Pabrai q2 letter

[oddballstocks]

Not much second level thinking on here eh?  My point wasn't to say the iPod is the same as a car.  They are different, but it's how the leaders of both of these companies have framed the product and the purchase.  It's emotional, not based on specs or rational.  The circuits and buttons on an iPod were commodity items.  Same with a Tesla.  Obviously things are formed and molded to their own specs, but what I'm saying is what sets Tesla apart isn't some brand new flux capacitor drive that powers the car.  GM makes an electric car, Tesla makes an electric car, someone made that EV electric car in California in the 90s that was turned into a movie.  My point is electric cars and electric motors aren't what makes this special.  Just like playing music digitally from a portable device wasn't special for the iPod.

 

I agree that the iPod had the ecosystem and a superior experience.  From what I've read the Tesla car has the same thing.  It's a superior experience compared to other electric cars.  Have a superior product coupled with a very savvy marketer is the perfect combination.  That's what captures mindshare.

 

If I were going to get an electric car I'd probably get a Tesla.  When I think about electric cars Tesla is the name that comes up.  Does Toyota make one? Who knows, BMW? No idea.  Tesla has dominated the namespace for this category.  Much the same as Apple did with the iPod.

 

I don't know if Tesla will achieve breakthrough traction because they're selling cars.  It's different than a $500 purchase.  Yet at the same time it isn't.  Most Americans don't have $500 in cash laying around, everything is financed.  If Tesla can make their cars fit into payments of $199/mo or less this will have serious traction.

 

Most people I know only care about the monthly car payment.  If a Tesla is the same cost as their Acura then it's a shoe-in replacement.  Tesla needs to work on building out a financing arm.  Maybe they can finance these things for 8 years with an add-on servicing warranty and get it to $199/mo.  That price isn't crazy.  Keep in mind for most Americans an iPhone ($35/mo plus service $100 for $135/mo just for an iPhone) and cable (average $200/mo) are in the similar ballpark to a car. 

[tombgrt]

The problem with Tesla is that their tech can be copied.  The thing is, other companies know what consumer want other than the electric car part.

 

http://www.siliconbeat.com/2016/09/08/apple-co-founder-may-swap-tesla-gms-bolt/

 

 

GM had an electrical car in 1996 and they can freely copy Tesla now as it's all out there. Yet the very best they can come up with 5 years after the Model S was released, is something that looks like a "supersized 2013 Toyota Yaris" with a 200 miles range? And the crowd goes wild!!!! Tesla did it better 5 years ago and they did it with a car that you actually would want to be seen in. Sure, it was and still is more expensive than the Bolt but that is what they are planning to change with the Model 3 of course.

 

Tesla has amassed some insane brand value despite it's low current revenues. I think people here are understating the effect this can have on buying decisions. They really don't need to crush the competition to do well. I believe there is room for them with decent margins regardless of what the big brands do. Whether the stock at this point is a good investment is a completely different question.

 

Also, on ecosystems and so on: Self driving cars combined with an automated taxi service for friends, family or even random internet strangers would make for a crazy selling point and you might even be able to build a decent ecosystem on that basis. Also on high sticker price: Imagine offering decent financing like oddballstocks mentioned with the option to sign in on the rental service in one go, lowering the monthly payment but Tesla taking a fat commission per taxi shift. Etc etc.

 

Idk, maybe they fail horribly in the next few years but I'm going to assume creating the highest rated, safest and most technologically advanced car ever simply wasn't a fluke.

 

[hyten1]

a little insulting, "Not much second level thinking on here eh?" i don't see any 2nd level thinking below much.

 

people understand your point, yes emotional, tesla/musk, yes same tech put together differently etc etc.

 

yes playing music digitally from a portable device wasn't specif for the ipod, but the entier experience was (easily download music from a large libray, easily usable interface etc.)

 

"Have a superior product coupled with a very savvy marketer is the perfect combination.  That's what captures mindshare." i think that is pretty much common knowledge, don't need to make it sound like its some unique revelation.

 

the biggest different is apple dominated in a way that makes competitor's same tech irrelevant, almost like winner takes all (then android came along that did something iphone didn't,  its free along with multiple hardware options). which is not the case with automobile that cost 45k.

 

if $500 item isn't much different from a $40k item then you live in a different world than i do.

 

 

 

 

Not much second level thinking on here eh?  My point wasn't to say the iPod is the same as a car.  They are different, but it's how the leaders of both of these companies have framed the product and the purchase.  It's emotional, not based on specs or rational.  The circuits and buttons on an iPod were commodity items.  Same with a Tesla.  Obviously things are formed and molded to their own specs, but what I'm saying is what sets Tesla apart isn't some brand new flux capacitor drive that powers the car.  GM makes an electric car, Tesla makes an electric car, someone made that EV electric car in California in the 90s that was turned into a movie.  My point is electric cars and electric motors aren't what makes this special.  Just like playing music digitally from a portable device wasn't special for the iPod.

 

I agree that the iPod had the ecosystem and a superior experience.  From what I've read the Tesla car has the same thing.  It's a superior experience compared to other electric cars.  Have a superior product coupled with a very savvy marketer is the perfect combination.  That's what captures mindshare.

 

If I were going to get an electric car I'd probably get a Tesla.  When I think about electric cars Tesla is the name that comes up.  Does Toyota make one? Who knows, BMW? No idea.  Tesla has dominated the namespace for this category.  Much the same as Apple did with the iPod.

 

I don't know if Tesla will achieve breakthrough traction because they're selling cars.  It's different than a $500 purchase.  Yet at the same time it isn't.  Most Americans don't have $500 in cash laying around, everything is financed.  If Tesla can make their cars fit into payments of $199/mo or less this will have serious traction.

 

Most people I know only care about the monthly car payment.  If a Tesla is the same cost as their Acura then it's a shoe-in replacement.  Tesla needs to work on building out a financing arm.  Maybe they can finance these things for 8 years with an add-on servicing warranty and get it to $199/mo.  That price isn't crazy.  Keep in mind for most Americans an iPhone ($35/mo plus service $100 for $135/mo just for an iPhone) and cable (average $200/mo) are in the similar ballpark to a car.

[Picasso]

The best part of all this Tesla hand waiving from not just Pabrai but others as well, is that they all seem to highlight how crappy the car business is.  Tesla will just be copied because that's how the car business is.  They can't turn a profit because that's how the car business is.  It's too capital intensive and Elon's wasting money because that's how the car business is.  Then they're massively long various auto stocks.  It's a weird and arrogant contradiction of this is crappy and this is less crappy.  But I don't see enough understanding of what is supposedly crap (Tesla's business model) to know whether the less crappy (GM) should be trading at 10x earnings instead of 5x. 

 

And it's also a static way of looking at the auto industry.  I don't think the auto business has to be a bad business.  Apple is a hardware company but it's not a bad business.  The software and brand that turned the hardware into a great business can't be easily replicated .  Apple ends up with the vast majority of the profit share without having anything close to that in market share.  But we're all so used to these crappy auto stocks that we assume the business will always be crap.  And that's a big part of the appeal with Tesla.  They're doing things right the first time.  Every single car is already networked up together.  By the time the Model 3 rolls out, they'll have billions of miles of data sourced across all their semi-autonomous vehicles.  For this reason alone their version of the autonomous bridge will likely be much better than the competition.  Each day that goes by their autonomous system will get better and better.  Anyone not moving as fast as Tesla will be moving behind.  That doesn't sound like it will have the makings of a bad business model.

 

I do think Pabrai will be right on the capitalism aspect here.  When people are lining up down the street buying hundreds of thousands of Tesla's each year, outside capital will start coming in and taking over where Tesla is forced to invest today.  There will be less capital coming out of Tesla to build a supercharger network, others will take their capital and do it for them.  Tesla will not have to take billions of its own money to build battery factories, there will be more partners willing to take that on.  A lot of the areas where they need to spend capital will require much less capital over time.  If the value starts to lie more in the software, maybe someone else will take over a lot of the manufacturing.  Tesla needed to make those investments because no one else has approached this problem correctly.  Let me explain...

 

Say someone walks on a dealership lot because they want to buy a car.  The second they walk on that lot, 99% of the time you will not convince them to buy electric.  That product is simply not good enough for most people.  Why spend $30k on a car you can't really enjoy?  You're stuck in a 100 mile radius unless you want to sit somewhere for hours charging.  It's stupid.  Fears start running through your head.  "What if it's 100 degrees out and the battery dies in as bad part of town with your toddler in the back?" "What if you forget to charge it before going into work?"  "What if the power goes out?"  How hard is it for GM to understand that you can't properly sell this product unless it's compelling enough for the consumer to know that charging will almost never be an issue?  They just don't approach this problem correctly.  I see lines of Volts and Leaf's at various public chargers today.  And sometimes the owner hogging up the spot leaves it there all day.  You can be completely stranded.  To work past these issues you need to address multiple issues at once.  You can't just build a 200 mile golf cart and assume someone else will solve the other problems.

 

And it does sound like automobiles are heading towards a winner take all business.  How much is the typical Chevy you see on a dealer lot going to be worth when it lacks the ability to generate income by being part of a fleet of autonomous taxis?  What if highways are restructured where lanes start getting dedicated to "autopilot" instead of just carpool for more than a couple occupants?  The carpool system is already flawed, that will need to change at some point.  How much more is your car worth if your daily commute times are cut down by 75%?

 

I think there's a reason Apple or others are putting capital behind this idea.  The current auto business is asking to be turned on its head.  It's ripe for incredible innovation.  But guys like GM can't do it.  They have activists down their necks telling them to repurchase stock and pay dividends.  And the company culture doesn't allow it, they have to go blow a billion dollars on some autonomous startup.  And I'm not convinced GM could recreate Tesla with the same capital Tesla used to create their business.  There is a tremendous amount of blood and tears that cannot be easily purchased.

 

Now throw in Elon Musk.  He's not someone easy to write off.  I hear the bears say he's promotional or as Chanos put it "Elon who?"  Tell you what.  If I ever have 1/10th the LinkedIn profile of Elon Musk, I'd deserve the right to be half as "promotional."  Ignoring PayPal for a minute, this guy has been levered up to his eyeballs his entire adult life chasing down his vision.  2008 would have broken anyone else.  I can't see anyone else surviving in 2008 in the middle of running a rocket and electric car startup.  He sunk every bit of money into them, spoke for money he didn't have to get VC's to put up what he couldn't, and was trying to make a product everyone was crapping over.  Rockets were still blowing up, his cars were negative gross margin,and he went through every last dollar he made off PayPal.  Bloggers were attacking his company, putting out death clocks, and ridiculing his personal life.  And they still are.  Yet the companies we see today versus 2008 are simply staggering in difference.  You don't just build that off of being promotional.  Go and tour the Tesla factory up in Fremont if you think he's being over promotional.  Theranos wouldn't let anyone see their labs.  Drive a Tesla for a couple months and go back to an ICE to see if he's being overly promotional. 

 

And since this is a value investing board that cares about guys like Buffett and Munger.  At one point in 2008 Elon had dinner with Munger.  Munger spent almost the whole dinner telling Elon about why he was going to fail.  Since Elon had always thought highly of Buffett/Munger, he left dinner feeling super depressed.  Despite someone he thought very highly of telling him of all the different ways he was going to destroy his life, he went on to do the impossible. 

 

And since we all know Mr. Doobert doesn't change his mind easily (thank you Congress for those VRX emails), here is his comment a few years later:

 

I think Elon Musk is a genius and I don’t use that word lightly.  I think he’s also one of the boldest men that ever came down the pike.  Put me down as saying I’ve always been afraid of the guy whose IQ is 190 and he thinks it’s 250.  I like to think there’s a little of that risk with Elon. He is a certified genius.

 

But yeah, let's just say Elon is promotional because "Elon who?"

 

Or how about this latest upgrade to a 2-year old autopilot system for every Tesla produced past Oct 2014?

 

https://www.tesla.com/blog/upgrading-autopilot-seeing-world-radar

 

Additional Autopilot Release Notes

 

TACC braking max ramp rate increased and latency reduced by a factor of five

Now controls for two cars ahead using radar echo, improving cut-out response and reaction time to otherwise-invisible heavy braking events

Will take highway exit if indicator on (8.0) or if nav system active (8.1). Available in the United States initially

Car offsets in lane when overtaking a slower vehicle driving close to its lane edge

Interface alerts are much more prominent, including flashing white border on instrument panel

Improved cut-in detection using blinker on vehicle ahead

Reduced likelihood of overtaking in right lane in Europe

Improved auto lane change availability

Car will not allow reengagement of Autosteer until parked if user ignores repeated warnings

Automatic braking will now amplify user braking in emergencies

In manual mode, alerts driver if about to leave the road and no torque on steering wheel has been detected since Autosteer was deactivated

With further data gathering, car will activate Autosteer to avoid collision when probability ~100%

Curve speed adaptation now uses fleet-learned roadway curvature

Approximately 200 small enhancements that aren't worth a bullet point

 

How the hell do you copy this?  Seriously?

 

I put the odds of someone ripping out the profits from the legacy automakers as very high.  Probably around a 75% chance over the next ten years.  But I put the odds of it being Tesla as 50/50.  So in my mind I think there's something like a 30% chance that Tesla does incredibly well.  But based on the work I see from people either short the stock or long GM while talking down Tesla, I think it might be higher than 30%.  I don't find the short sellers work particularly impressive. 

 

Things are looking pretty tough for Elon right now, but that's usually the best time to bet alongside him.  He didn't think it was probable that Tesla would succeed in its mission, but I think he now sees it as very probable (I mean Apple is a trying to steal his employees for a reason).  His willpower to see this through shouldn't be overly discounted.  If you keep doubling down eventually you go bust, but I don't think he's too far away from the point where doubling down will no longer be necessary. 

 

*walks off mumbling* someone will clone Tesla, indeed.... *mumble mumble*

[hyten1]

at the end of the day i am confused what everyone is talking about (that is a long writeup below about tesla), lets get some facts straight.

 

1. volt can use gasoline, getting stranded is not a concern.

2. bolt is not a golf car on wheels, people who think it is are committing the same sins as people who just hand wave at tesla and say they are doomed.

3. GM pay $600mil for cruise automation and $500mil for part of lyft, both critical ingredients for the future of auto for many reason.

 

not sure who say auto is a crappy business, there are some "legacy" auto company that is doing quite well, Toyota, Ferrari, Porsche comes to mind.

 

i think we can all agree tesla/elon has done great things, but what i disagree is extrapolating that to complete EV/auto domination that all legacy auto are stupid/slow and doomed base on what i see.

 

That is pretty arrogant considering what is happening in the industry.

 

I find it strange and funny whenever people talk about tesla they seem to compare apples to oranges. tesla awesome EV, volt what a crap (conveniently forget one car is $100k the other is $40k, conveniently forget existing volts owners love the car etc.). why is that importantly, because it shows you that existing auto makers are not taking this lightly.

 

people who use apple as an example conveniently omit things like the $500 vs $40k, network effect/eco system vs none (at least not yet). so they extrapolate "look at apple, elon is like job etc etc. => complete domination like apple"

 

why don't we look at other example where innovators in tech didn't "dominate", some examples are Tivo, commodore, apple (PC), blackberry, palm, yahoo, xerox, Polaroid, altavista, friendster, ibm, sure none of these are exact comparisons, neither is apple/iphone/ipod.

 

I find it interesting that people can be so sure of what tesla will become and one thing we know from tech, especially tech, dominance is an illusive thing (except for the select few).

 

There are so many landmines for Tesla, beholden to the capital markets etc (sure maybe this will end soon, maybe not), tons of competition, at the end of the day we can just agree to disagree.

 

Tesla/Elon good car and awesome entrepreneur, but that is not enough yet for me to declare them victory considering what is happening to this industry, the players, the size etc etc. Do they have a shot, sure they do. I guess what people disagree on is the probability of this shot. You say 50%, I say 20, someone else may say 70.

 

I am ok if i lose out on tesla's potential double or whatever.

 

 

EDIT: as for how do you copy the autopilot, you don't copy you come up with your own system base on your own experience/data/software. there will be many black boxes, all trying to have the same end result. But i doubt the black box all look the same, at the end of the day the customers don't care what the blackbox looks like as long as it works. Similar to search engines.

 

 

 

 

The best part of all this Tesla hand waiving from not just Pabrai but others as well, is that they all seem to highlight how crappy the car business is.  Tesla will just be copied because that's how the car business is.  They can't turn a profit because that's how the car business is.  It's too capital intensive and Elon's wasting money because that's how the car business is.  Then they're massively long various auto stocks.  It's a weird and arrogant contradiction of this is crappy and this is less crappy.  But I don't see enough understanding of what is supposedly crap (Tesla's business model) to know whether the less crappy (GM) should be trading at 10x earnings instead of 5x. 

 

And it's also a static way of looking at the auto industry.  I don't think the auto business has to be a bad business.  Apple is a hardware company but it's not a bad business.  The software and brand that turned the hardware into a great business can't be easily replicated .  Apple ends up with the vast majority of the profit share without having anything close to that in market share.  But we're all so used to these crappy auto stocks that we assume the business will always be crap.  And that's a big part of the appeal with Tesla.  They're doing things right the first time.  Every single car is already networked up together.  By the time the Model 3 rolls out, they'll have billions of miles of data sourced across all their semi-autonomous vehicles.  For this reason alone their version of the autonomous bridge will likely be much better than the competition.  Each day that goes by their autonomous system will get better and better.  Anyone not moving as fast as Tesla will be moving behind.  That doesn't sound like it will have the makings of a bad business model.

 

I do think Pabrai will be right on the capitalism aspect here.  When people are lining up down the street buying hundreds of thousands of Tesla's each year, outside capital will start coming in and taking over where Tesla is forced to invest today.  There will be less capital coming out of Tesla to build a supercharger network, others will take their capital and do it for them.  Tesla will not have to take billions of its own money to build battery factories, there will be more partners willing to take that on.  A lot of the areas where they need to spend capital will require much less capital over time.  If the value starts to lie more in the software, maybe someone else will take over a lot of the manufacturing.  Tesla needed to make those investments because no one else has approached this problem correctly.  Let me explain...

 

Say someone walks on a dealership lot because they want to buy a car.  The second they walk on that lot, 99% of the time you will not convince them to buy electric.  That product is simply not good enough for most people.  Why spend $30k on a car you can't really enjoy?  You're stuck in a 100 mile radius unless you want to sit somewhere for hours charging.  It's stupid.  Fears start running through your head.  "What if it's 100 degrees out and the battery dies in as bad part of town with your toddler in the back?" "What if you forget to charge it before going into work?"  "What if the power goes out?"  How hard is it for GM to understand that you can't properly sell this product unless it's compelling enough for the consumer to know that charging will almost never be an issue?  They just don't approach this problem correctly.  I see lines of Volts and Leaf's at various public chargers today.  And sometimes the owner hogging up the spot leaves it there all day.  You can be completely stranded.  To work past these issues you need to address multiple issues at once.  You can't just build a 200 mile golf cart and assume someone else will solve the other problems.

 

And it does sound like automobiles are heading towards a winner take all business.  How much is the typical Chevy you see on a dealer lot going to be worth when it lacks the ability to generate income by being part of a fleet of autonomous taxis?  What if highways are restructured where lanes start getting dedicated to "autopilot" instead of just carpool for more than a couple occupants?  The carpool system is already flawed, that will need to change at some point.  How much more is your car worth if your daily commute times are cut down by 75%?

 

I think there's a reason Apple or others are putting capital behind this idea.  The current auto business is asking to be turned on its head.  It's ripe for incredible innovation.  But guys like GM can't do it.  They have activists down their necks telling them to repurchase stock and pay dividends.  And the company culture doesn't allow it, they have to go blow a billion dollars on some autonomous startup.  And I'm not convinced GM could recreate Tesla with the same capital Tesla used to create their business.  There is a tremendous amount of blood and tears that cannot be easily purchased.

 

Now throw in Elon Musk.  He's not someone easy to write off.  I hear the bears say he's promotional or as Chanos put it "Elon who?"  Tell you what.  If I ever have 1/10th the LinkedIn profile of Elon Musk, I'd deserve the right to be half as "promotional."  Ignoring PayPal for a minute, this guy has been levered up to his eyeballs his entire adult life chasing down his vision.  2008 would have broken anyone else.  I can't see anyone else surviving in 2008 in the middle of running a rocket and electric car startup.  He sunk every bit of money into them, spoke for money he didn't have to get VC's to put up what he couldn't, and was trying to make a product everyone was crapping over.  Rockets were still blowing up, his cars were negative gross margin,and he went through every last dollar he made off PayPal.  Bloggers were attacking his company, putting out death clocks, and ridiculing his personal life.  And they still are.  Yet the companies we see today versus 2008 are simply staggering in difference.  You don't just build that off of being promotional.  Go and tour the Tesla factory up in Fremont if you think he's being over promotional.  Theranos wouldn't let anyone see their labs.  Drive a Tesla for a couple months and go back to an ICE to see if he's being overly promotional. 

 

And since this is a value investing board that cares about guys like Buffett and Munger.  At one point in 2008 Elon had dinner with Munger.  Munger spent almost the whole dinner telling Elon about why he was going to fail.  Since Elon had always thought highly of Buffett/Munger, he left dinner feeling super depressed.  Despite someone he thought very highly of telling him of all the different ways he was going to destroy his life, he went on to do the impossible. 

 

And since we all know Mr. Doobert doesn't change his mind easily (thank you Congress for those VRX emails), here is his comment a few years later:

 

I think Elon Musk is a genius and I don’t use that word lightly.  I think he’s also one of the boldest men that ever came down the pike.  Put me down as saying I’ve always been afraid of the guy whose IQ is 190 and he thinks it’s 250.  I like to think there’s a little of that risk with Elon. He is a certified genius.

 

But yeah, let's just say Elon is promotional because "Elon who?"

 

Or how about this latest upgrade to a 2-year old autopilot system for every Tesla produced past Oct 2014?

 

https://www.tesla.com/blog/upgrading-autopilot-seeing-world-radar

 

Additional Autopilot Release Notes

 

TACC braking max ramp rate increased and latency reduced by a factor of five

Now controls for two cars ahead using radar echo, improving cut-out response and reaction time to otherwise-invisible heavy braking events

Will take highway exit if indicator on (8.0) or if nav system active (8.1). Available in the United States initially

Car offsets in lane when overtaking a slower vehicle driving close to its lane edge

Interface alerts are much more prominent, including flashing white border on instrument panel

Improved cut-in detection using blinker on vehicle ahead

Reduced likelihood of overtaking in right lane in Europe

Improved auto lane change availability

Car will not allow reengagement of Autosteer until parked if user ignores repeated warnings

Automatic braking will now amplify user braking in emergencies

In manual mode, alerts driver if about to leave the road and no torque on steering wheel has been detected since Autosteer was deactivated

With further data gathering, car will activate Autosteer to avoid collision when probability ~100%

Curve speed adaptation now uses fleet-learned roadway curvature

Approximately 200 small enhancements that aren't worth a bullet point

 

How the hell do you copy this?  Seriously?

 

I put the odds of someone ripping out the profits from the legacy automakers as very high.  Probably around a 75% chance over the next ten years.  But I put the odds of it being Tesla as 50/50.  So in my mind I think there's something like a 30% chance that Tesla does incredibly well.  But based on the work I see from people either short the stock or long GM while talking down Tesla, I think it might be higher than 30%.  I don't find the short sellers work particularly impressive. 

 

Things are looking pretty tough for Elon right now, but that's usually the best time to bet alongside him.  He didn't think it was probable that Tesla would succeed in its mission, but I think he now sees it as very probable (I mean Apple is a trying to steal his employees for a reason).  His willpower to see this through shouldn't be overly discounted.  If you keep doubling down eventually you go bust, but I don't think he's too far away from the point where doubling down will no longer be necessary. 

 

*walks off mumbling* someone will clone Tesla, indeed.... *mumble mumble*

[Picasso]

How has resale value been on the Volt ?  It's awful.  Ones that sold for $40k in 2013 are now selling for $10k.  It has the worst of both ICE and EV.  What do you think the resale value on a Bolt versus Model 3 will be?

 

I personally think the Bolt is a nice golf cart with better range.  My dad always had this idea to ride golf carts to work so maybe he's their target market.

 

A billion dollars for the worst of both ride sharing and autonomous is a lot of capital to spend.  I bet Tesla could get a lot more results by spending that $1.1 billion for software engineers.

 

Anyway, yes, we can agree to disagree :) 

[hyten1]

i hear ya, see that is the good and bad of this industry for tesla and legacy auto

 

this is a very capital intensive industry, but also an industry that has a long life cycle, tons of regulation and very deep pocket players with very good talent. does it matter if GM spend $2 or $3bil? maybe it matters to Tesla.

 

Even if GM (toyot, Daimler pick your auto) spend $10bil to get to par to tesla, whos going to end up standing at the end

 

 

i don't disagree elon is awesome dude and tesla a cool/nice cars, like i said before  what people disagree on is the probability of tesla becoming this dominant force. Then again that can be too simplistic a view, what if tesla merge with someone and becomes something else, etc etc.

 

and also remember its not the outcome that matters its your investment process that counts :)

 

EDIT: isn't tesla a golf car that can go 0 to 60 in under 3 second?

 

How has resale value been on the Volt ?  It's awful.  Ones that sold for $40k in 2013 are now selling for $10k.  It has the worst of both ICE and EV.  What do you think the resale value on a Bolt versus Model 3 will be?

 

I personally think the Bolt is a nice golf cart with better range.  My dad always had this idea to ride golf carts to work so maybe he's their target market.

 

A billion dollars for the worst of both ride sharing and autonomous is a lot of capital to spend.  I bet Tesla could get a lot more results by paying that $1.1 billion for software engineers.

 

Anyway, yes, we can agree to disagree :)

[Picasso]

Maybe that's what makes the Tesla so different.  You don't feel like you're in a golf cart.  My wife drives a high-end ICE and I loathe having to drive it.  I don't think any high-end ICE is better than a comparable Model S. 

 

But you also have Woz who decided to endorse the Bolt over the Model S.  Not sure what's up with that. 

 

I mean we'll see.  Even if I'm right about the probability of Tesla completing their mission (around 30% or greater) it doesn't necessarily mean go long TSLA.  I think it more implies that these other automakers are going to have a really, really hard time.  Anyone that looks like the marginal player will almost surely be out of business.  It's sort of a dangerous game because in 30% of various outcomes you'll get absolutely crushed in GM or FCAU.  In the other 70% you'll probably do well.  Yet I get the sense that various investors (short TSLA or long GM) think it's more a 1% chance.  Even at 10%, would you play Russian Roulette with ten chambers?  Not for a double.  So my point is that the odds of Tesla destroying others (and possibly even themselves in the process) is too high to go long GM or FCAU.  Your view may obviously vary...

[hyten1]

picasso, for me even if tsla becomes a force i don't see why GM or Toyota can't retain their current status or become stronger (some weaker players can go bye bye or get absorbed, i guess i consider GM and Toyota some of the better position autos), you are saying once tsla becomes a force most of existing auto goes bye bye, how/why?

 

i have been thinking about the winner take all/most scenario. Unless winner take all/most happens i don't see how tsla will wipe out most players. Its possible, but it would take a while before that happens. I guess once auto becomes a commodity or near commodity (you will always have exception or exotic that people buy for fun/leisure) or someone becomes that dominant (i don't see it).

 

- car sharing/autonomy don't necessarily mean less cars being build.

- will car sharing/autonomy create a winner take all scenario, where customer don't really care what brand it is.

- will the expensive/need/cost for technology create additional consolidation which result in a handful of auto company left

- others....

 

but i do feel all above will take a long time if it happens (who knows)

 

hy

 

 

 

 

 

 

Maybe that's what makes the Tesla so different.  You don't feel like you're in a golf cart.  My wife drives a high-end ICE and I loathe having to drive it.  I don't think any high-end ICE is better than a comparable Model S. 

 

But you also have Woz who decided to endorse the Bolt over the Model S.  Not sure what's up with that. 

 

I mean we'll see.  Even if I'm right about the probability of Tesla completing their mission (around 30% or greater) it doesn't necessarily mean go long TSLA.  I think it more implies that these other automakers are going to have a really, really hard time.  Anyone that looks like the marginal player will almost surely be out of business.  It's sort of a dangerous game because in 30% of various outcomes you'll get absolutely crushed in GM or FCAU.  In the other 70% you'll probably do well.  Yet I get the sense that various investors (short TSLA or long GM) think it's more a 1% chance.  Even at 10%, would you play Russian Roulette with ten chambers?  Not for a double.  So my point is that the odds of Tesla destroying others (and possibly even themselves in the process) is too high to go long GM or FCAU.  Your view may obviously vary...

[Picasso]

There are different scales for this, but say Tesla has a vehicle that is 95% autonomous.  But GM has one that is 99% autonomous.  I think that last 4% gap is going to feel like the grand canyon to a driver/passenger.  The "automaker" with nearly perfect autonomy will get the vast majority of the sales.  Because one will drive you to the grocery store, and the other will only allow you on certain white-listed highways.  The dominant player in turns collects more and more data to widen that gap.  There are a ton of advantages to doing this in EV vs. ICE.  ICE players will have to decide whether to take all their cash flows from the dying golden goose to try and compete, or just go into runoff and die.  I can't imagine that Tesla would ever want to license their autonomy tech to any company that gets most of its cash from ICE sales.

 

I do tend to agree that the time before these things happen can take a while.  Buffett did buy a large dealership, so he doesn't think it will be mass destruction either.  I simply take issue with Pabrai saying these things can be copied.  Auto stocks seem to me to be some of the most difficult investments to underwrite at this point in the cycle.  Beyond just the autonomy/EV's are better but not as profitable/peak SAAR/etc.  Maybe more brain damage than the returns are worth.

[CorpRaider]

But you also have Woz who decided to endorse the Bolt over the Model S.  Not sure what's up with that. 

 

Well he was doing Caddy commercials before that for the last year or so. 

 

Seems like Tesla is more likely to first gut the Germans than the less luxury focused American and Japanese automakers.

[oddballstocks]

a little insulting, "Not much second level thinking on here eh?" i don't see any 2nd level thinking below much.

 

people understand your point, yes emotional, tesla/musk, yes same tech put together differently etc etc.

 

yes playing music digitally from a portable device wasn't specif for the ipod, but the entier experience was (easily download music from a large libray, easily usable interface etc.)

 

"Have a superior product coupled with a very savvy marketer is the perfect combination.  That's what captures mindshare." i think that is pretty much common knowledge, don't need to make it sound like its some unique revelation.

 

the biggest different is apple dominated in a way that makes competitor's same tech irrelevant, almost like winner takes all (then android came along that did something iphone didn't,  its free along with multiple hardware options). which is not the case with automobile that cost 45k.

 

if $500 item isn't much different from a $40k item then you live in a different world than i do.

 

 

 

 

Not much second level thinking on here eh?  My point wasn't to say the iPod is the same as a car.  They are different, but it's how the leaders of both of these companies have framed the product and the purchase.  It's emotional, not based on specs or rational.  The circuits and buttons on an iPod were commodity items.  Same with a Tesla.  Obviously things are formed and molded to their own specs, but what I'm saying is what sets Tesla apart isn't some brand new flux capacitor drive that powers the car.  GM makes an electric car, Tesla makes an electric car, someone made that EV electric car in California in the 90s that was turned into a movie.  My point is electric cars and electric motors aren't what makes this special.  Just like playing music digitally from a portable device wasn't special for the iPod.

 

I agree that the iPod had the ecosystem and a superior experience.  From what I've read the Tesla car has the same thing.  It's a superior experience compared to other electric cars.  Have a superior product coupled with a very savvy marketer is the perfect combination.  That's what captures mindshare.

 

If I were going to get an electric car I'd probably get a Tesla.  When I think about electric cars Tesla is the name that comes up.  Does Toyota make one? Who knows, BMW? No idea.  Tesla has dominated the namespace for this category.  Much the same as Apple did with the iPod.

 

I don't know if Tesla will achieve breakthrough traction because they're selling cars.  It's different than a $500 purchase.  Yet at the same time it isn't.  Most Americans don't have $500 in cash laying around, everything is financed.  If Tesla can make their cars fit into payments of $199/mo or less this will have serious traction.

 

Most people I know only care about the monthly car payment.  If a Tesla is the same cost as their Acura then it's a shoe-in replacement.  Tesla needs to work on building out a financing arm.  Maybe they can finance these things for 8 years with an add-on servicing warranty and get it to $199/mo.  That price isn't crazy.  Keep in mind for most Americans an iPhone ($35/mo plus service $100 for $135/mo just for an iPhone) and cable (average $200/mo) are in the similar ballpark to a car.

 

I posted an analogy and then a few people started to say you can't compare an iPod and a car.  I get it.  But it's no different than someone saying "XYZ company is like Dempster Mills" does that mean XYZ company is in the same industry and has the same characteristics? Nope, it's an analogy.  I found it strange, so I made a light hearted joke about it.  I guess this board is not light hearted.  I have wandered into the land of seriousness...there are no smiles here....only business people in suits making money...no fun here.  If that's the current crowd I've made note and will adapt.

 

I don't live on the coast.  In fly-over country people are focused on payments.  If something fits into payments then it's affordable regardless of the actual price.  I know multiple people who get a new car every few years because "the dealer was able to keep my payment the same."  I've asked if the term was extended and they don't know or don't care.  These aren't poor people, they're professionally successful middle class people who live the payment lifestyle.  This site is skewed to the wealthy, almost wealthy, will-be-wealthy, and this lifestyle might be hard to understand.  But this lifestyle is why so many businesses that are touted on here work.  They sell an expensive product that's broken down into monthly payments and people buy them on monthly payments.

 

If people paid cash for cars I think the car industry would be completely different.  I only pay cash.  It isn't easy to save $10/20/30K in cash on a middle-income salary with a wife and kids.  And it hurts even more to trade that cash for a hunk of metal on wheels.  For me as a cash buyer I'm very considerate about what I'm getting into.  Will I be able to fix it easily?  Are parts readily available?  Will I want to keep this for 7-10 years?  What's the resale value.  That's because my own money is on the line.  I've asked the same question of monthly payment people and they don't care.  But if people couldn't finance they would have trouble saving anything to buy a car, a house, almost anything.

[oddballstocks]

This thread reminds me of the discussion in "The Innovators Dilemma"  This is an excellent book I'd recommend anyone thinking about these things purchase and read.  The book seems to be common reading in tech, not sure why it isn't in investing.

 

The basic thesis is that industries go through cycles.  A company innovates disrupting the current players by focusing on niches that are too small for larger players to care about.  But those niches require innovative thinking, and eventually the niche spreads to the entire market because of the innovation.  Current market players are caught off guard because they're focused on incremental improvements that current customers want, not a small niche area wants.  This is why it is very rare for incumbents to continue through innovation cycles.  It's almost always new players that unseat the old players.

 

In autos we'll probably see the same thing.  Companies like Tesla unseating current car companies.  I was told that the majority of GM's profits are coming from their trucks, their cars make them almost nothing.  What happens when gas prices go up?  GM isn't going to copy anything, to me their culture is the wrong type for something like this.  They have the Bolt/Volt/Spark but they haven't bet the farm on it.  I've owned GM vehicles, the only GM I'd ever consider buying again it a truck.  I don't trust their build quality for anything but a truck. 

 

If I were to project the future you'd have a situation where there are a few car companies that exist now that adapt and stay around.  Then there will be some new players like Tesla.  Maybe Tesla captures the market and things move in the AV/Uber type direction.  That's the wildcard with this.

[oddballstocks]

One other thought, Picasso mentioned this.  The killer for an EV is the range.  In SF or in NYC a 100 mile range probably isn't a big deal.  But it's a big deal for most of the country where suburbs are spread out.

 

Consider Atlanta, Chicago, or some of the larger cities where people living 40-50 miles away are still in the suburbs.  Commuting into town and home again is impossible unless there's a charger at your office.  This is cutting it too close for most, and it doesn't give them the extra distance they'd need for errands on the way home or picking kids up from daycare.

 

If they could get an EV with a daily range of 250 miles I think it'd sell like crazy.

[hyten1]

oddballstocks, all good points but :

 

1. why does the auto maker need to bet the farm on EV to succeed? I actually think that would not be a good idea. Sure the autos can't stick their heads in the sand and simple dismiss EV/autonomy. But i don't see legacy auto doing that, unless they are just fooling us.

 

2. EV i actually don't think is the golden goose.  GM just announce Bolt with a 238mil range available end of 2016. I think the golden goose is autonomy and i don't see a clear winner yet, even if there is a clear winner right at this moment, base on what i know the tech is still far from ready for prime time etc. So that means there is still time for players to catch-up or fall behind etc.

 

3. I hear ya about "The Innovator's Dilemma" and I have read it. But from what I can see I don't see all auto makers falling into that trap, then again I don't really know what is going on. The bad thing for tesla is, auto industry is such a capital intensive, regulation heavy, long lead time biz, expensive product. It allows time for the legacy players to wake up and catchup, which is not a good thing for tesla/innovators.

 

4. in regards  to tone of the thread. we should keep it enjoyable/lighthearted. i'll blame this whole internet/online thing for the misunderstanding.

 

just my humble opinion

 

One other thought, Picasso mentioned this.  The killer for an EV is the range.  In SF or in NYC a 100 mile range probably isn't a big deal.  But it's a big deal for most of the country where suburbs are spread out.

 

Consider Atlanta, Chicago, or some of the larger cities where people living 40-50 miles away are still in the suburbs.  Commuting into town and home again is impossible unless there's a charger at your office.  This is cutting it too close for most, and it doesn't give them the extra distance they'd need for errands on the way home or picking kids up from daycare.

 

If they could get an EV with a daily range of 250 miles I think it'd sell like crazy.

[oddballstocks]

oddballstocks, all good points but :

 

1. why does the auto maker need to bet the farm on EV to succeed? I actually think that would not be a good idea. Sure the autos can't stick their heads in the sand and simple dismiss EV/autonomy. But i don't see legacy auto doing that, unless they are just fooling us.

 

2. EV i actually don't think is the golden goose.  GM just announce Bolt with a 238mil range available end of 2016. I think the golden goose is autonomy and i don't see a clear winner yet, even if there is a clear winner right at this moment, base on what i know the tech is still far from ready for prime time etc. So that means there is still time for players to catch-up or fall behind etc.

 

3. I hear ya about "The Innovator's Dilemma" and I have read it. But from what I can see I don't see all auto makers falling into that trap, then again I don't really know what is going on. The bad thing for tesla is, auto industry is such a capital intensive, regulation heavy, long lead time biz, expensive product. It allows time for the legacy players to wake up and catchup, which is not a good thing for tesla/innovators.

 

4. in regards  to tone of the thread. we should keep it enjoyable/lighthearted. i'll blame this whole internet/online thing for the misunderstanding.

 

 

One other thought, Picasso mentioned this.  The killer for an EV is the range.  In SF or in NYC a 100 mile range probably isn't a big deal.  But it's a big deal for most of the country where suburbs are spread out.

 

Consider Atlanta, Chicago, or some of the larger cities where people living 40-50 miles away are still in the suburbs.  Commuting into town and home again is impossible unless there's a charger at your office.  This is cutting it too close for most, and it doesn't give them the extra distance they'd need for errands on the way home or picking kids up from daycare.

 

If they could get an EV with a daily range of 250 miles I think it'd sell like crazy.

 

All good points.  I wonder if some of this discussion is also biased because we are people who are well informed.  Maybe car makers are listening to their customers, and most customers don't care about EV.  My parents are reasonably informed, but I'm pretty sure my mom has no idea what a Tesla is or why she'd want an electric car.  My dad likes the idea, but it isn't something woo-ing him.  He's retired and doesn't drive enough.  So maybe the conclusion is that while we think there is this giant wave coming it's really a tiny wave.

 

This EV/AV discussion could be something that disrupts a few major cities and takes another 20-30 years to trickle out from there.  It's like people who are connected discussing how the Internet will change the world in 1992 and how everyone will be connected.  The discussion was correct, but it wasn't really until 20 years later with smart phones that this came true.  Maybe we're in the 92 stage of cars?

 

It's a very interesting discussion to say the least.

[Picasso]

GM just announced that the Bolt has 238 miles of EPA range.  That's heavily weighted towards driving in the city, not sure what the range is on the highway.  FWIW, I also own a Chevy Volt from 2013 (my pick up things from craigslist car) and while it had 40 miles of EPA range on electric, I would normally get between 50-75% of that on the highway.  Uphill and cold, probably less than 50%.  Still no mention of DC charging other than optional for a price...

 

Edit: sorry, didn't see that hyten1 just mentioned this.

[shalab]

FWIW - I think Elon Musk is a national hero - he would be deified if he was a citizen of any other country (Russia, China, Israel, India etc.) as 'God' but he gets criticized here - only in America!

 

[CorpRaider]

GM just announced that the Bolt has 238 miles of EPA range.  That's heavily weighted towards driving in the city, not sure what the range is on the highway.  FWIW, I also own a Chevy Volt from 2013 (my pick up things from craigslist car) and while it had 40 miles of EPA range on electric, I would normally get between 50-75% of that on the highway.  Uphill and cold, probably less than 50%.  Still no mention of DC charging other than optional for a price...

 

Edit: sorry, didn't see that hyten1 just mentioned this.

 

LA Times testdrive review says legit range on highway test.  This actually looks like a nice little RAV4/CRV killa'.  Good for GM.  Way to put it out there and try to innovate guys.  Maybe they should work a deal to get access to Tesla's charger network.

[CorpRaider]

FWIW - I think Elon Musk is a national hero - he would be deified if he was a citizen of any other country (Russia, China, Israel, India etc.) as 'God' but he gets criticized here - only in America!

 

He gets a lot of love and fame too.  I've pretty much decided to divert any (modest) ongoing charitable/religious giving to his ventures.  I think he will do a lot more for the benefit of humankind with capital than almost all charities and religious organizations.

[Ian L]

FWIW - I think Elon Musk is a national hero - he would be deified if he was a citizen of any other country (Russia, China, Israel, India etc.) as 'God' but he gets criticized here - only in America!

 

People are much the same the world over. He would receive a lot of praise and elevation alongside some criticism in most countries too.

[shalab]

Not really at least not publicly - e.g:, how much criticism of Watsa you see on this board vs criticism of Buffett?

 

Regarding giving to charity, agree, providing capital to SpaceX and Tesla is likely to better mankind, good idea to follow...

 

FWIW - I think Elon Musk is a national hero - he would be deified if he was a citizen of any other country (Russia, China, Israel, India etc.) as 'God' but he gets criticized here - only in America!

 

People are much the same the world over. He would receive a lot of praise and elevation alongside some criticism in most countries too.

[shalab]

I guess here is the proof:

http://finance.yahoo.com/news/hbs-competitiveness-study-politics-polarization-trust-michael-porter-104219596.html

 

Also - here is the median wealth by country. The median Canadian is far wealthier than the median American with better education facilities, better job opportunities and better benefits. Heck, even Greece's median wealth (which is highlighted as the basket case in US) is higher than that of US.

 

https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult

 

 

Not really at least not publicly - e.g:, how much criticism of Watsa you see on this board vs criticism of Buffett?

 

Regarding giving to charity, agree, providing capital to SpaceX and Tesla is likely to better mankind, good idea to follow...

 

FWIW - I think Elon Musk is a national hero - he would be deified if he was a citizen of any other country (Russia, China, Israel, India etc.) as 'God' but he gets criticized here - only in America!

 

 

People are much the same the world over. He would receive a lot of praise and elevation alongside some criticism in most countries too.

 

I'm not sure that example even holds e.g. there has been a lot of criticism of the deflation bets and the hedges. However, one example does prove or disprove a generalization.

Musk is Canadian and South African too. Do you think he receives no criticism there?

[Travis Wiedower]

Cable Car Capital's Q2 letter spends a full page bashing Elon (he's short TSLA). I agree with quite a few things he said (Elon is obviously very promotional), but calling Elon "a common promoter" is a little extreme. In my mind, reducing someone down to being just a promoter is essentially saying they're a scammer selling hot air (Elizabeth Holmes?).

 

Here's the letter: http://www.cablecarcapital.com/Cable_Car_Q2_2016.pdf

[Picasso]

 

This interview doesn't sound like someone who is just promotional either. 

 

It's kind of hard because on one hand Elon does strange things (like being misleading with statistics such as a tweet he sent out on the resale value of the Model S, or saying the only maintenance is replacing a tire) but those things are dwarfed by a lot of positives.  It's easy for someone who shorts a lot of scams to see those negatives and then use it to justify the promotional behavior.  On the other hand Elon's competitors don't exactly play fair either, so maybe he feels like he needs to throw back punches even if the arguments aren't always kosher.