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

[jw934]

"value-accretive prices"

Warren Buffett calls stock buyback critics 'economic illiterate' in Berkshire Hathaway annual letter

Buffett released his much-anticipated missive on Saturday.

www.cnbc.com

Stolen from the Buffett quote in the final line of the article, in the context of succession planning and BSH will go on and on forever, but applied to the increasing array of Tesla products:

At Tesla, there will be no finish line.

 

[hobbes]

Never mind the minor issues of legacy automotive. What do you think this must feel like for the people controlling ROPEC+, or more pertinently the people dependent on the oil revenues continuing to roll in from exports. Here is my graph of existing oil production and future demand, overlaid with a set of curves that apply the world average of a 6.5% reservoir decline curve. You can see that already the major oil producing nations have vast stranded assets of existing producing reservoirs, never mind the locked-in resource base of the as-yet undeveloped reserves.

(Different types of reservoirs have different typical decline curves. One can do this analysis at a country level or a company level if inclined.)

If you are a driller, you are in the same situation as a legacy auto, you've literally got 10-years left in your job !* But there are a lot of other people who have a serious chance of losing their lives, or their meagre subsistence. Mostly all over the Middle East.

View attachment 911393

And here are the biggest exporters. The list gets even more interesting when you look at oil exports per capita, and then consider which of those countries is realistically going to be able to substitute those revenues with renewables-derived revenues. The petro-states and their client states are in for a very rocky ride as the cashflows dry up pretty quickly.


View attachment 911386

Crude oil export value by country 2022 | Statista

Saudi Arabia’s crude oil exports in 2022 had a value of 224.8 billion U.S.

www.statista.com

* Slight exaggeration - one needs drillers right up until the last moment as that 6.5% decline curve assumes normal oilfield interventions, workovers, etc. Plus once the wells are shut-in they need to be tidied away nicely. Be nice to your drillers, they need cuddles !

Very interesting, but one thing I am not sure I understand correctly: You talk about a demand curve, but there is no curve labelled demand in your plot. Do I get it right that the blue curve is production up to the present and projected demand in the future? And the other curves are the future production for different end dates of exploiting new oil reserves, so only the existing ones at that point keep producing, losing 6.5% of their output per year?

 

[Hiline]

He gave every last cent to Tesla and the company was cash flow negative. So if the company goes under, his shares go to zero. So yes, his paper net worth was high because Tesla was not worth zero. And his compensation package hinges on Tesla not going to zero as well since he didn't take a salary.

He was living off loan money borrowed against his shares, which hinges on not going to zero. So if Tesla goes, he will have debt he can't pay..assuming SpaceX went to zero as well which being a rocket company is a high possibility back then.

Makes sense. That said, Elon Musk put his money into the company in order to help the company, not the stock price. Stock price depends on short term financial performance and accounting tricks. Everything Elon Musk does orients towards the future of the company, not its stock price. The difference is between letting big investors yelling at you for doing nothing when stock price tanks influence your strategy and trucking ahead with your long-term vision for the company.

 

[Hiline]

Buy backs force investors like me to sell shares. Not what I want. If a dividend then I can make my own choice as to whether I buy even more shares or use it as I please. I see buy backs as heavy handed

Misconceptions abound. No one is forced to sell shares in a buyback. If you think market price is high, you sell. If you think market price is low, you keep your shares and see their prices go up due to a reduction in number of shares outstanding and a consequential rise in EPS. Once your shares go up in price, you can choose to sell some of them or not.

The difference between share repurchase and dividends is really just taxes.

 

[philw1776]

Not what I see really. Buy backs force investors like me to sell shares. Not what I want. If a dividend then I can make my own choice as to whether I buy even more shares or use it as I please. I see buy backs as heavy handed. At least a balanced plan would show some thoughtfulness IMO or don’t do it at all.

It is not all about tax avoidance for everyone. And I like Buffet’s business approach generally but I also would not be surprised to see it change.

My guess is that you are thinking of going private where we would typically be forced to sell our shares.
A tesla buyback this spring would not force investors like us to sell. Let the faint of foresight sell their shares as we hold for a future of upside.

 

[Captkerosene]

Since the day is about much more than promoting capital allocation, why are they calling it investor day in the first place? My hypothesis is that it was originally planned to be a “throw a bone to angry investors buyback announcement” but has instead morphed into master plan part 3.

Very possible that the idea for Investor Day was hatched on this board. I sent an E-mail to IR with the same idea on about Dec 21 (no response):


I have an idea for Elon: schedule an investor day a few months from now. Go through the financials with some estimates of profits over the next five years. But, not before I sell my hangar. I got plans for that money.

• Captkerosene
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• Post #386,619
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• Dec 20, 2022
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• Forum: TSLA Investor Discussions

Would be awesome if Elon did the MasterPlan part 3 and laid out how Tesla is scaling

Investor Day 2023. A 30 minute intro by Elon. Then Zach for an hour with financial projections. Then AI, Shanghai, Austin, Berlin, Semi, FSD, Supercharger, Bot, solar and energy leads each give a 10 minute presentation on their progress and ramifications for future profits. Then a one hour Q&A with Elon and Zach.

If we want the share price higher we need to change the narrative from woke politics to sales, profits and product roadmap.

• Captkerosene
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• Post #386,834
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• Dec 21, 2022
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• Forum: TSLA Investor Discussions

Investor Day was announced Jan 2, 2023. One trading day away from the low.

 

[Gigapress]

This chart is extra fun when it’s logarithmic, which helps show exponential growth clearly.

Tesla is an obvious outlier rapidly approaching the profitability of the other megacap companies.

 

[Singuy]

Not what I see really. Buy backs force investors like me to sell shares. Not what I want. If a dividend then I can make my own choice as to whether I buy even more shares or use it as I please. I see buy backs as heavy handed. At least a balanced plan would show some thoughtfulness IMO or don’t do it at all.

It is not all about tax avoidance for everyone. And I like Buffet’s business approach generally but I also would not be surprised to see it change.

Tesla doing buybacks act like another Leo with deep pockets buying the dip. It provides the stock with more support when there's a sell off. That's why everyone and their mothers wanted Tesla to announce a buy back when the stock was in free falling.

 

[SOULPEDL]

Most of Elon's broken "promises" that you keep reposting are just predictions that missed or haven't happened yet. I can tell the difference.

That FSD promise timeline sure looks like a Plaintiff's List of Exhibits.

Time to market aside, I'm encouraged by the progress (almost) with every drive, and I find this sufficient given the nature of the beast and the newness of AI.

Unlike most, I'm not quite ready to throw out L4/5 on HW3 (which was upgraded for free I might add from HW2.5 showing sincere effort). I can't recall if I posted this yet, but given that the new cameras have a different technology and a key concern being ULT, there could still be a path by remounting the existing camera to face out further (which can be seen as visible a difference between the 2 camera angles) and combined with the latest S maneuver when stopping at intersections since Chuck's ULTs). We don't need to debate this, I think we'll have the answer this week.

The take-away is that Mars might take a bit longer than planned. If that doomsday asteroid is on schedule, do we then just quit if SpaceX takes longer than expected?

 

[EVNow]

Legacy paint shops are useless to Tesla. Tesla uses highly automated and efficient paint shops that are integrated to the factory operating systems. These advanced paint shops are very, very difficult to integrate in an established factory, hence Tesla uses them in new factories but apparently not in Fremont. All this has been posted here multiple times.

For legacy OEMs - capital efficiency is important as well.

All said and done, Fremont is profitable for Tesla. Converted factories can be competitive and profitable for legacy OEMs.

BTW, what does BYD do. They started producing a lot more EVs than hybrids last year, for eg. Do they have factories that can produce both ?

ps : Won't be surprised if BYD and other Chinese companies start buying up ICE factories in EU and convert them to make EVs.

 

[geometro]

Even Apple had to declare dividends when they were generating huge amounts of profits and no clear way to reinvest in a productive manner. I don’t think Elon and team are at that point but whenever that happens, it’s appropriate for any company to return capital to shareholders (buybacks are equivalent to dividends, just a different form).

 

[hitchhiker]

Sure -- when you run out of interesting ways to invest your profits you do buybacks and dividends. I don't thing Tesla is out of interesting ways to invest their profits.

 

[unk45]

For legacy OEMs - capital efficiency is important as well.

All said and done, Fremont is profitable for Tesla. Converted factories can be competitive and profitable for legacy OEMs.

BTW, what does BYD do. They started producing a lot more EVs than hybrids last year, for eg. Do they have factories that can produce both ?

ps : Won't be surprised if BYD and other Chinese companies start buying up ICE factories in EU and convert them to make EVs.

'Capital efficiency' is not equal to 'cheap purchase price'.
Fremont is definitely NOT Tesla's most profitable plant.
The idea that converting an old plant is more capital efficient ignores operating cost and production efficiency. Ask Tesla executives, any one, if Fremont is more profitable than is, say Giga Nevada. Of course they are not comparable without seeing internal cost accounting.

The idea that something used not fit-for-purpose is more capital efficient than is something new fit-for-purpose is missing the point.

BYD, whatever their limitations are quite logical. They'll not be likely to buy a failed plant to convert.

This discussion is strange because of the years-long Tesla track record of building better and better factories, more and more integrated. Fremont continues because they've made an unfit-for-purpose factory work, but even a cursory look shows how suboptimal it is. It continues because once all the work has been done it does function better all the time and is worth continuing, but as we see with Lathrop, they'll build now and not retrofit if they can.

There si good reason for old car plants to go vacant for long time, or never be reused. Retrofit is very rarely more expensive.

The analogy with houses works. Invariably rehabilitating a wreck of a house costs more than building a new one. There needs to be non-financial justification to rehabilitate. FWIW, I've done both.

 

[Singuy]

Talking about compensation packages, there might be a new equally insane one perhaps coming on investor day.

 

[Hiline]

'Capital efficiency' is not equal to 'cheap purchase price'.
Fremont is definitely NOT Tesla's most profitable plant.
The idea that converting an old plant is more capital efficient ignores operating cost and production efficiency. Ask Tesla executives, any one, if Fremont is more profitable than is, say Giga Nevada. Of course they are not comparable without seeing internal cost accounting.

The idea that something used not fit-for-purpose is more capital efficient than is something new fit-for-purpose is missing the point.

BYD, whatever their limitations are quite logical. They'll not be likely to buy a failed plant to convert.

This discussion is strange because of the years-long Tesla track record of building better and better factories, more and more integrated. Fremont continues because they've made an unfit-for-purpose factory work, but even a cursory look shows how suboptimal it is. It continues because once all the work has been done it does function better all the time and is worth continuing, but as we see with Lathrop, they'll build now and not retrofit if they can.

There si good reason for old car plants to go vacant for long time, or never be reused. Retrofit is very rarely more expensive.

The analogy with houses works. Invariably rehabilitating a wreck of a house costs more than building a new one. There needs to be non-financial justification to rehabilitate. FWIW, I've done both.

It comes down to the timing.

Build new = high startup cost, low variable cost
Convert = low startup cost, high variable cost

A small or new company wants to preserve cash and typically goes the convert route - this is what Tesla did with Fremont. The total costs are lower in the short run.

A larger company with a strong balance sheet can afford to build new because over a long time horizon this route is more profitable.

 

[bkp_duke]

For legacy OEMs - capital efficiency is important as well.

All said and done, Fremont is profitable for Tesla. Converted factories can be competitive and profitable for legacy OEMs.

BTW, what does BYD do. They started producing a lot more EVs than hybrids last year, for eg. Do they have factories that can produce both ?

ps : Won't be surprised if BYD and other Chinese companies start buying up ICE factories in EU and convert them to make EVs.

BYD looks likely to pass on an existing Ford factory in Europe. They appear to be preparing to build one instead.

BYD more likely to build it's own plant in Europe than take over Ford's

Just weeks after reports stating Ford was considering selling its German manufacturing facility to BYD, the Chinese automaker appears more...

electrek.co

 

[Ogre]

Never mind the minor issues of legacy automotive. What do you think this must feel like for the people controlling ROPEC+, or more pertinently the people dependent on the oil revenues continuing to roll in from exports. Here is my graph of existing oil production and future demand, overlaid with a set of curves that apply the world average of a 6.5% reservoir decline curve. You can see that already the major oil producing nations have vast stranded assets of existing producing reservoirs, never mind the locked-in resource base of the as-yet undeveloped reserves.

Yeah, it’s a massive problem. There are two dozen or so nations which rely on that oil revenue not just to enrich their elite, but to fund their entire economies. Lots of them also have huge armies to make things even more interesting. This is all massively, globally disruptive economically, politically, and militarily.

Maybe this is why Musk is so obsessed with WWIII lately.

 

[ByeByeJohnny]

Obviously, that's why Tesla chose to convert an existing plant in Germany./s
It has taken sooo long to obtain approvals./s
Is that why the term 'Tesla speed' in Germany means slower than others?/s

It did take sooo long - at least a lot of Americans kept saying that and the term Tesla speed I haven't actually seen used for a long time now ...


Tesla building one new factory, or even a couple in Europe is one thing.

According to OpenAI there are 228 car factories in Europe. Yes, some are probably quite small but how many centuries do you think it would take to get permissions to build even 100 new car factories in Europe today?

The same source says VW has 32 factories in Europe. They would need to close and build three each year for the next ten years. Never gonna happen. They will maybe build one or two new factories eventually because there are some benefits. But the absolute majority will be repurposed old factories.

I'm sure half the inefficiencies in Fremont was caused by mistakes (in hindsight) by Tesla for the ramp up being unable to predict what they needed even six months forward. If they got to do it all over now it would be much improved. The old guard may lack some EV production skills but today they start with much more knowledge than Tesla had 10-15 years ago.

If you have an existing building at say 500k square meters with all permissions and infrastructure already there you could build a highly efficient "new" factory using the same building. Maybe you would only get 400k square meters "efficient factory" and waste the rest of the building but so what. Still cheaper and faster than buying new land, get permissions and actually build a new one.

By the way, anyone remember the neverending discussions we had a year or so ago about what genius new system Tesla had invented in Austin so they wouldn't need any delivery bays? Endless debate. Once we saw how they did it I don't think anyone even commented on it probably out of embarrassment from all our wild theories being wrong?

Anyone forgot the answer? They simply cut the openings in the wall after putting the walls up, instead of having the openings precut. Not everything need inventing the wheel again. There are just different ways getting to a similar point.

 

[EVNow]

It comes down to the timing.

Build new = high startup cost, low variable cost
Convert = low startup cost, high variable cost

Timing also includes - time to get something up and running.

Green field = 3 years.

Convert = 1 year.

In anycase, I think greenfield vs convert is a theoretical argument. You can essentially erase an existing factory to the ground and build new - using existing permits. What parts to erase and what parts to keep will depend on how new the factory is. If they have brand new robots, they can be reused. If they have brand new state-of-the-art paint shop, they can be reused etc.

 

[Ogre]

Count me in as someone in favour of building new EV-specific factories over converting old ones.
I did a bit of a big dive into factory layout about 5 years ago when in my day job, I made a video game about designing car factories. It was actually a key 'constraint' of the game that the layout you are given is suboptimal, and the 'challenge' was in making the most of an awkward, suboptimal layout...

If you have no factory and the choice is to buy an empty factory or build, then building is the easy choice. For Tesla, it’s a simple problem.

For legacy, there is billions invested in existing infrastructure which makes it a lot trickier. Particularly since they have declining sales with no easy way to reboot those declining sales. All the options are all pretty bad. As you suggest, the layout and equipment aren’t ever going to be quite ideal for EVs, but a lot of it is still required and very expensive to move.

While Fremont isn’t as optimized as Shanghai, Berlin, or Texas, it is still massively profitable. If VW could take their existing factories and equipment and make something nearly as efficient as Fremont without investing $2-3 billion on a new facility, it would be a huge win for them short term and maybe serve as a bridge into the longer term.

I think US legacy automakers have a different reason altogether to create new factories. By moving to a different state, I think GM and Ford can open a new facility and escape many of the union obligations their existing factories have.