TSLA - Tesla Motors

[randomep]

 

 

Here is a thought exercise:

 

In 10years from now I am sure we will have a business book written about Elon Musk. But what will be the conclusion of the book?  Grand visionary who succeeded at this lofty goals (I'd bet against that); or a case study in hubris and failing to learn form the mistakes of others? or something else?

 

 

[black-dog]

Cardboard: yeah, also if Tesla's having trouble paying suppliers (see: lawsuit on this) then it's even worse on suppliers.

 

On production rates etc: let me make a mountain out of this mole hill as Elon said:

 

Most of the design tolerances of the Model 3 are already better than any other car in the world.

 

I'm going to just pick on this as one example. This is just not true in any meaningful sense. If there's some insane "10,000 measurements on the battery pack and two on body panels" maybe. But there's no way, given what we know about Model 3 production (and refitting and and and) and what's getting into consumer hand, that you could with a straight face say that Model 3s are coming out better than Honda Accords.

 

This is relevant to production: I don't so much care about predictions and rates as I do the pattern of dishonesty in Tesla's statements. You can go through the Q4 2017 earnings call, ring a bell every time you come across something that is at best wish-casting, and by the time you're done all the cows will be at your door expecting dinner.

 

* "module production is fundamentally the limiting factor in Model 3 output" -- nope

* lines can be scaled quite rapidly -- nope

* new automated production lines arrive from Germany in March, gets them to 2-2.5k/week -- nope

* various statements about how they're getting really good at volume prediction -- nope

 

You get the same thing in pretty much every call: "Production was constrained but we know what the problem is, we'll fix it and sell way more cars, this time for real."

 

Here, Elon is shocked (shocked!) to discover his company is a mis-managed tangle of poor communication, that they're deeply reliant on contractors and all that entails, that they have too many meetings! Everyone's responsible except him.

 

I just... I'm just a dog with a keyboard who reads a lot of earnings transcripts and filings, and I can't name another company that gives me as bad a feeling reading their stuff. It all smells weird to me.

[rb]

I like these comments:

 

"Some parts suppliers will be unwilling or unable to achieve this level of precision. I understand that this will be considered an unreasonable request by some. That’s ok, there are lots of other car companies with much lower standards. They just can’t work with Tesla."

 

"There is a very wide range of contractor performance, from excellent to worse than a drunken sloth. All contracting companies should consider the coming week to be a final opportunity to demonstrate excellence. Any that fail to meet the Tesla standard of excellence will have their contracts ended on Monday."

 

Who do you turn to when you have terminated most of them?

All of this is pretty spot on. The thing is that in the auto OEM supply world there are suppliers with manufacturing operations way more advanced and vast than Tesla's. Take Magna International. It's been supplying parts to the likes of BMW, Mercedes, and Lexus for decades. These are high spec parts that need to be produced in large numbers. So if you need a bunch of high spec parts you go to Magna and you say I need these many parts at this spec. (Tesla does have programs with Magna)

 

In this world there there are a ton of suppliers. But their capabilities are generally well known. So if you're an auto OEM are have problems with your parts it generally your fault because you did one of the following: you've actually designed the part wrong and it's not the supplier's fault at all, or you chose the wrong supplier because you didn't do your homework and chose the wrong supplier for what you need.

 

Adding a shift: Now how this works? Is this a night shift? Are you going to put people on rotation? Are these new people earning a prime if on nights and who is going to shift to supervise them?

 

Training: Programming robots, doing quality control, even repetitive assembly work require training, coaching and time. If not mistakes are made or people don't know what to do.

This is insane. Adding an extra shift in this short amount of time is incredibly difficult when you've got your shit together and you really know what you're doing. Trying to do this while you're "firefighting" just means that you'll produce more scrap and defects.

 

Frankly I'm surprised that anyone is surprised at what is going on. I remember a story back when Tesla was tooling for model 3. They've decided to go straight into production without dry runs/testing. Manufacturing veterans said that's a big mistake and it will go to shit. Musk then mocked those people that they're stuck in the "old ways" and that Tesla has done "modelling" and Tesla will show everyone how it's done. Then everything goes off the rails as predicted and now he writes inspirational memos.

 

The thing is that this happens at Tesla a lot. And I think that he needs to do this. Tesla basically needs a high stock price otherwise everything falls apart. So the story that keeps repeating goes like this. Must sets some outrageous goal and makes some big statements like "we don't need no stinking testing". Then everyone goes "Musk is a visionary" and the stock goes up. Then things fall apart and the story then becomes "oh there are some minor temporary problems but Elon will fix it". Rinse and repeat.

[black-dog]

Agree rb on OEM suppliers, which brings the gross margin issue back up: if you take this at face value, Tesla's currently unable to get parts at the quality they want. If they fire Supplier A, who presumably was selected for being able to deliver the best price for the specs Tesla gave them, Supplier B almost certainly quoted a higher price. Maybe they'll be able to deliver that. If Tesla changes specs so they're harder to build, it'll be still higher.

 

If there were suppliers out there who could have delivered parts at the quality Tesla wanted at the price they need to hit their margin targets, they'd have been selected. Something has to give.

 

This is also an interesting contrast with, say, Toyota's famous supplier method, where they attempt to source from multiple vendors at a set low % leaving the bulk to go to whoever's doing better, and working with suppliers to improve quality, lower costs, and generally smooth the production pipeline. They don't fire someone unless they've tried everything and it's still not working.

 

But (see the Q4 call again) Tesla thinks Toyota's a dinosaur at manufacturing cars.

[rb]

Agree rb on OEM suppliers, which brings the gross margin issue back up: if you take this at face value, Tesla's currently unable to get parts at the quality they want. If they fire Supplier A, who presumably was selected for being able to deliver the best price for the specs Tesla gave them, Supplier B almost certainly quoted a higher price. Maybe they'll be able to deliver that. If Tesla changes specs so they're harder to build, it'll be still higher.

 

If there were suppliers out there who could have delivered parts at the quality Tesla wanted at the price they need to hit their margin targets, they'd have been selected. Something has to give.

 

This is also an interesting contrast with, say, Toyota's famous supplier method, where they attempt to source from multiple vendors at a set low % leaving the bulk to go to whoever's doing better, and working with suppliers to improve quality, lower costs, and generally smooth the production pipeline. They don't fire someone unless they've tried everything and it's still not working.

 

But (see the Q4 call again) Tesla thinks Toyota's a dinosaur at manufacturing cars.

It's impossible for Tesla to implement something like Toyota model. Their volume is just too low. They already have a low volume to use just one supplier. You want to split the volume with 2 the suppliers will just laugh at you. Furthermore it'll be price prohibitive to use more then one supplier at these volumes. These programs have high initial costs. Come to think of it, it may be cost prohibitive to change suppliers for these reasons.

 

Also when you go up in spec you get restricted on which suppliers you can use. Toyota may use a lot of suppliers in general. But they don't use that many for Lexus simply because there's not that many that can produce the spec. For example when it comes to plating for Lexus there are only two factories in the world that can meet spec. For the next generation of RX there's only one factory that can meet plating spec.

 

If Tesla thinks that they'll build high spec and there's a lot of suppliers out there that would do it they're deluding themselves. Also if they think that they'll get high spec for cheap that's another delusion. However if they manage to boost production theirs average cost per part will go down some.

[Spekulatius]

I don’t agree with Oddball that an spending cap is a sign of a failing organization. I have seen this several times in my carrier and I think these are just political announcement. In reality, he is probably rubber stamps 90% of these expenses anyways, he just want to increase the hurdle for them to be present. In my experience, these two of things tend to go away quickly and quietly.

 

A couple of things are very strange in this email.

 

1) Why are they starting the night shift now? It’s not exactly a new idea to run a manufacturing line 24/7. I agree it’s not easy to get a third shift started and the quality of people you can hire is usually not the greatest. Nights shift generally only work when you have already a reasonably smooth operation with the other shifts and that does not seem to be the case now.

 

2) I am surprised that they shut down the entire production line and sent the workers home. Typically, you don’t want to shut down a production line, you want to tweak it, using the existing workers input and  their help to fix it, unless of course the production line is totally broken and needs to be totally reconfigured and the workers are not involved in continuous improvement/ six sigma.

 

3) When things go bad, you need more meetings not less, to ensure that everybody is informed and aligned. Elon is going against the grain and my experience there.

 

4 The 10x better tolerance from suppliers is utter BS. Of course they can get that, but at a vastly higher price. Tesla’s finish is not even up to par with their mass fabricator competition, so the issue is unlikely the suppliers anyways. Tesla as an artisanal car maker very likely single source  from rmmsot components, so if they fire one supplier, how long is it going to take until they get a new one online. it could take month to get a new supplier online for a complex part and of they would likely have to pay for engineering work, increasing their expenses not reducing the. in the end, there would be no guarantee that the new supplier is better either. Typically you an to select your suppliers very carefully and understand what they do well and what they don’t and pick them accordingly and then work with them to solve problems. Reconfiguring supply chains is not for tha faint of thr heart, but neither seems to be working for Tesla.

 

You really wonder about the retention rate for workers, supervisors and manufacturing engineers in this organization.

[Voodooking]

A lot of interesting points raised here and intelligent criticism / concern.

 

I guess my counter for a perhaps unrealistic quality bar is: "Look at Apple" - People said they were ridiculous and unrealistic etc. but they cared about making their products "insanely great", and that is one of the things that gave them a competitive edge. Well designed and well made products do make a difference, and customers notice, and a certain number of people will pay slightly more for these. See: Porsche; Apple; Rolls Royce; Bosch; Stihl; Vornado etc.

 

Also, it must be frustrating when suppliers are not up to the task or let you down. They either need to get better or an alternative needs to be found. When Tesla first started making the Model S, the seats were disgustingly horrible and cr@p. Tesla tried to work with better designs and get the sub-suppliers to create a better quality product. It didn't work. What did Musk do? He got his team to design and manufacture perfect seats in-house, and now the seats in a Tesla Model S are excellent.

 

I am often frustrated with poor design and shoddy manufacturing in consumer products, and I appreciate when someone makes a bit more of an effort to improve things.

 

I must admit, I would have thought they would already be working 24/7 and have all the shifts in place that they needed for full capacity...

 

People complain about Tesla not posting a profit every quarter, but they are investing billions of dollars into the Gigafactory and other manufacturing infrastructure. Other car manufacturers are beginning to do this, but none of them are moving forward with as much gusto as Tesla. This is going to put Tesla so far ahead of the competition in the future that it is worth sacrificing current profits. Short term investors struggle to comprehend this.

 

Amazon were ridiculed and criticized for years because they spent more time getting things right for the customer and growing the business rather than focusing on short term profitability. Look where it got them...  ;)

[black-dog]

Apple's an interesting contrast in two ways: first, in that their commitment to quality drives them (like Toyota) to getting deeply involved in the production of their components. They fund capacity build-out to take first dibs on the production, they work hand-in-hand with them throughout (to a crazy degree). Whatever your take on Apple, it's undeniable their success is enabled by their success at logistics.

 

Tesla's not there. Steve Jobs famously booked all the available air cargo capacity to launch the iMac, which at the time was unheard of. What's Tesla doing with production that's different than what anyone else is doing? They condescend at other car production companies' pace, but ten million Toyotas are delivered to customers a year, and the dealers aren't bolting the doors on when customers turn up. Tesla talks about advanced robotics, and they love to take pictures with them, but people who've seen the lines say it's chaos with people running everywhere. Why talk trash before they've nailed anything?

 

It's telling to compare how they handle production shortages. Take late last year. Apple still couldn't meet iPhone X demand, and in November on their call Cook said basically "the ramp's going well, it's tough, I'm not going to predict anything".

 

And here's what Tesla was saying a month later:

* target of 2,500 by end of March

* target of 5,000 by end of Q2

* claims production rising exponentially

* a lot on how the problems are solved or just about to be solved

* offers wild long-term predictions (100,000 Semis/year in four years!)

* coast-to-coast Autopilot drive in "three months, six months at the outside"

 

(also, Elon calls out the suppliers for doing great work in his opening statement)

 

Yeah, Cook's refusing to give an answer, but he's also not promising anything. Elon's response to missing production targets time after time is to repeat the goal, louder, and put another goal that's even more outrageous on a farther-out timeline. I get that you want to aim high and disrupt and dent the world, but Tesla's just arrived at the 'conscious incompetence' stage of production and logistics, realizing how hard this all is, and it must be terrifying to confront. So they don't. If you take their statements at face value, they must fervently believe that they've got this all figured out for real this time. Cook knows better than to trust that.

 

Elon wants to be Steve Jobs, and now needs to be Tim Cook and Jobs at once, and for Tesla and Space X and his other side projects all at the same time.

[Spekulatius]

Apple designed their products smartly and not by having 10x tighter tolerance. I know a bit about Apples inner workings and they control their supply chain. They own specify the processes, in many cases, they own the hardware and machines that manufacture the Product (even though threy are installed at the suppliers site) and they have supply chain managers and engineers at the suppliers site to control and check the manufacturing (essential in China).

 

In any case, you get in most cases exactly the product you deserve from your supplier. In the above example with the car seat, the story sounds like utter BS to me. There are probably half a dozen mass manufacturer  of car seats in the world that can make any car seat you want, the way you spec it. If they can’t build what you want, you have either specified it wrong, or you went to an incompetent supplier, outside the known circle. In both cases, the problem is Tesla. Supply chain problems are almost always the fault of the buyer. Most likely, Tesla’s initial design of the car seat was crap and then they told the supplier to build it the way they wanted and they got exactly what they asked for. Of course it is impossible to know without and inside view, but that is what experience suggests.

 

A lot of their cash burn is just due to waste. Their manufacturing output isn’t even close to what the output of the old NUMMI factory was, despite many more workers and automation. I know it isn’t totally comparable due to product mix, but still - the magnitude of the gap suggest they are not doing a good job at getting things right in the first place.

[DTEJD1997]

Hey all:

 

What the comparisons between AAPL & TSLA have missed is that Apple is WILDLY profitable and has been for YEARS.  I don't think TSLA has ever made a profit and is NOT likely to make one for the foreseeable future.

 

Also, as I've said before....compare TSLA to the early days of the automotive industry.  F & GM were making money by the trainload in their early days.  They were building an industry and changing the world.  TSLA?  not so much...

 

TSLA makes an interesting, niche, luxury vehicle...but they also make a lot of hype.

 

Finally, it turns out that automotive executive I spoke with last summer was absolutely dead on about the problem(s) TSLA would encounter with their production process & factory.

[jeffmori7]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

[NBL0303]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

 

Or her Model 3?

[rkbabang]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

 

Or her Model 3?

 

Or a non-binary Model 3?

 

[boilermaker75]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

 

I have sat in one!

[jeffmori7]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

 

Or her Model 3?

 

Or a non-binary Model 3?

 

Sorry, I should have said its Model 3...this neutral thing doesn't exist in French, we  instead have arbitrary designed gender for everything, so a car is feminine, a vehicle is masculine and an automobile is feminine and so on  ::)

[rkbabang]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

 

Or her Model 3?

 

Or a non-binary Model 3?

 

Sorry, I should have said its Model 3...this neutral thing doesn't exist in French, we  instead have arbitrary designed gender for everything, so a car is feminine, a vehicle is masculine and an automobile is feminine and so on  ::)

 

Yes, very sexist and non-progressive. I'm surprised Canada hasn't banned the use of French yet.  :)

 

[randomep]

Speaking about Tesla, has anyone on this board been delivered his Model 3?

 

Or her Model 3?

 

Or a non-binary Model 3?

 

Sorry, I should have said its Model 3...this neutral thing doesn't exist in French, we  instead have arbitrary designed gender for everything, so a car is feminine, a vehicle is masculine and an automobile is feminine and so on  ::)

 

Yes, very sexist and non-progressive. I'm surprised Canada hasn't banned the use of French yet.  :)

 

once Quebec separates....

[boilermaker75]

Speaking of car seats, why aren't they more comfortable? I had a Saab that I kept for 14 years because the seat was so comfortable. It was just like being at home and sitting in my Ekornes chair!

[rb]

Speaking of car seats, why aren't they more comfortable? I had a Saab that I kept for 14 years because the seat was so comfortable. It was just like being at home and sitting in my Ekornes chair!

SAABs were awesome. I'm sad they don't make them anymore.

 

That being said, the seat in my BMW is quite comfortable. Lexus seats are pretty good too. So they know how to make comfortable seats. I think traditionally seat comfort has been used in segmentation. You want a more comfortable seat? Then you have to buy a higher end model. Take Lexus, which is already supposed to be a luxury marque. The seats in the IS are not that good, in the ES they're ok, in the GS they're good, and in the LS they're amazing.

 

Btw, this segmentation strategy has always pissed me right off. I'm ok with paying more for a more comfortable seat, but I don't want to buy a V8 engine or whatever along with it.

[rkbabang]

Speaking of car seats, why aren't they more comfortable? I had a Saab that I kept for 14 years because the seat was so comfortable. It was just like being at home and sitting in my Ekornes chair!

SAABs were awesome. I'm sad they don't make them anymore.

 

That being said, the seat in my BMW is quite comfortable. Lexus seats are pretty good too. So they know how to make comfortable seats. I think traditionally seat comfort has been used in segmentation. You want a more comfortable seat? Then you have to buy a higher end model. Take Lexus, which is already supposed to be a luxury marque. The seats in the IS are not that good, in the ES they're ok, in the GS they're good, and in the LS they're amazing.

 

Btw, this segmentation strategy has always pissed me right off. I'm ok with paying more for a more comfortable seat, but I don't want to buy a V8 engine or whatever along with it.

 

My Toyota Sequoia has pretty comfortable seats (leather, highly adjustable in a bunch of directions lumbar, heated etc), but I recently got my frame replaced on it (recall) and had a rental for a few months.  It was a 2017 GMC Terrain and the seats were the worst I've ever experienced.  The lumbar support stuck into my back and it wouldn't go in enough to not bother me.  My back literally hurt after long drives. I had already switched cars 3 times (for other reasons), so they wouldn't let me exchange it again.  It was just awful.  I could never own that car.  It seems like something that wouldn't be too hard to get right, yet some companies can't.

 

[boilermaker75]

Speaking of car seats, why aren't they more comfortable? I had a Saab that I kept for 14 years because the seat was so comfortable. It was just like being at home and sitting in my Ekornes chair!

SAABs were awesome. I'm sad they don't make them anymore.

 

That being said, the seat in my BMW is quite comfortable. Lexus seats are pretty good too. So they know how to make comfortable seats. I think traditionally seat comfort has been used in segmentation. You want a more comfortable seat? Then you have to buy a higher end model. Take Lexus, which is already supposed to be a luxury marque. The seats in the IS are not that good, in the ES they're ok, in the GS they're good, and in the LS they're amazing.

 

Btw, this segmentation strategy has always pissed me right off. I'm ok with paying more for a more comfortable seat, but I don't want to buy a V8 engine or whatever along with it.

 

I have a BMW and its not bad. My Saab seat was still better!

[oddballstocks]

Speaking of car seats, why aren't they more comfortable? I had a Saab that I kept for 14 years because the seat was so comfortable. It was just like being at home and sitting in my Ekornes chair!

SAABs were awesome. I'm sad they don't make them anymore.

 

That being said, the seat in my BMW is quite comfortable. Lexus seats are pretty good too. So they know how to make comfortable seats. I think traditionally seat comfort has been used in segmentation. You want a more comfortable seat? Then you have to buy a higher end model. Take Lexus, which is already supposed to be a luxury marque. The seats in the IS are not that good, in the ES they're ok, in the GS they're good, and in the LS they're amazing.

 

Btw, this segmentation strategy has always pissed me right off. I'm ok with paying more for a more comfortable seat, but I don't want to buy a V8 engine or whatever along with it.

 

My Toyota Sequoia has pretty comfortable seats (leather, highly adjustable in a bunch of directions lumbar, heated etc), but I recently got my frame replaced on it (recall) and had a rental for a few months.  It was a 2017 GMC Terrain and the seats were the worst I've ever experienced.  The lumbar support stuck into my back and it wouldn't go in enough to not bother me.  My back literally hurt after long drives. I had already switched cars 3 times (for other reasons), so they wouldn't let me exchange it again.  It was just awful.  I could never own that car.  It seems like something that wouldn't be too hard to get right, yet some companies can't.

 

Love the Sequoia seats, it's like driving while sitting in a lazyboy.

 

How'd the frame recall go?  We need to get ours inspected.  We live in W PA, so middle of the rust belt and I can see flaking rust on the frame.  I wouldn't mind a new frame if possible.  I've heard if you provide parts they'll do things like the brake lines, shocks, struts too while they're under there.  There's no additional labor.  Could really extend the life of this thing a lot.

 

[rkbabang]

Speaking of car seats, why aren't they more comfortable? I had a Saab that I kept for 14 years because the seat was so comfortable. It was just like being at home and sitting in my Ekornes chair!

SAABs were awesome. I'm sad they don't make them anymore.

 

That being said, the seat in my BMW is quite comfortable. Lexus seats are pretty good too. So they know how to make comfortable seats. I think traditionally seat comfort has been used in segmentation. You want a more comfortable seat? Then you have to buy a higher end model. Take Lexus, which is already supposed to be a luxury marque. The seats in the IS are not that good, in the ES they're ok, in the GS they're good, and in the LS they're amazing.

 

Btw, this segmentation strategy has always pissed me right off. I'm ok with paying more for a more comfortable seat, but I don't want to buy a V8 engine or whatever along with it.

 

My Toyota Sequoia has pretty comfortable seats (leather, highly adjustable in a bunch of directions lumbar, heated etc), but I recently got my frame replaced on it (recall) and had a rental for a few months.  It was a 2017 GMC Terrain and the seats were the worst I've ever experienced.  The lumbar support stuck into my back and it wouldn't go in enough to not bother me.  My back literally hurt after long drives. I had already switched cars 3 times (for other reasons), so they wouldn't let me exchange it again.  It was just awful.  I could never own that car.  It seems like something that wouldn't be too hard to get right, yet some companies can't.

 

Love the Sequoia seats, it's like driving while sitting in a lazyboy.

 

How'd the frame recall go?  We need to get ours inspected.  We live in W PA, so middle of the rust belt and I can see flaking rust on the frame.  I wouldn't mind a new frame if possible.  I've heard if you provide parts they'll do things like the brake lines, shocks, struts too while they're under there.  There's no additional labor.  Could really extend the life of this thing a lot.

 

The frame replacement went great, although it took awhile.  They took my Sequoia the last week in December and I got it back in mid March.  They said that it was only about a week of labor, but it takes a while for it to come in from Toyota.  I didn't know that I could give them parts and ask them to install them, I definitely would have done that.  They didn't find anything at all on my vehicle doing the work.  The only problem they ran into is that they broke one of my shocks taking it off, so they replaced that for me without charging me. It's weird to look under the car or in the wheelwell and see the shiny new frame like it's a new truck again.

 

[SmallCap]

This is the first time I have ever shorted (long-dated puts) a company and it's been interesting the mixed emotions I have around it.

 

I love the fact that he is shooting for the stars. but I dislike the lack of credibility that he is showing.

I love that he is disrupting an industry, but I am worried he will end up on the scrap heap of history.

Each time some criticism comes out about Tesla I get a little excited because of my puts but I am also a little disappointed that they are failing.

I want them to succeed and I want to make money.

 

Strange situation to be in.

[Jurgis]

This is the first time I have ever shorted (long-dated puts) a company and it's been interesting the mixed emotions I have around it.

 

I love the fact that he is shooting for the stars. but I dislike the lack of credibility that he is showing.

I love that he is disrupting an industry, but I am worried he will end up on the scrap heap of history.

Each time some criticism comes out about Tesla I get a little excited because of my puts but I am also a little disappointed that they are failing.

I want them to succeed and I want to make money.

 

Strange situation to be in.

 

Actually, I think it's quite good to be in that situation.

 

Most investors in any company also have two different sources of emotions: company success and stock success. But they usually don't distinguish them (enough), since the emotions are in the same direction: company does well, stock does well, investors are excited (but about which one?). Company does not do well, stock does well - investors may still be excited and attribute that to "company is doing well" even if it isn't.

 

In your situation at least you're clear what causes what emotions: the company or the stock/puts.  8)