Locked Down Investments

Long/short equity, growth at reasonable price, contrarian, activist investor
Locked Down Investments
Long/short equity, growth at reasonable price, contrarian, activist investor
Contributor since: 2014
Because he has been saying $35k for three years now. It will look bad if Model 3 starts at $40k+...he will still want to stay in the $30's...that way people will say "ahh he was close..give him a break".
BuyandHold....an EV that never has to be charged??? That's like saying I want a gas car that never needs to be filled with petrol. Unless you have solved the problem of cold fusion and are able to put it into a car you're living in a bit of a dreamland mate.
Charging really isn't that hard. You drive into your garage at night and plug it in. In the morning you are fully charged with another 250 miles of range (average daily driving in USA is about 30-35 miles).
Plugging in takes just a few seconds and is way less time consuming than going out of your way to find a gas station, parking, pumping, getting greasy, paying, and driving back to where you were originally heading.
Do you freak out about having to plug in your cellphone when you get home every day too? Yeesh.
Yeah I agree. Don't think there will be many people buying a Tesla who are 300% below the poverty line.
Base model will start at $39,990...don't think he will hit $35k before tax credits but Musk will want to keep it under $40k to save some face. It will still sell extremely well at $39,990.
I think the Model 3 will do 0-60mph in about 6 seconds. 5.9 would be cool to say "sub 6 second car on the base model"...this used to be really fast Porsche territory just a few years ago.
Top of the line Model 3 AWD will probably do the 0-60 in just over 4 secs or so.
They will want to keep the ludicrous performance (sub 4 and sub 3 second 0-60 times) limited to the flagship Model S/X to keep some point of difference there I think?
Musk does like his fast cars though so who knows.
I am calling a Bugatti beating 0-60mph (2.1 seconds?) on the new Tesla Roadster though. All carbon fibre, and fastest 0-60mph of any production car for a fraction of the price of all other supercars in the sub 3 second range.
Watchingfromabove...as you know I am a Tesla bull but I do worry about superchargers being abused by Model 3 owners.
Currently people who can afford a $80k+ car value their time too much to go out of their way to use a free supercharger and save a bit of money.
However the dynamic changes when you move to a mass market car sold under $30k (after tax rebates).
These people do pinch pennies and may go out of their way to use a free supercharger over charging up at home.
One way I could see people doing it is as follows:
Say you live 25 miles from a supercharger located next to a grocery store, theatre, restaurant complex, shopping mall, etc.
Well some people might go all week (assuming an national average driving of 30 miles per day) without charging at home and then time their weekly shop, dinner out, movie watching with a nice long stop at a free Tesla supercharger to top up for the next week of driving.

At any rate I believe Model 3 supercharging use may be quite a bit higher than Model S/X as people will seek to take advantage of the free fuel.
So either Tesla needs to build more of these costs into the price of the car or try to recoup some of these network costs in some other way. I do think they will find a way though.
Thanks again Tech ES...you certainly seem to know an awful lot about LT's trading history...should we just call you LT from now on?
Wow Tech ES...why don't you sing LT's praises a bit more? Sure you don't work for him?
Yes 25 competing EV's all with production numbers in the hundreds per year. The exceptions being the Leaf, and Bolt with maybe 50,000 each/year?
Not hundreds of thousands as Tesla will be selling on its own by end of 2018.
I actually think the Model 3 will hurt sales of the Leaf and Bolt quite badly as people will be willing to wait in line for a Model 3 because it will offer a much better car for the money.
Tech ES:
"I don't know a single person who likes the doors or think they are a selling point."
It's comments like these where you lose credibility.
AC/DC may be relying on Navy Man for his info but who are you for yours? A room of Tesla short sellers?
There are plenty of people who love the Falcon wing doors..indeed those being one of the primary reasons they bought the car. After all it would be a pretty standard looking SUV if it did not have these unique doors.
Think of it like this. Soccer Mom A drops off the kids in a brand new Model X, falcon wing doors go up, kids pile out. Everybody at the game comes over to take a look, ask questions, etc.
Soccer Mom B drops off the kids in a new Audi Q7, standard rear doors open up, kids pile out. Everybody yawns.
Yes there is not a SINGLE person out there that likes the falcon wing doors or sees them as a selling point.
Why exactly do you think people buy $80,000+ vehicles? Hint: usually to get a bit of attention, showing off success, social status, etc.
The Model X does this perfectly for most and the falcon wing doors have a lot to do with that.
In responce to the article I think Wahlman is right. The Model 3 will be the hottest selling car in history and as I have said before California alone could easily eat up all of Tesla's 2018 production if they don't feel like shipping the car to overseas markets or indeed anywhere else in the USA.
Pot Pie - Tesla is outselling every vehicle in its class. They already own the high end. They are now bringing this strategy to the middle class. Big auto will be 4-5 years behind come 2018 when they really want to get serious about EV production.
Again without a serious commitment to a nation wide rapid charging network (a la Tesla supercharging) or a serious investment in battery production (a la Tesla gigafactory) then big auto is merely dipping a toe into the EV market and they don't intend to build in any meaningful numbers.
Melekinseattle wrote:
"even Nissan's CEO has stated the next Leaf will be a radical departure from this one, citing it's styling as the most problematic feature, sales-wise"
Wow Nissan should hire me as a consultant. I could have told him the Leaf was butt ugly from day one.
Pot Pie I didn't say the Model III would be the most sold vehicle on the planet in 2018 I said it would be the "hottest selling car on the planet".
By this I mean the Model III will have the longest waiting list of any vehicle in production.
i.e. highest demand and people willing to wait the longest to get it.
This will spur Tesla on to increase production as quickly as it can.
Sorry what pot pie? What EV will the Model III have "less than half the range and practicality of?"
I don't think you followed me there. I am saying that the Model III will be of sufficient size, and style to compete with (and beat) the BMW 3 series, Audi A4 and other vehicles in this class.
The Bolt is a small econo-box vehicle and will compete with other econo-box EV's and gas powered vehicles (Nissan Leaf, Chevy Spark/Sonic, etc)
Hey RushinIn. I think you will definitely want to wait until the Model III reveal in March.
Then hold on to whatever you have till late 2017. That's my plan ;-)
Hi again dubious. I'll make you a bet right here and now that Tesla produces more Model III's in 2018 than GM does of Bolt's and that GM produces less than 25,000 Bolts in 2017.
I don't know Anton. All I do know is that a Chevy Cruze or Malibu (longer/better looking cars) can be had for $16k/$20k. Therefore I fully expect Tesla to build a very attractive Model III for $39k before subsidies.
It will go head to head with the BMW 3 series, Audi A4 and others in this same class.
So I think the real question should be:
"Why didn't GM go with a more attractive mainstream mid-size sedan design instead of a small econo-box one?"
My answer: Because it's competing against other eco-box designs like the Leaf and doesn't want a huge demand for this vehicle because it isn't ready to give up its ICE investments just yet.
Just follow the batteries. If a major investment is made in battery supply (along the lines of a Tesla gigafactory) then it shows they are serious about building EV's in serious numbers. Until then they are just dipping their toe in the water.
Hi Anton. Will the Model III really be "late" to market?
If the Volt rollout is any indication we can see that when it was released in late 2010 only 1,500 vehicles were sold. In 2011 (its first real year of production) only 20,000 were sold worldwide.
Therefore it is likely that the Bolt will only be available in small numbers across 2017 (before the Model III starts production).
Therefore even if people wanted to buy the Bolt over the Leaf or Tesla there will not be many cars to go around in 2017.

As I said if GM really intends to build the Bolt in significant numbers (40-50k+ per year) it will need to announce a massive investment in increasing its automotive battery supply, either by taking it in house or incentivising LG Chem (with a massive battery order/contract) to increase production.
Also it has been mentioned in some comments that GM has the ability to subsidise the Bolt, as it is a much larger company so can use its revenue from its more profitable ICE models to prop up the Bolt in the short term.
I would bear in mind here that most of big auto (Toyota, VW, Ford, etc) have pretty narrow single digit gross profit margins across the vast majority of their vehicle sales.
Whether you choose to believe the reports that Tesla is actually making a Porsche-like 20+% gross margin on Model S (and eventually Model X) sales is another story but one thing should be clear - that when the Tesla gigafactory comes online Tesla fully expects their battery cost per kW to reduce by at least 30% (not including improvements in cell chemistry which will also improve the kW/weight ratio which will in turn lead to less battery being needed overall for the same kW onboard and lead to other knock on effect cost savings).
In all a 40-50% reduction in total battery costs (the single biggest cost component of an EV) may be possible over Tesla's current cost for batteries (remember their current cells are still coming in overseas from Japan at this point).
What will this mean for Model S/X profit margins?
Well they should increase dramatically when the Gigafactory comes online.
Tesla will then have a choice.
A: Pass on battery cost savings to lower the price of Model S/X to increase demand
B: Use increased profit margins on S/X to subsidize lower profit margins and initial ramp up of Model III.
Unless there are serious demand issues for Model S/X I am quite certain they will opt for option B.
Gross profit margins on Model S/X by 2018 may be north of 30% therefore Tesla may be willing to take initial gross margins of only 5% on Model III in order to continue to ramp up production and gain market share.
Therefore I think my prediction of a $39,990 starting price (before any tax credits) for a 50-60 kWh Model III should be achievable.
Haven't heard anyone else bring up the increased margins on Model S/X that will occur when the battery gigafactory comes online so hope more people start to factor this in as I believe it will be significant as Model S/X production nears 100,000 vehicles/year by the end of this year. (i.e. a run rate of 1,000 Model S + 1,000 Model X per week by the end of this year).
Really Dave? Are you talking about automotive grade lithium ion battery factories or just battery factories in general who can't seem to find a market for cellphones, laptops, and power tools?

As I said the size requirements and battery chemistry required for these applications are very different to that needed for automotive use. One size does not fit all in this case.
Also there are very few major auto manufacturers who will be willing to take a chance on unproven Chinese battery manufacturers when they know that they will be on the hook for battery safety and warranties for EV's that will be on the road for at least 10-15 years.
The level of quality and exhaustive testing required for auto grade batteries is a whole different level to that required for cell phones or laptops that might be discarded in 2-4 years and also don't have enough capacity on board to cause major safety incidents.
Bottom line is that nobody except Tesla will have enough premium automotive grade battery supply come 2018/19.
By this time I imagine Tesla will be well on its way to building Gigafactory #2 due to unprecedented demand for the Model III.
Sorry Anton I haven't seen anyone investing in battery capacity like Tesla is. Big auto isn't prepared at all for the massive shift in demand for EV's that Tesla is going to create with the Model III and their FREE supercharging network.
Leaf, Bolt, etc are boxy small vehicles that will be cross shopped against other small boxy ICE powered vehicles which cost less than half the price. This is a conscious strategy by big auto who aren't really serious about sparking off the EV revolution.
The Model III will be a real sedan cross shopped and easily beating out cars like the BMW 3 series and Audi A4 in terms of acceleration, safety, cargo capacity (and I bet appearance as well) for the same price.
Sure it won't appeal to all buyers but it will to the middle and upper middle classes.
The Leaf/Bolt however targets those who want a small boxy car i.e. a market who usually have the least amount of money to spend on a vehicle. Therefore unless you are a committed environmentalist you won't buy a small boxy EV that costs twice as much as the same gasoline powered car. There are too many compromises there.
Tesla understands this which is why I promise the Model III will not be an econo-box type car.
Combined big auto has trillions of dollars invested in the internal combustion engine, drivetrains, fuel injectors, clutches, and all the other hundreds of parts that become irrelevant when you move to building EV's. They aren't ready to write off those investments but this will be the death of those slowest to adapt.
Total BS Sam. Granted in the USA coal makes up about 35% of the grid power. But coal use is declining in every country as a percentage of the grid. Yes even in China and India.
Solar and wind is now cheaper than coal in many places.
In 25 years our cars will be electric charged primarily by renewable energy.
So sorry this much better future scares you.
Actually 70% of all oil demand is for petrol, diesel, and jet fuel. Only 5% of the worlds electricity is generated from oil or oil derivatives. Solar and wind is now cheaper than coal in most areas.

So the electrification of the transport industry is pretty much the end game for the oil industry so yes the EV should scare them. Although realistically they have at least 20 years left in this sector so they are ok for the short term. Plastics are recyclable for the most part so that doesn't save them long term either.
Thanks Tim.
Sorry but any argument that starts with Tesla is losing $19,000 per car sold is utter rubbish. If Tesla just wanted to stay small and make cars for the rich (Model S/X and roadsters) like Porsche they would be very profitable.
Unfortunately they are investing massively in a battery plant and tooling up their current factory to be able to make 500,000 vehicles per year by 2020. This is 10 times their current production as you point out.
Do you honestly believe that a company can sell cars first and then build the factory later? Umm no sorry it doesn't work that way.
The car factory, battery factory, store, service centers, superchargers, etc, etc have to come FIRST.
Therefore you have to spend a great deal of money before you can realize any earnings on your investment. Pretty much how any business works actually.
Thanks for playing...bye bye.
Rigggght it was all the UAW's fault. Nothing to do with the incompetent management of GM (the majority of which is still there thanks to the bailout) by building gas guzzling SUV's as the price of oil skyrocketed.
Not saying the UAW wasn't a part of it...but hardly the primary problem.
At any rate I feel very comfortable in saying that "GM is certainly NOT coming for Tesla" as the author of this article seems to believe.
If they wanted to go at the Model III they would have built a BMW 3 series beater, not this econo-box circus car.
It does look better than the Leaf at least...maybe they are coming for Nissan...not Tesla.
Exactly Samma. The supercharging network is vital and will eventually be Tesla's only real point of difference. That and their lower battery costs due to the gigafactory/ gigafactories.
I'm surprised big auto hasn't yet clued into this. I guess they just want someone else to build a network and batteries for them.
It will be interesting to see when the first big auto company eventually gives in and comes calling to join Tesla's network and buy their batteries. Will Musk be true to his word and allow them to join and give up what might be at that point the last point of difference between Tesla and big auto EV's?
Will he sell them batteries when they could instead be used to sell more Tesla vehicles?
Will Tesla shareholders object if he does?
The supercharging network and battery supply is surely to be an interesting topic in the years to come as the inevitable shift to EV's occurs.
Thanks Samma...saved me some time there :-)
What speculation? The Bolt is clearly a small econo-box car which will be cross shopped with other small econo-box gas powered cars.
Geez check out their website, there is already a lot of detail there on the car:
http://bit.ly/1PM85l7
Again Tesla has already shown its strategy with the Model S/X so not speculation again.
Instead of a small dorky Bolt which will be cross shopped against other small dorky gas cars that cost half the price the Model III will be a regular sized sedan (similar to BMW 3 series, Audi A4, etc) which will be cross shopped against these types of cars... again this is all straight from Tesla no speculation.
Except the Tesla will have far superior acceleration, safety, cargo space, lower operating and maintaincene costs when compared to the BMW 3 series, Audi A4, etc. Just as the Model S/X does when compared with a Porsche Panamera/ Cayenne or BMW 7 series/X6.
Do you see what I'm saying yet? The Tesla model III will be the BETTER deal when compared to the gas vehicles for what it offers in its class and price point.
Whereas the Bolt will look like a very expensive alternative to the other small gas powered econo box cars which it will be cross shopped against.
Hmm why do I still feel like I'm wasting my breath?
Actually didn't see you say anything before about Tesla being able to hit the $35k mark so you are jumping around a bit but that's ok.
I actually agree with you here.
Tesla is saying $35k for Model III BEFORE any tax incentives (so $27,500 AFTER the standard $7,500 Fed tax credit) which I think is an insane number for Tesla to be quoting and will be very very difficult to hit if Tesla is going to bring out something decent and worthy of the Tesla brand after the Model S/X precedent.
I suspect a base price of $39,995 (as Musk will want to get under that psychological $40k mark just to save face). So after tax credit probably around $32,500 as a BASE price.
A few options bringing the car on par with a BMW 3 series will probably end up cancelling out the tax credit so around $39k all up for a decent Model III I suspect.
Still at that price it will still be the hottest selling car on the planet thanks to its superior acceleration, safety, cargo space, cost to run/maintain, and the FREE supercharging network which will cover most of the developed world by late 2017...this of course when compared with other ICE powered vehicles in its class or price point. ie. BMW 3 series, Toyota Avalon, Audi A4, etc.
Lot more than R&D going into their expansion as outlined above.
The Bolt doesn't exist yet? Wha? Well they just showed it and claim it will be out at the end of the year. You can't make drastic changes to a design and have it come out at the end of the year. So yes we all have a pretty good idea of what the Bolt will be...a boxy little econo-car that looks similar to the Chevy Spark or Sonic which can be had for well under $15,000 USD.
Except the Bolt will probably have slower acceleration and less cargo space than its ICE counter parts.
Tesla doesn't do these things...they make their EV's better than similarly priced gas vehicles. But that's because they actually want to sell their EV's.