Steve Funk

Long/short equity, growth at reasonable price, momentum
Steve Funk
Long/short equity, growth at reasonable price, momentum
Contributor since: 2013
NUMMI never produced 500,000 cars. More like 420k in there best year. It is not economical to run assembly plants 24/7. But I guess if Elon wants 500,000 he must be planning to pay overtime and forego maintenance. Product quality will be poor and he will lose money.
"Building a factory in China or similar you have to plan for a bus terminal close to the entrance as almost all workers need to be transported"
Are you aware that many factories in China have dormitories attached to the back of the plant? Try calling in sick with that arrangement.
"The 'nationalism' game will be tough to play"
While few countries are as overt as France, everyone plays the national card to one degree or another. In autos we are talking about the largest consumer item with the most cash flow. Japan will allow very few imports to this day. China insists on "partnerships". The US gives free loans and tax breaks and provides start-up assistance (TSLA). Germany is very protective of their auto industry and the German banks have financed taking over the British auto companies. Right now everybody is manipulating currency that affects auto manufacturers.
I believe that investing in the auto industry is all about reading the movements of Federal Governments and (for me) getting in long at the bottom of the cycle. Boring strategy, but, short of day trading, it works. I don't think auto stocks will be ripe until at least the end of 2016.
"why do you address your comment to me?"
My bad. Got twisted up in the long thread above that began revolving around the worn tale that Tesla invented the EV industry, therefore it is a good investment.
Always dubious,
You do realize that Al Coconi (AC Propulsion was brought into Tesla to help with the design of the motor and controls? Yes the same Coconi who designed a similar powertrain for the GM EV-1. If you take some time to check out the GM/ Coconi patents and Tesla patents you can see clearly that Tesla refined Coconi's ideas. No one creates anything in isolation in the auto industry. It makes for good folklore that Tesla just came up with the EV idea one day.
"GM is dead"
I would not be so sure. The US government has already shown their willingness to back GM. Ford has a stock structure that allows the Ford family to retain control and control their own dividends separately from the common stock. That is why the government cannot intervene with Ford without the Ford family selling out.
Also, when you look at the world production situation there are three state endorsed companies that dominate. GM in the United States, Volkswagen in Germany/ EU, and Toyota in Japan. Those manufacturers are so entrenched and supported by their governments that they will be last to fail. That is why I am keeping an eye on Volkswagen. Bad timing though because we are at the top of the auto cycle.
"Michigan/Flint are an epic fail resulting in major injury to the public. Can't recall anything like it nationwide."
Love Canal comes to mind. If you are intimately knowledgeable about the Flint situation then why do you insist on distorting the story to only include the last two years. Most of the other mid-Michigan cities replaced their lead pipes years ago while the dysfunctional Flint did nothing. This was not a State problem until Flint went bankrupt.
I don't know how important it is to debate how big the Gigafactory needs to be. Raw factory space is relatively cheap compared with other problems Tesla is facing. Tesla does not even have finished clay on the Model III yet. (Probably why they cancelled an appearance at the Detroit auto show). One of the key engineering problems is very likely to be the size of the battery pack due to using cylindrical cells. Prismatic cells package much better which is one key reason major manufacturers are spending so much time developing them. Looking at the Tesla pack in their store I just don't see how it will be able to be packaged in a car (Model III) that has a 6" shorter wheelbase, at least 4" off the width, and probably 1-2" off the height of the battery pack. Many commenters have written this problem off to increased battery capacity and a new cylindrical format. That may not be enough and Panasonic is wisely waiting until these engineering details are worked out before ordering equipment.
The other issue that Tesla has to be working out right now is that they have promised that Fremont will produce 500,000 cars in the next few years. It will not. The wikipedia article has been rewritten by Tesla supporters to eliminate the old NUMMI production data. NUMMI has never and will never produce 500,000 cars. You heard it here first.
If a more realistic goal for Fremont is 300,000 cars, then how will Tesla produce 500,000 cars that has become a fairly hard goal? A standard assembly plant produces about 200,000 cars so it is reasonable to assume that Tesla is globetrotting to find another factory site. Both China and Europe are loathe to allow that kind of car volume to be directly imported with no significant investment or job creation. The most obvious would be a China partnership but Tesla is late to that party.
Back to the battery plant. If there needs to be an overseas factory you would definitely want to reevaluate why on earth you would ship batteries from the US desert (with poor logistics) to China or the Netherlands. Time for two Megafactories instead of one Gigafactory?
"Those are the specs Tesla have given us, and it pays to read the label."
The point Professor Dahn is making is that the manufacturer claims (and he has worked with Tesla, GM, and Nissan) are based on rudimentary cycle testing that cannot be extrapolated to any real life scenario. Professor Dahn is very complimentary of Tesla batteries but spells out a number of environmental factors that can cause a very different cell life than the "label". At this point it seems no-one really knows how many packs will fail before the 8 year warranty. After all, that is the financial issue that will affect profits starting perhaps in a couple of years.
Here is a YouTube engineering lecture by a professor at Dalhousie University in Halifax Waterloo University is also doing good work on lithium batteries. Professor Jeff Dahn has consulted with most of the major manufacturers, including Tesla. One of his research assistants now works for Tesla (or at least as of 2012). The lecture is over an hour and will take some attention. Hopefully you remember your chemistry well or you might have trouble following.
Professor Dahn is quite complimentary of Tesla's lithium formulation. You will also find that the NCA formulation is not the real secret. It is small amounts of additive that change the life of the battery. Those additives are trade secrets.
Bottom line is that manufacturers are not testing in a way that gives an accurate view of Coulombic Efficiency of the cell. According to this professor the manufacturers don't really know how long the cells will last in real life. Of course life depends on use, local environment (heat), and lots of other factors. Recommend you check this out.
"would need to be certified to UN and UL standards."
Probably not. UL does not test auto parts. The manufacturer just has to insure that (in the US) the Motor Vehicle Safety Standards (MVSS) are met. This is a self policing thing but if it is determined that the manufacturer did not adhere to the Standards there can be a forced recall to make the issue right. If you had to certify every component on a car we would still be driving Model A's.
"...I have no access to the relevant data, that Tesla specifies that they want Panasonic to install machinery to produce a given volume of a given chemistry and in a specific format."
Check out Edgar:
"According to the agreement, Tesla will prepare, provide and manage the land, buildings and utilities. Panasonic will manufacture and supply cylindrical lithium-ion cells and invest in the associated equipment, machinery, and other manufacturing tools based on their mutual approval. "
The announcement goes on to say:
"The Gigafactory will produce cells, modules and packs for Tesla’s electric vehicles and for the stationary storage market. The Gigafactory is planned to produce 35GWh of cells and 50GWh of packs per year by 2020. Tesla projects that the Gigafactory will employ about 6,500 people by 2020."
Other redacted documents cover the fact that Tesla must buy all their batteries for the Model E but it seems the Model S remains under separate agreements. Prices and volumes are agreed to but details are redacted.
bwmaki, I lived not far from Flint for thirty years. I definitely seems you do not understand what has gone on in Flint the last thirty years. Sounds like you are from the west where they use the term water resources. Fighting over water is not the problem.
bwmaki, You seem to be talking authoritatively when you don't know the facts. All the other mid Michigan cities had decades long programs to replace lead pipes. In the 1960s Flint leaders refused to connect to the Saginaw pipeline. City leadership has been nonexistent for decades.
No, not all utility vehicles are unibody. All of the larger vehicles are body on frame. If you mount a cab and box on the S platform it will shake your fillings loose.
Where did you see margins posted for trucks?
Where did you see margins posted for trucks?
"We know the current factory uses a "build by hand" approach for both the X and S - thus limiting production "
How do you know this? I really don't think that is an accurate statement. There are plenty of You Tube videos showing robot welding of the chassis and body. They do seem to have labor to assemble battery packs but I suspect that will be solved shortly when Tesla moves that operation to the Gigafactory. Even at 30,000 units/ year it is not possible to hand build a body and hold tolerances.
The press shop, paint shop, trim and final assembly are not much different than when Toyota/ GM produced 200,000 jobs / year. That leaves the body shop where there are too few robots doing the welding. That is mostly a capital problem.
"Tesla is The safest car in the world and also the most roomiest in its class"
The Tesla has almost the exact dimensions as the BMW 5-series, so the Tesla is not roomier. There is no quantifiable data to back up your assertion that the Tesla is the safest car in the world. The interesting thing is that if you look at passenger injury studies often vehicles, like vans, are very safe in spite of the fact they technically have high rollover, poor braking, etc. The difference is vans are driven by tradesmen and businessmen and their livelihood depends on not getting in an accident. Also, generally, they are not taking the van to the bar to impress people. The Model S encourages you to drag race stop lights and test cornering. I suspect long term studies will show above average accidents.
Check out last years head-to-head comparison of the Model S and the Mercedes S-class. <iframe width="560" height="315" src="" frameborder="0" allowfullscreen><...
Mercedes helped Tesla with the design of the Model S. They transferred patents and gave access to their parts bin (check out the steering stalk on a Model S and a several year old E-series. They also had a Mercedes design VP on the Tesla board during design. Do you think Mercedes gave all their good stuff away?
You are copying a fluff article that has information way off the mark. S&P Company Reports have Tesla Revenue per Employee as $372,830 and the industry average as $622,270. That puts Tesla at the 25th percentile relative to the rest of the auto industry.
I would trust S&P reports before a fluff piece by an EV web site. Their numbers do not even come close to adding up.
"You are aware that the production equipment for more then 50k Model 3 is already at the Fremont plant."
This does not make sense. You don't buy assembly plants in increments of volume? What do you mean?
Investors should be mad if there is Model 3 capital stored in Fremont three years before being used. Quite bad planning if that is the case.
"Are you telling me that in 2007-2008 they "crunched" just shy of 3,000 cars"
No, you are being selective in what you read. There are many internal uses for the "extra" cars. Keep in mind that Porsche is in the Volkswagen family. Do you think the Volkswagen VP's drive Passat's or proportionately more Porsches? Pool cars and long term test cars make up a large segment of the internal use. There are dozens of categories of internal use, and yes, it can add up to thousands of cars.
If you don't like the explanation I give, what is yours? Do you think there is something illegal going on, like selling to a black market? Perhaps Porsche sales to ISIS?
Interesting article, but I think you are too focused on the autonomous vehicle portion. That was probably thrown in the press release just because it is a very popular buzz word that very few understand. GM is going to do their autonomous research no matter what. They probably will be able to get some better data than trying to dig it out of the Google heap, but that is it.
I see this as a simple play to sell and finance more cars, pure and simple. There is a long history of automakers buying into rental companies when the cash is flowing. The lure is strong of a captive market they can sell into to smooth production. Financing all these part time drivers is bound to make money. We will see how much money they make on financing and how many of these drivers have to give up their over leveraged cars in a down turn. There is the risk.
"YOU DID NOT, however, pick the right vehicle classes to compare. The Model S is in the same category as the BMW 7 series, not 5 series"
No, you are wrong. From an engineering perspective the Model S is closest to the 5-series. During the Model S design phase Elon Musk claimed that the target market was the BMW 5-series. If you look at physical dimensions, safety and luxury content, the Model S is nowhere near the 7-series, except in price.
"The author is using the wrong comparison 528 vs 328 when it should be a 740 vs 340"
No, you are mistaken. Early on Elon Musk said in an interview that the Model S target market is the 5 series BMW. Unfortunately that makes for a poor comparison price wise, but it is what it is. EV's are more expensive than conventional cars. Period.
Any reasonable examination of the physical dimensions of the 7 series compared to the Model S will confirm what I have said. Also, the luxury and safety content of the 7 series or MB S-series is far superior to the Tesla. You cannot just compare prices.
"Tesla will directly invest ≈$2 billion"
That will be when Tesla is making the planned 500k units/year. The official planning horizon for that is 2020 and will certainly be beyond that date with current production delays. I will stick with my estimate of very little further capital investment in Nevada until 2018. That is for the car business. The Power Wall is almost certainly being brought out now in order to put some production into the Giga Factory, meet commitments, and generate at least some cash.
"I would suspect that those only number in the 10's, not the 100's between what is produced and what is sold each year."
No, you are wrong. I have seen crush car counts in the hundreds on a new model start-up. Carry over years would have less need for that many. The first year crash tests alone could amount to several dozen, if there are problems that need to be addressed, and it seems that Tesla is having structural problems with the Model X. At General Motors the car pool runs into the thousands (not all one model). If you have not been involved in the industry it is hard to wrap your head around the scale and cost of doing business. You would not think of making TV's and only testing a few dozen units. Cars are no different, except that they are much more expensive.
I don't think that your estimate of large capital requirements for the Mega Factory are correct. I did a quick look but could not locate the Edgar/10Q attachment from around July-August 2014. There are several heavily redacted agreements with Panasonic. It gives Tesla the responsibility for putting up the building and Panasonic responsibility for providing the capital equipment and operations management of the battery manufacturing side. Tesla will manage the pack assembly operations which probably have to be moved soon to make room at Fremont for the Model III assembly line. It would seem that most of Tesla's capital is already in the Mega Factory.
"R&D is required to be expensed,"
That is true for research. Engineering labor to design, install, and start-up plant equipment is supposed to be capitalized. As you point out, specific equipment for a product has liquidation value. I cannot find in the Tesla reports where they are doing this. Since this is a bad financial year for Tesla might as well expense everything you can and make 2016 look much better with increased revenue from Model X and lower amortization costs. It would be more in line with industry to match that direct engineering cost with product sales to give a better comparison.
"...Mercedes S class. Barely changes year over year and they still continue to sell it."
The S-class has had a major update about every six or seven years The last run was nine years but included the recession that surely delayed the program. The Corvette also has low volume and long redesign times. Even if the Model S were comparable to these cars, Tesla should be starting a redesign project now (give 18 months for engineering).
One problem is that the Model S is not comparable to the S-class. Elon Musk came out early on and said that the BMW 5-series was the design target for the Model S. Any comparison of car dimensions will confirm that. For the 5-series or the comparable E-class the redesign times are somewhat less than the larger cars. Six year facelift for the Model S would be in keeping with the competition. This is definitely going to stretch Tesla Engineering doing a Model III and Model S at roughly the same time.
Yes, there is a discrepancy in Wikipedia that is not explained. When I was in the industry I saw reports much more detailed that explained every vehicle. Some of the "non-saleable" vehicle categories are the first vehicles off the line. The first few hundred cars are "crush" cars (as in scraped and crushed). They can be tested and used by the manufacturer in their company fleet but can never be sold because the production process has not been proven. I suspect that most of the Model X cars built in October and November were crush cars. Company fleet cars are also not counted as retail sales and sold as "used". There is funny business in counting sales when car companies own rental car companies. Most rental companies were divested in the recession though. Some finished cars are dismantled for quality checks. I can assure you that someone has a list tracking every VIN number.
"If you look at Porsche, BMW, etc the makers produce thousands more cars then they sell year after year."
I have to call you on this one. The major manufacturers sell all the cars they make each year. There are no "extra" cars. Unlike Tesla, all the major manufacturers report their lot inventory in terms of days-to-sell. The typical bogie is 60 days inventory. In good times a little less and in downturns a few more days. It is pretty easy to capture those production numbers.