If rates are low when we enter a recession, and the Fed hasn't done any quantitative tightening, what will be left in their tool belt should things take a turn for the worse?
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If rates are low when we enter a recession, and the Fed hasn't done any quantitative tightening, what will be left in their tool belt should things take a turn for the worse?
Trump has been leaning on Powell to cool it on the rate hikes. I think this left Powell with no choice but to make the future plans *not* seem to be dovish, like was expected, in order to not give the impression that Trump was controlling Powell. This leaves the option for plans that have not been executed to be changed in the future.
Pezpunk
Active Member
TSLA chart doing its best seismograph impersonation right now.
Fact Checking
Well-Known Member
The Federal Reserve trying to tweak the "rate of change" of interest rate hikes. They know they have big effects on the market, so they are trying to signal changes as slowly as possible, to reduce transients.
The 0.25% hike was widely expected, the question was the trajectory for 2019 hikes. The Fed reduced the number of 2019 rate hikes from an expected ~3 to ~2 on the weaker data today - but the market expected a more "dovish hike" - hence the correction.
Today's U.S. housing data was good, so housing recession is mostly off the table now.
I'd still declare today a macro-positive day, cautiously.
humbaba
sleeping until $7000
Trump has stated that he hires the best people. Now his appointment is doing unprecedented hikes and Trump says that his appointee is sabotaging him. Maybe he's right: after all, he's a genius
Todd Burch
14-Year Member
That thought crossed my mind as well. At least TSLA seems to be handling the news pretty well
.They may only raise rates twice instead of three times in 2019 but they will continue quantitative tightening (QT) at $50B a month.
A few consequences of this analysis for the profitability of Tesla’s base $35k model 3:
I estimate the base model 3 would have cost $40.6k to produce in Q3 (including provision warranty costs, but not including deferred revenue related costs). This is down from c.$49k in Q2.
Elon disclosed a current base model 3 production cost of $38k in November. I presume this is on an accounting basis (which is how Elon normally talks about margin guidance) like my $40.6k, but it is possible Elon’s number includes deferred costs (in which case cost would be $36k on my basis) and also possible it doesn’t include warranty (in which case it would be $40.1k on my basis).
To achieve 25% gross margins on average across the model 3 product range (using my estimate for long term take rate and margin for each option), Tesla needs to reduce this base model 3 cost from $38k to $32.3k. To get to Tesla’s long term target 30% model 3 gross margins, the base cost needs to reduce to $30k (which happens to be the model 3 cost target Elon gave on the Q3 call).
Right now, at a $38k production cost for model 3, the base model would generate revenue of $36.9k per car ($35k + $1.2k delivery + $2.2k GHG credit sales -$1.5k deferred revenue). Reported gross profit would be -$1.5k and cash flow would be $4.8k.
The easiest way for Tesla to reduce costs is to increase production, leveraging staff costs and depreciation. Going from 4.5k to 7k per week is unlikely to increase depreciation materially, and staff cost increase is likely very small as well (production volume gain is mostly from increased productivity per employee per hour). This alone could possibly reduce cost per car by c.$3k. Further significant costs savings will come from the new module design and lines set to ramp up in Q1.
If Tesla is demand constrained in the US with the current expensive model 3 options, then the margin they will achieve on releasing and selling additional $35k base cars should use the marginal production cost and not the average. (Note this doesn’t make sense if the $35k model will significantly cannibalise higher margin sales, but if released just to remaining US reservation holders it is pretty clear by now they are not going to trade up). The marginal gross profit of selling 2.5k base model 3s excludes most of the D&A and staff costs and could actually generate marginal gross profit per base car of c.$6.5k right now, even at the $38k average production cost. Marginal cash flow would be c.$10k for each 35k car sold. While this would generate Tesla more gross profit in absolute terms, it would drag down the overall % margin.
How do you arrive at an estimate with three digits of precision?
So....they may have damaged it when putting it on (or off) the tow truck.
anthonyj
Stonks
It's just the output from my bottom up model using estimates of each cost item and reconciliation to the income statements/cash flows. Every $100 is important but obviously its just an estimate and like most financial estimates, given the limited data we have access to, I have no idea if it is correct.
FirebirdAlpha
Member
Where have you been?
dc_h
Active Member
So, create a recession so you have tools to fight a recession?
That's exactly the problem they face. They're trying to walk a tightrope.
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