
Tesla needs to sell more expensive Model 3s so the company doesn’t ‘die’ - bdcravens
https://www.theverge.com/2018/5/21/17376136/tesla-performance-model-3-specs-price-base-model
======
thisisit
On Tesla's viability, stock price and debt, I think there can't be better
quote than this:

 _Tesla’s current price is arguably fair if most cars are powered by
electricity in 10 years, if most of these cars are made by Tesla, if Tesla can
make those cars with sufficient margin and quality control and can service the
cars properly, and if Tesla can raise additional capital sufficient to cover a
$3 billion annual cash drain and another billion to service its debt._

[https://www.researchaffiliates.com/en_us/publications/articl...](https://www.researchaffiliates.com/en_us/publications/articles/668-yes-
its-a-bubble-so-what.html)

~~~
clomond
Let me be devils advocate here for a second...

Let's first assume that Tesla succeeds in their production volumes and
positive gross margins in the next few quarters, and is able to solidify and
stabilize their financial situation this year. What this article misses is the
scope of upside that is what I believe the Tesla bulls are seeing (Disclaimer:
I am a Tesla bull).

In looking at the next 10 years I see:

\- Batteries being the primary constraint in progress in volumes of electric
cars for automakers (which positions Tesla and vertically integrated companies
like BYD well, but traditional automakers without a tight grip on battery
production at this point not as much).

\- By looking at Tesla instead as a battery company, you can see how the
vertical integration and scale (with the addition of plans for additional
gigafactories in China and Europe) can be a unique competitive advantage
against other auto companies. The more expertise Tesla gains by making better,
cheaper batteries, the better.

\- The article you linked and many Tesla bears do not consider the opportunity
with trucks, and different segments in the within logistics / transportation
market (Tesla could release different truck sizes and modes). Again, we are
looking 10 years out, right?

\- Tesla Energy, which is about grid storage (hint: requires batteries here
too) will become a significantly larger market as certain grids around the
world increase their share of intermittent energy sources. Grid scale battery
systems are already becoming competitive alternatives to natural gas peaker
plants.

\- And don't forget about SolarCity. They could do a lot with SolarCity, and
make progress in various segments within rooftop solar, as costs of solar
cells continue to decrease in the next decade.

Not saying that Tesla is not without immense risk and that they do not have a
very challenging few quarters ahead of them - but saying the upper bound of
their upside is related to capturing the entire automobile market is not fully
putting into account their long term plan and strategy.

~~~
maxerickson
But why do you expect batteries to be anything other than a boring commodity
business?

Boring commodity businesses are a fine place to make money, but they aren't so
likely to go to the moon.

~~~
croddin
Was oil a "boring commodity business"? Many oil companies made very high
profits.

~~~
xkjkls
It's really about moats. What is the major moat you have around a battery
production business? If batteries produced from Tesla versus any other
competitor are almost indistinguishable, what is unique about Tesla that those
market forces wouldn't suck out all of its profit?

In oil, even though it is a "commodity", in that one barrel of crude oil is
mostly indistinguishable from another, oil companies can have huge competitive
moats by having integrated refining, the ability to distribute, or the fact
they can have large monopolies on the resources of very specific areas.
Batteries don't have quite the same sort of easy complementary businesses.

~~~
xapata
> What is the major moat you have around a battery production business?

[https://www.tesla.com/gigafactory](https://www.tesla.com/gigafactory)

~~~
xkjkls
Is that really going to be competitive against Panasonic, LG, or Samsung? All
of those are in countries with better access to Lithium and cheaper
engineering resources? I'd bet on those guys producing way more batteries.

~~~
bllguo
In fact, a lot of the gigafactory tech is Panasonic's. They lead the battery
cell manufacturing at the factory.

------
otalp
Summary of Tesla's situation:

\- Tesla currently has 2.67 billion in cash.

\- About 1.1 billion of this is in loans that need to be returned early next
year

\- Around 40% of their cash in hand is from refundable deposits, from people
who thought they would get a $35k car

\- Tesla cannot make $35k M3s at a profit(this is widely accepted, and even
Tesla hinted at it), they'll lose money even making $42k cars. They need to
make $50k cars to earn a decent profit

\- When asked in the earning call last week about reservations and how many
people chose to cancel/take up their car once offered, Musk stunningly called
the question "boring" and "boneheaded" and went on take questions from a
youtuber for 20 mins. This was considered unprecedented and bizarre and stock
dove.

\- Tesla is losing about 800-900 million a quarter, so they will run out of
money without a cash infusion. Literally everyone knows that Tesla will need
to raise capital this year.

\- Musk though, has insisted that Tesla will not need to raise cash because
they will be "profitable by Q3 or Q4". Reminder that they lost 780 million in
Q1, and even small profits won't be enough to prevent running out of cash. In
order to make profits they need to sell 10,000 cars a week. They were supposed
to produce 5000 cars a week in 2017. They have just now been able to produce
2500/week.

\- Even bulls say that Musk is bluffing and he will eventually raise cash this
year. Moody's downgrade of Tesla to essentially junk stocks makes it harder to
raise cash at good interest rates. Moreover, there is speculation and some
evidence that the reason Tesla haven't already done so, is that they are under
SEC investigation which would prevent them from raising cash without
disclosing a lot of details harmful to them.

\- Tesla has access to standard credit lines for about 500 million, but they
recently had to pledge their Fremont factory to just maintain these credit
lines.

\- A lot of Tesla's financial executives have left the company - a red flag to
many including Jim Chanos, who famously shorted Enron due to similar
indicators. The head of autopilot left and the head of engineering left 'for
vacation' last week.

\- Tesla's autopilot is complete false advertising. Their original autopilot
was developed by MobilEye. MobilEye hated tesla's exaggeration of the system's
capabilities and withdrew their supply after a person died using autopilot.
Tesla responded that mobileye was jealous of Tesla's superior "Enhanced
Autopilot" which has hardware capable of full self driving. It is universally
accepted that enhanced autopilot is worse than mobileye's system right now,
and in general both are basically lane-keeping system with AEB. Waymo and
GM/Cruise are far ahead with their FSD capabilities than Tesla(again, widely
accepted)

\- Part of Tesla's debt comes from bailing out Solar City, a completely
unprofitable company loaded with debt that was run by Musk's cousins.

\- Starting from 2019 and 2020, all the major automakers are bringing out
electric models. This will further damage Tesla's competitiveness, since they
have the wost QA and build quality due to their haphazard and panicked
development process

Despite all this, the market cap of tesla is larger than Ford, Fiat and nearly
equal to GM. Their inflated market cap(which even Musk admits is inflated) is
fuelling their funding which inflates the market cap even more as they lose
more money trying to make bigger promises. A classic example of a huge bubble.

What does Tesla have to it's advantage? Tremendous marketing and brand value.
They're probably inching towards or even surpassing Apple

What does Tesla have against it? The realities of running a business and
actually making the products.

~~~
devy
Despite of all these realities/bubbles you described above (assuming most of
them are true/accurate), Tesla led the way of electrification of
transportation industry and showed us that EVs are the future of sustainable
transportation. I am sure all the Tesla fanboys all have their own nuanced
reasons to support Tesla and Elon Musk, but if I had $100k to spare, I'd
support this noble goal (aforementioned, sort of a success at this point) and
bet big on Tesla and Elon. Perhaps that's Tesla's strength - the vision and a
goodwill. Everything else is secondary.

~~~
resolaibohp
If you really believe in Tesla to bet big on them you do not need 100k. You
can buy 4 $275.00 call contracts for approx 26k that expire in 2020. This
would be equivalent to ~$110k worth of tesla stock. And if you are really a
believer you can just pick up a bunch of way out of the money contracts making
the initial cash requirements even lower.

But this is exactly why TSLA is worth so much right now as so many people
think the same way as you. They all want to bet big on Tesla and Elon. It is
the most interesting stock to watch as it hemorrhages money and just keeps
going up and up.

~~~
devy
I don't own any stocks/secruities directly other than 401k, can you explain a
little more on the call contracts and which broker do you use?

PS: the $100k reference I had there was meant for the purchase of a mid-range
configuration Model S, not TSLA stock.

~~~
mathinpens
I think he is teasing you-before researching this I didn't think a reputable
broker would sell a retail investor 26k of options. But apparently they
do...who knows why.

If I were you I would definitely not actually buy anything he mentions. He is
making fun of your non-quantitative beliefs by urging you to lose money since
like...these options contract price risk into them and discount future
returns. Moreover you are ignoring the substance of the comment-which is that
tesla is overvalued (because of the actions of retail investors buying the
equity itself because they think elon is the lovechild of jesus and steve
jobs) but the options market is probably a better discriminator of the future
value of tesla since its more institutional.

Looking at this comment I was pretty sure he was a financial person and he is
(found a comment for his fintech company). In effect he is making fun of you
for thinking with your gut instead of trying to make a more quantitative
evaluation.

~~~
resolaibohp
To be clear I was not trying to make fun of the OP. I frequently hear people
say that they would invest if they had some certain amount of money. I always
like to point out that there are plenty of ways to invest without huge amounts
of capital, however with much more risk. It is kind of a temperature gauge to
see how serious they are about their words.

~~~
devy
Let me reiterate as well, the $100k price tag is for purchasing a mid spec
Tesla Model S or a base model Model X with some options or 2 Model 3s(if they
could deliver in time before going under), not investing on stocks/securities

~~~
mathinpens
just an fyi an option isnt a stock or a security. it is a contract

------
lgbr
> it is also likely to cannibalize sales of the Model S so the net benefit to
> the bottom line might be negligible

I'm skeptical of this. This is like saying that BMW's 1-series cannibalizes
sales of its 3-series. There's a huge difference in comfort, space,
performance, and practicality between the Model S and the 3. If a Model S is
at all within your budget, even the base Model S is going to be a whole lot
more car than almost any Model 3.

Beyond that, there's easy ways for Tesla to sweeten the deal. For me, Tesla
offering free supercharging on the Model S but not on the Model 3 had me order
a Model S immediately.

~~~
dragontamer
> Beyond that, there's easy ways for Tesla to sweeten the deal. For me, Tesla
> offering free supercharging on the Model S but not on the Model 3 had me
> order a Model S immediately.

Why not just buy supercharging on the Model3?

~~~
lgbr
Because free supercharging easily makes up for the price difference. Some
poeple use something like 4 supercharges a week, which at $20 a charge means
$160/month.

~~~
dragontamer
> Because free supercharging easily makes up for the price difference. Some
> poeple use something like 4 supercharges a week, which at $20 a charge means
> $160/month.

4-supercharges a week implies ~1000+ miles per week. And its only ~$9 a super-
charge last time I checked
([https://twitter.com/TheRealPTFI/status/920306238830735361/ph...](https://twitter.com/TheRealPTFI/status/920306238830735361/photo/1))

If the car lasts to 300,000 miles at 250-miles per super-charge and $10 per
charge, that's $12,000 over the lifetime of the car.

And that's a relatively extreme case. No charging at home, no charging at
work, no charging anywhere except at super-chargers for all 300,000 miles of
your car's lifetime. An absolutely absurd result but still doesn't make the
Model3 comparable to ModelS.

And hell if I'm going to a charger if I buy a car like this. I'm buying a
home-charging station so that I don't ever have to go somewhere else to
charge. Charge at night every day forevermore.

\-----------

Note that the Model S and Model X only receive 400kWh of supercharger credits
per year (~1000 miles). So what, that's like $100 / year?? After that, you
have to pay supercharger fees.

So its not like your extreme use case even saves much money.

~~~
lgbr
> And its only ~$9 a super-charge last time I checked

Prices on superchargers were raised:
[https://www.theverge.com/2018/3/12/17110904/tesla-
supercharg...](https://www.theverge.com/2018/3/12/17110904/tesla-supercharger-
stations-price-raise)

It's approximately $22 now, and more in places where electricity prices are
higher. This raises your estimate to around $24,000 over the course of 300,000
miles.

The 400 kWh of free supercharging is only if you don't have a referral. Buyers
with a referral receive unlimited supercharging.

This isn't an absurd number, either. There are commuters, salesmen, and others
that simply drive a lot who easily manage 50,000 to 100,000 miles in a year.
(There are hundreds of 2015 and newer cars on AutoTrader currently with over
300,000 miles). But you don't even have to drive that much for it to be worth
it. The Model S has an 8 year powertrain warranty with unlimited mileage
(which the Model 3 does not), over the course of which you save about $10,000
for every 100,000 supercharger miles you use.

------
bryanlarsen
A car that's unprofitable at a rate of 3000 per week might be highly
profitable at 10000 per week.

~~~
abc_lisper
Only if the fixed costs are not a large part of the price.

~~~
mediaman
You mean, only if the fixed costs are a large part of the price?

Fixed costs don't scale with production because they're fixed.

If variable costs are nearly all the cost of production, then scaling
production doesn't fix anything.

~~~
abc_lisper
Yeah. It’s mildly sarcastic. The costs of machinery, factory, people are
fixed. They are not breaking even because they are not working at full
capacity

------
practice9
An offtopic note, but those analysts' comments included in the article made me
smile.

They now as much as the next guy on hackernews or reddit..

How about old good "wait and see what happens"?

------
matte_black
Based off of Elon Musk's last tweet, it sounds like he's preparing to leave
the company. Can Tesla do this without him?

~~~
fetus8
Maybe that's exactly what they need, a different "leader", maybe someone with
a bit more experience in the manufacturing space...

~~~
MBCook
Seems like Honda or Toyota or Ford or someone who actually knows how to make
cars needs to buy them and fix this.

Tesla’s electric car plumbing seems to be fantastic but they can’t make a good
car on top of it (at volume, price, quality, and on time). Selling their tech
to someone who knows how to do that would be an amazing combination.

I suppose they could go straight licensing too.

But I think it’s clear they can’t continue as is, they’re doomed that way.

~~~
matte_black
Agreed. At this point Elon is holding onto Tesla leadership for egotistical
reasons. He's done a good job getting the company up and running but it's time
to hand the reins over to someone who actually knows what they're doing when
it comes to pumping out cars.

------
transfire
Dear Mr. Musk,

If you can make me a TRON-like one-to-two seat motor pod, for around $10,000
then you can take my money.

Sincerely, The Guy Who Really Wants a TRON-like One-To-Two Seat Motor Pod

~~~
consumer451
It's an estimated $15,400 single seat, but these folks may have you covered.

[https://en.wikipedia.org/wiki/ElectraMeccanica#SOLO](https://en.wikipedia.org/wiki/ElectraMeccanica#SOLO)

