Now you all go buy a Tesla!

Not knocking Tesla (though I am no fan) but it is in fact extremely easy to argue precisely that. Norway is Tesla’s best market and the only one with anything approaching a decent market share. And why is that? Massive electric incentives and Norwegians prefer a Model S to a Nissan Leaf (not exactly hard to see why). And would many people be buying electric cars if it weren’t for punishing CO2 taxes or very juicy incentives? Not from Tesla they wouldn’t because they can’t make many of them.

Over the next few years about 20+% of the EU market is likely to go electric, the majority of those sales not from Tesla but from traditional brands. They won’t make a penny piece on those cars (as a Tesla haven’t) but they are forced to sell them at a certain percentage of their EU sales by emissions legislation.

In China, comfortably the world’s largest car market, the greatest boom in electric sales imaginable is about to happen because the Chinese have legislated that shortly only EVs are eligible to enter city centres due to the massive pollution they have. They are forcing their manufacturers by various means to convert to electricity (and they have the world’s most developed battery industry).

So, somewhat ironically the proliferation of EV in world terms owes much more to Jean Claude Juncker and Xi Jinping than it does Elon Musk.

 

Cant agree.

 

Don't forget to bring your gasoline-powered generator...

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Dont forget to bring gas and a mechanic...

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All valid points, and I guess I’m being somewhat vague in my argument, but I think it would be significantly harder to institute such things if it weren’t for the attention that Tesla had brought to the market. Maybe it’s just a US thing, but EVs were a joke destined for Hollywood tree huggers prior to Tesla. Today at my office, the landlord started the process of installing charging stations in the lot, as one of the tenants has four Teslas. No way that would have happened for the odd Bolt or Volt or whatever they’re called. At least not anytime soon. Agree that governments will drive us all toward EVs, just don’t believe it would have happened this quickly if Tesla hadn’t shown that EVs could be mainstream daily drivers even out here in the suburbs. Now if Tesla can find a way to be profitable, that would be good.


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Tesla’s big idea was to produce a luxury car at a high price point with lots of desirability, as you mentioned, and that was very smart. So I agree with the sentiment behind your post. I have a company that forms part of the distribution chain for a number of brands in various EU markets. My main objection to Elon Musk is that he is brilliant but also arrogant. Not only did he try to reinvent the car but he also took aim at the car industry and tried to reinvent the way car manufacturing, distribution and sales worked, I feel that his point was that the industry was fat and lazy and ripe for disruption. To some degree that is true but it also masks the fact that the industry is highly complex, with very technical product and the need for leading-edge safety and responding to extremely difficult legislative requirements. All while being hyper-competitive. The fact that there is so much competition makes sure that those that are lazy basically fail.

Many brands have disappeared over the years but failure also looks like; being taken over by Chinese/Indian/other International businesses, being bailed out by the government because they dare not lose the jobs; being merged with another failing brand to try and save cost etc.

What he has found is that the motor industry is not so stupid after all. Manufacturing is a very precise science that takes lots of very skilled people and lots of experience, that vehicle distributors (like me) are often around because they know exactly how to do it and have refined the way they do things over many years - if manufacturing is competitive, vehicle distribution is a highly competitive business, and that car dealers/car sales though looking ripe for disruption is still the most effective and suitable way to connect an automotive product with the general public. Disruption is certainly coming, but it may not take the form we think.

It has always been very hard for me to believe that one man can successfully ‘disrupt’ multi disciplines of the car industry all at once. A clever idea in product is not the same as a clever idea in all those other areas. I have never been a bull where Tesla is concerned but not for any reasons to do with product, which I think is Tesla’s best area, even though I don’t believe quality to be strong. When the model S first came out I checked it out at the (I think) Frankfurt motor show. I had read great reports from journalists and thought they had absolutely nailed the look of the car. I could have been a customer. But the general quality and feel of the car was extremely poor and disappointing. I did not know at that point how he would try and manufacture and distribute the car so became negative about Tesla’s prospects once I learned what he would do to build and supply the products. I am not saying his approach is impossible just that it will take deep, deep, really really deep pockets - more than the shareholders realise - and quite a bit of time. That time is enough for the rest of the industry to be forced to build electric products and for the Chinese (who have the world’s most advanced battery industry and the largest market on their doorstep) to get their act together. The only solution for Tesla is to get scale quickly because the brand is still very strong. But I think they are finding that very tough. They are dead otherwise. And will go the way of literally hundreds of automotive brands over the years - either bankruptcy or more likely takeover/merger. The recent news re FCA and Tesla joining forces is interesting, though what is announced doesn’t solve Tesla’s problem. If FCA were to manufacture and distribute Tesla product, that might be more interesting because they have established factories, distribution and dealer networks and more importantly the know-how. However they may not be the best partner for Tesla but the best partners are really competitors. This is all conjecture and even people like me, who have worked at a high level in the motor industry for many years can only hypothesise, perhaps with the benefit of some experience. But any one person who claims to be able to reinvent it all has to be a super-genius. Maybe arrogance is what super-genius looks like. Not for me though.

 

This might be a US centric viewpoint (something Tesla may also suffer from), however buying a new car at a dealership is one of most peoples least favorite things. While it may be the best way to maximize profit for the industry, it is ridiculously awful for the average consumer. So much so that there are now services that will go buy a car for you just so that you don't have to deal with a car dealership.

Has Tesla figured out the perfect way to sell cars? Certainly not, but they are trying. For the consumer, buying a Tesla is an incredibly easy and hassle free process. I had a very nice pressure free test drive, and then it took me all of 5 minutes online to order it and then another 5 minutes signing the forms when I picked up the car, followed by a nice very detailed walkthrough of the cars features. Contrast that to the super high pressure test drives I had at the Alfa dealer, where they made it seem like I was being blessed by god for being allowed to test drive the Quadrifoglio, or the MB dealer where they called me daily for weeks after looking at the E63, or my last BMW purchase where I spent 5 hours at the dealer arguing about prices, calling them out on made up fees, and filling out endless forms.

As for the build quality, sure its not perfect, but its far from the worst in the industry, and its improved dramatically over the years as well. I certainly wouldn't want FCA to be building Tesla's, the build quality on that Alfa I test drove was abysmal. The hood release broke off in my hand and the gap around the display was so large I thought it was supposed to be an air vent.

 

Nothing a box of matches as a bit of gasoline cant fix

God they are ugly sobs.

 

There is no question dealer experience can be awful - one of the reasons people think the whole thing needs some disruption. But there is more to it than that. Most manufacturers don’t own their own dealers for one key reason; they cannot do what a network of dealers provides for them more cost-effectively. The moment that changes dealers will be no more. What they provide for them more cost-effectively than they can do themselves is stock their cars in high quantity so customers can see the cars they are being asked to buy at a location close to them, own the stock so the manufacturers’ working capital is used more effectively which keeps the stock market happy, deal with the customer’s used vehicle and provide servicing/warranty/repairs in the same town or locality as the customer. When all this can be done better and more efficiently without dealers they will disappear. But I don’t think it will be soon.

True disruption is what Bob Lutz has talked about - manufacturer brands disappear and Uber, Lyft etc. provide personal transportation ordering 100,000 cars each month from the lowest bidder. Just like everyone knows Apple but few people know Foxconn. This sort of disruption will catch existing manufacturers, existing car dealers and Tesla too!

 

Musk's "disruption" fantasies/dreams come at the loss of billions of shareholder dollars, with continued/ongoing missed targets in production quantity/quality.

Uber: net loss of $865 million in the fourth quarter.
Lyft: net loss of $911 million for 2018.

All pipe dreams. In the case of Musk, quite literally a pipe dream, as his prolific pot-smoking Twitter tirades are now infamous and being monitored by the SEC.

Those of us living in reality can see through the smoke.

 

I ‘liked’ this post because I basically agree with it. But a word of caution is Amazon. They racked up years of losses and billions of dollars, but it mattered not a jot. Because it was the suppliers who funded it. They were all persuaded that Amazon was the future (and they were right to believe it as it turned out) and so gave Amazon payment terms - 30 days or so. But customers pay ahead of delivery. So the larger Amazon grew the bigger the losses but the larger working capital in the business to pay for the losses. It was very very clever but depended on suppliers believing they wouldn’t survive without embracing Amazon. Eventually Amazon grows so large that profits will be plentiful and the companies who Amazon most threaten pay for it.

So Uber may well be able to survive large losses if their business model generates its own working capital to cover the losses (I don’t know enough to say if that is true) but Tesla is not nearly so smart. They have to fund their losses in the good old fashioned way of persuading people to invest in the promise of future gold. And there is a time and patience limit on that.

To clarify my earlier post I don’t think Bob Lutz will prove to be completely correct but that is just my opinion. Imagine he is correct, that would be true disruption. Tesla’s arrival is not really very disruptive at all, it’s just a change of power train, something the car industry has seen before.

 

But Amazon wasn't risking people's lives:

https://www.cnn.com/2019/04/09/tech/uber-fake-driver-scheme-lawsuit/index.html

https://www.nytimes.com/2019/01/07/us/uber-driver-murder-trial.html

https://www.usatoday.com/story/news/nation/2016/02/22/uber-driver-accused-killing-6-what-we-know/80725680/

https://money.cnn.com/2018/04/30/technology/uber-driver-sexual-assault/index.html

https://www.miaminewtimes.com/news/uber-driver-who-raped-woman-he-picked-up-in-wynwood-says-its-one-of-the-perks-of-driving-for-uber-10814630

Building and delivering cars/rides is a lot different than peddling consumer packaged goods, clothes, and books.

 

From today's Wall Street Journal...

Get Ready for a Pileup, Tesla
The company braces for a $300 billion onslaught of money-losing green cars.

“I would have bought my Tesla even without the tax rebate.” So went any number of irate emails from readers over the years, nonsensically for any point I was trying to make. Elon Musk isn’t in the business of leaving money on the table. He priced his cars to make sure every penny of subsidy ended up in Tesla’s pockets and not its customers’.

Now Wall Street finds Tesla sales are not adding up as hoped this year. Morgan Stanley is forecasting 344,000, below the low end of Tesla’s last predicted range. An obvious culprit is the dwindling U.S. tax rebate to buyers. The handout, once $7,500, has been cut in half and will soon fall to $1,875. It turns out economics applies after all.

Worse for Tesla, the $7,500 rebate will continue to apply in full to a tidal wave of electric cars about to hit the U.S. market. This onslaught—coming from Mercedes, VW, BMW , Volvo, Porsche, Nissan, Kia, Hyundai, you name it—is the fruit of an estimated $300 billion in capital the industry has committed to building money-losing electric cars.

A report out last month from McKinsey tells the story: These cars cost an average of $12,000 more to produce than they can fetch in the marketplace. The role of regulation in causing this pileup “cannot be overstated,” the report adds, while proposing somewhat desperately that the industry try to save itself by “decontenting” its electric vehicles—that is, getting rid of every unnecessary frill and luxury, such as display screens, fancy seating, power windows or anything else that adds costs to what are essentially compliance vehicles.

Of course, this won’t happen. Not only would it turn off the stylish adopters who buy most EVs, it would also undermine the halo effect manufacturers hope and pray their green vehicles will shed over their conventionally powered lineups.

Unfortunately, unlike these companies, Tesla needs to make a profit from its electric cars. It doesn’t have a gasoline-car business. It can match other makers loss for loss only if investors are willing to keep throwing new capital into the company, and they no longer are. Mr. Musk might conceivably seek refuge in U.S. trade law. Domestic manufacturers are entitled to seek protection when overseas rivals sell products in the U.S. below the cost of production. Except that any such action would likely provoke a trade war and hurt Tesla’s access to the even more grossly subsidized electric-car markets in Europe.

An Apple (or Amazon) analogy has long bolstered Tesla among its faithful. Something so ineffably wonderful about Tesla cars would let them command Apple-like (or Amazon-like) margins even in a market polluted by competitors willing to offer roughly comparable products at money-losing prices.

We trust this idea has now died a natural death. An electric car is not an iPhone. Everyone already has a car; that car already fulfills the basic function of a car as well or better than any car built by Tesla can. Only limited profits are on offer from selling cars, and no way was Tesla going to exempt itself in the long run from the industry’s bare-knuckle fight over who gets a share.

Let’s also acknowledge that the insanity here is partly Mr. Musk’s own doing. He promoted the myth of the electric car as a solution to climate change. This column warned nine years ago, just before Tesla’s initial public offering, that political favoritism and tax handouts were drawing into the market for electric cars companies that had long experience building cars. Importantly, these companies also had large unionized workforces and lobbyist armies that would give them influence over regulation to dwarf whatever political clout Tesla could hope to muster.

Not even our cynicism, however, was up to anticipating the fallout that would actually materialize: The world’s traditional car industry, even as it continues to churn out 79 million vehicles annually, has been incentivized everywhere to divert some of its profits to making life miserable for the one company that genuinely thirsts to make electric cars and needs to be able to make them profitably.

This outcome has many fathers, including the world media, which has been undiscerning in its cheerleading for electric cars.

Bloomberg News recently celebrated the fact that one-third of new cars in Norway were electric. Unmentioned was the litany of handouts that make an electric car a no-brainer for many Norwegians, from giant tax breaks to free parking and even free charging.

The kicker is that Norway can afford its electric car habit partly because it’s one of the world’s biggest oil and gas exporters. Pretty much the same basic model now has been adopted by green regulators everywhere. The world is ruthlessly promoting an electric-car industry that is a hothouse flower and will need massive and continuing subsidies from buyers and users of gasoline-powered cars.

PS - What does a Tesla thread have to do with a Ferrari 458/488? Wish the moderator would kill this thread, as it so deserves.

 

Car is brilliant and a game changer, regardless of cost to shareholders or governments. (the latter two I dont care about). Undeniable.

 

Comparing Tesla to Uber and Lyft is ludicrous. Tesla is spending a huge amount of money on capital expenditures. They're building real physical factories which cost a fortune to design and build. The stock 'analysts' seem to be used to these tech companies that don't actually build anything, like Uber and Lyft.

 

The problem is that Tesla's business model is unsustainable. If/when it implodes, and you own one, who will service it for you? Where will you get parts? Especially now that they are closing dealerships all around the US. Where do you take the car for service if they no longer have shops?

 

Any serious car manufacturer could easily match Tesla's products - they did not do it before precisely because they are serious:
- they are reluctant to produce money-losing cars and so are going to electric cars only under political and economic pressure, not to claim they are disruptive
- they will not release crap software (auto-pilot like) to impress people 99,9% of the time and kill people 0,1% of the time, they have higher standards.

 

No comment on Lyft or Uber other than I think they'll get beat by Google, but TSLA is worth a lot. Whether Tesla makes money currently or not, their brand name and IP are worth many billions.

There is a reason the Audi Etron that just debuted has terrible efficiency and can't even compete with a 7 year old Tesla. Tesla's technology is worth a lot and it's way ahead of most everyone else. The Tesla brand is super valuable as well. There is a reason Tesla can selling hundreds of thousands of cars while Jag, GM, etc can barely sell any.

Also, Tesla shareholders have done quite well, no? Surely in hindsight you wish you bought a few million in TSLA back in 2010, no?

 

As long as they can eventually break even, the business model is not unsustainable. In fact, breaking even if the definition of "sustainable". I think there is a very good chance they become modestly profitable.

 

So how come the 2019 Etron and iPace suck compared to a 2012 Tesla with obsolete motors and battery cells? The 2019 Audi is already dead in the water and it will be on sale for probably another 5 years LOL. Etron performance is much lower. Etron range is much lower. Etron efficiency is much lower. It just shows how far behind they are.

Also, how come Autopilot is still massively better than VAG's driving aides? Whether it's perfect or not, it's still vastly better than everything else.

So far everyone who has claimed what you just did is wrong. Tesla simply has better technology. It's hilarious that people think just because you make "cars" you somehow are experts in electronics, batteries, etc. The reality is that VW, Porsche, Audi... they aren't experts in electric motors or power electronics. Tesla's technology is simply superior because they've been working with it for much longer on and a much bigger scale.

VAG knows how to "assemble" cars. They know a lot about ICEs, suspensions, etc. This does not mean they are experts in BEVs.

 

Why are you wasting your time trying to convince me? Seems like you should instead spend said time buying TSLA stock. Unless you already own some - in which case, you have more than a slight bias in your statements.

 

Not at all actually and I think it's overvalued, however I'm just stating facts. You said Musk is destroying shareholder value when in fact investors have done very well.

You also ask where people will get parts if they go under and the answer is obvious: They'll get them from the company who buys them.

You're acting like Tesla assets have no value and would poof into this air. That's an extremely shortsighted analysis.

 

I think that's where our opinions differ. If you look at their balance sheet, their liabilities are far greater than their assets. And I believe their "goodwill" assets are way overvalued. Mind you, in their futile attempt to hit numbers, they're currently building cars under makeshift tents. TENTS. I hope you're not including the tents in your analysis of assets, because tents are cheap.

 

I get where you are coming from for sure and appreciate it.

But this I don’t care about. Cars are brilliant.
Tesla would be acquired and continue.
Not one day of out of service.
I could sell and move on.

I care about the car, not the company. Same for my Ferraris and Lambos etc.

 

While I agree that Musk may not be the best businessman, Tesla without Musk wouldn’t be nearly as much fun. Or as well known. Pure marketing genius. But if they don’t start turning regular profits, it won’t end well.

And all of these issues that folks here have very correctly noted are the kinds of things that will make the success story that much more celebrated. “They resorted to building cars in tents in the parking lot to meet the overwhelming customer demand!”


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