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Here is an twitter thread unroll criticizing the insurance analysis (or lack thereof) by ARK.
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Here is an twitter thread unroll criticizing the insurance analysis (or lack thereof) by ARK.
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I won’t pretend to know much about the insurance industry but that person made a few errors extrapolating.
From now until 2025 in the bear case scenario of 60% growth is 13M cars. There’s already another 1M cars on the road now too.
They underestimate how much data Tesla can get from every vehicle. They know how fast you accelerate/brake, how sharply you turn, how closely you follow other cars. Once the internal camera is turned on, they know if you’re looking at the road or on your phone. If you’re doing everything right, the likelihood of getting into an accident where the driver is at fault is minimal. Of course stuff still happens, especially with other human drivers around, but with cameras everywhere they can document the other party at fault.
They wonder how Tesla can finance building cars and underwrite insurance at the same time. Tesla is cash flow positive by $1-2B last few quarters and has $20B in the bank. If Tesla does continue to grow 60% especially with arks assumption of high margins, that’ll continue to grow even faster.
Tesla’s factories are also relatively cheap to build. Giga Shanghai cost $2B or so. After 2 years of production the factory already paid for itself.
Tesla can achieve better margins easily by basically no cost of customer acquisition. If you drive and meet safe parameters, the car pops up a window or you get sent an email asking if you want to switch to Tesla insurance. Or when you buy the car, there’s a box to check if you want to get Tesla insurance that leads to a calculator to see if you’ll save money instead of commercials and sending out junk mail to everyone. Then if you meet all safety parameters the likelihood of getting in an accident is exceedingly low so premiums are largely profit.
So I don’t disagree that ark probably made some faulty assumptions, but this writer also made some too. The assumptions that ark made are quite lofty and calling it bear case scenario does seem misleading.Comment
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Is there any concern of if they are trying are trying to do too much ? Like instead of focusing on making the best car possible (fit and finish is a clear known issue) , they’re dabbling in all these industries they have no experience in. Obviously you need to branch out to grow but I wonder how much is right ? There was a video of a guy on Reddit stuck at a supercharger overnight because the thing literally wouldn’t release the charger/his car.
to me if they ever want to achieve true dominance of the market they’re going to have to fix this stuff . Anecdotally it seems like we hear a lot of complaints about stuff like this from Tesla owners.Comment
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“Tesla’s factories are also relatively cheap to build. Giga Shanghai cost $2B or so. After 2 years of production the factory already paid for itself.”
Really? Direct costing only. The full absorption costs (which hit the bottom line) likely tell a drastically different story. There is a huge overhead component.
Just one small example. The assembly operations don’t standalone.Comment
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The best way to describe Tesla is a dozen startups in one company. All the big tech companies try and throw money/time into different ventures too. I’m sure there’s different heads of all these different programs so I’m not sure if slowing down one area to focus on another would help much. It would probably help focus Elon’s attention more though.
I definitely agree that Tesla needs to work on a lot of things like fit and finish, communication, customer service for sure.
That charging example was ridiculous because there was a service center relatively close by. I can possibly understand if it was in bfe, but they should’ve had the ability for someone nearby to help. Maybe techs aren’t on call 24/7 but a supervisor should be. I think they did offer the person Uber credits? I just checked the post and the car was randomly fully charged and ok to be disconnected in the morning. Apparently everyone working saw the Reddit post and is going to try to recreate it. Gave op a model y loaner in the meantime.
The thing is weird things like this happen to other cars too. In a physician Facebook group someone posted about their new bmw suv that just randomly died in a McDonald’s drive through and had to be towed away. A lot of the Mach-e had to be recalled for loose bolts or something. The id3 had to be recalled for software updates. The media seem to make a bigger deal for things about Tesla than other cars.Comment
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I only know the numbers and figures of what’s reported so I go by that.
As for the Chinese govt ban, it’s limited to military bases or other sensitive areas. I’ve read that they have the same ban on iPhones and that doesn’t seem to hurt Apple too much.Comment
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Is it possible that story reported, much of which is crafted outside of financial reporting guidelines are finely crafted ? It is interesting that most if not all issues are deflected as “all tech”, other car manufacturers, Apple etc. These types of responses depend on the technique called pivoting. Not a car company, not a tech company, not a battery company, not a software company, just “we are different”. None of the issues are addressed. Just pivot and somehow that solves the problem. This has been done before. It was called conglomerates. Well diversified in unrelated businesses! No synergies and eventually sold or closed. This is not unique to Tesla. Don’t take it that way. Apple does the same, Apple Car and Apple TV. New products and new markets are valuable.Comment
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ARK probably wouldn't do well in the actuarial business.Comment
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Record GAAP numbers, $438m profit!
Gaap. $438m
Credits. -518m
Bitcoin. -101m
Adjusted -181m
No model S or X produced in the quarter. All deliveries were out of inventory. They don’t have a dealer supply chain to stuff that dealer distribution channel models use to smooth imbalances. Three months is a big miss. Idle capacity is a risk.
My concern is it may be a great car, but it needs to be profitable.
There are fundamental manufacturing/distribution/service risks that Tesla needs to address.
Elon did a good job of painting optimism while acknowledging logistic challenges continuing.
I’ll let the aficionados dissect if they choose. Down 3% after hours.Comment
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Overall an average quarter, nothing terribly earth shattering. I don't expect things to move much (aside from normal TSLA volatility) as there were positives as well as negatives.
While it's true that they're still benefiting from regulatory credits, it's there for anyone to take so Tesla is taking advantage of it while they can. I expect that income will still be there for another year or 2 at least. OEMs will realize how hard it is to ramp EV production. So until they're able to, it's more regulatory credits for Tesla and other pure EV companies.
One of the things I was concerned about last quarter was automotive profit margins. Those improved even without a lot of higher margin s/x deliveries. It improved despite lower ASP, which means it's becoming much cheaper and cheaper to make the car itself. Average cost per vehicle was $84k in 2017 as model 3 began production and now it's $38k. This is really skewed because those costs in 2017 were majority s/x and the new cost is 3/y, so it's hard to directly compare the two. But it still shows how production costs are going down and profit margins are going up.
You can argue that they're not profitable adjusted, but you can also argue that regulatory credits and sale of bitcoin are part of their business strategy as well (for better or for worse). You also have to keep in mind they're growing massively with 75% growth in revenue and 82% growth in gross profit yoy.
Model s/x refresh have been delayed which is bad, but wasn't a huge hit to overall revenue or profit. To me, once they're able to deliver the cars (hopefully starting next month elon time and ramping to full production/deliveries q3) that'll increase profit margin further. They plan on making 2000-2500 model s/x a week once fully ramped.
Q1 order rate was strongest in their history so demand is still not a problem and they're still selling ever car they make as they make more and more cars. The model 3 is reportedly the best selling premium sedan in the world and the model y will (optimistically) be the the best selling vehicle ever by 2022.
The shanghai factory continues to build out and they're making fast progress on the Berlin and Austin factories. They're planning on deliveries from those factories end of 2021. Even with these two factories not producing, they currently have production capabilities of 950k 3/y and 100k s/x. Some Tesla bulls are estimating a potential 1M car delivery year which would be a 100% increase from last year.
On their other business, solar deployment went up but storage deployment down. They claim it's variable due to timing of specific project milestones. Their ordering backlog remains very long due to popularity.
The earnings call was average as well, no expletives. Very passionate talk about how home energy production/storage is important as well as how prototypes are child's play/trivial compared to mass production and how Tesla is the only new company to survive making cars in 100 years or something.
One other thing Elon mentioned is that as of now, most people still look at Tesla as a car company. Some others look at them as a car/energy company. In the future, he thinks they'll look at Tesla as an AI/robotics company as well. When they have trouble with a problem with no solution, they're often creating the team and solving that solution. FSD is one of those problems and it'll be ready soon (Elon time).
To me, looking at the 4-5 year time frame, still on track as profit margins improve and overall car production continues to ramp nicely. Still order backlog and no demand problems. Biggest challenge is still battery shortage. Tesla is looking to double battery purchasing from suppliers as well as figure out making their own batteries. The 4680 battery line ramp/optimization is the thing to look out for. If they're able to do that, they'll continue to scale car/energy storage production. If they continue to have problems, then it'll slow down their production ramp and hurt future outlook.
Investing in Tesla is a long term play on their growth and innovation. I don't expect the stock price to do much in the short term except vary wildly with macro. I think once they make more progress on the 4680 battery line, fully ramp deliveries of higher margin s/x, and make progress towards beating annual delivery estimates, it'll move the stock price again (I'm betting q3). Even if TSLA remains flat I profit from covered calls and will continue to sell them until FSD/robotaxi gets solved (which may take years) then all bets are off.Comment
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"which means it's becoming much cheaper and cheaper to make the car itself."
With any company, full absorption is a difficult thing. I would not draw a conclusion on actual product costs on a 10Q release. My take is that they have applied consistent cost accounting processes. A lot of period costs can legitimately be deferred IF the production volumes substantially pick up. That is when you have the company talking to "adjusted earnings". Write offs due to "restructuring" or whatever. A business running on government subsidies allows the government to pick winners and losers.
Take advantage, sure.Comment
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The governments are penalizing pollution. If the other automakers would make efficient non polluting cars, there would be no penalties and no credit sales to Tesla. So blame the other automakers, not Tesla. They’re just taking advantage of the situation while it’s there by taking money from the other oems (not the government).
Then if we’re talking government subsidies then eliminate all the ones for oil/gas/coal/farming too then.Comment
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The most unnerving thing about the ER yesterday was that Tesla sold 101M of Bitcoin.
Elon was constantly pumping it on his Twitter account (presumably after they had purchased it)... Obviously he has no respect for the SEC, but that's gotta be ethically and morally dubious... although crypto is an unregulated market so not sure what the SEC could have done anyways.Comment
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"https://finance.yahoo.com/news/tesla-allows-six-more-months-105912062.html
Last month "normal problems" began to surface. These happen in any country, China and Germany are not really that unique. This is only the beginning. The labor regulations in Germany will pose unique issues even when the plant is up and operating.
I am sure Elon is aware and has done some homework in the site selection process. What I can't tell is if he really comprehends the operational impacts of local regulations and has a strategy to overcome and adapt.
"Initially, Tesla had planned to start production on July 1, 2021, but red tape and plans to also build a battery cell factory on the site have delayed the project.
Tesla last month slammed lengthy regulatory processes in Europe's largest economy, saying its approval framework "directly contradicts the urgency to plan and realise such projects that is necessary to battle climate change".
"Climate change" probably won't help expedite "regulation change". Work arounds are a better choice.Try to operate as the local's operate. Information only.
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