in a vehicle, and the Model 3 will by and large have it.

 

[Johan]

Yes, exactly. And people (in the US) are beat over the head with how risky that technique is and how in the future it will need to be fixed or reduce pay outs. Rather than copying social security, just make it a conventional commercial transaction. People get that.

I understand it isn't up to me and we aren't voting on the future of supercharging. I just have an opinion.

But the prepay model is a brilliant solution to the "chicken and egg" problem: people won't buy an EV for the lack of proper charging, so too few people pay for charging to fund the buildout of charging infrastructure.

Solution: prepay for proper charging + the company throws in some finds at the start, a positive cycle develops where people take the leap and buy a Tesla since there is charging infrastructure, more prepayments are made (with each car purchase), more infrastructure gets built, more people adopt EVs, etc etc ad infinitum or at least until the infrastructure is mature.

And note that with this simple, yet brilliant model, the buildout "pays for it self" except for the initial investment for Tesla. But the payoff from that investment has been huge since it has been a big part of getting past the enthusiast and first adopter buyers.

 

[FANGO]

Of course it will cost them. But they should make a big, public debacle out of the whole thing to get as much media mentions and airtime as possible. Of course the dealerships will try to spin it as "your poor local friendly car dealer who's looking out for your best interest is going to go out of business" but that won't fly - people in general don't like dealers and common sense dictates that Tesla should have the right to sell directly.

The legal costs will be there no matter what, so might as well play it for all the PR possible.

Actually, this made me think of something unfortunate. People commonly dislike "politicians" or "congress," and yet still continue to vote for their own representative. There's a related issue in people who are prejudiced against an entire group, unless they happen to know someone of that group, and will often write that one person off as the exception. So I wonder if, actually, people hate car dealers in general but have a disproportionately favorable view of their own car dealer. I bet this is probably the case. So that spin might actually work better than you would otherwise hope, unfortunately.

 

[scaesare]

They have what, one solar supercharger? Don't look for this to be a priority.

While primary power generation with their own solar may not be a priority for Tesla now while they are using their capital to build out the supercharger infrastructure and they have a mere tens of thousands of cars on the road consuming a relatively inexpensive amount of energy, that doesn't mean it won't be a priority when there are 10X as many cars on the road and they are largely done construcing the charges themselves.

In other words, building a $100 million worth of solar infrastructure to cover $10 million worth of electricity over the last 2 years isn't worth it... spending that amount to cover $250 million worth of energy costs over the next 5 years is.

 

[FANGO]

eloder - Consumers vastly overestimate the importance of startup costs and underestimate the importance of running costs. Hybrids are actually an example of this, not of the opposite as you are using them. Hybrids still only sell single-digit percentages, despite being familiar and old technology, which is successful and does indeed save money over the life of the vehicle, and yet still people aren't buying them. The reason for that is because when given the opportunity to spend 2k more now and save 3-4k over the life of the vehicle, the consumer will usually choose not to do that.

Of course Tesla's approach is different from this, since they obfuscate the cost of supercharging (by including it "free" with cars, and not allowing people not to buy it), and since supercharging isn't just a cost/money saving scheme but changes the way you use the vehicle.

But human psychology would in fact dictate that it would be more effective for Tesla to charge ongoing costs for charging, rather than a startup cost. If the target were to make money from supercharging. Which it isn't.

 

[Johan]

Actually, this made me think of something unfortunate. People commonly dislike "politicians" or "congress," and yet still continue to vote for their own representative. There's a related issue in people who are prejudiced against an entire group, unless they happen to know someone of that group, and will often write that one person off as the exception. So I wonder if, actually, people hate car dealers in general but have a disproportionately favorable view of their own car dealer. I bet this is probably the case. So that spin might actually work better than you would otherwise hope, unfortunately.

While I do see your point and agree that human psychology is not always very rational like that you'll also have to agree that if this was the case - that people in general liked their local car dealer and had generally positive experiences from dealing with them - well, then the general opinion regarding car dealer would be that they are a good thing worth protecting. Which it isn't.

 

[FANGO]

Right, but the same can be said about congress. 10% approval and 90% incumbency. Obviously there is a disconnect there.

 

[austinEV]

Man, I have stirred up the hornet's nest

I agree it is great for the consumer. I also agree it is a great sales tool, sorta. I was giving my sales speech to an older couple who had very little exposure to the car. They knew it was expensive and not much else. I gave them the economic approach: It is a high initial outlay yes, but think of it as pre-paying for fuel, plus I expect less depreciation than a similar ICE car (plan to drive it a long time). I then explained how you can charge at the superchargers in the time it takes to take a short rest, and its free for life. It is a great line, and it surprised them and aren't we all so smart.

BUT...

This actually requires more brain cycles to understand than simply "it costs like 5-7$ to fill up." I fully understand that zero is better than $7. I fully understand that this way is easier on TM and avoids the costs of setting up and administering a website for billing. I fully expect if someone else had taken up this position I would be joining you in refuting it

They only reason we think pre-paid-free-for-life-no-billing is great is because we are inside the church of Tesla and we have had time to absorb it and understand it. For those outside the church it is one more thing to think is Elon magical thinking and one more reason to think something is "fishy". It is different just for different's sake. EV drive train, direct sales, SC network--- these are different for awesomeness. This one not so much.

Think of it this way. Suppose Tesla announced that they can do more for the Earth and make more money by phasing out auto sales after 100k units and focusing entirely on battery systems and stationary storage. (that might actually be true, but I am not suggesting that will happen). Now there is a fleet of 100k cars that have been promised energy for life. For "Tesla Energy" this would be a cash outlay every month in perpetuity. For the company this would be a liability with a real cost. No new car pre-paid would be coming into the system to offset the costs. That liability goes into the valuation of the company, and the company is worth less than it would be without such a liability.

This same phenomenon is happening now within the company but bulls will ignore it and write it off as "easily affordable" or "its free advertising". But the casual investor isn't going to automatically understand that. Nice for company stockholders to shift the cost of that liability to drivers so it is off the books entirely.

Plus, this isn't going to go perfectly forever. Someone, eventually is going to buy a model III taxi fleet that drives 150 miles/day. Say $.12/kwh, 300 days a year that is ~1400$/year. That is an aggregious overuse of the shared pool. Will that not cause friction? TM will have to decide to look the other way and accept a larger-than-modelled expenditure or set obtrusive policies for over users that will sweep up innocent commuters who happen to drive crazy distances.

tl;dr: Communism bad. Invisible hand of commerce good.

 

[WarpedOne]

(by including it "free" with cars, and not allowing people not to buy it)

I suspect this will change with Model 3 as it will enable Tesla to advertise lower base model price.
It is that that Model S is climbing higher where feature list needs to be as long as possible.

 

[Gerasimental]

Right, but the same can be said about congress. 10% approval and 90% incumbency. Obviously there is a disconnect there.

Is the reason for this not more to do with the highly polarising effect of 2 party politics? Sure, everyone hates congressmen, but a through-and-through southern republican would never vote for a democrat just because he's dissatisfied with the performance of Congress (and vice versa for a New England liberal democrat). Once election time comes around it's all about 'us vs them' and everyone rallies around 'their' guy. It seems to be (to me, as a very interested, but foreign, observer) almost entirely about ideology, not performance in Congress.

 

[Cobos]

The difference between free and very cheap is still important (yes I know it's not free for real, but prepaid). At home I've got a charger and charge slowly. On a recent trip to Belgium using superchargers, I stayed in Antwerp. They have a supercharger south of the city, about 5 miles out. Instead of messing around with finding local regular plugs for charging which sometimes are broken or you get problems getting the payment solution to accept your money etc I drove the small distance to the supercharger and charged there.
End result because it was free I didn't mess around with the slower and more hassleprone solution. I went to the supercharger, which is at a Tesla store and had a cup of coffee, used their Wifi and got a charge. Extra outlay for Tesla, minimal, the effect of me telling all my friends and family that using a Tesla and superchargers even work without my own charger at home in a foreign country propably worth a lot more...

So the advertising effect is real and significant, because they do just work, just like gas pumps do...

Cobos

 

[Johan]

But AustinEV: in the a-bit-more-distant future the following will likely happen:
1) Tesla will sell substantially more cars every year than they have done so far
2) the SC network gets "fully built out" at least in
places like the US and Western Europe
3) Electricity will be relatively speaking cheaper than it is today, especially when generated on-site with solar or off-set by solar someplace else.

1+2 means a lot less $$$ per car going towards investments in further expansion

3 means the money claimed as pre-payment covers even more kWh.

With this in mind $2000 per vehicle, or thereabouts, looks like a pretty sweet deal for Tesla but is at the same time still a good value proposition for the customer.

Also, these cars won't "live for ever" and for large taxi fleets just look at Schipol Airport: they have their own charging set up. I don't know the details but I believe it's a bunch of 22kW AC charging. There is no public SC there. I don't believe they have a SC and if they do I'm sure it's financed and being run separately from the general SC network. I believe there are some terms in the purchase agreement that states that "free for life Supercharging (prepaid)" is in fact limited to personal use (not commercial use) but don't hold me to this statement.

 

[Johan]

Right, but the same can be said about congress. 10% approval and 90% incumbency. Obviously there is a disconnect there.

In all fairness that's because in politics, especially American politics (I hope I'm not offending anyone too much), the candidates will say a lot of stuff during their campaigns and give the impression that they will act according to a certain ideology but once they're in office they are more or less just implementing the policies dictated by the special interests that got them in to office. Naturally the voters get disappointed. Wait 4 years, rinse and repeat. People never learn.

As the famous quote by Boss Tweed goes: "I don't care who does the electing, so long as I get to do the nominating."

William M. Tweed - Wikipedia, the free encyclopedia

(Oh boy this post is going on the politics quarantine thread)

 

[ggr]

But AustinEV: in the a-bit-more-distant future the following will likely happen:
1) Tesla will sell substantially more cars every year than they have done so far
2) the SC network gets "fully built out" at least in
places like the US and Western Europe
3) Electricity will be relatively speaking cheaper than it is today, especially when generated on-site with solar or off-set by solar someplace else.

1+2 means a lot less $$$ per car going towards investments in further expansion

3 means the money claimed as pre-payment covers even more kWh.

With this in mind $2000 per vehicle, or thereabouts, looks like a pretty sweet deal for Tesla but is at the same time still a good value proposition for the customer.

Also, these cars won't "live for ever" and for large taxi fleets just look at Schipol Airport: they have their own charging set up. I don't know the details but I believe it's a bunch of 22kW AC charging. There is no public SC there. I don't believe they have a SC and if they do I'm sure it's financed and being run separately from the general SC network. I believe there are some terms in the purchase agreement that states that "free for life Supercharging (prepaid)" is in fact limited to personal use (not commercial use) but don't hold me to this statement.

I don't know about that statement either, but there were (before Redondo and Culver superchargers, and before there were also HPWCs at Hawthorne) lots of limos/hire cars at Hawthorne supercharging. By "lots" I mean that when I was there, there were usually 1 or 2 (out of 6 stations at the time).