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Note that 1000 parts per hour is slow. You cannot make money on small parts at 1000 pph. State of the art is 100,000 parts per hour,
Gambling on stocks is wildly profitable. Knowing what you're buying on the exchange is a lot of work.
Tesla can dominate the world's auto market, but not by doing what they are doing.
There are no shortcuts. EV's are a BETTER product, not just a greener product. Run it like a business and Tesla Motors will succeed.
Run it like a religion? Well, good luck.
Vertical integration gives them some key benefits: shorter development times and faster iterations. One comment Musk gave on the ER was interesting: they will be capable of vertical integration first for some parts and then later outsource if that is better. This is very different from how other manufacturers do it were they have a long development cycle and line up suppliers and then let the program run until the vehicle is retired.
Tesla will shorten the time to develop a new model and also let the model run for a longer time with continuous changes, this might not save cost but it will increase total volumes of that vehicle and make it faster to respond to technology changes.
The long development times are hurting big auto now, for example the new BMW 3-series is going to be released in 2018 and probably started to develop already in 2012 when the previous one was released. Then there will be another six years after the 2018 release date which means 2024 before a BEV model of it can be released. I have seen no indication that any other manufacturer is moving faster than 5 years. The long lead times worked before in a slow changing industry were cost control was key (still is) and predictability was somewhat easy. They are still stuck in that.
Tesla will shorten the time to develop a new model and also let the model run for a longer time with continuous changes, this might not save cost but it will increase total volumes of that vehicle and make it faster to respond to technology changes.
The long development times are hurting big auto now, for example the new BMW 3-series is going to be released in 2018 and probably started to develop already in 2012 when the previous one was released. Then there will be another six years after the 2018 release date which means 2024 before a BEV model of it can be released. I have seen no indication that any other manufacturer is moving faster than 5 years. The long lead times worked before in a slow changing industry were cost control was key (still is) and predictability was somewhat easy. They are still stuck in that.
I was blissfully ignorant of McRat's Fantasy Tesla game until you guys started responding.
Yes, by all means ignore the people with manufacturing experience and continue with the cartoon version of Tesla. Speaking of which, where is Julian? You guys seem to need a Julian pep talk.
I don't think Musk runs it like a religion. If he makes mistakes (like second row seats), I think he learns.
There is definitely a theme amongst some of the ardent Tesla critics that if Tesla can't make a profit on a $80-100k car, how can they make the Model 3 at a profit? I believe that is the central crux of their bear thesis these days. And there is definitely cause for alarm. On top of that, some Tesla suppliers/contractors and ex-suppliers/contractors have chimed in to cast Tesla in a negative light. I get that Tesla's manufacturing operation probably looks terrible compared to a highly efficient Toyota operation. The major automakers are cost optimizing down to pennies. Hence GM is willing to kill people over $0.57. To the bears, it is case closed that Tesla cannot make the Model 3 at a profit and therefore they will hit a brick wall - the more Model 3's they make, the more money they lose and hence they hasten their bankruptcy. BMW can then pick them up for pennies on the dollar.
However, when it comes to BEVs, the conventional wisdom is not accurate.
First, I acknowledge that Tesla's manufacturing operation is probably the worst run as compared to the likes of Toyota, Nissan, BMW, etc. However, that doesn't ensure that Tesla can't make money on the Model 3. There are very highly cost optimized supply chains for the ICE powertrain. These do not exist on the BEV side. The production of battery cells, the battery pack integration, the production of the motors, the power electronics like the inverters and the chargers, the various new systems electronics and so forth are not made in high volume. In many cases, Tesla is actually the volume leader of these critical and high cost components.
If 25-30% of your COGS is wrapped up in the battery pack cost, and Tesla can make that component for almost 35% cheaper than the next best manufacturer, we're talking lots of room to be bad at other things. Let's look at battery cost. GM's ex-chief engineer of the Volt, Jon Bereisa, estimates that the Bolt's battery pack costs $215/kWh, or $12,900 for 60 kWh. While he probably has great insight on GM's costs, he has terrible understanding of Tesla's costs and Tesla IR person calls in to correct him on Tesla's current battery costs. Likely Tesla's current costs are around $185/kWh at the pack level and the Model 3's pack level cost is aimed at $150/kWh. Therefore, with a 55 kWh battery, the Model 3 pack cost is more like $8,250, a $4,650 cost differential on mid $30k vehicles. And that's just the battery.
The Model 3 is likely to have a longer real world highway range than the Bolt even with a substantially smaller battery pack. The efficiency gain is in the design.
Another illustration... the Clipper Creek EVSE's are well known, well thought of J1772 charging stations. The Tesla HPWC likely has a very large share of the EVSE market, but at what extent we don't know. We do know that Tesla charged $1,295 for the HPWC and it is capable of 80A. Clipper Creek charges over $2,000, but likely the volume of that product is small. But Tesla lowered the price of the HPWC twice... it is now $550 for the long cord model. Clipper Creek charges $565 for their 32A model. This is where Tesla is wringing the costs out of the EV supply chain, leveraging their higher volume and scale.
If we go through each component of a long range BEV drivetrain, it is likely that Tesla's version has both higher specifications and lower cost. So maybe Tesla isn't able to get the best seats at the best price. Or the highest quality leather at the cheapest price. But the BEV drivetrain, power electronics and media electronics which likely dominates 50-65% of the COGS is where Tesla is likely the highest volume and the lowest cost. If they can wring a cost advantage of $6,000 to $7,500 out of that part of the COGS, they have a lot of slop in the rest of the car where other automakers likely have an advantage.
As for overall profit, right now the company is carrying very high fixed costs spread over a pretty small sales volume. The Model 3 fundamentally changes that.
However, when it comes to BEVs, the conventional wisdom is not accurate.
First, I acknowledge that Tesla's manufacturing operation is probably the worst run as compared to the likes of Toyota, Nissan, BMW, etc. However, that doesn't ensure that Tesla can't make money on the Model 3. There are very highly cost optimized supply chains for the ICE powertrain. These do not exist on the BEV side. The production of battery cells, the battery pack integration, the production of the motors, the power electronics like the inverters and the chargers, the various new systems electronics and so forth are not made in high volume. In many cases, Tesla is actually the volume leader of these critical and high cost components.
If 25-30% of your COGS is wrapped up in the battery pack cost, and Tesla can make that component for almost 35% cheaper than the next best manufacturer, we're talking lots of room to be bad at other things. Let's look at battery cost. GM's ex-chief engineer of the Volt, Jon Bereisa, estimates that the Bolt's battery pack costs $215/kWh, or $12,900 for 60 kWh. While he probably has great insight on GM's costs, he has terrible understanding of Tesla's costs and Tesla IR person calls in to correct him on Tesla's current battery costs. Likely Tesla's current costs are around $185/kWh at the pack level and the Model 3's pack level cost is aimed at $150/kWh. Therefore, with a 55 kWh battery, the Model 3 pack cost is more like $8,250, a $4,650 cost differential on mid $30k vehicles. And that's just the battery.
The Model 3 is likely to have a longer real world highway range than the Bolt even with a substantially smaller battery pack. The efficiency gain is in the design.
Another illustration... the Clipper Creek EVSE's are well known, well thought of J1772 charging stations. The Tesla HPWC likely has a very large share of the EVSE market, but at what extent we don't know. We do know that Tesla charged $1,295 for the HPWC and it is capable of 80A. Clipper Creek charges over $2,000, but likely the volume of that product is small. But Tesla lowered the price of the HPWC twice... it is now $550 for the long cord model. Clipper Creek charges $565 for their 32A model. This is where Tesla is wringing the costs out of the EV supply chain, leveraging their higher volume and scale.
If we go through each component of a long range BEV drivetrain, it is likely that Tesla's version has both higher specifications and lower cost. So maybe Tesla isn't able to get the best seats at the best price. Or the highest quality leather at the cheapest price. But the BEV drivetrain, power electronics and media electronics which likely dominates 50-65% of the COGS is where Tesla is likely the highest volume and the lowest cost. If they can wring a cost advantage of $6,000 to $7,500 out of that part of the COGS, they have a lot of slop in the rest of the car where other automakers likely have an advantage.
As for overall profit, right now the company is carrying very high fixed costs spread over a pretty small sales volume. The Model 3 fundamentally changes that.
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There are hundreds of members on this forum at any given time, and thousands of members. Mr. Mcrat is not the only person with Manufacturing experience here...
Techmaven, I agree with all you wrote. Add software development superiority, and this is Tesla core value proposition today.
Wouldn't it be likely based on your scenario for both positive EPS and FCF in Q2? Isn't Capex spending to resume in H2, leaving Q2 with stellar results? This will prove a point that Tesla can be profitable if it's not pursuing growth oriented goals.
Lol wow. So your strategy is "optimize the stock price" instead of "optimize the companies future." If you haven't figured it out yet, this isn't the company for you if you feel that way. You are reminding me of the joke with the new season of silicon valley "our product isn't the platform, our product is the sick price."
Every suggestion you just made mortgage the long term future for short term stock gain, or otherwise charges customers more for the same thing, thereby slowing adoption of EVs.
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Nor is today 2005. Tesla's vertical integration strategy is a huge benefit to the company and is greatly reducing cost and allows them to use agile development methodologies on manufacturing - it's something I'm not sure anyone has ever done before.
Ironically it's you that's stuck on the past on this issue, Tesla is innovating by doing vertical integration. Major car companies barely produce anything note, and that's already been described as a huge risk by the CEO of fiat-Chrysler. Some of them will go out of business because of it. FCA will likely be the first.
Ulmo
Active Member
I wonder how much a $3,000,000,000 capital raise (11% outstanding shares) would move the SP from the short term trader's perspective, and how much of that has already been baked in since the release of this article yesterday. Tesla Needs Billions to Meet Musk's Ludicrous Assembly Timeline
Tesla will literally only dominate the auto market if they ignore everything you suggested and do what they are doing now. Your suggestions dominate a few quarters worth of stock price then tail into nothingness.
Basically it comes down to this, Tesla is innovating both vehicles AND the manufacturing and business prices to make them. Your suggestions don't innovate on business prices at all, they use existing business practices that don't allow for nearly as agile a process. No company doing what you suggest could make 20 hardware changes per week to their product like Tesla does. Look a bit wider, your focus is too narrow.
Ulmo
Active Member
So my answer is getting off topic because of its content, but my half-ass prediction is that Tesla will stay the course in in-housing a lot of their Model S, X and Model 3 production for now (during conference calls (if my memory serves me right) Tesla mentioned they were pressured to take more stuff in-house to get it to be done correctly despite their initial efforts to out-source), to make sure this Model 3 introduction goes off as well as they can muster, and then after some years of in-house industrial experience, they will find select partners to start building various components for them, spreading the intellectual property around, in a strategic way to both buttress up the marketplace of EV suppliers and also to still get some sweet deals on those provisions short-term, so that they have the option of using outsource providers and also so that the greater EV market (including their competition) can also make use of said supplies, perhaps even sending a cut back to the original IP producers (perhaps including a chunk to Tesla). Anyway, that's just pontificating on my part. But the idea is conservatism at first and then opening it up in ways that make sense as they move forward (probably not on any outsider's time line unless a competitor negotiates a timeline with them).
If worldwide clean energy weren't part of Tesla's goal, I would be less sure of this. Even then, worldwide clean energy is the goal of the world, and by extension, the marketplace, so eventually there would be sales potentials of parts to their competitors, and at some point, some portion of that would be less core-advantage that Tesla wants to keep inside, to whatever level of the continuum of converting the world's fleet to EV Tesla is on.
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Nope, LOL.. Not here for anatomy measuring contest or to boast my accomplishments... I was just stating a fact that there are plenty of people contributing here that have Manufacturing background of sorts...
Thank you though...
Blows me away how people in this thread focus exclusively Tesla's quarterly or yearly performance when if they did just a little homework or maybe even watch the news they'd remember that Tesla is literally planning for 20 years from now.
I was just wondering the same thing. At first I was assuming that a down round would send the stock down, but if they combine it with debt I wonder if it would actually have a reverse effect. It seems like there is so much FUD about "can Tesla make the model 3" that even a down round would be positive in that it would outweigh the FUD.
Don't know why there is so much FUD about "can they do it" sort of thinking. They aren't working miracles, they are just building stuff. It's hard and impressive work to do, especially with such ambitious goals and complex supply chains, but at the end of the day it's just a lot of people/machines working hard at doing something over and over and over.
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