Thứ Hai, 31 tháng 10, 2016

Long-Term Fundamentals of Tesla Motors (TSLA) part 31

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    Their whole inventory.
    As far as I have read, no one has any idea of why a particular vehicle may of may not appear in CPO inventory online.
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    That's true, from reading the CPO thread it sounds like you need to contact your local CPO specialist if you are seriously looking.
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    You made an error here:

    At the cell level they are around 250Wh/kg, (probably closer to 260Wh/kg with the new 90 cells), but at the pack level they are probably closer to 150-160Wh/kg.
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    So I don't know how many use valuation metrics other than p/e, but I think the Price to Book Value is much more relevant for long term-investing and generally deciding how over/under priced a company is. Tesla has usually had a very high p/b especially for a non internet company, at one point I think it was over 100 and for a while it seems to hover over 50. As of late it's been about 30 which is still pretty high. But with this capital raise as of yesterday, an interesting thing happened in which it over halved the P/B. Not bad for one day of work so to speak.
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    The major problem with price/book is that book value tends to get understated over time, due to a consistent (and understandable) bias in the accounting conventions. So for example, Tesla's book value currently values Tesla's brand, copyrights, patents, trademarks, trade secrets, designs, know-how, and so on at $0.

    The minor problem with price/book is that book value can get *overstated* -- this happens when assets turn worthless, or turn into liabilities (as happened in the case of asbestos miners and manufacturers). So the book value of the coal mining companies is much higher than their actual value right now; their coal assets are listed on their books as being worth money, when they're actually a liability.

    However, Tesla is a business with a large amount of tangible assets which *do* go onto the books at something roughly approximating their value: factories, machinery, service centers, etc. This means that book value is a lot more meaningful for Tesla than it is for (for instance) Microsoft.
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    I continue to play around with long-term valuations for TSLA. I am not an accountant so I wanted to do a reality check against making a mistake guesstimating COGS, OpEx, CapEx, P/E, etc. So I decided to benchmark my analysis using some of the basic assumptions adopted by Goldman. They presumably know how to crunch numbers, and despite the recent upgrade traditionally have had a relatively lukewarm outlook on Tesla ("hold" with the occasional "buy").

    In the summary below from 2014 (courtesy of @vgrinshpun's post in the short-term thread -- thank you!), Goldman lays out a number of scenarios for valuing Tesla, depending on how its business grows. (They seem to follow a similar approach in their most recent valuation but some of the details are obscured.)

    Goldman refers to one set of assumptions as the "Elon as Henry Ford" scenario. In this scenario, they propose that Tesla will sell 3.3M vehicles in 2025 at a gross margin of 16%, with an implied share price of about $1835 in 2025.

    This may sound ambitious, but Tesla's recent projections call for selling about 1,000,000 vehicles in 2020. This implies a greater than 80% growth rate (by unit) from 2015 to 2020. Projecting a substantially reduced 50% growth rate from 2020-2025 would result in sales of approximately 7.6M vehicles in 2025 -- far greater than the 3.3M units Goldman projects, which implies less than a 25% growth rate after 2020 if Tesla hits its 2020 target.

    It is worth noting that selling 7.6M vehicles in 2025 is hardly "Henry Ford" territory. Tesla would still likely be only the fourth largest car manufacturer by unit, behind Toyota, Volkswagen and General Motors, all of whom are already producing more vehicles than that. Automotive industry - Wikipedia, the free encyclopedia.

    For purposes of this calculation, I accept Goldman's assumptions regarding ASP, GM, PE, etc., but assume a different "base case" -- i.e., that Tesla meets its goal of 1,000,000 vehicles in 2020, plus achieves 50% growth (by unit) through 2025.

    This implies a stock price of $4226 in 2025 -- $1835*(7.6M/3.3M).

    It is important to note that this number attributes zero value to the Tesla Energy business, which some have predicted could be as valuable as the vehicle business. It also fails to account for the true "upside" to the "Elon Musk as Henry Ford" scenario, where growth continues at above 50% rates well past 2020.

    Many people may discount the likelihood that Tesla will meet its goals. Presumably, they are in the majority or the stock price would be higher.

    But I believe it is a reasonable assumption that Tesla will meet or exceed its stated goals. If it does, based on Goldman's analysis the stock should increase about 20X between now and 2025. More than 20X if Tesla exceeds its goals (or the TE business takes off), less than 20X if it doesn't.

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    EinSV, while I think no one should overlook TE, i like that you were attempting to be conservative. However, I generally think it is very unlikely that we arrive at our destination with the current share / debt structure. At some point we are more or less guaranteed to raise additional capital through bonds or another raise. My guess is likely a debt raise at a higher share price. Again these raises are necessary to fund growth, so they are a good thing, but the current number of shares can not be extrapolated into a share price in a simple way.

    Disclaimer: Also, not an accountant. Things may in fact be easy to calculate, just not for me. :)
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    Thanks for the input, Tenable.

    I assume Goldman's models, which they present on a $ per share basis, factor in dilution since this is fairly standard. I do agree, however, that it would be reasonable to assume that additional capital or debt above and beyond what Goldman has built into its model would be required to grow 2.5 times faster than they project in their "Elon as Henry Ford" scenario. But I don't think this changes the overall analysis materially for at least two reasons.

    First, any additional dilution and/or debt/interest payments should be more than made up for by the TE valuation that I discounted entirely to illustrate how undervalued I believe Tesla is at its current price point.

    Second, if Tesla succeeds in launching the Model 3 anywhere near according to plan, the share price is likely to gap up between now and 2020. A higher share price allows a fixed amount of capital to be raised with less dilution on a per share basis. For example, if Tesla is priced at $430/share after a successful Model 3 launch, it can raise twice as much capital as it can at today's $215 price with the same dilution on a per share basis.
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    Finally. South Korea has the potential to replicate Hong Kong's success. Hyundai may pose some obstacles though.

    I read somewhere that you can buy a Model 3 around $15k USD after all the incentives in Korea. Pretty crazy. Haven't taken the effort to verify it though.
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    Great idea in that article that kt may convert idle telephone booths into ev charging stations. Other cities should look into this idea!
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    Those are good points, which I should have included. I do think P/B is pretty useful if you can take those caveats into account though, another example like the coal companies is RIMM/Blackberry just after iPhone sales started taking off. One way to get a more useful number is to use tangible book value to cancel out IP and goodwill. But even then you still after be careful, particularly with tech companies where the leading product can become almost obsolete in a very short period of time.
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    Though Korean auto workers would rather have a Tesla than the cars they build:
    Employees at Korean automakers pick Tesla over their own brand
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    The two errors in the Goldman analysis from 2014 are interesting:
    (1) What the hell is up with their discount rates? The discount rate is supposed to be based more or less on what investors can get in an alternative investment. What alternative investments are routinely earning anywhere near 15% - 20%? I guess this is supposed to be a cost-of-equity rate assuming that Tesla will be engaging in very massive dilution, but it seems absurdly high compared to Tesla's historical cost of equity.
    (2) They assume that BEVs will account for a miniscule percentage of all light vehicles in 2025, when they will account for the majority.
    Apart from that, it's quite a good analysis.
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    As you say, I have no idea where you can find an alternative investment that will return 15-20% right now, particularly in a zero percent interest rate environment where almost all asset classes are highly valued (many would say overvalued). Having said that, although the discount rates Goldman uses are very high, from what I can tell they are not completely out of line with rates that are sometimes used for high-Beta stocks that are perceived to have a lot of risk.

    Where I think Goldman's analysis goes awry is by combining the high discount rate with very pessimistic growth targets, which drives the valuation down dramatically.

    For example, in the recent valuation, for their base case, Archambault/Goldman predicted global EV sales would be only 2M vehicles by 2025, which as you note is way too low. The summary table for the recent valuation (copied below) doesn't report a Tesla-specific sales volume prediction for 2025, but assuming Goldman estimates that Tesla captures 50% of the EV sales, that translates to only 1M Tesla sales by 2025. They attribute 45% of their valuation weighting to this very pessimistic scenario, and another 20% to an even more pessimistic scenario where worldwide EV sales total only 1.6M in 2025, and presumably Tesla sales are well under 1M.

    So the current valuation (like their 2014 valuation) is heavily weighted (65%) to two scenarios where Tesla produces 1M vehicles or less in 2025, which I think is extremely pessimistic given Tesla's target of producing that many vehicles in 2020, five years earlier. Then, as you note, they apply a high discount rate to get to the $250 valuation. If you use what I believe are more realistic projections for 2025 (even well below the 7.6M figure I used), you get a much higher current valuation, even using Goldman's generous discount rate.




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  • 1/1/2015
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    At today's Tesla shareholder's meeting, Elon was asked about his thoughts on the revenue mix between cars and Tesla Energy products. He said it was highly uncertain at this point, but his best guess was 50/50 mix.

    What would be the impact of Tesla evolving into a company that builds 500k vehicles/year, plus an equivalent revenue of stationary storage packs?

    Very rough calculations:

    100k Model S/X @ ASP of 100k/unit = 10B
    400k Model 3 @ ASP of 42.5k/unit = 17B

    27B in automotive revenue, + 27B in stationary storage = 54B in potential annual revenue from Fremont and Gigafactory 1. That's INSANE.

    For context, Intel Corp. is in the 55-60B annual revenue range.
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  • 1/1/2015
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    ....yeah, that seems plausible, but Tesla's margins on stationary storage are gonna be a lot lower than Intel's margins on CPU chips, just to put a mild check on your optimism. Still gonna be a huge and highly profitable company.
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    Why? Mind you we're talking in the next say 5-7 years and not many years in to the future.
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    Because CPUs are an item with high cachet, brand value, unique intellectual material in every single design, etc.

    And batteries, even particularly good designs of battery, are a commodity. They're much more comparable to RAM than to CPUs. The price competition in the market is much harsher; people will desert you if the competition is 10 cents cheaper. Tesla may well have the lowest production costs and best margins in the battery business, but it's not going to have the same character as the CPU business... or the luxury car business, for that matter.
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    Respectfully disagree, for the following reasons:

    1. Tesla Energy won't sell battery cells but stationary storage solutions. Complete solutions are levels higher in the complexity hierarchy and will give room for much better margins.
    2. Customers can't go to the competition of there isn't a lot of competition.
    3. And even if they're will be more and more competition they won't have the first mover advantage and economics (low cost) that Tesla will have.

    All in all I wouldn't be surprised if they can achieve over 30% gross margin for many many years on Tesla Energy products. In fact for the first few years it might be much higher. Recent retail pricing they have for PowerPacks certainly suggests this.
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    No, they're not much higher in complexity. I could assemble cells into a "complete solution" right this minute; it's *easy*.
    Also, they're not selling complete solutions! They're currently not selling their own inverter, which is a key component to a "complete solution".

    (If Tesla suddenly produces their own super-inverter, that would obviously change the picture. I wouldn't put it past them!)

    True, but there's *already* significant competition. This isn't like the car industry where the other automakers deliberately crushed their electric cars and then introduced "compliance cars" and tried not to sell them. There's serious effort being made here in the battery sector.

    I seriously doubt that. They'll be able to get very high margins for a year or two as the most desperate early-adopters buy batteries, but probably not much longer than that.
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    @neroden: I think we're talking about different things. I'm talking about huge volumes of complete energy storage solutions. You're talking about something else that anyone can easily build, source cells for at competitive prices in huge volumes and where there's already a mature market with a lot of established competition.
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    OK. In that case, my point is that Tesla isn't selling complete energy storage solutions at all yet, and *doesn't even intend to*.

    Tesla is selling battery packs with a certain amount of management to *third parties* like SolarCity who build the rest of the "complete energy storage solution". Or at utility scale, the utility does most of the design work, except for the batteries themselves.
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    @Johan : I don't think Neroden is arguing the revenue potential of Tesla Energy. He's arguing the possibility of Intel gross margins which have been in the 55-65% range for Intel for multiple years. Even you are agreeing with him that Tesla Energy is unlikely to see gross margins like Intel has been reaching.
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    Right, correct, that's what I'm saying. Apologies for the confusion.

    I think the revenues from Tesla Energy will be humungous, just being cautious about the margins!
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    He said 10% GM. I said I believe we'll see better than automotive, ball park 30%. And I think >50% gross margin could be possible at least in the time frame from say 2020-2025, just because you know Gigafactory, and I'm not seeing competing initiatives popping up.
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    I've only talked about margins, no confusion on my end.
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    (a) I don't see how they get a better margin by selling raw batteries than by putting a car with a fancy marque on top of them. If they did, people would buy the car and strip the batteries!
    (b) I am seeing competing initiatives to build out mass production of lithium-ion batteries. Particularly in China.
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    (a) they will sell Power Walls, Power Packs and probably lots of different varieties, not "raw batteries" (what gave you that idea???)

    (b) anywhere near Gigafactory ambitions with regard to volume, quality and price reductions? Please share more info, very interesting.
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    I would think Tesla Energy will have pretty good margins at the start as they have very little competition and there is a massive potential market. Unlike Tesla cars, the tech in the stationary storage isn't that complex. I'm sure Tesla is leveraging their expertise in battery charging from the cars which will make their stationary batteries last longer and probably a bit more efficient, but overall the tech isn't all that complex and I expect battery companies will be jumping into that market as soon as Tesla pioneers it. In a couple of years we will likely see Samsung and LG powerwalls. The various Chinese battery companies will likely see it as a gateway into the US market and we will see some brands we haven't seen much in the west too.

    Tesla will probably be the Cadillac of stationary storage like HP was with printers in the 1990s. There were a lot of brands of printers, but HPs carried a premium because they really were better.

    The upside is stationary storage is mostly an appliance selling business. Tesla doesn't need an extensive service network and they will likely just work with little attention for years. Once up and running the TE side will probably help expand the car side of the business.
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    There's a lot of competition for Tesla in stationary storage, including from Panasonic.
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    Queue the Tesla Energy killers. :rolleyes:
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    Apparently Neroden is seeing several emerging from China and I'm patiently waiting with a high level of interest to find out more about these.
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    Yes, I gathered that from his post/s. Maybe Elon, J.B. and Co. got it wrong this time? They aren't onto something unique, better, more attractive and of increased value/dollar than what anyone else is currently offering, can offer in the same time frame, or will offer in the future. They aren't seeing a bigger picture or ahead of the curve. And they'll lose money on every unit. But I'm not betting on it.

    I'm waiting for the - because I know it's coming - 'there's no way that Tesla can come up with a better, more efficient car factory/car manufacturing (battery factory?!) set up than what all other OEM's are doing and have been doing for a century. It's not possible. It's hogwash. Talking out their butts. Etc... Not betting on that either.

    Let there be no confusion. As humans they are not perfect but quite fallible as they've proven, but they are so ahead of 'everyone' and their intentions are always for 'our' benefit, that you have to be a fool or an arrogant twit (take your pick) to not believe in what they are capable of and not get behind them.
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    "Tesla Inside"
    ??
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    Geez, guys. I'm bullish. I think they'll sell huge volumes at *decent* profit margins (10% - 25%) for years to come. I just don't think they've got the ability to retain super-high profit margins on a commodity business which is already seeing lots of competition.

    China�s Lithium-Ion Battery Production Tripled In 2015

    I agree with everything wdolson says:
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    This is where Elon's vision of a newer production model will be validated.

    TE/TA allows Tesla to remain profitable by allowing them to shift resources to whichever segment is doing well and where-ever the demand is (gosh darn I said it). If the factory(s) have hyper efficient (or even reasonably efficient based on Elon's thesis) production capability then maybe it would also allow for greater flexibility in product manufacture.

    I couldn't help notice during the meeting Elon pausing over the electric airplane bit at the beginning. If the factory(s) can be made to be flexible and efficient, then once the competition thinks they caught up, Tesla would just be able to develop new products and technology to maintain its edge and push sustainability.
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  • 1/1/2015
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    LG is suposed to have the cheapest high quality battery packs available and they are selling packs to GM for $225 per kWh. GM is buying a big volume to get that price. Tesla's costs will be under ~$125 per kWh by 2017. How is that competition?
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    In addition there has been a lot of discussion and analysis that strongly suggests that LG (I assume that what you meant to write - damn you auto correct) labelling their price for the battery at $225 to GM on a slide that perhaps was never meant to be public may or may not be solid price information, seeing how LG is supplying a full solution to GM (drive train, battery, much of the vehicle technology) and not just batteries. So it becomes more of a theoretical price than an actual price, since it's baked in to a bigger solution. In addition it could be inferred that one of the reasons why LG might sell batteries to GM with relaitvely low margins could be that GM is effectively financing LG's development of a future LG car (EV) platform.
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    GM: Chevrolet Bolt Arrives In 2016, $145/kWh Cell Cost, Volt Margin Improves $3,500
    Yes, I know this is cell-price and you said pack-price. But would the pack-price be so much higher then the cell-price?
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    First, you're oversimplifying this in some significant ways. No you can't assemble a pack on your lap, it's not going into an RC model. Thermal runaway is real and has to be dealt with, which Tesla spent a lot of R&D for (and probably still does). You have to carefully match charge/discharge parameters in the BMS programming with the specific makeup of the battery and targeted usage pattern to hold up your warranty. You have to construct the pack to physically hold everything together and be cost-effective (imagine a fridge sized stack of cylindrical cells -- it's not that simple).

    Second, "the machine that makes the machine" is a point of differentiation. Sure Panasonic has the part that cooks up individual cells (to Tesla's spec), but my understanding is that the rest of the pipeline from raw materials to finished packs is, to a substantial degree, designed by Tesla. And that is where they claim the "secret sauce" actually is that allows them to lower the production cost vs. the others.

    Can someone rival them? Sure, in theory. Do they have a substantial edge over competition? That looks to be the case but we'll have to wait and see.
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    When the battery storage market is taking off, the Chinese will not hesitate to sell below cost to stake out their share of the market.
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    So? They can have the part of the market that is so price sensitive that they don't care it's a lower quality product that doesn't stand up and will have to be repurchased. It's not like it doesn't already happen in other sectors and it's not like we're unfamiliar with loss leaders.
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    At
    Tesla's Battery Pack Costs Are Cheaper Than You Think -- The Motley Fool

    I was not surprised by the $190 per kWh figure because I had already determined based on Elon's and JB's comments that I was absolutely sure that their maximum possible was $190 but I also concluded that $170 is much more likely. Coupled with the recent news of the GF production increases I think that Tesla's costs will be under $100 per kWh by the time the M3 launches.
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    There's an "apples to apples" question too. What's the lowest realistic C rate on the Bolt? Is the 0-60 mostly pack or motor limited?

    I assume Tesla ten year plan is not to produce the lowest price 200 mile EV, at least with the model 3 cell/pack technology.
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    How has the Chinese government policy of subsidized dumping of Chinese solar panels worked out for them?

    Are Chinese solar panel makers now making oligopolistic profits?
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    Just for the record: Are you still talking about pack cost? I have no problem with an estimate of under $100/kWh for the cell cost, but think it may be a bit low for the pack cost. But nothing would be better then if it gets that low... :)
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    Yes. I believe that ny the time the M3 launches (end of 2017) that the pack cost will be under about $100,per kWh.

    When they announced the GF they said, conservatively that the GF related cost reductions would be 30% by end of 2017, and 50% by the end of 2020.

    Elon also said "moderate, not big or small" improvements due to cell chemistry. Over 18 months 5% in definitely moderate. That total is over 35%.

    So if we use $185 per kWh as the current price (Tesla said under $190), and use 45% for the GF plus cell chemistry discount we get $101.75.

    That's an extra 10%, but we have three places to make that up.
    1. The initial 30% figure was conservative.
    2. We know that that is too low because of the production at the GF is about 3x their original expectations.
    3. We know that 5% over 18 months for the cells is probably too low.
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    When they announced GF in 2014, their pack cost is $185/kWh? If so, they haven't improved one bit in two years. If not, you need to recalculate your number.
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    There's that and also from what I recall in one of the recent interviews it was stated there's a possibility of 3x volume but they also might not take it that far.

    Personally I think it's not feasible to make cost estimates with any precision since we just don't have enough base information on what's going on.
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    Tesla called in and stated in a phone call in April 2016 that their pack costs are under $190 per kWh. That obviously has nothing to do with GF related cost reductions.

    Here we go again. When I used Elon's statements plus understanding of basic cell chemistry to demonstrate that their pack costs were between $170-$190 per kWh you argued against that based on your feelings! You posted that ridiculous FUD and got some likes. Now that my figures have been confirmed by the phone call I mentioned you have learned nothing from your past foolishness.

    I believe that my figure is pretty close to the upper bound.
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    Their current below $190/kWh pack cost obviously has little to do with GF because they haven't started to produce packs for cars there yet. But you are using this number today as a base, and applying the 30% they said in 2014. There is definitely a discrepancy between their cost in 2014 and today. And the 30% lower cost should be applied to the number they had in 2014, which we have no reason to believe was below $190/kWh.

    Edit:

    OK I see your reasons behind this. 30% is the sole effect of vertical integration at GF, no matter what the base cost is. This makes sense.
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    Exactly. I apologize for being a jerk.

    Thank you for your understanding!
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    As in the infamous flaming hoverboards this last Christmas?
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    That's true but I'm not sure how useful that is. From the smug faces of Elon and JB when they talk about it I think they're thinking WAY lower. For example, the fact that they now have figured out how to essentially save over 50% on the GF building itself, how does that affect the cost? Does that also mean they figured out more automation and will save on on-going labor costs?

    Do I remember right a figure of $60/kWh for raw materials (using who knows what chemistry)? That would bracket the price nicely but then again we don't know how much they're going to be able to squeeze raw materials price with their ridiculous volume. Also with capacity improvements both raw materials and manufacturing cost per kWh decreases proportionally so even materials cost is a moving target.
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    That is beautiful stuff right there. A bromance in the making?
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    We don't know LG's profit margins, now, do we?

    Also, even if Tesla somehow has a *much much cheaper production method*, it's going to be hard to keep all their advantages secret, and reasonably straightforward to copy it. I would not expect that level of advantage to last more than, say, 5 years. (Even if they patent the method, because China will ignore the patent.) Chinese battery companies are *hungry, eager, and fast-moving*, unlike the remarkably complacent Western automakers.
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    More to the point, is anyone *else* making oligopolistic profits? No. The Chinese competition has prevented that. Likewise, it will prevent Tesla from making monopolistic levels of profits on the stationary storage market. Tesla will still make *decent* profit margins.
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    LG doesn't make cars. I doubt they will be able to beat Tesla in the price of their batteries. So LG makes a 20% profit margin like Tesla, and GM, who has to buy the batteries from LG at a 20% markup, can't make any money on its EVs and compete with Tesla.
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    I seem to remember Elon saying that raw materials should be around $80/kWh.
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    Absoutely, but we were talking about the *stationary storage* market.

    In the car market, Tesla is *still* not facing anything resembling competition.
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    You are assuming that the Chinese government makes its policy decision on rational economic grounds only. Not so. They will keep doing it for every big name strategic sector. See steel for the latest round of this. And being able to announce headline grabbing renewable projects with a goal of replacing coal plants gives additional political backing. When battery storage takes off, it will be exactly such a sector that the Chinese want to 'own'. In fact, they already put $400M in last year and Chinese lithium ion battery output tripled as a consequence. And that's peanuts compared to what will happen when they really get going.
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    At that time it was talked about $180/kWh cell cost. So even $190/kWh pack cost today is a significant improvement.
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    That figure is directly affected by energy density. Greater energy density means less materials per kWh. Energy density also impacts the pack related costs because if you increase the energy density you decrease the number of of cells per kWh by the same percentage. In other words the main reason that improved battery chemistries reduce the cost is the increased energy density.

    The pack prices we are discussing are for cars. The TE packs cost more per kWh, primarily due to their lower energy density. Of course TSLA also has a big cost advantage for TE packs.
    I think it's obvious that TSLA will have a huge cost advantage for quite some time. We are talking about over a 100% advantage in costs, plus a big advantage in quality. Thundersag batteries might available for about the same price but so what? TSLA has huge advantages in price, quality and costs to scale production. Their GF related technology is going to be almost like printing money at commodity scale for both cars and TE.
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    guest
    Grumble, can not edit my post.
    I agree that their prices are probably much lower. I agree that the additional ten percent discount that I used for the increase in the factory capacity is probably conservative. And of course as the capacity of the cells increases the cost of raw materials decreases proportionally, along with everything else. I'm believe the five percent discount that I used to account for that is probably low.

    My personal opinion is that their cost will be under $93.50 ($170 - .45), based on the fact that in my original analysis I thought that $170 was more likely to be the correct upper bound than $190. I'm attempting to hit a conservative enough upper bound figure that most of us can agree with.

    But I believe that a,figure of close to $100 kWh is very important for investors to understand. It is under half of GM's cost for the Bolt, that GM is bragging about so it's a huge cost advantage for Tesla compared to the rest of the industry.

    And the $100 per kWh number is a commonly accepted number for the point at which building a BEV costs less than building an ICE.
    �
  • 1/1/2015
    guest
    Yes, unless the increased energy density is from more highly engineered, i.e. costly, materials and/or production techniques.
    �
  • 1/1/2015
    guest

    There is still no evidence that Tesla/Panasonic has an advantage in cell production price/cost. Although I have no doubt that Tesla will have the lowest pack production cost.

    If Panasonic has invented a new generation of cell producing machines, why would they pass that savings to Tesla?
    �
  • 1/1/2015
    guest
    He did say that. He also said that the point they needed to get to for the pack was $100 as that made the battery equivalent to the cost of an IC engine. He also gave an approximate timetable for reaching that, but I forget. Seems to me, though, that they might be ahead of that curve.
    �
  • 1/1/2015
    guest
    JB said that the primary way that improved batteries reduce costs is due to increased energy density.

    Production techniques are similar for all current lithium ion cells There is no direct connection between energy density and cost of materials, except for avoiding expensive materials.

    By no connection I mean just because a material costs more or less does not mean it's use will lead to increased energy density.
    �
  • 1/1/2015
    guest
    My understanding is that at this point, Panasonic is more of a contract manufacturer for Tesla. Tesla owns the battery design and is even getting involved in the manufacturing process. Panasonic will be able to apply the Tesla innovations to non-Tesla battery production which is where Panasonic is getting their value.
    �
  • 1/1/2015
    guest
    This latest news on Tesla's plans for the Gigafactory seem very in line with recent claims they will seek to greatly improve the "machine that builds the machines".

    Like others who have posted, I wonder about the cost impact of Tesla being able to use this existing GF to produce enough battery packs for nearly 1.5 million cars in next few years? Obviously means the battery cost per Kwh is likely to fall even faster than they have previously predicted. The huge capital expense of the gigafactory can now be spread over 3 times as many packs. I expect the cost of the factory must be a major part of battery and pack production Kwh cost. Seems one more indicator that instead of easing up, Tesla keeps coming up with new ways to continue pull away ever faster from any/all competitors.
    �
  • 1/1/2015
    guest
    The full 2016 shareholder meeting:

    �
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    guest
    I don't have exact numbers but from memory the cost of the building itself is not that great. There are other economies of course.
    �
  • 1/1/2015
    guest
    When I say the Gigafactory cost, I meant the cost, not only of the building, but also all the equipment and everything else needed for it to produce cells and packs.
    �
  • 1/1/2015
    guest
    That is why I commented on that part of your post. I haven't seen any references that equipment cost got lower, just that they can stuff more of it into the same building. So the cost reduction is in the structure not tooling.
    �
  • 1/1/2015
    guest
    I think that's partially true. But OTOH Elon and JB have said that one of the primary ways that the GF will reduce costs is the custom cell manufacturing equipment. Two of the ways to customize the equipment are to scale it and to integrate it. This will probably cost more on an absolute basis, but probably less on a kWh per dollar basis.
    �
  • 1/1/2015
    guest
    Yeah but that was the plan to begin with so when they said they can produce more within the same building I guess it's kind of open for interpretation and mine was that it was about volumetric efficiency. But now that I think about it, that totally qualifies as jumping to conclusions :)
    �
  • 1/1/2015
    guest
    The cells are being made by Panasonic employees running machines supplied by Panasonic. Yet somehow this puts Tesla in a superior financial position? I do think Panasonic probably does have next gen. equipment with their IP in the building. I don't think Musk has convinced Panasonic that they should run their business as a non-profit to benefit Tesla.

    Panasonic would want to shift risk to Tesla, so the terms of the cell sale is probably cost plus. Tesla also bought enough years of production that the machines became a capital lease for Tesla.
    �
  • 1/1/2015
    guest
    But who's IP are they using? Initially it was Panasonic, but as I understand it the chemistry is all Tesla's now.

    We don't know the nature of the contract between Panasonic and Tesla. It could be similar to the relationship between Apple and Foxconn where Apple owns all the IP and Foxconn just does the manufacturing. Or you're right and Panasonic holds all the cards.
    �
  • 1/1/2015
    guest
    Some seem to think one or the other has to have the upper hand. There is such a thing as a mutually beneficial partnership. Elon Musk has always given the impression of being very fair; ie. the entire Nevada deal, releasing patents, willingness to partner with others in the SuperCharger Network, etc...
    �
  • 1/1/2015
    guest
    Have to quote Elon here in re: Nevada, "The House always wins...";)

    BTW it was edifying to hear Elon's perspective of the Nevada deal, and makes a lot of sense. Most of the criticism in state only looked at the numbers, but never seemed to go into details.
    �
  • 1/1/2015
    guest

    Lithium ion is probably maturing as a technology, and every competent company knows how to make decent EV cells. How to make those cells inexpensively, and how to use the cells effectively are likely the key. Every major innovation goes through a phase where experts have insider knowledge that then becomes common knowledge. Like the early days of PC, where people questioned whether IBM clones were as good as IBM PCs. Everyone reverse engineers everyone else stuff, and pretty soon a lot of people are expert.

    I expect the key parts of the deal with Panasonic is capital expenditure and risk. Panasonic is not going to bet the company on Tesla. Tesla needs massive capital investments (on or off their balance sheet) to exploit their opportunity.
    �
  • 1/1/2015
    guest
    At the shareholder meeting I remember JB or someone saying that there are parts of the GF that have to kept sealed off because of Panasonic's proprietary machinery.
    �
  • 1/1/2015
    guest
    Yes.

    Tesla is also involved though with the innovations that led to the fact that they can get 3x the production from the same factory footprint.

    Panasonic signed on to the project a short time after they stated that they were convinced that the 30% reduction figure given by Tesla was a conservative estimate. They are not stupid, and I'm sure that they can see from the TE demand, and the M3 demand that the GF is going to be a mint.

    I'm sure that Tesla is treating them well and that they consider their relationship with Tesla to be mutually beneficial.
    �
  • 1/1/2015
    guest
    I have an idea, about how Tesla plans to get from 30% to 50% and (I think I have posted the timing information before) part of the reason they are confident that they can ramp cell production very quickly:
    Tesla and Panasonic will be using custom cell manufacturing equipment at the GF, and that will have a big impact on the cost reductions. Producing the custom equipment for the first production line will cost much more, and take much longer, than building six additional production lines (assuming 7 phases). This explains both the added 20% cost savings, and is part of the reason they are confident that they can ramp cell production for both the M3 and TE.
    �
  • 1/1/2015
    guest
  • 1/1/2015
    guest
    Why would they ever have been counted as zero emission vehicles? 100% of their energy comes from creating emissions. Strange definition of the word "zero"
    �
  • 1/1/2015
    guest
    It's California, so "zero emissions" for them means "no smog in the Los Angeles basin".
    �
  • 1/1/2015
    guest
    Hybrids run on gasoline...they create smog...
    �
  • 1/1/2015
    guest
  • 1/1/2015
    guest
    I hope DaveT, and others chime in.
    Clearly the current fair value, at the close on Friday June 17, was (check the SP) $215.43.

    What you want to know of course is the future value, which depends on future events. Figuring that out is difficult because there are several interrelated factors, and those factors are not black and white. Between now and whenever you think Tesla will produce over 100k M3's I think it could be a bumpy ride.

    The main determinant of SP is income. In the past that has mostly meant auto production, but in the very near future TE will start having a huge impact on earnings.

    AT the 2016 shareholders meeting Elon said that (he said this was highly speculative) that he thinks that the revenue from TE will be equal to the revenue from cars, and that it will grow faster. Below I use half of Elon's projected numbers for car production to generate some rough estimates. If the M3 slips that should be more likely to trigger an increase in TE (leftover cells). That should be the revenue equivalent to about 220k cars in 2017, 250k in 2018 and 350k in 2019.

    I think the worst case is that Tesla is 4-5 months late with Model 3 production and produces about half of Elon's projections, so zero in 2017, and roughly 200k in 2018. Plus conservative MS-MX numbers of 120k in 2017 and 140k (total 340k) in 2018. For 2019 I'll use Elon's 500k figure of 500k total.
    2017 totals 120k cars plus the equivalent revenue of 220k cars = 340k
    2018 totals 340k cars plus the equivalent revenue of 250k cars = 590k
    2019 totals 500k cars plus the equivalent revenue of 350k cars = 850k

    I am very confident that they will do better that, but not confident to depend on that for use as an investment (need a Plan B). My absolute worst case, for planning is that Tesla is 12 months late with Model 3 production and produces about half of Elon's projections, so about 50k M3, at the end of 2018 (total about 190k) and about 250k M3 (total about 400k) by end of 2019.
    2017 totals 120k cars plus the equivalent revenue of 220k cars = 340k
    2018 totals 190k cars plus the equivalent revenue of 250k cars = 440k
    2019 totals 400k cars plus the equivalent revenue of 350k cars = 750k

    One estimate for SP, based higher vehicle deliveries, and not considering the impact of Tesla Energy Storage (TE):
    The following was posted on Jan 6, 2014. about 2 years before the M3 reveal, and the accelerated ramp plans were announced.
    Articles/megaposts by DaveT
    So we should have the revenue equivalent in 2017 of at least 340k cars by 2017, (with zero M3!) 440k by 2018 and 750k by 2019.

    Using half of DaveT's numbers for:
    340k gets us to an SP of $315 by 2017
    $407 based on 440k, by 2018
    and over $630 (based on 750k or 850k) by 2019.
    �
  • 1/1/2015
    guest
    [Edit: Mitch posted this in the short term thread, and I liked the idea of continuing discussion of the moat over here. Not intended as a direct reply to the fair value discussion.]

    Yes, the multiple visions, especially the depth of alignment among them...what's good for Mars is great for TM, and eventually superb for TSLA.

    For example, Elon has said that the Mars vision requires, in spades: 1) lots of money; and 2) new ability to manufacture large complex objects by redirecting engineering focus onto the manufacturing process, utilizing physics' first principles (density, volume, & velocity of an assembly line).

    His personal contribution to #1 is in considerable degree a function of maximizing TSLA SP in whatever timeframe he sees (10-15 years?) as realizable for TM (TA+TE) and jumpstart Mars funding. #2 is a steroid injection for #1, and a requirement for Mars.

    Understanding the intertwined & aligned visions like these can help an investor add a few more pixels to the resolution of one's thesis imagery, which is of course refined as stuff happens (or doesn't). After Q1 the market would basically like to put Elon in time out until "proven" production & financial performance. What he sees instead is the need & ability to lay the groundwork for performance at levels that don't compute when viewing through that market's limited lens. That's all fine and dandy for idealists and dreamers, but it's these interwoven visions that ensure sufficient willingness, coupled with demonstrated competency (engineering & business), to take on whatever obstacle blocks realization of the vision.

    An engineer's biggest strength and most vulnerable weakness both, is a singular focus on engineering. If you take that focus and place it on integrated, well-thought-out vision(s), and then apply your unmatched engineering competence as a tool to realize that vision, you have Tesla Motors' secret sauce. Daimler just unveiled their vision, a comparison reveals one measure of the depth and breadth of the TM moat.

    As DaveT pointed out in his megapost thread, for 2015 and early this year TM looked more like his Tesla 1.0 or 1.5, but for me this understanding points to significant evidence of Tesla 3.0 becoming a reality...and that's not even close to the ceiling.
    �
  • 1/1/2015
    guest
    [?IMG]
    �
  • 1/1/2015
    guest
    The long-term fundamentals of TSLA will change profoundly thanks to the merger with SCTY.

    This is what Morgan Stanley outlined in a great note back in February 2014 (very visionary looking back):


    [?IMG]

    Source: Tesla's Next Trillion Dollar Industry

    - SCTY merger will check the "electric utility" side box.

    - Gigafactory 1-3 (one each NA, Europe, Asia) will seal the "battery" part.

    Now what about the autonomous vehicle side?

    I think another merger with a AI car company makes sense to speed things up. The worst thing would be to waste precious time and let legacy car companies pick up car AI / autonomous vehicle start-ups once they realize they are late in the game. Tesla should seal the deal and spend a few billion $ on the most promising ventures in this area in 2016 (spend billions to make trillions, see chart for huge TAM size! Another no brainer!).

    Finally, Tesla should start building new car factories in Europe and China asap to be able to meet the huge demand for these AI cars. Luckily, the China factory MOU has already been signed:

    Tesla looking to build a factory in China

    And all of that is achieved while maintaining the new "cash is king" mantra and with minimal dilution. The new CFO and Musk work hand in hand.

    What's left? Analysts "getting" the new Tesla.

    I think Morgan Stanley will soon raise their PT on Tesla now that the grand strategy outlined in 2014 is being executed like clockwork only two years later.

    Since Musk himself mentioned that the "new Tesla" (see chart above) could be worth a trillion $ over time I think four-digit price targets ($1000 to $2000 is my conservative estimate) for Tesla will soon follow by the smart sell-side on Wall Street.
    �
  • 1/1/2015
    guest
    I've counted 61,263 discussions here on TMC. So there are 61,262 threads left where you can share your sarcasm. Perhaps you can post one joke every 10 messages, this will keep you busy til the Gigafactory opening.
    �
  • 1/1/2015
    guest
    I'm serious. My post above discusses the SCTY x TSLA merger and creating new revenue opportunities and synergies - therefore altering Tesla's fundamentals at the core. Please add to the discussion how this alters Tesla's fundamentals going forward, thanks.

    PS: Unfortunately, Morgan Stanley seems to have flip-flopped on the 2014 note as of today:

    Tesla (TSLA) target price cut 26% by Adam Jonas from Morgan Stanley following SolarCity deal

    (Details discussed in the link)

    This is very strange since the same analysts at Morgan Stanley so accurately predicted the possible synergies between solar, batteries and EVs back in early 2014 (see chart above). I'm disappointed.
    �
  • 1/1/2015
    guest
    So much hypocrisy. I'll pass, thank you.
    �
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    guest
    They also have this thing called "Partial Zero Emission Vehicles" PZEV which is an oxymoron. Lots of run of the mill Subarus have this badge (with a green leaf).
    �
  • 1/1/2015
    guest
    I'm reading between the lines...Jonas is ambitious and conveying to be a bigger fan of autonomous driving than solar at this time for better or worse. He sees the future with Uber and worries this puts it off into the future.

    I'm more surprised about tftf. What is your take? Sorry if I missed it.
    �
  • 1/1/2015
    guest
    Here it is, in Feb 2014: http://seekingalpha.com/article/2049833-teslas-new-markets-pricing-utopia

    Then, in Jan 2015: http://seekingalpha.com/article/2818826-teslas-latest-sales-projection-for-2025-is-next-to-impossible-to-achieve

    Then, in Feb 2016:Tesla's Last Hype Bullet For Years To Come Is About To Be Fired: The Model3 Unveiling In March 2016 - Then Reality (Hard Numbers And Execution) Will Finally Take Over - Tales From The Future

    Then, in May 2016: A Tale Of Two EV Battery Makers: Daimler Versus Tesla (Continued From BYD Versus Tesla) - And Revisiting Tesla's Crazy 2018 Plans - Tales From The Future

    Same short thesis since 2013.

    That's enough free SEO juice for a hypocrite.
    �
  • 1/1/2015
    guest
    They were _never_ ZEVs. They were PZEVs. The key additional requirement for a PZEV is zero evaporative emissions. Since gasoline evaporates easily, eliminating them was seen as a big deal.
    �
  • 1/1/2015
    guest
    Or you could just have had a quick look at my signature instead of posting so many links not directly related to the topic (well my old February 2014 article is maybe useful concerning Tesla's long-term fundamentals).

    But the question remains the same: Morgan Stanley's report note from 2/2014 added billions of $ in market value (while I'm just being sarcastic) instantly - based on proposed synergies between solar/distributed power, batteries and EVs/autonomous cars.

    Now that TSLA is executing on this very strategy (proposed SCTY merger), MS is downgrading TSLA two years later.
    �
  • 1/1/2015
    guest
    @9837264723849 - Yeah, I'm familiar and I have been reading tftf's comments that seem to be either dry sarcasm or maybe something else

    @tftf - What is your take? Or are you still of the same opinion that 9837264723849 displayed?
    �
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    guest
    If anybody could send me the full research note I'd appreciate it.
    �
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    guest
    If you read the note, it's clear that the concern is not the benefits of the merger itself, but because SCTY's current cash burn will add to TSLA's funding issues. That is, it's a downgrade on risk.
    �
  • 1/1/2015
    guest
    Cash burn is pure FUD. Listen to the conference call:

    SCTY will be cash-flow positive very soon. Elon Musk said so on the call!

    Here's the transcript with EM discussing SCTY becoming a net cash generator in just 3-6 months:

    What more do we need to know? Elon Musk, the chairman of SCTY, says SCTY will generate cash within 3-6 months.

    I doubt anyone writing a "note" has more inside knowledge.

    Only the Internet is rumor-mongering about a "bailout" or "cash burn". Clearly trying to damage the proposed merger.

    I'm glad Elon Musk firmly answered the cash-flow question on the SCTY call!
    �
  • 1/1/2015
    guest
    tftf, since you are on this thread, implicitly confirming you are still a short holder, I would be most intertested in your opinion on my post here Tracking short interest

    I have the feeling I am overlooking something, so for a change I would be interested in hearing your opinion, as you can give feedback
    from a short holders point of view.
    �
  • 1/1/2015
    guest
    I'm not short SCTY, but have been in the past. Closed my last position back in November 2015. Borrowing costs too high now and the stock has already fallen quite a bit.

    But SCTY could go the way of SUNE (now SUNEQ). A good comment on SA about the merger:

    "If Tesla had an independent board it would've waited to buy SCTY out of receivership".
    �
  • 1/1/2015
    guest
    I�ve been caught up in life events but found a window to post (although I�ve been following along with occasional likes!). Thought I would voice my thoughts regarding Tesla-SolarCity as I�ve received some behind the scenes pressure from long-time friends on this board to voice my perspective. Decided to put it here as it relates more to Tesla as SolarCity applies to it.

    Lots of good posts and I generally have agreement with parts of many; However, I�d like to offer a alternative view (read bias) than currently in the other threads

    A White noPaper
    I�ll start with a warning and set of assumptions that I�m not particularly inclined to defend in discussion, as I�m time limited and have done so in the past ad-nauseam. So I�ll list them first and for those that disagree- I invite you to just save time and skip the rest.
    [Also, this is from someone biographically with a deep history in technical R&D thru product development (Aerospace generally) and investment bias of long view companies (Apple, Disney, Google, Amazon type and Tesla of course)]

    The conclusory elements (concluded long ago) for my Tesla investment thesis:
    Assumptive Principles of Musk-World:
    1) Tesla exists to fulfill one man�s vision (but now joined in vision by others like JB)- which was never about �making cars� (ala GM)- it was and is solely about the cheapest possible sustainable energy for humanity
    2) Elon stated (and proven) operational core- fundamental 1st principles will guide strategic decisions;
    -Hence disallowing all past and current industry segmentations to exist for Tesla
    (disruptive across industries if needed to achieve the objective)
    3) Strategic decisions will always serve the primary mission and operative
    -Hence target ONLY the long-term (decades) consideration for core strategic decisions
    (Solar City for current discussion example)
    4) Tesla objective relative to the stated core goal above:
    To eliminate carbon based fossil fuels as a source of energy from the marketplace ASAP. Transportation and Electricity Generation are BY FAR and simultaneously the largest and most inefficient conversion of those fuels to useful (human) energy
    2013USEnergy.png
    5) Humanity is first priority
    -Hence �the customer comes first� defines the solution�s vertical integration from start to end.
    i.e. Solutions both start and end with the individual human customer
    Assumptive Conclusions for this discussion:
    6) SolarCity is a separate company from Tesla in name only- it serves as a temporary strategic placeholder for the benefit of Tesla Energy, largely due to Musk time constraints.
    7) The price of retail Electrical Power (read: rate of Electrical Energy used by humanity for it�s own purposes) is scheduled to approach (near)zero over the next 20 years, regardless of what (Power)Utilities do or don�t do, exist or don�t exist. Note I�m using Power here rather than Energy to denote inclusion of the rate of human Energy use on any time scale.

    Above are my own conclusions based on my knowledge, due diligence, research and experience. They inform my investment decisions regarding Tesla. If you're strongly convinced they are not correct, I would just skip this post, assume the rest of it is based on the wrong conclusions, and won�t relate to your investment thesis- unfairly, I won�t be able to currently engage in discussions of those base assumptions (sorry- been there done that- and I�m exercising my 0th amendment rights of no-speech and it�s associate Pursuit of Happiness)


    The Cadence of Elon
    I think there is generally (including on this board) a cognitive dissonance of the Tesla dynamic relative to investments. It�s an unfair generalization that doesn�t apply to all but severe enough to create an addressable concern in my mind. When investing in Tesla, you�ll be best served IMO to contextualize your decisions in a world defined by Principles 1-5 above. It doesn�t matter what you or I think is actually correct, best, agree with- disagree with, etc. We aren�t and will never make, or have significant influence on, any primary strategic decision of Tesla. So it�s a fool�s errand to anticipate Tesla from a world constructed to conform with your past experience, life objectives, intellectual prowess, etc. It isn�t going to happen given 1-5 above. Your investment thesis for Tesla is served best to conform to Musk-Worldview, it�s stated objectives, and it�s operational character. [Note: I�m saying nothing about voicing opinion, but regardless of opinion investment decisions should frame inside Musk-World)

    You�re investment thesis should constantly place your mind into that world described by 1-5 above and always ask yourself what would Elon do under those objectives?

    The man in charge of your Tesla investment is hell bent on getting humanity to Mars. And in the meantime change the way humanity exists on Earth. If Earth isn�t considered a boundary for him, why would ANY boundaries (existing or fabricated) be placed on the Tesla mission in his world?

    Industry segments, product segments, market segments, political segments, technology segments, manufacturing segments, social segments- Have you seen any of those come to play in any core strategic decision he ever made?

    He doesn�t see those boundaries and neither should you for your Tesla investment. Issues of $1B funding here and $1B funding there are simply bothersome perturbations in the ether for the primary decision maker of your Tesla investment dollars. As they should be given the objective clearly stated (and proven by events thus far)- Right or wrong isn�t at issue here- nor is our own belief - we are not in control or in position to influence - we can only invest or not.

    If you do invest in this venture, move yourself to the world of Elon -
    You're going to Mars in 20 years. And Principles 1-5 above is how you�re going to get there.
    It�s The Big Long - there�s nothing short, quick or small about it.
    To be successful, Your Tesla investment must match The Cadence of Elon.

    In that spirit I�m going to enter Musk-World to paint a picture of TeslaEnergy-SolarCity - even for things we already know and have discussed to help contextualize and inform what to expect:

    Replace the Grid not the Fuel
    Principle 4 (Eliminate Carbon Fuels) alone creates a solution that sells Solar Panels to Utilities both directly and indirectly through the end consumer of Power. Note in today�s world selling a consumer Solar Panels is financially viable only by using the Utility grid as storage/balancing/billing/support - (via Net Metering) Powering the Utility. This is the same as selling to the Utility itself with an indirect financial model that flows through the Consumer who perhaps unwittingly assumes the added risks of 1) decades long fixed price of Power and 2) unknown value effect of shelter asset, in exchange for what is currently a reduced Price of Power consumed. This is effectively a sale to the Utility using the consumers existing assets as a financial intermediary leverage against the future.

    This fosters the PPA/Leases used by Solar City, is a sale to consumers in name only, couples both the physical and financial relationships to the current Power Utility Structure (requiring their full approval and cooperation) and current Industry delineations; And does not provide a vertically integrated solution as a consumer first start-end.

    As such, concurrently violates Principles 1,2,3, and 5 to accomplish 4, and so is not a Musk-World solution, accordingly rejected by this investor as anything but temporary (I held a VERY tiny position in SCTY uncorrelated to Tesla, which I recently eliminated in exchange for more TSLA).

    It is what the normal current business world would adopt and hence given Elon�s limited resource while he�s solving the bigger user of carbon fuels (mobility), Solar City serves as a placeholder to temporarily operate and build some momentum into that space. This is what drove my Conclusion 6 long ago. It is part of the eventual Tesla solution, but not currently part of the company- to be continued at a later time.

    A Musk-World solution must incorporate Principles 1-5. The only conforming solution must replace the Grid between the Power source and the customer. The conceptual view in Musk-World is not that the Grid and it�s obvious advantages is eliminated- It�s simply redefined according to 1st Principles and as such replaced as part of the vertically integrated solution Power to the human-consumer (in both senses of that equation).

    As such, the Grid is the celestial fusion reactor distributing Power directly at no cost to every human individual world wide. Cloud computing for Power. It�s the view of the Grid you would have from Mars.

    Of course we all know this factually- but the Musk-World distinction is it defines the integral solution (technically and business) - crossing all current Industrial and Commerce boundaries and most importantly REQUIRES the consumer based solution to transform:

    Power from a Service to a Product
    That�s the key disruptive from a Musk-World view- financial, technological, relationship to consumer and all the business infrastructure required to secure it�s success is the Tesla mission to accomplish. This by definition means SolarCity (or certainly it�s equivalent) was always part of Tesla.

    The transformation of mission in consumer-first speak:
    With the right Product I can self-service my Power- and so the cost to produce the product becomes the long term Tesla quest, not the cost to produce the Power.

    Photon grid receptors are by definition inside the vertically integrated Tesla Power Product (incorporating storage/support) connecting each Consumer to the new (photon)Grid directly.

    The Tesla solution is a product that converts quantum level grid photons to electrical potential for all uses. The Tesla mission for the coming decades, to deliver this product solution at the lowest possible cost through innovation that vertically spans the grid source of photons with customer acquisition and support.

    The technology of the product conversion and storage is an extension of the semi-conductor fundamentals of research, development, and manufacturing. The product will take the form of a single but multilayer sheeting, largely manufactured by 3D printing and related [again we are in 10+ year forward here_ aka the cadence of Musk World].

    The single sheet layering will contain multi-junction multi-wavelength grid photon reception and conversion to free electrons, super capacitors doped into the same sheet to receive and store the free electrons; solid state inversion for delivery and a sink path to ground as safe discharge of excess energy balances input and output. Other than small micro-grids for high density populations, there is no 'market' for electrons as supply massively swamps any demand.

    The analogy against current product structure (and extended technology/manufacturing basis) is best served by the cloud networked computer. The outer sheet layers converting photon to electrical is the CPU/GPU and the SuperCapacitance storage layer is Memory.

    The Tesla mission per vertical integration principle provides all technology fundamentals to product design to material sourcing to manufacturing to production to customer acquisition to sales/marketing to product service to virtual upgrades.
    Note: Conceptually this begins with fundamental sourcing of Grid-photons (fuel) for the consumer all the way through Power available for use by any device (most especially, Tesla�s own human mobility end-product). This resolves the original Primary Objective: to remove carbon fuels from the two largest human use cases (Power production and Mobility)
    Think Apple / Intel / GE / DuPont / GM / Utility cross industries - I suspect Panasonic to play a strong on going partnership role in both LiIon (bridge to SuperCap), PV along with the partnerships with the University research personnel etc. (again Elon always colors outside the lines)

    In Musk-World, there was never going to be a �solar industry� which by definition maps to current Utility grid - instead, Solar is simply a piece part in the BOM of the Tesla Power Product solution. And only a layer of it in that.

    This requires SolarCity to become the opposite of a PowerCo, YieldCo, Owner/Seller of power in any form as a service or commodity. Power is destined to become a personal appliance product. Rated for use like any refrigerator or A/C unit.


    Price of Power     underwrites, but Pricing Power is the Mission
    The wrong Asymptote    -
    The current Price of Power in non-inflated dollars has been essentially constant for decades (relative to the disruption of this discussion). Not surprisingly, since the delivery mechanism scales to any use at roughly the same cost per user and with guaranteed returns. This has induced one of the most indelible investment assumptions in history as Power Utilities� stability and return are considered among the safest and dependable available. The consistent and guaranteed Price of Power underwriting these investments. The associated Solar intrusions produce attractive funding, locking in confident forward assumptions extending 20 years, historically a small time frame relative to the Utility history of return.

    This requires of course a continuation of Power delivered as a grid service for decades to come. This ~12c kWh (for discussion reference) has become understandably ingrained in consumer, investor, and utility mind set as largely unassailable.

    Delivery of Power as a product of course disrupts en masse. And is more importantly driven by a wholly different set of rules (Moore's law for example). The most important of which is, there are no rules. It's defined solely by the technology/manufacturing development path as an extension of semi-conductor advancement. Those advancements equally attacking all aspects of product definition- install cost, service requirement, longevity, materials, efficiency, etc. There is no effective safe-bet bottom support from 1st principles.
    PVeff(rev160420).jpg

    Current lab technologies (already baked in) flowing to the marketplace schedules a household roof sheeting (both conversion and storage) for a total price of a current appliance ($2000-$3000) and with performance lifetime of 20+ years, requiring almost no service cost. Installation costs similar to roof replacement currently recurring every 15 years or so. All in, on the order of 1/10 of current Pricing per kWh (near free).
    1-s2.0-S0048733315001699-gr10.jpg
    How predictable is technological progress?

    The Tesla Power Product replacing the oil-based roof, will install as a structural, architectural part of the home or business, with install costs built in to the normal roof replacement cycle but costing less than a current roof costs today; and of course like today simply amortized as part of the structure asset itself. [Note, although less efficient, building structures and automobile paint layers will also accomplish photon conversion for same price as current paint- It's in the paint!]

    Price of Power near zero- melted into cost of the structure itself, permanently eliminates all current Utility based- distribution costs- balancing costs- fuel generation costs- system costs- grid maintenance costs- service costs- meter costs- billing costs- regulatory costs. (Think EV vs ICE on a massive scale). More importantly, NONE of these costs impose themselves as barriers to the technology based product solution development. Like the super computer in your pocket, with its cost per FLOP and MBPS, the cost per KWh will asymptotically approach zero. And render Utility based power obsolete and unviable- Solar based or otherwise. We have now entered this funnel, and is is an inevitability. Safely sinking all the excess power will be an important element.
    AreaRequired1000.jpg
    Musk- SPB.jpg


    SCTY 2.0 is the product based solution set
    Goals are inapposite to 20 year PPA/Lease
    Elon knows all of this of course and so
    Finally, how does this resolve into meaningful consideration of Tesla's absorption of SolarCity?
    Key recognition of two elements.
    One: The objective of TeslaEnergy-SolarCity (TESC - SCTY 2.0) is inapposite with the long term PPA/lease financing, which by definition underwrites against the wrong asymptote price of power over the financing term;
    Two: Assumes Power as a Service not a Product.

    The successful TESC development of Product Power will drive to the lowest cost possible in order to gain the best Pricing Power with all customers. This is inapposite of long term price lock-in that underwrites using fixed current value of power. The market value of a PPA/Lease under the TESC objective is known to be a financial loss assuming it�s successful at it�s own objective; It�s therefore a disservice to the customer obligated to it when the mission of the seller is to effectively make it worthless to both the original customer and any potential buyer of the PPA/Lease.

    I believe this is the transition they are currently making with the new financing product, new personnel, leading into the pending merger. I would recommend continual questioning and monitoring to validate this. In my view SCTY 1.0 should be working to offload all current PPA/Leases to the �currently clueless� financial institution fund investors (poetic justice imo).

    SCTY 2.0 should eschew all financial vestiges of 1) ownership of the power (the value of which is destined to be near zero by TESC�s own mission), ownership of the financing underwritten by the Price of Power, and 3) all sales based on that financial relationship with the customer.

    SCTY 2.0 should sell product with Pricing Power, for cash, bank loan financing, or other equivalent financing mechanisms. I believe this is exactly what they have in mind. For years I've warned investors away from investments in YieldCos, Utilities, owners of power, bonds and other instruments of these for this very reason. And also why I've kept my SCTY investment very low in anticipation of this corrective action that I believe will occur as part of this merger.



    Epilogue:
    Sun God to Sun Grid
    Of course years from now, we humans will arrogantly congratulate ourselves for our prowess in achieving near free power as part of our homes and businesses.

    In reality it's a small feat in our evolution. Truthfully, we are just catching up to our plant-life friends who figured out how to convert free photons for self energy long before we even arrived on the evolutionary scene.

    And the irony of ironies, our fist solution was to look down - extract the decomposition of our teachers (without somehow looking up) and burn it (must have been our ridiculous obsession with fire I guess- thanks King Louie)

    After cooking and choking ourselves with our first solution, our second solution finally applied the teachings of our plant-life friends to convert ground chemicals gladly provided by Mother Earth to construct photon-receptor canopies integral with our own shelter.
    Tesla is The Photosynthesis of Mankind
    The new mantra for TeslaEnergy
    I Am Groot
    giphy.gif


    I might suggest we try to limit arguing about semantic drivel
    (reminds me of a Norman Rockwell group of old men)


    Instead, Let�s
    Come Together�
    Because�
    In The End�
    the Light We Take is Equal to the Light We Make
    (tm Lennon/McCartney/Harrison/Starr�)

    Celebrate the music we make- the truly unique achievements of humanity-
    the rest is just a discovery of what's already there



    Postcript:
    My home planet is Mars (been accused of this for years)
    RocketMan now residing in Mars city of Musk-ville
    Elon says Hi; just Tweeted:
    "Save Mother Earth-Life - there are no Beatles on Mars�"
    tweet 2
    "It�s not Rocket Science-"
    tweet 3
    "So what if it is? Photons aren�t real anyway�"

    peace and good fortune�
    �
  • 1/1/2015
    guest
    [?IMG]
    �
  • 1/1/2015
    guest
    Nice write up. I would agree with most, however I do not think you have really mapped out the near term. Currently the technology to make energy a product isn't cheap enough to do so.

    So how does one get from here to there? This is another feature of Elon that I think many investors do not understand or at least want to agree with. Elon is on a mission as you point out, so (in my opinion) he is aggressive at using whatever finanicals tools that will accelerate said mission. PPAs, customer deposits, tax credits, ZEVs, state negotiations, convertible debt, follow on financing, whatever, doesn't matter.

    He didn't create any of these things, but is very adept at using them to further his goals. Especially to bridge technology improvements or cost improvements delivered by scale. That is usually why these things exist in the first place. My opinion is that as long as Tesla, SCTY, SpaceX is continuing to deliver on the master plan then he should use these tools aggressively.


    This is part of the package when investing in Elon. Deal with it.
    �
  • 1/1/2015
    guest
    Good thing its a long weekend to read this thing...
    �
  • 1/1/2015
    guest
    @kenliles : Best post I have read in my entire time on this forum.

    Thank you. Ken !!
    �
  • 1/1/2015
    guest
    This is an excellent point. It took the Chinese a little while to realize that the biggest economic gain from producing solar panels was to be derived from installing them domestically. Now China is the biggest installer of solar and wind in the world, and this is enabling the country to slash import bill for coal.

    So when it comes to the battery race, will they see this as merely an export opportunity? I don't think so. I think that they will see this as a huge domestic opportunity to cut all fossil fuel imports at a rapid pace. Not that right now China is stockpiling oil into a national strategic petroleum reserve at maximum pace. They hope to have a 90 day supply against their daily oil imports. This is around 590M barrels. The basic motivation seems to be to protect their economy from oil supply disruptions and price swings. They are currently importing at maximum physical capacity to fill this beast up. So consider the opportunity China has to reduce oil imports by electrifying transportation. If is is worth tens of billions of dollars to stockpile oil, it is also worth serious government investment in EVs. Ultimately, the ability to slam out EVs will give the country much more security from oil disruptions than a SPR ever could. So massive battery factories have enormous strategic value for China, much more value than just exporting a cheap commodity.
    �
  • 1/1/2015
    guest
    Great job, Ken. I've always thought that to understand Tesla, one needs to have the imagination of science fiction. And you have demonstrated that principle here.

    I do think that SolarCity and its PPAs are consistent with the longterm vision. The thought that solar systems installed today will be obsolete in the future has never troubled me as it seems to trouble you. We all know, I suspect, that the Model S that Tesla sells today will also be obsolete in the future. But these are the products that can be deployed today. The financial question is how much value can be derived from them before they are so obsolete that we cast them aside for something new. The beauty of a PPA for customers today is that they enjoy savings all along the way to obsolencence, while the PPA provider absorbs the risk of obsolencence. However, absorbing this risk is not really a potential loss for SolarCity if they are the entity positioned to profit from offering the new product that brings about obsolencence. Similarly, when Tesla make the Model S obsolete, it is right there making money on the new product. However, when consumers position themselves to absorb the risk of a purchased solar system, they simply cast aside a sunk cost, whether they saved money or not. It's fine if a consumer wishes to do that, but there is no moral superiority in a solar installer that eschews offering PPA financing. Indeed, it is quite gracious for SolarCity and Tesla to spare the PPA customer the risk of obsolencence. Sure, in twenty years the customer replaces the roof with whatever the state of the art solar system is at the time, no questions asked. Morever, this does not trouble me as a SolarCity investor, because TESC is well positioned to offer and profit from that upgrade. What the renewal term offers is an option against the posibility that the state of the art in 20 years is not really worth transitioning to for another 5 or 10 years. Consider that risk for awhile. If the products do not advance quickly enough then SolarCity is actually worth less in the future than if it had completely obsoleted a 20 year old system. So anyone worried about the value of the renewal term is contemplating a scenario where the technology is progressing very slowly.

    So I don't mean to get into weeds here. The basic point is that our greatest hope is that everything Tesla and SolarCity are making today will become rapidly obsolete. Staying at the head of the curve is the only way to create lasting value for shareholders. And for this we need a vision that takes us to Mars and back.
    �
  • 1/1/2015
    guest
    I'm seeing how the PPA agreement can go badly against a consumer, and thus gets to Ken's point. If the PPA were adjusting annually up and down, by as much as 2.9% based on what the provider's price does, then it would be Solar City absorbing the risk of the cost of energy going down during the PPA. With a 2.9% annual escalator built into a 20 year contract, on a product whose cost is going towards 0 - that's all profit to Solar City and bad news for the consumer (should that scenario play out).

    And it doesn't need to go to 0 to be bad for the consumer. All the cost of electricity needs to do is stay flattish for the next 20 years, instead of increasing as it has in the past (and which increase tends to be baked into the financial justification that makes these systems work), while the PPA is going up, and consumers have a higher cost of energy to look forward to in the latter end of the contract.

    I agree with the larger societal point, that installing all we can now, and obsolete it and be installing different and way better stuff in 10/20/30 years is entirely to the good. But that escalator clause looks to me as well, like the clause that shifts the PPA from an unalloyed good for the consumer and Solar City, and shifts all the risk of technology change to the consumer, and all the benefits to Solar City. (I know that I wouldn't sign a PPA with escalator in it, and I know I wouldn't recommend it to somebody else; that core realization keeps me from investing in Solar City).


    The bigger picture - Ken said it and has been thinking about it way more than me. The idea that energy is going to zero though, is something I've been thinking about for awhile. I don't see that idea baked into the markets. I didn't think about how that will change the utility industry.

    How does the world economy change when the energy "tax" we pay, to varying degrees, to live, work, and produce things goes down to ~0? That looks deflationary to me during the transition as the current energy systems get taken out, and deflationary economies tend to freak people out.
    �
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