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

[M3Rider]

My only regret with the announced changes is that $40k base price is not really mass market. (Pretty sure they'll discontinue the $35k soon)
They are targeting 1.5m cars in 2021 and 3m in 2023, which is not much for the whole world.
Per cleantechnica, full scale EV transition may start ~ 2024. The Osborne Effect On The Auto Industry | CleanTechnica

I hope Tesla can get ready for that and use MXWL tech to build a smaller $25k car. Elon said he may consider something in 3-4 years. This is pushing it really close to the huge unsatisfied demand. No mass market until then, it seems.

 

[MP3Mike]

Also, why the **** is cream available in standard models but not performance??! On what planet does it make sense to give fewer options to your most premium buyers.

Because they don't want to make a 6th seat variant. (Not enough demand to create ventilated cream seats.) I think they should allow you to get non-ventilated cream seats/interior anyhow, but ...

 

[MarcusMaximus]

Today seems like another bad day. Many here (including myself) have posted multiple times that if demand was an issue Tesla would pull leasing as a demand lever. Well, we are here. Further, margin compression seems to be continuing. I just spec'd a fully loaded P3D, red paint, white interior, FSD, etc. It was $71,000, today its $67,500. Yet another $3500 price drop. They have bundled AP at a 1k discount (yes its all margin), they have reduced M3 paint prices by $500, etc. To my eyes the skies look quite dark indeed.

Not to mention this doesn't make new M3 Tesla buyers feel great. Every person that has bought a M3 up to this point now feels as though they would have gotten a better deal had they held off on their purchase. My neighbor has two LR model 3s that I sold him on. I spoke with him last week and he told me how much he loved his cars, but that the price drops plus all of the bad press made him feel as though he may have made a mistake. He did talk in glowing terms about Tesla coming to his home to solve a couple of minor issues and was generally positive otherwise.

I understand this post will likely be met with comments ranging from "well what do you expect cars go down in value and technology makes things cheaper, to lowering the price helps the mission" etc etc. But the reality is we aren't producing cars at the rate necessary to give us remotely ideal margins. Demand is clearly a very real issue, and while we are facing these headwinds the company is being forced to slash Model 3 prices, offer leases and heavily discount the flagship models.

Please, someone, anyone, point me in the direction of something I can hang my hat on to stay invested in this company. Something that will resonate with a rational mind. Not TT007 style pipe dreams and speculation ala leased M3s becoming FSD taxi's someday. Maybe this will happen, but not in the near term.

The lowest price you can get on a new Model 3 without going off-menu(and expect that option to go away soon) just went from $35k to $39,500. That’s a roughly 13% price increase. You selectively specced out all the things they lowered the price on to claim they lowered prices across the board.

To put it in another context: the on-menu price range just went up by 13% on the bottom and down 5% on the top.

 

[neroden]

Of course. Here is the math around Tesla's demand on March 31 for Model 3 cells :

Last quarter, Tesla produced 62 950 Model 3. Let's round up to 70 000. Average battery capacity is uncertain but let's be generous and go with 70kWh. That's 4 x 70 000 x 70 = 19.6 GWh on a yearly basis. In Q4 last year 225MWh. Again, let's say Tesla doubled this 3 months later. That's 1.8 GWh on a yearly basis. Total cell demand = 21.4GWh.

Ah, I see your problem. You're assuming that Tesla is going to remain mired at 5000/week production rates.

Yes, if they did, that would be a serious problem. They have to get past that production rate. Everything is designed for a near-10000 car/week production rate.

They can absorb cell production greater than car production for a couple of quarters with Tesla Energy, which has stupidly long backlogs, but they have to get rid of the production bottlenecks at the car factories.

 

[Tenable]

Because they don't want to make a 6th seat variant. (Not enough demand to create ventilated cream seats.) I think they should allow you to get non-ventilated cream seats/interior anyhow, but ...

I understand that almost all Tesla decisions are for manufacturing efficiency. But this is fairly ridiculous. When your P models have 40%+ margins, you should be giving those buyers every bit of deference possible.

 

[sparcs]

Einhorn is making the rounds this afternoon:

David Einhorn's Greenlight says Tesla 'on the brink' of failure - client letter

David Einhorn's Greenlight Capital renewed criticism of Elon Musk and his Tesla Inc, saying the electric car company again appeared to be on the "brink" of failure, according to a letter sent to clients of the hedge fund on Friday.

The letter cited a lack of demand, "desperate" price cuts, layoffs, "closing-and-then-not-closing" stores, closing service centres, slashing capital expenditures, rushed product announcements and "a new effort to distract investors from the demand problem with hyperbole over TSLA's autonomous driving capabilities."

"We believe that right here, right now, the company appears to again be on the brink," the letter said. Greenlight is short Tesla stock, recently a profitable bet.

 

[MarcusMaximus]

Well, the AWD - until now the cheapest Model 3 in Europe - with the typically taken EAP got cheaper, I believe by over 2k €.

Confused, there’s no EAP anymore... it’s AP or FSD.

But yes, including that option got cheaper. For those who didn’t opt for it, it got much more expensive.

 

[Right_Said_Fred]

If I weren't so heavily underwater, doubling down back at the "420 buyout" text, I'd probably divest of TSLA until their sales strategy looked less reactionary and panicked. But, it can't get much worse for me so I might as well hope this works out.

When I read about people who are ‘heavily underwater doubling down back at the 420 buyout text’ I always wonder: what were you doing when we reached 379 a few months ago? You had a chance to get out. Did you want more?

One thing is for sure: hardly anyone can blame it on Elon anymore.

 

[Fact Checking]

By the way, all the manufacturers offering the subsidized leases are in extremely precarious financial positions because of them.

Yep, just in the U.S. there's 1.15 trillion dollars of auto loans that could take down the whole ICE automotive sector (and a fair number of banks) in a severe recession:

It's a classic vendor financing scheme:

Vendor Financing​

Which kind of schemes bankrupted several large companies in the past.

(In fact Greece's bankruptcy and Spain's and Italy's near bankruptcy was in essence a vendor financing scheme in disguise as well: they received trillions of Euros of real-estate investment income from core-Europe that they spent on buying core-European products for ~10 years which crowded out large parts of the local industry and made it non-competitive, until the first severe recession hit which suddenly stopped the investment income and triggered deflation and unemployment - while their economies were on the Euro-gold-standard which was unable to adjust and devalue. 10 years of misery and relapses to Nazi ideology followed.)

 

[schonelucht]

Bluntly, backlog of Powerwall and Powerpack orders can use that. I don't know if they have the ability to build that many Powerwalls and Powerpacks, but they certainly have enough orders. Obviously other possibilities include the long-rumored move of S & X to 2170s, Semis, etc., but Powerpacks are the obvious one.

Bluntly : no. They guided for 2GWh of Tesla energy product. Over the FULL 2019 YEAR. Which I already included in my calculations.

Please stop dreaming about delivering 15GWh of Tesla Energy product this year. That's about as embarrassing as shorts dreaming about the BMW coming this year that's surely going to kill Tesla.

 

[ReflexFunds]

Elon podcast on AP with Fridman

Another interesting interview on autonomy.

A few key points:

• Elon thinks autonomous cars should be worth 5-10x non autonomous cars for the next 5-10 years.
• Elon expects Teslas to be an appreciating asset from here.
• The new FSD computer is able to run cameras at full frame rate full resolution non cropped and it still has headroom on one computer. The FSD computer is 2 SoCs with full redundancy. It is like a twin engine commercial aircraft, it will work best if both systems are operating, but it can operate safely on one. Currently there is no need to use both SoC.
• In 6 months hands on wheel detection may be removed for parts of autopilot. For this he thinks he needs statistical evidence that incidents per mile are 200% better on AP than human driving. Need to asses probability of crash, injury, permanent injury and death.
• Driver vigilance/attention is very quickly going to be a moot point. Maybe this year but definitely next year human intervention is going to reduce safety.
• Elon thinks the race for self driving cars is already "game set and match" to Tesla. "I don't want to be complacent or overconfident, but that is literally how it appears right now, I could be wrong but it appears to be the case that Tesla is vastly ahead of everyone."

 

[neroden]

I kind of agree, but on the other hand Tesla is currently operating in an unbelievably toxic communications and media environment where the CEO of the company gets ambushed by once respectable major news outlets like the NYT and CBS 60 Minutes.

"Not responding" might be the best PR option when any response will be spun against you.

Also, with even the smallest mistakes being ruthlessly amplified against you isn't it reasonable to communicate sparsely?

The light at the end of the tunnel is that the negativity is mostly artificial, and that such kind of situations rarely last.

Forget the media. Tesla just needs to get its own press releases internally consistent and complete, and get its communications with customers working. I think they're finally getting internal communications between departments working (that used to be broken too, and had to be fixed first).

 

[LoveTSLA]

I was tried to buy in all my large chunk trading shares at 267.50 yesterday but missed. I am glad I got the chance today. Hope it will fly next week.

 

[Doggydogworld]

They said leasing was coming. It wasn’t unexpected. And leasing is a mixed bag: it increasing the serviceable market but also hurts short term cash position. Offering it also means that they have plenty of cash on hand

Leasing doesn't hurt cash on hand. The Warehouse line (later replaced by securitization) finances the cost of building the car. And then some.

Leasing generates less cash than selling, of course. But once you can no longer sell out your full output, leasing is much more cash-friendly than cutting production.

Leasing does hurt GAAP revenue, operating profit, net profit, operating cash flow and free cash flow. Tesla has some alternate cash flow definitions which remove leasing's negative effect.

 

[Tenable]

The lowest price you can get on a new Model 3 without going off-menu(and expect that option to go away soon) just went from $35k to $39,500. That’s a roughly 13% price increase. You selectively specced out all the things they lowered the price on to claim they lowered prices across the board.

To put it in another context: the on-menu price range just went up by 13% on the bottom and down 5% on the top.

I literally spec'd out the exact car I had delivered, I did not selectively choose something to fit an argument. I understand wanting to look at it the way you've presented. However, the take rates on AP/FSD have historically been quite high and our ongoing expectation as an investor group was for that take rate to continue being high. Discounting is in fact still discounting. The frequency of price cuts is objectively bad for Tesla as a company and for us as investors. There is no part of Tesla's mission that is better served today by producing fewer cars than expected and selling them at lower price points than expected.

Edit: There is also no part of the mission that is better served by leaving a bad taste in mouth of Tesla's customers. Apple charges silly prices with exorbitant margins. But the owners rarely feel slighted in terms of pricing because the premium they paid is almost never discounted against.

I wasn't thrilled when Tesla destroyed the resale value of my Model S with the recent price cuts. However, I expected my car to go down in value over time and I got a few good years of happy use. I'm also fortunate to be able to afford the occasional financial hit. However, if Tesla had slashed prices on my car 2-3 times within months of me buying it I would not have been happy. I also would never have purchased a recently released Tesla product again. I'd wait at least 6-12 months to see when pricing bottoms.

 

[neroden]

Bluntly : no. They guided for 2GWh of Tesla energy product. Over the FULL 2019 YEAR. Which I already included in my calculations.

Please stop dreaming about delivering 15GWh of Tesla Energy product this year. That's about as embarrassing as shorts dreaming about the BMW coming this year that's surely going to kill Tesla.

Tesla Energy definitely has substantially more than 20GWh of backlogged demand; I mean, I can get to more than 2GWh just with announced large projects.

What you're saying is that they can't produce that many because their pack lines / module lines / inverter production / delivery infrastructure / whatever isn't able to take the cells.

Sure, I believe that; we don't have much insight into the production process.

Maybe Tesla will have to stockpile cells for a while. Better position to be in than all the other companies which have cell shortages.

 

[schonelucht]

Yes, if they did, that would be a serious problem. They have to get past that production rate. Everything is designed for a near-10000 car/week production rate.

And they are not going to get there for at least 2 quarters. In fact their guidance is that they will get there in 4 quarters. And as you know they production guidance on the Model 3 has been too optimistic at every step. Yet Panasonic is ready (it claims) to stuff 35GWh of product down Tesla's pipe for 13 days already. That's 41MWh of cells arriving every single day from now till whenever they actually DO get to 10k.

 

[ZsoZso]

Today seems like another bad day. Many here (including myself) have posted multiple times that if demand was an issue Tesla would pull leasing as a demand lever. Well, we are here. Further, margin compression seems to be continuing. I just spec'd a fully loaded P3D, red paint, white interior, FSD, etc. It was $71,000, today its $67,500. Yet another $3500 price drop. They have bundled AP at a 1k discount (yes its all margin), they have reduced M3 paint prices by $500, etc. To my eyes the skies look quite dark indeed.

Not to mention this doesn't make new M3 Tesla buyers feel great. Every person that has bought a M3 up to this point now feels as though they would have gotten a better deal had they held off on their purchase.

The sentence I highlighted is a very important aspect, that many people ignore while taking positively about all the price-games Tesla is playing recently. This effect could very well be responsible for significant demand destruction!
While Tesla is busy trying to figure out the optimal pricing by changing the prices back and forth every other week, potential buyers may decide to hold back purchase until the dust settles, because they do not want to feel like a fool who overpaid several thousand dollars. Tesla can only yank the chains of people so many times before they get fed up.

 

[Fact Checking]

Forget the media. Tesla just needs to get its own press releases internally consistent and complete, and get its communications with customers working. I think they're finally getting internal communications between departments working (that used to be broken too, and had to be fixed first).

The "media", which includes social media and fringes like Fred's whining, constantly gets between them and their customers...

Really, I don't think there's any PR silver bullet here: they are already pretty consistent, and the pricing experiments are basically what all the other carmakers are doing as well, they are just hiding it via opaque "dealer incentives".

 

[neroden]

And they are not going to get there for at least 2 quarters. In fact their guidance is that they will get there in 4 quarters. And as you know they production guidance on the Model 3 has been too optimistic at every step. Yet Panasonic is ready (it claims) to stuff 35GWh of product down Tesla's pipe for 13 days already. That's 41MWh of cells arriving every single day from now till whenever they actually DO get to 10k.

So? What's your point? I really don't see what your point is. You seem to be making this out to be a bad thing, when it's obviously a good thing. Tesla's the only car manufacturer who isn't cell-starved! They seem to be the only stationary battery producer with sufficient cell capacity, too!

I suppose it could eat up some cash temporarily? Whatever, they have plenty of cash to stockpile for a year.

The problem is car production rates, and perhaps Powerpack production rates. There's a real problem, but "We have actually achieved targeted cell prodcution capacity" isn't it.