Brad, you mentioned a Figure 6, but the last I saw was Figure 5. I have been expecting Tesla's sales to start to flatten or decline for some time and that has not happened. Based on a recent survey, despite poor quality, Tesla still has incredibly high brand loyalty. It is as though, as one short seller avoiding shorting TSLA said, it was a religious stock Based on that and that many Model 3 and Model Y owners say they will buy the Cybertruck., I wonder if these owners who ordinarily don't own trucks and have no need for one wouldn't buy a Cybertruck. This could be a huge benefit for Tesla if many of these owners bought. However, if we have a recession, I think these kinds frivolous purchases wouldnt be killed in such a recessionary environment.
Finally I have thought that the entire industry seems fraught with overcapacity and a bad recession could would this industry greatly.
Sorry, there is no Figure-6. Meant to have written "Figure-5". Thanks for the heads-up.
Tesla is cutting prices (and profits) in order to move the metal. Note that their operating margin has deteriorated for 3 quarters in a row and Q2 operating profit was the lowest since Q3 2021.
Q3 2022 should be even worse, given the factly shutdowns. And once again, if they're still cutting prices now (and they are), what would lead them to stop price cuts next year?
The Cybertruck won't be in full production till 2025 and it will have little demand. Many insiders have said that the lowest trim will be around $100K. With its quirky looks, it's hard to see it selling more than the Models S/X.
Aug 23, 2023·edited Aug 24, 2023Liked by Motorhead
Great analysis. I believe that the money has already been made investing in Tesla. I would add a few things that you might want to consider in looking at Tesla.
First of all, the political risk with respect to an investment in Tesla. Notwithstanding the way the “winds are blowing” with respect to EVs, there are many headwinds. The politics may change if affordability does not come around.
In addition, Tesla is opening a Megafactory for huge batteries in China. I don’t understand this given the way things are moving with respect to China. When I buy shares in Tesla I’m starting to think that I’m investing in a Chinese company rather than a U.S. one. Why this is ignored is beyond me. The risk to their capital investment is enormous. As is the risk to their supply chain. The security of supply in the manufacturing of their cars seems to be a matter of little concern to Tesla or to the globalist fanboys who follow the stock. In my opinion, it’s shortsighted and completely ignores history.
There has been little discussion around the supply constraints with respect to electricity. We can build all the charge stations we want, but the electricity has to get there. The transmission and distribution systems in the United States and other developed countries are ancient. Can it handle the additional load that the system will be asked to deliver even if the power can be generated?
Now with the BRICS nations meeting in Durban, is there any certainty around the supply of lithium and others given the potential for an open revolt by those nations? Don’t know. Environmentalists have been successful in eliminating the possibility of the vast resources in Canada and the USA coming on stream. How will that risk be managed?
In the old days an auditor used to ask how vulnerable is the company to disruptions in supply? Does the company have access to immediately available sources should one be eliminated? In the current environment, these questions appear to have been discarded.
The P/E ratio already discounts an enormous amount of growth.
In many ways this reminds me of the story of the hare and the tortoise. I would suggest that we don’t know quite yet who the tortoise is.
Tesla's Megapack project in China likely has to do with obligations to buy a certain amount of locally made battery cells from CATL, BYD, etc which might not be met with the coming decline in Tesla's local production.
If that's the case, it's nice to know that Xi Jinping is running Tesla rather than Musk. The regime in China can with a stroke of a pen take over his and other's operations. There would be no recourse, no appeal. I guess investors are quite comfortable taking on this risk. Maybe the EXIM Bank is insuring the risk? Whatever happened to that?
It appears to me that in order to enter the Chinese market, many are prepared to give away almost anything. If there is any kind of compelling investment thesis for Tesla. it is based on taking risks that investors a few decades ago would have shunned in my opinion. Thanks to 15 years of QE, investors have become incredibly risk tolerant. But in the end, he's the richest guy in the world. For now...........
It would require a huge justification for the CCP to shut down Tesla in China. This is because Tesla provides over $100bn worth of business annually for the greater Shanghai area. The possibilities of the CCP closing down Tesla are very slim, IMHO.
That’s a rational answer from a Westerner. Wrong culture. You’re playing the short game. Chinese play the long game. In the end, the question is whether you are prepared to bet your money on that. I’m not. But we are all different.
Brad, any thoughts on the latest price cuts in China and lower price variants in S-X introduced in US on same day?
Stock behaved remarkably considering how china is doing in general. Where do you think Q3 earnings will be? I am seriously doubtful now that they will be able to meet delivery goals for this year (1.8M)
The cuts on the Model Y trims in China were only $2,000 off on two higher-trim versions. The entry-level Y's price hasn't changed. Troy estimates that the entry-level Y is 80% of deliveries, while the Long Range is 14% and Performance is 6%.
The Long Range drops in price from $43K to $41K & the Performance from $50K to $48K. Don't know if that moves the needle too much on these expensive trims (who many incremental buyers are there with only a $2K price cut?), so hard to say.
But, what could happen is mix improvement if the entry-level Y falls to, say 78% and the LR rises to 18% and the Performance stays at 4%. So that's something to be aware of. But this may only offset the $1K discounts for the Model 3 & the depreciating currency.
S/X is a steep discount. A $10K price drop will increase the % of those S/X trims, so expect lower avg prices for S/X sales in North America. All in all, it doesn't look good and we haven't had the factory closures for "upgrades" as Musk mentioned.
Assuming a 5% QoQ drop in deliveries, flat China pricing & -3% in Rest of the World ASPs, I'm seeing around $0.67 in non-GAAP EPS for Q3. This is 17% below consensus estimates of $0.81
I suspect for the religious followers the "demand" will be there, but as Musk himself has commented, they want to buy but can't afford. this will be a problem for the Cybertruck for virtue signaling religious followers. I doubt it will be attractive to anyone who really needs a real truck. Probably huge demand in Beverly Hills and Hollywood. But I am surprised the dislike of his politicss aren't having a bigger effect. In a recession, demand will be even tougher. Thanks Brad. I really enjoy these.
I do think the auto industry will be increasingly an arm of the gov't climate people. They have spent so much in these transitions and they won't be profitable if demand isn't there. I still don't see how so many people in apartments who park their cars outside would even be able to charge these on a regular basis.
The unreliability of the new wave of electric cars is going to push a movement back to older OEMs soon, where Toyota and Honda will flourish. BEVs are just going to take more time until they can become as reliable as the top ICE cars. Combined with Tesla not giving a クソ after they sell you the car and that their global backlog is all gone, it's a given their time is running out.
Brad, you mentioned a Figure 6, but the last I saw was Figure 5. I have been expecting Tesla's sales to start to flatten or decline for some time and that has not happened. Based on a recent survey, despite poor quality, Tesla still has incredibly high brand loyalty. It is as though, as one short seller avoiding shorting TSLA said, it was a religious stock Based on that and that many Model 3 and Model Y owners say they will buy the Cybertruck., I wonder if these owners who ordinarily don't own trucks and have no need for one wouldn't buy a Cybertruck. This could be a huge benefit for Tesla if many of these owners bought. However, if we have a recession, I think these kinds frivolous purchases wouldnt be killed in such a recessionary environment.
Finally I have thought that the entire industry seems fraught with overcapacity and a bad recession could would this industry greatly.
Sorry, there is no Figure-6. Meant to have written "Figure-5". Thanks for the heads-up.
Tesla is cutting prices (and profits) in order to move the metal. Note that their operating margin has deteriorated for 3 quarters in a row and Q2 operating profit was the lowest since Q3 2021.
Q3 2022 should be even worse, given the factly shutdowns. And once again, if they're still cutting prices now (and they are), what would lead them to stop price cuts next year?
The Cybertruck won't be in full production till 2025 and it will have little demand. Many insiders have said that the lowest trim will be around $100K. With its quirky looks, it's hard to see it selling more than the Models S/X.
Great analysis. I believe that the money has already been made investing in Tesla. I would add a few things that you might want to consider in looking at Tesla.
First of all, the political risk with respect to an investment in Tesla. Notwithstanding the way the “winds are blowing” with respect to EVs, there are many headwinds. The politics may change if affordability does not come around.
In addition, Tesla is opening a Megafactory for huge batteries in China. I don’t understand this given the way things are moving with respect to China. When I buy shares in Tesla I’m starting to think that I’m investing in a Chinese company rather than a U.S. one. Why this is ignored is beyond me. The risk to their capital investment is enormous. As is the risk to their supply chain. The security of supply in the manufacturing of their cars seems to be a matter of little concern to Tesla or to the globalist fanboys who follow the stock. In my opinion, it’s shortsighted and completely ignores history.
There has been little discussion around the supply constraints with respect to electricity. We can build all the charge stations we want, but the electricity has to get there. The transmission and distribution systems in the United States and other developed countries are ancient. Can it handle the additional load that the system will be asked to deliver even if the power can be generated?
Now with the BRICS nations meeting in Durban, is there any certainty around the supply of lithium and others given the potential for an open revolt by those nations? Don’t know. Environmentalists have been successful in eliminating the possibility of the vast resources in Canada and the USA coming on stream. How will that risk be managed?
In the old days an auditor used to ask how vulnerable is the company to disruptions in supply? Does the company have access to immediately available sources should one be eliminated? In the current environment, these questions appear to have been discarded.
The P/E ratio already discounts an enormous amount of growth.
In many ways this reminds me of the story of the hare and the tortoise. I would suggest that we don’t know quite yet who the tortoise is.
Tesla's Megapack project in China likely has to do with obligations to buy a certain amount of locally made battery cells from CATL, BYD, etc which might not be met with the coming decline in Tesla's local production.
If that's the case, it's nice to know that Xi Jinping is running Tesla rather than Musk. The regime in China can with a stroke of a pen take over his and other's operations. There would be no recourse, no appeal. I guess investors are quite comfortable taking on this risk. Maybe the EXIM Bank is insuring the risk? Whatever happened to that?
It appears to me that in order to enter the Chinese market, many are prepared to give away almost anything. If there is any kind of compelling investment thesis for Tesla. it is based on taking risks that investors a few decades ago would have shunned in my opinion. Thanks to 15 years of QE, investors have become incredibly risk tolerant. But in the end, he's the richest guy in the world. For now...........
It would require a huge justification for the CCP to shut down Tesla in China. This is because Tesla provides over $100bn worth of business annually for the greater Shanghai area. The possibilities of the CCP closing down Tesla are very slim, IMHO.
That’s a rational answer from a Westerner. Wrong culture. You’re playing the short game. Chinese play the long game. In the end, the question is whether you are prepared to bet your money on that. I’m not. But we are all different.
Brad, any thoughts on the latest price cuts in China and lower price variants in S-X introduced in US on same day?
Stock behaved remarkably considering how china is doing in general. Where do you think Q3 earnings will be? I am seriously doubtful now that they will be able to meet delivery goals for this year (1.8M)
The cuts on the Model Y trims in China were only $2,000 off on two higher-trim versions. The entry-level Y's price hasn't changed. Troy estimates that the entry-level Y is 80% of deliveries, while the Long Range is 14% and Performance is 6%.
The Long Range drops in price from $43K to $41K & the Performance from $50K to $48K. Don't know if that moves the needle too much on these expensive trims (who many incremental buyers are there with only a $2K price cut?), so hard to say.
But, what could happen is mix improvement if the entry-level Y falls to, say 78% and the LR rises to 18% and the Performance stays at 4%. So that's something to be aware of. But this may only offset the $1K discounts for the Model 3 & the depreciating currency.
S/X is a steep discount. A $10K price drop will increase the % of those S/X trims, so expect lower avg prices for S/X sales in North America. All in all, it doesn't look good and we haven't had the factory closures for "upgrades" as Musk mentioned.
Assuming a 5% QoQ drop in deliveries, flat China pricing & -3% in Rest of the World ASPs, I'm seeing around $0.67 in non-GAAP EPS for Q3. This is 17% below consensus estimates of $0.81
thanks Brad. Great analysis as always
I suspect for the religious followers the "demand" will be there, but as Musk himself has commented, they want to buy but can't afford. this will be a problem for the Cybertruck for virtue signaling religious followers. I doubt it will be attractive to anyone who really needs a real truck. Probably huge demand in Beverly Hills and Hollywood. But I am surprised the dislike of his politicss aren't having a bigger effect. In a recession, demand will be even tougher. Thanks Brad. I really enjoy these.
I do think the auto industry will be increasingly an arm of the gov't climate people. They have spent so much in these transitions and they won't be profitable if demand isn't there. I still don't see how so many people in apartments who park their cars outside would even be able to charge these on a regular basis.
As always, thank you. This was riveting reading.
The unreliability of the new wave of electric cars is going to push a movement back to older OEMs soon, where Toyota and Honda will flourish. BEVs are just going to take more time until they can become as reliable as the top ICE cars. Combined with Tesla not giving a クソ after they sell you the car and that their global backlog is all gone, it's a given their time is running out.