Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[2daMoon]

Americans love big trucks. The number one vehicle sold in 2022 was the Ford F Series. The CT will do alright.

Particularly considering how, when someone sees one for the first time in January 2024, then, decides they have to have it, their delivery may be four or five years away due to the existing reservations alone.

 

[wipster]

Did Tesla ever confirm those are Highlands ?

Aye, this is a Highland(er)...

Damn, I have been watching too much Outlander...

 

[MC3OZ]

Hence my question as to whether there is any real benefit in putting LFP in a 4680 can vs putting it in a prismatic box.

While I am not certain, these are the potential benefits,.

1) Cost - cylindrical LFP make be cheaper to make at from a capex point of view 4680 production promises a lot of savings as outlined on battery day.

2) Strength - Elon typically describes a structural pack as a "honeycomb structure between 2 face sheets", in this case the 4680 cell cans make the honeycomb structure. Elon is right, this structure is often used when people want to have light weight strength.

If it is true that energy storage batteries don't have rigorous IRA materials sourcing requirements then there is less of a case for Tesla making LFP cells for energy storage, strength is irrelevant the only issue is the cost of imported Chinese LFP compared to any LFP cells Tesla could make.

While Chinese labour costs are lower, cells imported from China would attract import duties, and cells made in the US earn some production credits under the IRA.

Making cells for vehicles is the top priority and perhaps the only priority. However, of there are Class B cells unsuitable for automotive use in sufficient volumes, using them for energy storage seems a better use than recycling. I doubt that recycling would earn any IRA credits.

I'll stop the speculation now, I think we have covered the topic in sufficient detail.

 

[MC3OZ]

Elon said it will be a niche product.

He went on to speculate 250k units per year. Yes, he waffled and proposed maybe 500k but he said it with no conviction. He's also said, multiple times, it's very hard to make. Listen to Elon, he tells you what you need to know.

I agree, Elon's comment about the price of the F150 doesn't align with my interpretation of the other things he said. I'm going with the preponderance of information for my conclusion.

We also need to consider the CT as a total package, how well it compares to the competition including ICE trucks on range, price and performance,

Then we also need to consider any new technologies like 4-wheel steering, where they give the CT an edge over competitor trucks and where the technologies can migrate overtime to other Tesla products.

I'll be looking for evidence that CT is a "complete package" with well thought out execution and new technologies.

There may not be an immediate jump in the share price, but if the product is right, it will eventually contribute to success.

4680 ramp progress, the Gen3 car and FSD progress are all things which have the potential to cause an immediate jump in the share price.

4680 progress is on the list because many are pessimistic about it, and actual progress is unclear. If for example Austin announces that they have made 50 million cells later this year, and the timeframe from 10 million to 50 million is considered impressive, that is significant progress.

 

[jabloomf1230]

Elon often says things publicly on a whim. His CT "niche product" quote could have been made to temper sales and production estimates. Or he could have been referring to the CT possibly filling a niche between an SUV and a traditional pick-up truck. I opt for the latter interpretation of Elonspeak.

 

[unk45]

Agree with this, still just can’t wrap my head around building a factory that won’t pump out a large amount of cars for domestic use and have it be overwhelmingly for export. Even at $25k, that’s hella expensive as average salary in India is $400/month, and I’ve worked for two major Indian companies and spent months in Mumbai. Would building a factory if >90% of produced cars are exported make sense? And I can’t see tesla compromise on safety. And if you eliminate speed performance element to cut cost and due to indias congested roads, is it really a tesla still?

Your reasoning agrees with mine. They might be concentrating on storage, with generation 3 smaller vehicles. Products remain to be seen but certainly will include significant exports.

 

[y_naught]

The market is betting on things returning to recent years vs historical then. In the last 70 years, the Fed rate has averaged 4.62%, just slightly below where we are today. I enjoy free money and high PE ratios like the next guy, but history says Fed rates don't mathematically stay near zero...

View attachment 959847

That is not a long enough view. If you go back 100, 200 years or more, inflation is relatively benign, with punctuated periods of high rates. Overall, averages are 2% or less. Sorry, I looked but can’t find the long term Ibbotson chart I’m remembering. Will keep looking.

edit, here is one view, from here: What Do 1,000 Years of Inflation Data Tell Us? - Macro Hive

 

[Artful Dodger]

Cell and module manufacturing is based on US manufacturing, not US sales. Giga Mexico may not get local cell production for a while.

Agreed. What we need for steady logistics is a way to transport 4680s on the car carriers returning from Austin, TX to Monterrey, MX. Two-fers!

Cheers!

 

[Tronguy]

That is not a long enough view. If you go back 100, 200 years or more, inflation is relatively benign, with punctuated periods of high rates. Overall, averages are 2% or less. Sorry, I looked but can’t find the long term Ibbotson chart I’m remembering. Will keep looking.

Speaking from an economics point of view, the general deal has been that there's these two interest rates: Those on deposits, and those on loans. The inflation rate is typically between the two. Banks made their money on the difference between the deposit rates and the loan rates. With competition, banks that didn't pay interest saw their working capital running away to other banks; likewise, if they charged too much interest on their loans, they'd see their income go down because people would get their loans elsewhere.

Problem was, given this environment, there was always the problem of a Run On The Bank. Banks in general don't have all that much money lying around; most of it is loaned out. For that matter, banks actually create money. A depositor puts in, say, $1000; the bank loans out $900 of it; The owner of said loan now deposits $800 in an account at the bank, and the bank then loans out $700 of that, and 'round and 'round we go until about 10X of that original $1000 is now in circulation. Who needs a Fed to print money?

Back before the Fed was created following the Great Depression, banks were lightly regulated. My memory of Econ 101 and 102 (macro and micro economics) says that the reserve requirements were minimal; so, if a bank was stressed due to Too Darn Many Bad Loans, people who got wind of said problems would rush to their bank to Get Their Money; too much of that, with no recourse, and the bank would up and crash. There were lots of bank failures throughout the late 1800's into the early 1900's, like, once every five or ten years, finally culminating in the Big One, the Great Depression.

At that point both the Banking Industry and the politicians (often paid for by the Banking Industry) had Had It, and the Fed was created, along with its Discount Window and designation as the Lender of Last Resort. Generally, the idea was that, come the day when a Federally Insured institution was going under because of the (traditional) Run On The Bank, the Fed would open up the discount window and start handing out loans, backed by the full faith of the U.S. Government, to any banker who showed up. Suddenly, all the depositors Had Money.. and the panics disappeared.

Now, banks going under from bad loans did (and still do) happen; the depositors are protected. But what if a bank doesn't, say, actually have anything wrong with it? They just got a bunch of antsy depositors? Well, that's what the discount window is for. Bank gets a loan, antsy depositors banished, bank pays back the loan when people put their money back in the bank, and life goes on.

But those discount window loans were supposed to have an interest rate much higher than the interest banks were paying to their depositors. Banks didn't really want to use that discount window, if affected their profits. So far, so good.

But what happens when the Fed starts issuing zero-interest loans via bond sales? Um. Well, banks still loan out money to make money. But, suddenly, instead of getting their working capital from the hoi polloi of depositors, they're getting working capital from the Fed. For cheaps. Free money!

That this has been going on, for crying out loud, for nearly 20 years, has been pretty darn obvious to anybody with an interest-bearing checking or savings account. 0.01% interest? Give me a break. The banks just love it and, you can bet, have been lobbying like mad to Keep Things That Way.

There's only one problem with this. Given the round-and-round effect of loans and deposits in a bank, injecting cash like this into an economy is down-right inflationary. More and more cash chasing the same amount of goods and services and, well, that's precisely how inflation gets started.

The solution is to get interest rates higher; I've been waiting 20 years for the Fed to get it's derriere in gear and start doing that. And, since raising bond interest rates and that blame discount window interest rate is precisely the main tool that Fed has to control inflation, it's no surprise that they started doing that when inflation reared its ugly head.

So: I'm glad interest rates are higher. The Fed discount window should be 2% to 5% or so; interest bearing deposit accounts should be up to several percent (Ally and others are at 4% these days) so the banks are competing for depositors again, and capitalism and Adam Smith's invisible hand will keep things on a more even course.

Zero percent interest? I sure hope not.

 

[y_naught]

Speaking from an economics point of view, the general deal has been that there's these two interest rates: Those on deposits, and those on loans. The inflation rate is typically between the two. Banks made their money on the difference between the deposit rates and the loan rates. With competition, banks that didn't pay interest saw their working capital running away to other banks; likewise, if they charged too much interest on their loans, they'd see their income go down because people would get their loans elsewhere.

Problem was, given this environment, there was always the problem of a Run On The Bank. Banks in general don't have all that much money lying around; most of it is loaned out. For that matter, banks actually create money. A depositor puts in, say, $1000; the bank loans out $900 of it; The owner of said loan now deposits $800 in an account at the bank, and the bank then loans out $700 of that, and 'round and 'round we go until about 10X of that original $1000 is now in circulation. Who needs a Fed to print money?

Back before the Fed was created following the Great Depression, banks were lightly regulated. My memory of Econ 101 and 102 (macro and micro economics) says that the reserve requirements were minimal; so, if a bank was stressed due to Too Darn Many Bad Loans, people who got wind of said problems would rush to their bank to Get Their Money; too much of that, with no recourse, and the bank would up and crash. There were lots of bank failures throughout the late 1800's into the early 1900's, like, once every five or ten years, finally culminating in the Big One, the Great Depression.

At that point both the Banking Industry and the politicians (often paid for by the Banking Industry) had Had It, and the Fed was created, along with its Discount Window and designation as the Lender of Last Resort. Generally, the idea was that, come the day when a Federally Insured institution was going under because of the (traditional) Run On The Bank, the Fed would open up the discount window and start handing out loans, backed by the full faith of the U.S. Government, to any banker who showed up. Suddenly, all the depositors Had Money.. and the panics disappeared.

Now, banks going under from bad loans did (and still do) happen; the depositors are protected. But what if a bank doesn't, say, actually have anything wrong with it? They just got a bunch of antsy depositors? Well, that's what the discount window is for. Bank gets a loan, antsy depositors banished, bank pays back the loan when people put their money back in the bank, and life goes on.

But those discount window loans were supposed to have an interest rate much higher than the interest banks were paying to their depositors. Banks didn't really want to use that discount window, if affected their profits. So far, so good.

But what happens when the Fed starts issuing zero-interest loans via bond sales? Um. Well, banks still loan out money to make money. But, suddenly, instead of getting their working capital from the hoi polloi of depositors, they're getting working capital from the Fed. For cheaps. Free money!

That this has been going on, for crying out loud, for nearly 20 years, has been pretty darn obvious to anybody with an interest-bearing checking or savings account. 0.01% interest? Give me a break. The banks just love it and, you can bet, have been lobbying like mad to Keep Things That Way.

There's only one problem with this. Given the round-and-round effect of loans and deposits in a bank, injecting cash like this into an economy is down-right inflationary. More and more cash chasing the same amount of goods and services and, well, that's precisely how inflation gets started.

The solution is to get interest rates higher; I've been waiting 20 years for the Fed to get it's derriere in gear and start doing that. And, since raising bond interest rates and that blame discount window interest rate is precisely the main tool that Fed has to control inflation, it's no surprise that they started doing that when inflation reared its ugly head.

So: I'm glad interest rates are higher. The Fed discount window should be 2% to 5% or so; interest bearing deposit accounts should be up to several percent (Ally and others are at 4% these days) so the banks are competing for depositors again, and capitalism and Adam Smith's invisible hand will keep things on a more even course.

Zero percent interest? I sure hope not.

Not zero, but very small. A 2% annual inflation rate implies a similar GDP and that requires everyone to struggle to increase production, productivity, cut expenses, grow profits, etc. it’s not really sustainable and leads, in fact, to instability In the I relation from the 70s was due to the shock of oil being priced in dollars instead of gold, as Nixon/Bretton Woods took effect. Overall, inflation and interest rates should be below 2%, naturally.

 

[Tronguy]

Not zero, but very small. A 2% annual inflation rate implies a similar GDP and that requires everyone to struggle to increase production, productivity, cut expenses, grow profits, etc. it’s not really sustainable and leads, in fact, to instability In the I relation from the 70s was due to the shock of oil being priced in dollars instead of gold, as Nixon/Bretton Woods took effect. Overall, inflation and interest rates should be below 2%, naturally.

I took the Macro/Micro stuff back in the mid 1970's. So, if you think that "below 2%" is a cool place to keep deposit interest rates, and (I would guess) a few points higher for loan interest rates, far be it from me to argue. I'm not really that up to speed with Modern Thought, I suppose.

However, my problem is with zero interest rates at the Fed discount window. That removes the incentives for banks to compete for depositors and raises the very scary possibility of out of control inflation. In order to dynamically control the inflation rate, the Tool That Just Works is the Federal Funds Rate; and it works best when it's not zero. So, a slightly-above-the-deposit-interest-rate level for that thing sounds like the right thing to do.

 

[Cosmacelf]

Core inflation is strongly influenced by shelter, which of course takes time to move as rents tend to be adapted annually

Sasha nicely encapsulates my thoughts on the matter:

Seems to me like he's only partially right. First, this video is 2 weeks old and he predicted a rate pause, so he got that prediction wrong.

Second he says some nonsense in the middle. He said the politicians want rates to go higher so that the excess money printing the govt did (and thus the debt) will be inflated away. This makes zero sense. Sure, the politicians might want to inflate their spending away, but you do that by taking actions that would keep or increase inflation. Raising interest rates do not keep inflation high, of course, they do the opposite. Politicians ALWAYS want low rates because that DOES inflate their spending away and it usually gooses the stock market and the economy as well.

But yes, he is right that inflation numbers are indeed heavily influenced by shelter which has a huge lag built into it since people only get affected by higher interest rates when they are forced to get a new mortgage. This is why housing inventory is so low right now, no one wants to sell since doing so would result in a huge monthly mortgage increase.

It is almost as if the fed is waiting for the last sub-market to capitulate, ie. housing prices, before lowering rates. If so, expect them to not lower rates for a long time. What this means for the stock market is anyone's guess still.

 

[Cosmacelf]

The market is betting on things returning to recent years vs historical then. In the last 70 years, the Fed rate has averaged 4.62%, just slightly below where we are today. I enjoy free money and high PE ratios like the next guy, but history says Fed rates don't mathematically stay near zero...

View attachment 959847

Absolutely. And my thesis is that we are entering into a structural inflation period as well. Reshoring manufacturing to the US will result in inflation, meaning rates will stay elevated. UNLESS AI unleashes another productivity boom (like we had with the Internet), which is also possible. My crystal ball is on the fritz again.

 

[Artful Dodger]

Quarter point rise was not only unnecessary but an overcorrection.

It’s like the Fed never heard that thing about learning from history…

The FED told us last August at Jackson Hole that they were going to do this. They said it's better to overcorrect, then cut rates rapidly if they overshoot.

Given the lag in Housing reporting, this bound to happen. Indeed, the FED raising rates is now the primary CAUSE of inflation, since higher interest rates affect affordability of both rentals and privately-owned homes.

The Market knows this, and is playing the rebound game which will eventually come when the FED reverses tack. Ironic that the organization which was explicitly created to manage the economy is now whip-sawing the Market. I doubt this is a coincidence.

 

[y_naught]

I took the Macro/Micro stuff back in the mid 1970's. So, if you think that "below 2%" is a cool place to keep deposit interest rates, and (I would guess) a few points higher for loan interest rates, far be it from me to argue. I'm not really that up to speed with Modern Thought, I suppose.

However, my problem is with zero interest rates at the Fed discount window. That removes the incentives for banks to compete for depositors and raises the very scary possibility of out of control inflation. In order to dynamically control the inflation rate, the Tool That Just Works is the Federal Funds Rate; and it works best when it's not zero. So, a slightly-above-the-deposit-interest-rate level for that thing sounds like the right thing to do.

I think as long as inflation s about 2% or a bit lower, the Fed Funds rate can be between 1.5-2% and deposit rates about 2.5% and loan rates at 5%, +/- based on credit worthiness and collateral. That’s normal. The 70s were not and the 2000s also were not.

 

[Artful Dodger]

Again, Elon called it a niche product.

You have posted this several times now, and gotten significant pushback. It's time to post a link to what you claim Elon said, instead of just posting your claims.

Lot's of Analysts have called CT 'niche' over the past 3 years. Is that what you're misremembering? For example:

"I don't think it will be as important [to Tesla] as the F-150 is for Ford," Colin Langan, analyst at Wells Fargo, told Yahoo Finance Live (video above). "I think the F-150 is more of a work truck, and Cybertruck buyers will be more using it for recreational-type purposes. So it will be more of a niche market, at least initially. We'll see where the capabilities go from there."

Universally, it's analysts with a 'Sell' rating that are disparaging the market potential of CT.

 

[Artful Dodger]

Greg Wester was convinced TSLA would go down, so he sold all his stock. Then Oct 2019 happened, and he's been a sourpuss ever since. Not worth spending any time on his bee-ess, I guess the AG has to, since he's paid for it. Mostly by Q, it seems...

Jus' sayin'...

 

[Tronguy]

I think as long as inflation s about 2% or a bit lower, the Fed Funds rate can be between 1.5-2% and deposit rates about 2.5% and loan rates at 5%, +/- based on credit worthiness and collateral. That’s normal. The 70s were not and the 2000s also were not.

I'd agree, but, no offense, I think you've got something flipped. In your example: Deposit rates should be 1.5%-2%; Fed Funds Rate at 2.5%; loan rates at 5% or so; and the inflation rate somewhere between 2% to 5%.

The idea: If a bank wants money to loan, don't get it from the Feds. Get it from depositors, they're supposed to be cheaper. If a bank is in trouble, real or otherwise, and needs funds to avert going under due to a Run, get the funds from the Feds at 2.5% - and pay extra for the privilege.

 

[y_naught]

I'd agree, but, no offense, I think you've got something flipped. In your example: Deposit rates should be 1.5%-2%; Fed Funds Rate at 2.5%; loan rates at 5% or so; and the inflation rate somewhere between 2% to 5%.

The idea: If a bank wants money to loan, don't get it from the Feds. Get it from depositors, they're supposed to be cheaper. If a bank is in trouble, real or otherwise, and needs funds to avert going under due to a Run, get the funds from the Feds at 2.5% - and pay extra for the privilege.

In theory, maybe, but fed funds is cheaper than deposits. Banks have stigma borrowing from Fed, vs peers. That’s why Libor was always higher than fed funds. Fed is cheapest money, but borrowing from them implies trouble for banks.

 

[Zaddy Daddy]

I personally think the earnings call had enough uncertainty/ambiguity in there to where I doubt TSLA moves any higher during Q3.

Wall St going to list off :

- Production/Delivery concerns regarding the factory shutdowns
- Continued margin concerns because Elon and company didn't sound confident in no further price cuts
- Lack of Cybertruck for Q3. Elon clearly downplayed the release date of the Cybertruck.

So I expect a continued sideways trading if the macro's stay stable (250-290 trading range) or a pullback to 225/share area if the macro's pullback, which I think is pretty likely. I'm very bullish on the outlook of the markets, economy, and inflation over the next 12 months but everything's run up too much without consolidation.

Maybe TSLA breaks out from the macro's during mid Sept if there's a Cybertruck/Highland announcement for deliveries....even if those deliveries start in Q4.

Yup. People need to stop thinking just because TSLA was over $400 a 18 months ago means it "deserves" to get back there when market gets back to all time highs.

Tesla at that time had extremely high margins, now they are just "good" to "very good". Wall Street is going to value TSLA on forward earnings looking 1 year out, maybe 2. Right now the 2024 estimated EPS is like $4.5, so the forward PE ratio is like 58. That's... healthy. That's not a low forward PE ratio. NVDA's forward PE ratio might even be lower than TSLA's.

Tesla's gross margins are too low and going in the wrong direction for Wall Street to assign high probabilty that they will go up from here. That means they won't revise EPS estimates upwards until they seeing strong signs. So 2 big triggers for Wall Street will be:

1) Auto gross margins & revenues increasing

2) Energy gross margins & revenues increasing.

We should see #2 happen hopefully in Q3 report. I don't expect Wall Street to have any foresight before that for Energy. For Auto, they may be able to see the rise in ASP before it hits earnings (such as following @Troy or looking at used car price trends), but those aren't looking up yet. With interest rates seemingly staying high for at least another 6 months, it's hard to see ASPs going back up. We can only hope gross margins increase from further COGs reductions.

When Tesla prints a quarter with a $1.5 EPS, wall street might forecast the following 4 quarters to make $7. With a forward PE of lets say 60, Tesla could finally reach the golden $420 share price. But I don't see a path to reaching $1.5 EPS until at best Q4 earnings in January, but more likely around Q2 2024 earnings next July.

Until then, we are probably stuck around $300.