Thoughts on TESLA

[oneill225]

Sooner or later, Tesla is going to run out of buyers who want to pay $50,000 + for an electric car. That may be soon when the federal and state energy credits disappear. For $50K, I can buy a new Camry and a nice sailboat to tow.
One thing that is not mentioned often is the lack of repair facilities for these cars, and BS me on they don't need repairs or maintenance baloney. They are machines and have thousands of parts that are subject to failure. This will come back to bite Tesla as more of these cars are on the road. Lack of brick and mortar dealer/repair facilities will be a problem.

You are correct that the market for $50,000 cars is limited. It is known as the luxury car market. That is why Tesla is working to get the cost of a basic Model 3 down to $35,000 in the short-term. Going lower than that will just take time and scale.

Early personal computers were also only for the well-to-do. The trend, as with EVs, was for better and cheaper computers every year. If you think EV's will never get cheaper than $50,000, then I understand being hesitant. That does not seem to be the trend, in my view.

The lack of repair facilities is known, but not insurmountable by any means. Car mechanics will need to shift to EV repair as the market continues to shift. Not all service will need to be provided by Tesla going forward.

It takes time to pull all of this together. As an investor, I am less concerned with the current status than the projected status going forward.

 

[corn18]

Let's take a look at their latest 10Q for the quarter ending 31 July 2018 ($M):

3,357,681 Revenue from automobile sales and leasing
2,666,654 Total cost of automobile sales and leasing

691,027 Gross profit
20.6% Gross margin

621,392 Loss from operations

In order to cover that 621,392 loss from operations and become break even, they would need to generate 3,016,466 more revenue. That's a 90% increase.

Now we need to make an assumption. I think they are probably on a learning curve for production and should be able to increase their gross margin as they improve manufacturing efficiency. This is my first assumption and it is a big one. But with an automated factory and a new product, this may or may not be accurate.

So, what does that mean for the break even point? Simple math:

GM Additional revenue % increase revenue
20.6% 3,016 90%
25.0% 2,486 74%
30.0% 2,071 62%
35.0% 1,775 53%
40.0% 1,553 46%

Either increase sales, reduce costs or a combination of both. Pretty simple.

 

[ERD50]

An objective take on Tesla's production and sales needs to be made relative to actual market performance, not on meeting optimistic or pessimistic predictions. Musk over promises, but the real production trend is up and the competition is not competitive (so far).

Ignoring Musk's overly optimistic predictions, it is clear that Tesla is building and selling impressive numbers of EVs and there is no reason to think the trend won't continue as the manufacturing become more efficient.

If Musk had under promised and exceeded the predicted production, I would say the same. The actual production and sales numbers stand on their own; good or bad.

OK, I don't disagree with any of that. But... It appears that Tesla has to hit those promised numbers to be profitable, and Musk himself has said they need to be profitable to be able to fulfill their goals of 'saving the world' (my words, a bit of intentional hyperbole on my part, but not far from what Musk intends).

And I have said it many times, but not in a while - I am super impressed that Musk and his team have been able to deliver anywhere near this number of vehicles. Vehicles that some people just love. Cracking into the auto industry at this level is near impossible. I give them heaping loads of credit for getting this far (or even 1/10th this far). This isn't DeLorean type production, they are making many thousands each week. "Impressive" doesn't even cover it. I'm in awe.

But can they be profitable over the next few years? Maybe it doesn't really matter (AMZN for example), but they need to at least be near breakeven to continue for long, I would think. Can they do that, in the face of upcoming competition, and the loss of customer tax credits?

I'm more interested in the technology and environmental aspects of EVs and their alternatives, so haven't done much of a deep dive into their financials.
Do they need to compete in the $35,000 market (which the Model 3 is not, as of yet), or can they be more like a BMW car company, and stay in business?

-ERD50

 

[oneill225]

What do the three heads of the accounting department of TESLA that have left for other companies know that you don't know, as they gave up MILLIONS in free Tesla shares for another job. For starters they know:

1) Scrap rate of production line
2) Warranty costs
3) Ability to finance the company and what financing is necessary
4) Long term projections for Tesla Car Market
5) Actual safety record of the production facilities

When multiple heads of accounting who have access to detailed numbers that you have no ability to understand, leave a company where they would become one of the most respected finance people in the world if TESLA were to succeed along with an unbelievable compensation package, that is a giant red flag. The biggest promoters of Tesla are Elon Musk and people who have joined the Musk hype brigade who have no financial knowledge only a "belief" that this is how all small companies start,(10 years after they begin). Without government paying for 1/2 of the capitalization Elon would never have made it this far. And this is with paying their workers $8.00 an hour less than the average autoworker makes(Line workers make $17.53 ($36,000 a year), imagine if they actually had to pay a competitive wage. Detailers of the Teslas make $15.21 an hour ($31,000 a year), imagine the quality you are going to get on detailing when the factories really start churning them out. OF course they are requiring 15 hours a week of overtime. Musk has addressed this saying in an interview

The head of accounting can research and determine what is going and make judgments on how this will all affect his reputation, wealth and future. When they leave it is a very bad sign, and no cheer-leading can change that, maybe Tesla can continue to build it's cars with a pay rate just over that at Starbuck's but I think that is unlikely

And the ones who stayed? What do they know? Are they simply fools?

The truth is that Tesla is producing great products in ever-increasing numbers. If it ends up being a bust, then so be it. I am not putting all of my investment cash into Tesla, but I am putting enough in to reap a nice reward if they continue to dominate this new and vast market.

 

[dixonge]

Well, since the title of this thread is, in fact, 'thoughts on Tesla' I'll throw some of my own thoughts out, primarily in the form of links to informative articles:


Tesla's Executive Turnover Seems About Average (Updated)


Tesla is Structurally Bankrupt - but so are GM and Ford

 

[Running_Man]

Well, since the title of this thread is, in fact, 'thoughts on Tesla' I'll throw some of my own thoughts out, primarily in the form of links to informative articles:


Tesla's Executive Turnover Seems About Average (Updated)


Tesla is Structurally Bankrupt - but so are GM and Ford

Note that all the questions on Tesla turnover is talking about 2018 when 41 "executives" have left but the "defense" of Tesla is using 2016 data to defend him, which is a statement from Tesla itself and extends senior leadership to 2,000 managers of its total 30,000 employees. Also the article extolls the CFO who left and came back and left this year with the change in financial structucture.

 

[ERD50]

Well, since the title of this thread is, in fact, 'thoughts on Tesla' I'll throw some of my own thoughts out, primarily in the form of links to informative articles:


Tesla's Executive Turnover Seems About Average (Updated)


Tesla is Structurally Bankrupt - but so are GM and Ford

So it looks like this firm came up with their own definition of 'structurally bankrupt'? Hard to say if it meaningful or not, but these two graphs sure look different to me:

But I guess, since both have that black line in negative territory, that's enough to make them sound equivalent in the headline?

That said, if I were invested in Tesla, I wouldn't be concerned that they aren't making profits at this stage. They are still in ramp-up mode of their first higher volume car, and there are lots of expenses to amortize. That's pretty normal for any start-up, even more for one so capital intensive as an auto mfg.

I would be concerned about whether gross margins and volumes can be expected to grow enough to point toward long term profitability. I would be concerned about competition. I would be concerned that a CFO came and went so fast, regardless of some average measures (though there may be a reasonable explanation).

-ERD50

 

[dixonge]

Note that all the questions on Tesla turnover is talking about 2018 when 41 "executives" have left but the "defense" of Tesla is using 2016 data to defend him, which is a statement from Tesla itself and extends senior leadership to 2,000 managers of its total 30,000 employees. Also the article extolls the CFO who left and came back and left this year with the change in financial structucture.

The exec turnover in Chanos' list (the one referenced in the link) was for two years - April 2016-Apr. 2018. That's the 40 execs being referred to. 2016 data is 100% appropriate. One of the sources was Tesla, yes. You failed to mention the other one, which was an analysis based on LinkedIn profiles of VP and up. No idea what you're talking about with the CFO. He's still there.

 

[bobandsherry]

You are correct that the market for $50,000 cars is limited. It is known as the luxury car market. That is why Tesla is working to get the cost of a basic Model 3 down to $35,000 in the short-term. Going lower than that will just take time and scale.

As the energy tax credits evaporate the cost will continue to hold steady.

According to the article below, "According to those reports, the average price for a moderately fitted Model 3 is about $42,000 give or take."

So.... Those paying $42K today get $7,500 tax credit making the actual cost "only" $34.5K. By the time Tesla gets a car to $35K price those tax credits will be gone, so those who are late to the party will actually end up paying more for less car.

https://www.solarreviews.com/blog/how-much-does-tesla-model-3-cost-in-2018-will-they-get-cheaper

Info on Energy Tax Credit Incentives:

https://www.tesla.com/support/incentives

https://www.wired.com/story/tesla-federal-tax-credit-model-3/

 

[oneill225]

As the energy tax credits evaporate the cost will continue to hold steady.

According to the article below, "According to those reports, the average price for a moderately fitted Model 3 is about $42,000 give or take."

So.... Those paying $42K today get $7,500 tax credit making the actual cost "only" $34.5K. By the time Tesla gets a car to $35K price those tax credits will be gone, so those who are late to the party will actually end up paying more for less car.

I am sure the credits will continue to fade over time, but I think you give them too much weight. From what I have seen, there are not better cars (EV or ICE) out there even at $35,000. Also, many will pay a slight premium for an EV knowing that they will save thousands on gas and maintenance. If the order backlogs disappear, I will be more agreeable.

 

[ERD50]

I am sure the credits will continue to fade over time, ... .

If you are an investor, you should follow this more closely. There isn't any question about it, or the timing (Tesla has hit the 200,000 mark), the credits will fade, and the timing is known...

https://www.digitaltrends.com/cars/tesla-cost-increases-tax-credits-expire/

At the start of 2019, the tax credit is cut in half. Anyone that takes possession of a Tesla between January 1 and June 30, 2019, will receive a $3,750 tax credit. On July 1, 2019, the tax credit is cut by 50 percent again and falls to $1,875 for new Tesla owners prior to the end of 2019. As of 2020, the federal tax credit for Tesla purchases is officially over.

I am sure the credits will continue to fade over time, but I think you give them too much weight. From what I have seen, there are not better cars (EV or ICE) out there even at $35,000. Also, many will pay a slight premium for an EV knowing that they will save thousands on gas and maintenance. If the order backlogs disappear, I will be more agreeable.

That may be true, we will see. But that begs the question - why didn't Tesla raise the introductory asking price by $7,500 (or some portion of that)? They need every marginal $ they can get, and 7,500 of 'em per vehicle sure would come in handy. You are saying customers would have paid the same out-of-pocket for the car. It would have made good business sense for Tesla to start with a higher price - they could always say that increased efficiencies are fueling the price drop, and that they needed to recoup some initial investment dollars, which would all be (at least partially) true.

It's not like we don't have plenty of examples of early adopters paying more. VCRs, DVDs, flat screen TVs, you name it.

It's one of my beefs with these subsidies, especially for the Roadster & Model S - those were cars for rich people, they didn't need $7,500 credit from taxes paid by people who can't afford those kinds of cars, for their rich persons toy. I also think a subsidy like that is counterproductive to the advancement of EVs, or at least could be far better utilized by direct investment in R&D (but that's another story). In fact, if what you say is true (and I think it is at least mostly true for the R & S, less so for the M3), every $ of that tax-payer subsidy was wasted, because people would have bought the car regardless. It didn't do a thing to promote sales. Now, wouldn't you rather see $7,500 x 200,000 vehicles (times several manufacturers) put directly into battery research, instead of in the pocket of rich people? That is $1.5B (BILLION - with a 'B') per manufacturer! That could fund a lot of research. Instead, we lined the pockets of rich people who want a fast car.

-ERD50

 

[bobandsherry]

I am sure the credits will continue to fade over time, but I think you give them too much weight. From what I have seen, there are not better cars (EV or ICE) out there even at $35,000. Also, many will pay a slight premium for an EV knowing that they will save thousands on gas and maintenance. If the order backlogs disappear, I will be more agreeable.

You missed the point entirely, that being getting to $35k price tag won't increase sales. If someone was waiting for $35k they can get it today with the tax credit.

 

[aja8888]

That may be true, we will see. But that begs the question - why didn't Tesla raise the introductory asking price by $7,500 (or some portion of that)?
-ERD50

If you remember, they advertised the car as an EV with a price of $35,000 to entice the public to put down deposits. They have not sold any for that advertised price. I have friends who put $1,000 deposits in them expecting he would deliver.

 

[dixonge]

I'm sure each car mfg is using the subsidies in two ways - one, higher profit margin while they can - two, get the price closer to other gas cars and hybrids to help ease people over.



What surprises me is how Tesla's manage to outsell all other EV's while having a significantly higher price tag. Model 3's at the base price are still not available, and no one is paying anywhere near $35k even after subsidy. And yet consumers have bought FIVE TIMES the number of Model 3's than the Nissan Leaf priced at under $30k *before* subsidy! And the Chevy Bolt is barely ahead of the Leaf.



Assuming Tesla is able to lower prices gradually as the credit drops I see no reason for that advantage to disappear. People are favoring the Model 3 for *some* reason that a tax credit doesn't fully explain.

 

[ERD50]

I'm sure each car mfg is using the subsidies in two ways - one, higher profit margin while they can - two, get the price closer to other gas cars and hybrids to help ease people over.



What surprises me is how Tesla's manage to outsell all other EV's while having a significantly higher price tag. Model 3's at the base price are still not available, and no one is paying anywhere near $35k even after subsidy. And yet consumers have bought FIVE TIMES the number of Model 3's than the Nissan Leaf priced at under $30k *before* subsidy! And the Chevy Bolt is barely ahead of the Leaf.



Assuming Tesla is able to lower prices gradually as the credit drops I see no reason for that advantage to disappear. People are favoring the Model 3 for *some* reason that a tax credit doesn't fully explain.

I don't dig into the reviews in depth, but I'm pretty sure the Tesla M3 is considered way more car than a Leaf or a Bolt. Performance-wise, feature wise, and overall 'cachet'. A Leaf or a Bolt is more of a drive into town to get the groceries, or boring commute to work, versus the Tesla being a car-enthusiast car? So it seems they should have been able to sell theses $43,000 versions (or whatever the average price is now), for $43K + $7.5K, because the buyer would have the same out of pocket cost as someone who buys later at $43,000 w/o the subsidy.

The other way to look at it is, Tesla will need to drop the price by $7,500 over the course of 2019 to make up for the lost subsidy, and that won't be good for Tesla (and I don;t think they will need to).

-ERD50

 

[Texas Proud]

I'm sure each car mfg is using the subsidies in two ways - one, higher profit margin while they can - two, get the price closer to other gas cars and hybrids to help ease people over.



What surprises me is how Tesla's manage to outsell all other EV's while having a significantly higher price tag. Model 3's at the base price are still not available, and no one is paying anywhere near $35k even after subsidy. And yet consumers have bought FIVE TIMES the number of Model 3's than the Nissan Leaf priced at under $30k *before* subsidy! And the Chevy Bolt is barely ahead of the Leaf.



Assuming Tesla is able to lower prices gradually as the credit drops I see no reason for that advantage to disappear. People are favoring the Model 3 for *some* reason that a tax credit doesn't fully explain.

As ERD50 mentioned, not the same class of car... the Bolt and Leaf are very small cars... that is like comparing the Honda Fit to a Honda Accord.... the cost of the Fit is much less than an Accord, but also much less car... and lots of people pay more for the Accord for SOME reason...

 

[Totoro]

Confused about Leaf being very small? 23.6 cf cargo vs. 15 cf in the Tesla. 8 inches longer, 6 inches wider, 5 inches less high.

All sounds a bit similar to me.
Compare Tesla Model 3 vs. 2018 Nissan Leaf specifications side-by-side

 

[bobandsherry]

News for Tesla just keeps getting better... Now the issue is delivery logistics. Um, like what kind of knucklehead running a company that announces plans over a year ago to produce 5,000 cars a week hasn't looked into the future as to how they'll move cars from production to delivery? This guy is supposed to be brilliant, eh?

Musk says Tesla is now in 'delivery logistics hell'

And then there's this story:

Tesla launches its own in-house ‘Body Repair Centers’ to reduce repair time

The first 9 locations are now in operation according to Tesla’s website:

Bellevue, Washington
Dallas, Texas
Eatonville, Florida
Houston, Texas
Las Vegas, Nevada
Marietta, Georgia
Owings Mills, Maryland
Van Nuys, California
Villa Park, Illinois

Like really, Eatonville FL? While it's just north of Orlando, that's a couple of hours from Tampa, 4 hours from Miami. Real convenient location for those in Florida. Perhaps many at the Magic Kingdom are driving Tesla's. And then that's a total of 9 locations over the entire US. I know, they'll continue to expand, just more cash needed to build and to support the operational costs.

And then the cost of Telsa cars already increasing:

Tesla is ending its lifetime free Supercharging offer

Tesla did charge $2K for this prior to offering it for free, so figure this is now a $2K increase in price of car.

On a positive note, Musk didn't do anything silly publically over the weekend, or the news hasn't reported it yet.

 

[bobandsherry]

And on positive note.... so it appears going "in house" for repairs is pretty sweet. Tesla picks up your wreck, leaves a loaner and then fixes it.

Tesla’s in-house body repair shop restores damaged Model 3 in 25 hours

 

[oneill225]

You missed the point entirely, that being getting to $35k price tag won't increase sales. If someone was waiting for $35k they can get it today with the tax credit.

I get your point, but I don't think the market for these cars is static or shrinking. I think more buyers come into the market every day and those increasing buyers will offset the loss of those who will not buy without a discount. Remember that the tax credits phase out over time and that a number of states will continue to offer credits independent of the fed tax credit.

Speaking for myself, I am not in the car market this year, but I expect to be in a couple of years. At that time, I will look at the best EV available for my budget. Tax credits would be a nice gift, but I am not counting on it. This means that Tesla should be able to weather the fade-out of subsidies over time (still a period of years). The question is whether Tesla is competitive without any subsidy. You seem to have concluded that they are not. I feel that they are. Time will tell and I will adjust my investment if it crushes sales.

It is important to judge Tesla in relation to their competition, not as some stand-alone entity. Will there be a better car than Tesla for $35,000? If not, then those looking for a $35,000 car will likely buy a Tesla; credits become irrelevant.

$35,000 is very low end for the luxury market and at the high end for the regular market. Tesla sells luxury cars right now, but over the next few years, they will work to compete below the luxury market. During that time the EV market will continue to expand and buyers will multiply, not remain static. This is a growing pie.

 

[Texas Proud]

Confused about Leaf being very small? 23.6 cf cargo vs. 15 cf in the Tesla. 8 inches longer, 6 inches wider, 5 inches less high.

All sounds a bit similar to me.
Compare Tesla Model 3 vs. 2018 Nissan Leaf specifications side-by-side

I am looking at your link and the Tesla is larger... what am I missing?




Parameters Tesla Model 3 2018 Nissan Leaf
Length 184.8 in ( 4693 mm ) 176.4 in ( 4480 mm )
Width (Mirrors folded) 76.1 in ( 1933 mm ) 70.5 in ( 1790 mm )
Height 56.8 ( 1442 mm ) 61.6 in ( 1564 mm )
Wheelbase 113.2 in ( 2875 mm ) 106.3 in ( 2700 mm )
Track (wheel center) Front / Rear 62.2 / 62.2 in ( 1580 / 1580 mm ) 60.2 / 60.8 in ( 1529 / 1544 mm )

 

[Texas Proud]

I get your point, but I don't think the market for these cars is static or shrinking. I think more buyers come into the market every day and those increasing buyers will offset the loss of those who will not buy without a discount. Remember that the tax credits phase out over time and that a number of states will continue to offer credits independent of the fed tax credit.

Speaking for myself, I am not in the car market this year, but I expect to be in a couple of years. At that time, I will look at the best EV available for my budget. Tax credits would be a nice gift, but I am not counting on it. This means that Tesla should be able to weather the fade-out of subsidies over time (still a period of years). The question is whether Tesla is competitive without any subsidy. You seem to have concluded that they are not. I feel that they are. Time will tell and I will adjust my investment if it crushes sales.

It is important to judge Tesla in relation to their competition, not as some stand-alone entity. Will there be a better car than Tesla for $35,000? If not, then those looking for a $35,000 car will likely buy a Tesla; credits become irrelevant.

$35,000 is very low end for the luxury market and at the high end for the regular market. Tesla sells luxury cars right now, but over the next few years, they will work to compete below the luxury market. During that time the EV market will continue to expand and buyers will multiply, not remain static. This is a growing pie.

Just questioning... is the Model 3 a luxury car? A real question as I do not know...

 

[oneill225]

Just questioning... is the Model 3 a luxury car? A real question as I do not know...

I think so. You would need to go online and price a BMW, Volvo, Mercedes, etc. at $35,000. The result is likely to be a very bare bones car. The comfort and mechanicals on a Tesla Model 3 have been reviewed as being on par with other luxury cars. Tesla also has vertical software integration that allows for automatic updates directly from the company and the ability to operate car functions from an app (among other things). Also, a comparable audio system will outperform due to the quiet EV interior. Of course these are all judgment calls.

 

[dixonge]

As ERD50 mentioned, not the same class of car... the Bolt and Leaf are very small cars... that is like comparing the Honda Fit to a Honda Accord.... the cost of the Fit is much less than an Accord, but also much less car... and lots of people pay more for the Accord for SOME reason...

The Leaf is *slightly* smaller width and length, taller, more luggage/cargo room (a *lot* more, somehow) - so really I'd put it in the same class size-wise, definitely not 'very small' in comparison...

 

[oneill225]

I think so. You would need to go online and price a BMW, Volvo, Mercedes, etc. at $35,000. The result is likely to be a very bare bones car. The comfort and mechanicals on a Tesla Model 3 have been reviewed as being on par with other luxury cars. Tesla also has vertical software integration that allows for automatic updates directly from the company and the ability to operate car functions from an app (among other things). Also, a comparable audio system will outperform due to the quiet EV interior. Of course these are all judgment calls.

I failed to mention performance. 0-60 mph in the low 5's is very high-end performance for any sedan.