RobStark
Well-Known Member
In 2014 BMW sold roughly 1/4 the units of GM but had roughly the same net profit.
As of today
BMW has a $60B market cap and GM $55B market cap.
As of today
BMW has a $60B market cap and GM $55B market cap.
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Long-Term Fundamentals of Tesla Motors (TSLA)
- Thread starter Robert.Boston
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Perfectlogic
Member
Is this a response to any of my arguments? Clearly there are margin and ASP differences in the industry, and Tesla will have to achieve a profit margin equal to the highest in the industry to be a good investment. In other words the margins of BMW is already priced in.
RobStark
Well-Known Member
Not in particular. Just some data points.
Premium vehicles have higher margins than mass market vehicles.
BMW earns roughly 4x per unit than GM while their ASP is not 4x. Similar numbers for Mercedes-Benz but with a higher ASP on less volume.
BMW also is manufacturing at near full capacity and is using contract manufactures to assemble some of their vehicles.
chickensevil
Active Member
@Perfect Re:demand
Where are you getting the demand plateau from? You say the MS demand is capping out at 45k a year and yet I don't see any evidence of this. If it were to sit around that level wouldn't you expect the wait time to drop back down? At one point wait times were around 1 month and yet currently they are at a little less than 2 months. This despite the fact that they are likely ramping product of the S up this quarter along with comments that demand for the S has gone up yet again after the release of the X. I can also tell you, as someone ordering a new car right now that my poor sales guy has been putting in a lot of overtime due to all the people he is trying to work with. The reason for this most recent surge is due to the public release of autopilot (I am one of those that have been won over to upgrade on this release) both new and old owners are coming in to play here. It has also been a solid three years since they started delivering the S to the general public and so I expect repeat buyers to start really coming in to play as people hit that 3 year mark. Especially those who bought with the residual value guarantee.
I would wager that WW demand for the S is currently closer to 60k... Maybe a bit higher, since if you compare markets in places like the US and Europe we are seeing Tesla outsell all Luxury brands except for MB where they are sometimes ahead and sometimes behind depending on the country. Tesla has no where near the stores and visibility of MB, so I would expect the number to go beyond them across the board at some point. We still don't have proper coverage of the US nevermind the fact they are expanding into the Middle East, Mexico, and Eastern Europe... But nope, your right, demand is plateauing... Would love your evidence here of this.
The 2k number was based on production capabilities. As has been stated by the company, this is where the weakness lies. Their ability to ramp as quickly as everyone would like them to. Forgetting the X entirely, why have they truly been stuck on small gains on the S production this year? The factory, as it was originally designed could only support 40k a year. The first bottleneck to fix here was the final Assembly which has allowed them to hit roughly 50k in production capacity... This is because the new bottleneck is the BIW line. In addition to upgrading this line, they have added upgrades to pretty much the entire factory: motor assembly, paint, pack Assembly, and even their suppliers have moved to larger locations off site instead of operating in house.
Where did the 2B go? Well a good portion of that has gone toward the gigafactory. But they have had to pay for the factory expansions somehow. The paint shop was one of the more expensive ones if I am not mistaken but the benefit here is that they won't have to touch paint again for a long time since that, along with stamping is now able to hit 500k a year.
I won't fight you on some of your other comments because we just don't have the data in either direction. Since they aren't even pulling out a 1% net profit right now, I would be happy to just get to that point. Whether they can pull off 15% remains to be seen, but given their very high GMs I would think it to be attainable assuming they can continue to pull those GMs off on new models.
As for valuation, since you see only 300k by 2020 that is going to drive the price down, but the position he was stating the 700B from was also in the same breath as delivering "millions" of cars by 2025. So not only are they planning 500k by 2020, but continuing that 50% growth rate through 2025. We have seen comments even recently that hints this is still in the plans given they are looking at local production in China and Europe at some point.
You might be right on the 300k a year by 2020, if they can't ramp production correctly. But I don't think it will be due to demand. There has been research that indicates that every 5k drop in price doubles the market size although the studies I saw stopped at around 60kk. If we use 60k as the base though, and lump all MS sales into the 60k and above category, dropping down to 35k would indicate that the number of sales on the M3 sedan is going to be pretty off the charts easily hitting 500k or more annually.
Where are you getting the demand plateau from? You say the MS demand is capping out at 45k a year and yet I don't see any evidence of this. If it were to sit around that level wouldn't you expect the wait time to drop back down? At one point wait times were around 1 month and yet currently they are at a little less than 2 months. This despite the fact that they are likely ramping product of the S up this quarter along with comments that demand for the S has gone up yet again after the release of the X. I can also tell you, as someone ordering a new car right now that my poor sales guy has been putting in a lot of overtime due to all the people he is trying to work with. The reason for this most recent surge is due to the public release of autopilot (I am one of those that have been won over to upgrade on this release) both new and old owners are coming in to play here. It has also been a solid three years since they started delivering the S to the general public and so I expect repeat buyers to start really coming in to play as people hit that 3 year mark. Especially those who bought with the residual value guarantee.
I would wager that WW demand for the S is currently closer to 60k... Maybe a bit higher, since if you compare markets in places like the US and Europe we are seeing Tesla outsell all Luxury brands except for MB where they are sometimes ahead and sometimes behind depending on the country. Tesla has no where near the stores and visibility of MB, so I would expect the number to go beyond them across the board at some point. We still don't have proper coverage of the US nevermind the fact they are expanding into the Middle East, Mexico, and Eastern Europe... But nope, your right, demand is plateauing... Would love your evidence here of this.
The 2k number was based on production capabilities. As has been stated by the company, this is where the weakness lies. Their ability to ramp as quickly as everyone would like them to. Forgetting the X entirely, why have they truly been stuck on small gains on the S production this year? The factory, as it was originally designed could only support 40k a year. The first bottleneck to fix here was the final Assembly which has allowed them to hit roughly 50k in production capacity... This is because the new bottleneck is the BIW line. In addition to upgrading this line, they have added upgrades to pretty much the entire factory: motor assembly, paint, pack Assembly, and even their suppliers have moved to larger locations off site instead of operating in house.
Where did the 2B go? Well a good portion of that has gone toward the gigafactory. But they have had to pay for the factory expansions somehow. The paint shop was one of the more expensive ones if I am not mistaken but the benefit here is that they won't have to touch paint again for a long time since that, along with stamping is now able to hit 500k a year.
I won't fight you on some of your other comments because we just don't have the data in either direction. Since they aren't even pulling out a 1% net profit right now, I would be happy to just get to that point. Whether they can pull off 15% remains to be seen, but given their very high GMs I would think it to be attainable assuming they can continue to pull those GMs off on new models.
As for valuation, since you see only 300k by 2020 that is going to drive the price down, but the position he was stating the 700B from was also in the same breath as delivering "millions" of cars by 2025. So not only are they planning 500k by 2020, but continuing that 50% growth rate through 2025. We have seen comments even recently that hints this is still in the plans given they are looking at local production in China and Europe at some point.
You might be right on the 300k a year by 2020, if they can't ramp production correctly. But I don't think it will be due to demand. There has been research that indicates that every 5k drop in price doubles the market size although the studies I saw stopped at around 60kk. If we use 60k as the base though, and lump all MS sales into the 60k and above category, dropping down to 35k would indicate that the number of sales on the M3 sedan is going to be pretty off the charts easily hitting 500k or more annually.
That's what most people still believe and what Tesla communicated back in Feb 2014 when it raised the money.
But only very little of the $2bn raised in early 2014 actually went into the Gigafactory (GF)!
You don't have to believe me, check their filings:
1. Tesla's most recent 10-Q shows how little of the $2bn was actually spent on the GF. Since Tesla raised money again in 2015 (twice!) and we know the cash at hand on the balance sheet the result is obvious.
2. Tesla's two most recent 10-Q documents even likely contain errors with regards to GF expenses (I pointed this out several times in this forum and got no answer), but the gist is clear:
Only about 10% of the money raised in 2014 was spent on the GF and the entire GF project is obviously far from finished (basically an empty hull building as of summer 2015, besides the current building structure is only 15-20% of the intended 2020 building size).
Tesla and/or Panasonic will therefore need to somehow raise an additional $4 to $4.5bn combined to complete the full Gigafactory by 2020 (which brings the investment to the original total of $5bn until 2020).
It amazes me no sell-side analyst covering TSLA so far asked about these open gaps and why so little of the money raised in 2014 was actually spent on the GF project.
This topic will come to the table one day and it won't be pretty. We will see how the new CFO will answer these questions...
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Perfectlogic
Member
@Chicken
My evidence on the demand plateau is very simple and unambiguous, the wait times may go from 1 month to 2 months and back over time, but for the most part is has been around 2 months for a year while the sales have been 10-11k/quarter. Therefore the demand can't have been higher than around 45k over the last year, unless Tesla is selling vehicles on the side and not including these in their filings. And in spite of this plateau and an increasing competition over the next couple of years I would say I was pretty generous in my model expecting the X+S demand to reach 80k/y in 2020. The 300k Model 3 sales were on top of those 80k so 380k in total, not that far from their goal given the steep ramp, so still room for both coming in below this number and ofcourse above.
My evidence on the demand plateau is very simple and unambiguous, the wait times may go from 1 month to 2 months and back over time, but for the most part is has been around 2 months for a year while the sales have been 10-11k/quarter. Therefore the demand can't have been higher than around 45k over the last year, unless Tesla is selling vehicles on the side and not including these in their filings. And in spite of this plateau and an increasing competition over the next couple of years I would say I was pretty generous in my model expecting the X+S demand to reach 80k/y in 2020. The 300k Model 3 sales were on top of those 80k so 380k in total, not that far from their goal given the steep ramp, so still room for both coming in below this number and ofcourse above.
Wait Time ∝ Demand / Production Capacity
If wait time is constant, the either:
1) Demand and Production Capacity are both constant
2) Demand and Production Capacity are both decreasing
3) Demand and Production Capacity are both increasing
We know that weekly Model S production increased 15% from Q1 of this year to Q3 based on Q1 shareholder letter and meeting Q3 guidance. You can fill in the blanks from there.
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Perfectlogic
Member
Sure the demand has been increasing slightly and would have to in order to reach the 80k by 2020 in my model. But I would argue that the demand i practically plateauing, the demand growth was almost 1000% in 2013, 40% in 2014 and now 15% in 2015, the trend is clearly a plateauing growth. There is a nice regional sales distribution if you scroll down around half here Tesla Model S - Wikipedia, the free encyclopedia it clearly shows the saturation of the american market with the growth in 2014 and '15 fueled by expanding to new markets.
The word "plateauing" means flat / zero growth. The word you're looking for is "decelerating" as you agree that demand is still growing albeit at a decreasing rate (2nd derivative is negative). I don't think you'd find too many Tesla bulls who would dispute this. There is obviously some limit to the market for a $100K luxury sedan, but we have not reached that limit yet.
Also, growth in 2015 is much higher than 15%. The production increase I cited is over only 6 months, so that's 32% annualized if Q4 is a miss and much higher if it is not.
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Perfectlogic
Member
Did you know that people sometimes uses words in a practial sense? Like say you just finished a huge meal and say "man, I can't cram down even one more bite", but actually it is very unlikely that it is physically impossible to cram down another bite. Do you want to continue discussing semantics?
Sure the growth will be higher than 15% YoY, but most of this demand growth happened last year. When this year begun production was 10k/quarter and waiting times were the same they are today, so this year demand has only grown slightly. One could even call it plateauing compared to the very fast growth of recent years combined with the downward trend.
Edit; looks like I misunderstood your growth comment a bit. I assume production was flat in Q3 with deliveries being flat so the 15% growth would be over 3 quarters or around 20% annualized, which is starting to be significant even considering the speed of deceleration. But another thing to keep in mind is the first implementation of demand stimulus, so measures of increasing growth further are diminishing.
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It is not semantics and I am not being pedantic. A figure of speech like "can't cram down a bite" is completely different than using imprecise language to describe numbers. The word "plateauing" means something very different than what you're describing, and has been used by many Tesla bears who claim that demand has completely ceased to increase (peaked). I apologize if English is not your first language as your profile says you're in Denmark.
That's not even true. Tesla would have to miss Q4 guidance by thousands of units for growth to be lower than it was last year.
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Perfectlogic
Member
Yes YoY growth will probably be around 50%, but most of this demand growth happened last year. We have already gone over the demand increase for the first 3Q of this year which is around 20% annualized shown by the production numbers and waiting times.
Edit; another relevant factor to keep in mind when thinking about demand is the scaling back of subsidies to BEVs, Denmark and I believe Norway too have recently seen cuts to subsidies. I believe California will remove their is it $5k subsidy too for high income families. The $7k federal tax credit will also be gone in a few years.
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I would like to inject some consideration for a bit of a different dimension here. What automotive company can compete with Tesla on how agile and productive their culture is? Sure Germans are brilliant engineers but they're a bit too proper to duke it out with a scrappy fast moving disruptive competitor, in my opinion. The big three? They'll go bankrupt again and ask to get rescued, and get their way. Doesn't mean they'll be a real competitor. Who the hell worth anything wants to work for them anyway?
Bottom line, for me, is -- who's capable of producing results in the long term? As much of a skeptical realist as I am, I don't see anyone other than Tesla getting the job done. I'm excited to see what the future actually holds!
Bottom line, for me, is -- who's capable of producing results in the long term? As much of a skeptical realist as I am, I don't see anyone other than Tesla getting the job done. I'm excited to see what the future actually holds!
RobStark
Well-Known Member
Norway is allowing local governments to discontinue the right of BEVs to drive in bus lanes. Other incentives including the big financial ones are up for review in 2017
California has a $2500 incentive and it is cancelling it for individuals than make over $250k per year or $500k for married couples that file tax returns jointly. That is about 20% of Tesla's current customers. If you are in this income bracket and are inclined to buy a Model S but decide to buy a German F segment car instead because the $2500 rebate has been eliminated for you then you should punch yourself in the face. The vast majority of Model 3 and Model Y buyers will qualify for the CA rebate.
The US Federal $7500 incentive begins to be phased out once 200k American Tesla owners file for the incentive. That is at least 2-3 years away.
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Demand is no where near peaking. Tesla hasn't even entered a lot of the major markets. Look at places like the Middle East, Israel, Dubai, Abu Dhabi, Mexico, Korea, Singapore, Jakarta, Moscow, etc. The biggest market for 100k+ cars hasn't even been touched by Tesla yet. There is still plenty of demand growth for 50% growth of Model S sales worldwide.
Tesla still isn't even in the largest luxury car market for cars over 100k (Dubai and Seoul). South Korea is the #3 market in the world for the Mercedes E class and the #5 market in the world for the S class. Same goes for the A8, Jaguar XJ, and other 100k+ plus cars.
Another reason why demand has not peaked: Tesla does not currently do any traditional advertising. They can surely drive up demand with that in future if needed when they have more production capacity in place.
Every further expansion comes associated with tons of cap-ex and op-ex because of Tesla's highly integrated sevice and "free" charging model.
Just look at Tesla's sales in China vs headcount, office space and SC roll-out so far. No wonder Tesla got rid of of about a third of its workforce there to keep costs down for now.
The traditional car sales model can scale much faster (and leaner) using third-party distributors.
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Does that refer to my post? These are facts, not propaganda given Tesla's distribution model.
Have a look at the number of cars Tesla sold in places like China, Japan and Australia in 2014 and 2015.
Now compare this revenue to the headcount, office/service space and SC stations in these countries.
The entry into AsiaPac markets has been a giant money pit for Tesla so far.
Tesla is spreading itself very thin and I don't see why they entered these markets so early...the low-hanging fruits are in places like Norway and CA.
Why not focus on those regions for now and provide superior service (instead of cutting back on ranger service and upsetting their early adopters, see eg. this recent thread: Tesla Valet service goes POOF!!! )???
If Tesla has a huge advantage in the EV space over ICE entrants as the bulls claim they could wait with further geographic expansion until the Model 3 is ready for sale, no?
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Thank you for pointing that out Papa logic. I come here, as most people here seem to have a better grasp and more in-depth knowledge of financials than I do. I have not seen Papa's point re: cash raised vs cash spent (and what's leftover) addressed. To me it is way more concerning than the demand argument. What are peoples thoughts with repsect to how much capital has been raised for gigafactory vs spent vs planned to spend vs needed in future?
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