The coming Tesla cash cow and the short burn of the century

[Mario Kadastik]

I'm not ruling out the possibility of a low interest rate loan changing my habit, but I'm not relying on it either. How the money is invested until then is immaterial and a decision about a short loan with super low interest rate vs just buying outright would be made when I'm ready to pull the trigger.

Obviously if I were offered a 0% period or even a sub 2% loan I'd be better off taking the loan and getting some sort of payback on the money for a time. Easy enough to get CDs around 2% vs reducing the size of the loan. At higher loan rates I'd be less likely to bother.

It's not immaterial. One should always consider alternate cost so buying cash vs using a loan for part of it and then using the remaining cash for investing. I think any auto loan will be sub 3.5% and earning 3.5% or more on the stock market is relatively no-brainer. Heck, buy TSLA right now and in 6 months you'll probably have far far more than 3.5%

 

[dhanson865]

It's not immaterial. One should always consider alternate cost so buying cash vs using a loan for part of it and then using the remaining cash for investing. I think any auto loan will be sub 3.5% and earning 3.5% or more on the stock market is relatively no-brainer. Heck, buy TSLA right now and in 6 months you'll probably have far far more than 3.5%

how it's invested now is immaterial to my decision about loan vs cash purchase later. The implication is I already have it invested, but I don't want to side track this thread talking about my investments.

What you are talking about in that reply is what will happen around the time of purchase or after purchase of the Model 3. I never said that was immaterial.

 

[bhzmark]

The most sustained concentration of wisdom I've ever seen in this board in the posts below. And this is exactly the general point that shorts confirmation bias prevents them from seeing and they have no good answer too.

I think the missed deadlines are because they are super optimistic and ambitious and I’m ok with missed deadlines as long as the end result leads the rest of the industry.

I really don’t understand how shorts can view him as a con artist. It literally boggles my mind.

And if he tells the press "2 years" the employees will make sure it takes 2 years. So he has to tell the employees the "aspirational goal" of 1 year (his own terminology from the earnings calls) but has to tell the press the same goal, then get hammered when his aspiration is 3 months late.

It was only late by Elon’s timeline.

Don’t you realize no one has even announced a competitor. It was a staggering achievement to be producing 3k Model 3’s / week by now.

No one else is even within 5 years of this.

Again, how was it botched (except being late against a deadline that is 5 years ahead of the rest of the industry)?

There is a great TED talk on how setting impossible deadlines causes achievement way beyond what is possible with realistic deadlines.

By your definition of botched, Space-X has botched their way to being the top launch provider in the world. They’ve been late (or botched the ramp) on every single rocket.

There is also an good HBR article on research showing that you get better results from a team by setting goals just beyond what is likely possible in order to get the best results from the team. It is a management subtlety that shorts don't get.

 

[schonelucht]

Sorry to be late with a reply here.

And March 2017: "Our new facilities are generally larger than they were in the past. For example, new service locations commonly have many more service bays, and we have tested the implementation of large delivery hubs in Los Angeles, San Francisco, Hong Kong and Beijing. Delivery hubs create an exciting reception for new customers and support much higher delivery levels, so we plan to expand this customer experience to more cities".

So more service locations and bigger / more costly ones at that. The 300 mobile service centres at March 2018 are claimed to be equivalent of 60 standard ones.

Still we are talking about $118M shortfall! Even if you build those 4 large delivery hubs from scratch and tear them down again at the end of the quarter, it still shouldn't be that much. I said this before. A few service technicians here and there, some tooling, some electricity and that's basically it. All of the big ticket items are not straight up expenses but go through varying depreciation schedules. Nevermind that the delivery hubs are a SG&A cost, not service and maintenance.

Depreciation is not stripped out for this sector but I expect it's pretty substantial relative to revenues.

Honestly, I don't think so. Total D&A was $416M. That includes multi-billion ticket items like the Fremont factory and not one but two gigafactories (although Buffalo is propably minor). On top of stuff like the superchargers and what have you not.

 

[brian45011]

Still we are talking about $118M shortfall! .

I wonder if some of this could be parts, labor, and miscellaneous materials expended at the Service Centers in remedying "Due Bill" items on vehicles that should not have left the factory with such issues.

 

[schonelucht]

I wonder if some of this could be parts, labor, and miscellaneous materials expended at the Service Centers in remedying "Due Bill" items on vehicles that should not have left the factory with such issues.

Possible. But at the same time, they delivered only 8k cars. To get to any significant number wrt to the $118M loss either they nearly all had to have some kind of due bill or individual due bills must have been huge. Well, actually both. If every Model 3 had a $5k due bill, that's still only 1/3 of the shortfall.

If this is part of the answer, then at least it is something that will improve itself medium term, but will create additional headwind this and next quarter.

 

[luvb2b]

I dont feel like its reasonable to assume

1) ASP of over 45k

AND

2) Demand of over 100k a year, let alone 200k


You have to pick one or the other. 50k+ is basically mid size luxury sedan, which the TOP selling car in 2017 sold just over 55k in the US
...The whole "best selling mid size luxury car already" or whatever was in the update letter is incredibly misleading since the M3 has 2 years of backlog to work through.

actually in the near term it's quite reasonable to assume demand > 55k for a > 45k car. because there is a real backlog. once the backlog has been worked away, then we will see where actual demand is. my crystal ball on that is probably as good as yours.

by the time 2 years have passed 4 quarters of gaap profitability should have been achieved and tesla would likely be in the s&p 500 index, lowering cost of capital meaningfully. if you want something to fear, that's it.

 

[generalenthu]

@luvb2b Do you know how much of the outstanding shares S&P tracking funds (including closet indexers) need to pick up when big cap firms get added to the SP500 index. I know you did some work around ALGN and trying to see if you have a good sense of the numbers.

actually in the near term it's quite reasonable to assume demand > 55k for a > 45k car. because there is a real backlog. once the backlog has been worked away, then we will see where actual demand is. my crystal ball on that is probably as good as yours.

by the time 2 years have passed 4 quarters of gaap profitability should have been achieved and tesla would likely be in the s&p 500 index, lowering cost of capital meaningfully. if you want something to fear, that's it.

 

[luvb2b]

it depends on the free float and the market cap of the stock. for tesla where ~25% is owned by musk i'd ballpark the number between 12-20m shares total if you include closet indexers. probably in the 10-15m range for s&p 500 only.

@luvb2b Do you know how much of the outstanding shares S&P tracking funds (including closet indexers) need to pick up when big cap firms get added to the SP500 index. I know you did some work around ALGN and trying to see if you have a good sense of the numbers.

 

[sundaymorning]

Sorry to be late with a reply here.



Still we are talking about $118M shortfall! Even if you build those 4 large delivery hubs from scratch and tear them down again at the end of the quarter, it still shouldn't be that much. I said this before. A few service technicians here and there, some tooling, some electricity and that's basically it. All of the big ticket items are not straight up expenses but go through varying depreciation schedules. Nevermind that the delivery hubs are a SG&A cost, not service and maintenance.

There are much more cars still under warranty than out of warranty. My 2013 has an 8 year, expiring in 2021. Plus they do lots of goodwill service to please customers. The service center I go to has 40 employees, with full benefits providing me work class service never before seen in the automotive industry. My previous car was $90k Lexus, even they can’t march Tesla’s customer satisfaction.

 

[schonelucht]

Warranty is covered with a separate provision.

 

[neroden]

it depends on the free float and the market cap of the stock. for tesla where ~25% is owned by musk i'd ballpark the number between 12-20m shares total if you include closet indexers. probably in the 10-15m range for s&p 500 only.

Geez. We have 40 million in short interest to unwind, 10 to 20 million in likely index purchases, off a non-Musk/non-Tencent float + short-generated share count of 170 - 36 - 8 + 40 = 166. Very roughly 1/3 of that has to be bought over the next year or two. What price will dislodge that many current holders? A while back I estimated that the float was half "permalongs"; I should redo my calculations, but if still true it means the price will be determined by the other half, who must sell 2/3 of their stock.

 

[neroden]

I dont feel like its reasonable to assume

1) ASP of over 45k

AND

2) Demand of over 100k a year, let alone 200k


You have to pick one or the other. 50k+ is basically mid size luxury sedan, which the TOP selling car in 2017 sold just over 55k in the US

So double that 55k to account for non US sales, and you get 110k/year. It is obvious that Tesla will outsell the current top seller, which is some junky old gas car. 100k/year seems trivial based on the evidence you are providing. You seem to be missing something basic. Maybe the fact that gas cars are an inferior good? Maybe the fact that nobody is producing a competitive electric car in high volume and it will take them at least two years to do so if they start now?

Have you spent a week driving electric? Gone shopping for electric cars? This would clarify your understanding on these points.

 

[Reality]

Have you spent a week driving electric? Gone shopping for electric cars? This would clarify your understanding on these points.

Yes, I have driven electric, they are amazing.


Question for you, have you driven a non Tesla EV?

 

[jbcarioca]

Yes, I have driven electric, they are amazing.


Question for you, have you driven a non Tesla EV?

It seems to me that anybody who seriously wants to understand the current state of BEV's they should have driven at least:
BMW i3;
Chevrolet Bolt;
BYD e6;
Nissan Leaf (any vintage)
Tesla models S,X,3

There are several others sold in Europe and China that I would not require. These seven represent the current spectrum of technological and packaging options. Actually experiencing all those will allow anybody to judge for themselves whether or not Tesla is likely to survive or fail. For taht question minimal financial analysis is required.

The shorts will be burned unless they can understand what drives actual Tesla automotive revenue.

 

[neroden]

Yes, I have driven electric, they are amazing.


Question for you, have you driven a non Tesla EV?

Bolt... Loved it. Leaf.. Liked it. I3... Liked it. Rode in a New Flyer electric bus... Loved it.

So, to really get it you have to drive an EV for a couple of weeks, get used to it, and then *try to go back to a gas car*. That is the point when you realize you can't, and my friends with Leafs and Bolts talk about the same phenomenon.

If you have only taken a short test drive, the reasons why you can't go back to gas are not necessarily obvious yet. After a couple of weeks you lose certain ICE habits, relax, and stop worrying about ICE-specific nonsense. Trying to go back to shaking, loud cars, nonresponsive pedals, trips to gas stations, "creep", fooling around with starters, heat that takes minutes to come on...

 

[Zaxxon]

Bolt... Loved it. Leaf.. Liked it. I3... Liked it. Rode in a New Flyer electric bus... Loved it.

So, to really get it you have to drive an EV for a couple of weeks, get used to it, and then *try to go back to a gas car*. That is the point when you realize you can't, and my friends with Leafs and Bolts talk about the same phenomenon.

If you have only taken a short test drive, the reasons why you can't go back to gas are not necessarily obvious yet. After a couple of weeks you lose certain ICE habits, relax, and stop worrying about ICE-specific nonsense. Trying to go back to shaking, loud cars, nonresponsive pedals, trips to gas stations, "creep", fooling around with starters, heat that takes minutes to come on...

Similar thoughts here, but I'd split it into two fronts--EV vs ICE, and Tesla vs the world. I've driven the Bolt, owned a Leaf, driven an i3, driven various S/X, and own a Model 3. We also have a PHEV Volvo XC90 T8. I've also owned many ICE vehicles in the past--Priuses, other Toyotas, an Elantra, an Olds, etc.

EV vs ICE:
That XC90 is by all traditional measures a fantastic vehicle--it's by far the nicest vehicle we'd owned when we bought it in 2016. The interior is fantastic, and clean by most vehicles' standards. it's a mess compared to the Model 3. The drive is smooth by ICE standards. Feels totally unresponsive vs my Model 3. The Sensus interface is a nice big tablet-sized touchscreen, replacing most cabin buttons. It's slow and laggy compared to my Model 3, and leaves far too many physical buttons, to boot. The car is a PHEV, providing up to 20 miles of all-electric range. It's slow when trying to stay in EV mode, and the powertrain is complicated and expensive to maintain vs my Model 3. I have to go to the gas station to fill it up. I simply don't want to drive it unless I have to. It's not nearly as convenient or fun to drive as my Model 3. And this is a top-of-class, modern vehicle that cost much more than the Model 3. If I instead consider a Camry, 3-series, etc vs the Model 3? GTFO--no chance. And this was true (though to a lesser extent) with my Leaf. That wasn't nearly as fun to drive as the Model 3, but it was still preferred to the XC90 because of its instant torque, smooth feel and lack of gas.

Tesla vs the world:
Further, I have to carry a key fob with me, turn a start/stop knob when I enter/exit, and remember to lock the car when I get out. Why? Tesla has shown it's simply not necessary, and once you get used to not needing to bother with such nonsense, you begin to wonder why everyone else still hasn't caught on. The Volvo has shown the growing pains associated with moving a manufacturer's software platform into modernity--it's needed many software updates to fix issues and resolve bugs. Each time, I book an appointment with the dealer's service department, drive the car in, spend 20 minutes signing in my car and signing out a loaner, wait a day or two, then do it again to get my car back. So the dealer can apply software updates. It's 2018. Why is this a thing?

I do not believe that any near-future competition from other manufacturers is going to be a significant concern for Tesla, because none of the competition that I've seen seem to even get what makes Tesla Tesla.

 

[Reality]

Bolt... Loved it. Leaf.. Liked it. I3... Liked it. Rode in a New Flyer electric bus... Loved it.

So, to really get it you have to drive an EV for a couple of weeks, get used to it, and then *try to go back to a gas car*. That is the point when you realize you can't, and my friends with Leafs and Bolts talk about the same phenomenon.

If you have only taken a short test drive, the reasons why you can't go back to gas are not necessarily obvious yet. After a couple of weeks you lose certain ICE habits, relax, and stop worrying about ICE-specific nonsense. Trying to go back to shaking, loud cars, nonresponsive pedals, trips to gas stations, "creep", fooling around with starters, heat that takes minutes to come on...

i think we are more or less in agreement here?

 

[Reality]

Tesla vs the world:
Further, I have to carry a key fob with me, turn a start/stop knob when I enter/exit, and remember to lock the car when I get out. Why? Tesla has shown it's simply not necessary, and once you get used to not needing to bother with such nonsense, you begin to wonder why everyone else still hasn't caught on. The Volvo has shown the growing pains associated with moving a manufacturer's software platform into modernity--it's needed many software updates to fix issues and resolve bugs. Each time, I book an appointment with the dealer's service department, drive the car in, spend 20 minutes signing in my car and signing out a loaner, wait a day or two, then do it again to get my car back. So the dealer can apply software updates. It's 2018. Why is this a thing?

I do not believe that any near-future competition from other manufacturers is going to be a significant concern for Tesla, because none of the competition that I've seen seem to even get what makes Tesla Tesla.

I too love innovation, but i also love working brakes and a car that doesnt go to the service station every 40 miles


I think you mistake novelty with value

 

[Zaxxon]

I too love innovation, but i also love working brakes and a car that doesnt go to the service station every 40 miles


I think you mistake novelty with value

Yeah, and it sure would be a shame if there were a car being discussed that met those criteria. Might need to change your handle at the rate you've been going lately.

And I'm well able to make my own judgment as to what provides value to me.