Some Tesla Updates

Investment Analysis Clubs Saul’s Investing Discussions
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Tesla announced 4680 battery cell production breakthrough.
On Oct 11th, Tesla announced that it has built its 20 millionth 4680 cell at Gigafactory Texas. This is huge as this battery is a big upgrade from previous versions and will be used on new vehicles, such as the Cybertruck.

4680 Battery Cells -

Tesla Semi wins a real-world test against the competition.

Tesla Semi Wins Range Test Against Volvo, Freightliner, and Nikola (jalopnik.com)

More details on battery production, Tesla Semi, and recent delivery and production numbers below:

Great News For Tesla Stock Investors - YouTube

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Yes, Tesla just produced its 20 millionth 4680 battery cell; but, many are missing the story of how getting to this occurred.

• January 2022: 1M 4680 cell produced
• January 2022 ~ June 2023 (17 months): 9M additional 4680 cells produced (10M total)
• June 2023 ~ October 2023 (4 months): 10M additional 4680 cells produced (20M total)

In just 21 months, Tesla ramped up from producing their 1 millionth cell to their 20 millionth. Doubling the 10M cells produced to 20M in just 4 months, that’s how Tesla ramps!

Just saying,

Jason

Edited: Sorry Jeff, I just now clicked onto your first link which explains what I just said.

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It’s not that I’m not enthusiastic about what Tesla is doing, but the batteries situation is just cold water on that enthusiasm, for me.

You can try and read this as “all very positive” but I do not. They have a goal to switch at least some trim levels of Model Y over to 4680 cells, and in 6 months they’ll have capacity to support 50k Cybertrucks? Well, that’s a massive under-shoot for their own goals. They’re making 250k Model Y at GigaTexas and the 4680 form factor is supposed to reduce costs.

  • They’re behind on Megapacks and Powerwalls, output and margins
  • They’re behind on Cybertruck, but telling vendors to be prepared to supply for 375k trucks per year
  • They’re behind on 4680 for Model Y and probably want them in 150k+ per year, just from GigaTexas.

Battery Day is moving faster than FSD but nowhere near fast enough to support Teslas output goals, nor their margin goals. (BESS at 20% margins and scaling up truly exponentially, as well.). Batteries underpin nearly any success for Tesla (FSD, Dojo not directly battery dependent) and Tesla’s battery timeline is way behind supporting their other goals. Beyond all of that, the 4680 is currently unavailable to support any of the other output from Berlin or Shanghai.

There was a great review of Tesla Semi’s lead in Class 8 trucking for North America last week, too. Tesla’s way ahead there, too. Constrained by battery output, they are.
AutoNews Subscriber Content
or with summary/excerpts in the premium boards:
https://community.fool.com/t/semi-review-comes-in/622706

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Hi rtichy,

I’m aware you and others on the Tesla board here at TMF have drilled down on the battery constraints and are well aware of the third party battery manufacturers, where Tesla is getttng additional 4680s.

In my last post on this thread, I was excited to see some numbers from Giga Texas.

As you stated in your post…

  • They’re behind on Megapacks and Powerwalls, output and margins
  • They’re behind on Cybertruck, but telling vendors to be prepared to supply for 375k trucks per year
  • They’re behind on 4680 for Model Y and probably want them in 150k+ per year, just from GigaTexas.

Tesla management publicly states their stretch goals without proceeding these statement with any qualifiers. I just like to add that what they’re achieving is quite remarkable, nonetheless.

I don’t believe there are numbers from Tesla’s third party suppliers of 4680 batteries; but, if you’ve see any that are significant and could share them here, I’d really appreciate this.

Best,

Jason

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Any negative seems to me like short-term, temporary noise.

I love how they KNOW what the limiting factor is and it is very EASY to see the progress they are making to fix it!

IF this is the Tesla limiting factor and they’re eliminating it in their second-to-none manufacturing capabilities, consider the competition’s situations. Wow. Definitely more bullish than before I read this.

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Likewise.

I currently believe the answer to be “zero”, and I’m somewhat certain that LG has committed to making them “before Panasonic” while Panasonic is alo letting their schedule slide. (LG might start low production of 4680 in June/July 2024?)

Some suggest this is because Tesla is communicating that the Cybertruck ramp will not exceed their own 4680 production in the next ~year, anyway, but again, I come back to 4680 is the low-cost design, and is supposed to underpin things they are already making and selling… so slow-rolling the 4680 does not make any sense, and even more so in 2023 when margins have been collapsing as the price cuts are added to keep production overhead low and volumes high.

Still on “Team Tesla” but with pragmatism in mind, I’ll be holding through 2024 and hoping late 2025 is fantastic… and that is a decidedly non-Saul’s-Board kind of sentiment.

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You should listen to the call. Musk was quite downbeat. Here are some quotes:

I do want to emphasize that there will be enormous challenges in reaching volume production with the Cybertruck and then in making a Cybertruck cash flow positive…So, I just want to temper expectations for Cybertruck. It’s a great product, but financially, it will take, I don’t know, a year to 18 months before it is a significant positive cash flow contributor.

But if you want to do something radical and innovative and something really special like the Cybertruck, it is extremely difficult because there’s nothing to copy. You have to invent not just the car but the way to make the car. So, the more uncharted the territory, the less predictable the outcome. Now, I can say that if you say, well, where will things end up, I think we’ll end up with roughly 0.25 million Cybertrucks a year, but we’re not – I don’t think we’re going to reach that output rate next year.
I think we’ll probably reach it sometime in 2025. That’s my best guess.

And then delaying the ramp-up of Giga-Mexico:

We want to just get a sense for the global economy is like before we go full tilt on the Mexico factory. I am worried about the high interest rate environment that we’re in.

Elon also tempered expectations for the previous long term 50% CAGR delivery metric:

I mean, the risk of stating the obvious, it’s not possible to have a compound growth rate of 50% forever or you will exceed the mass of the known universe. But I think we will grow very rapidly, much faster than any other car company on Earth, by far

On FSD progress, some rare realism expressed from Musk:

Obviously, in the past, I’ve been overly optimistic about this. The reason I’ve been overly optimistic is that the progress tends to sort of look like a log curve, which is that you have kind of rapid initial improvements that if you were to extrapolate that looks rapid fairly linear rate of improvement, you get to self-driving quite quickly, but then the rate of improvement curves over logarithmically as such to asymptote.

That’s not happened several times. I would characterize our progress in real-world AI as a series of stacked log curves. I think that’s also true in other parts of AI, like AI Lens and whatnot, a series of stacked log curves. Each log curve is higher than the last one. So, if you keep stacking them, keep stacking logs, eventually get to FSD.

If anything, the call was positive on 4680 production (although @rtichy’s comments above are spot-on):

4680 cell production in Texas increased 40% quarter over quarter. … We’re heavily focused on quality. Scrap is down 40% quarter over quarter. With the increased volume and yield improvements, cell costs consistently improved month over month within the quarter, although we have a lot more work to do to achieve our steady-state goals. And that is our priority.

The Cybertruck cell with 10% higher energy than our Model Y cell started production on Line 2 in Texas. This quarter, we convert to building 100% Cybertruck cells to simplify and focus the factory as we ramp all four lines in Phase 1 over the next three quarters.

Phase 2 of the Texas 4680 facility is currently under construction. The additional four lines incorporate further capital efficiencies over Phase 1, and our target is for them to start producing in late 2024.

And then the call closed with overall macro doom and gloom from Musk:

Like I just – I’m not saying things will be bad. I’m just saying they might be. And I think like Tesla is an incredibly capable ship, but we need to make sure like as – if the macroeconomic conditions are stormy, even if the best ship is still going to have tough times. The weaker ships will sink. We’re not going to sink. But even a great ship in a storm has challenges. Now, that storm will apply to everyone, not just us and not just the auto industry. It will apply to everyone, I think.

If anybody’s got any good guesses on this, I’d love to be less wrong. And I apologize if I’m perhaps more paranoid than I should be because that might also be the case because I am – I have PTSD from 2009 big time. And in 2017 through '19 were not a picnic either. That was very tough going.

So, it’s not surprising the stock took a dive. With Cybertruck not contributing to profits for at least a year, probably 18 months, and with no other new models in the works, and continued price cuts hurting profit margins on the existing vehicles, where’s the near-term potential for Tesla right now?

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Near term? Don’t know. Long term. Cars are Amazon books.

Remember Amazon books? When Amazon started, it only sold books. I believe it was Books A Million CEO that said “I love it when Amazon sells books, they lose money on every book they sell”

Tesla has built and is operating a virtual power plant in Texas. Texas is unusual in that it has the ERCOT system and a lot of wind power hitting the grid. This leaves a lot of room for time arbitrage of electricity.

I have been waiting for this. I thought Enphase might do it with there latest inverters, but Tesla is ahead of then in the virtual power plant business and has more capital and name recognition.

Unlike cars, batteries, solar roofs, and inverters, virtual power plants can be scaled up like cloud services.

Time arbitrage of electricity is a new business, never possible before.

This is the reason to buy Tesla on the dips and hold it forever.

Cheers
Qazulight

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Correction, “This is ONE reason…”

Maybe I’m the one guy who did not find the earnings call depressing but realistic. Survival comes first, everything else comes next. Profit, margins, and P/E ratios are important for steady state companies and are the key metrics for value investors. Tesla is a growth company and growth needs capital. When SaaS was popular at Saul’s the mantra was that debt was not a problem because the future would take care of it. Tesla is in the enviable position of funding growth from free cashflow. What Elon was worried about was cashflow, that Cybertruck won’t be cashflow positive for 18 months.

Virtual Power Plants (VPP) are sources of cheap cashflow. The batteries are paid for by third parties and Tesla puts up the software to run the VPPs. Inviting competitors to use Tesla’s Superchargers might inconvenience Tesla owners but it is another source of cheap additional cashflow.

As management consultants we discovered that 75% of businesses that go broke do so for lack of working capital. You can’t go broke as long as you can pay your bills. Debt is great as long as you can repay it but a doubled edge sword that kills you if you can’t. The problem or risk with Cybertruck and maybe with Optimist is the time it will take to make them cashflow positive. Tesla has a lot on its plate at a time when interests rates are rising and there are fears of a recession. I think Musk is right to worry and to take protective measures. He has been on the brink of bankruptcy before.

A few short months ago clueless analysts and dividend investors were asking for buybacks and dividends. The present circumstances show how stupid and shortsighted they were.

Denny Schlesinger

Long TSLA and thinking of adding when the time is ripe

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The number of SaaS companies that we were following at the time that had any debt was almost zero. I say “almost” because there may have been one somewhere that had some debt that I have forgotten.

On the other hand, way back when, most of them were Free Cash Flow negative at first because they were spending every penny they could on acquiring new SaaS customers. The reason for this was that once acquired they were customers almost forever, often spending 20% more each year, and with much, much, lower renewal expenses than acquiring expenses.

Best,

Saul

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Capital is not one of Tesla’s problems. Last quarter, Tesla’s $800m FCF swelled its capital to over $26Billion.

The problem is that Musk’s self-proclaimed “PTSD” means he’s not willing to spend as much of the money they already have on hand to grow the company as fast as they had said previously.

But is a company needing to take protective measures the kind of company in which we’re looking to invest right now? Do we have better places for our money, at least in the near term?

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Absolutely the crucial question. Yes, you can hold Tesla long term and I’m pretty confident it will do well. But how about the next year? Maybe not so good.

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The levers available for Tesla to pull, in order to maintain their ambitious mission at a time when all other auto manufacturers are flailing, is inspiring by comparison.

It will take time for suppliers to ramp up production of 4680s. Nonetheless, taking into account remarks on Tesla’s Q3 Conference Call, I believe there will be enough 4680s as not to limit production of Tesla automobiles.

Q3 Tesla CC, QnA

Question

…update on the 4680 cell, particularly progress towards performance improvements and cost savings outlined on Battery Day? Thank you.

Unidentified Company Representative

“Sure thing, Martin. 4680 cell production in Texas increased 40% quarter-over-quarter. Congrats to the Texas team for producing their 20 million cell off of line one. Texas is now our primary 4680 facility. We’re heavily focused on quality. Scrap is down 40% quarter-over-quarter. With the increased volume and yield improvements, cell costs consistently improved month-over-month within the quarter, although we have a lot more work to do to achieve our steady state goals. And that is our priority.”

“The Cybertruck cell with 10% higher energy than our Model Y cell started production on line two in Texas. This quarter we convert to building a 100% Cybertruck cells to simplify and focus the factory as we ramp all four lines in Phase 1 over the next three quarters. Phase 2 of the Texas 4680 facility is currently under construction. The additional four lines incorporate further capital efficiencies over Phase 1, and our target is for them to start producing in late 2024.”

“Lastly, in Kato, we’re retooling to enable large scale pallet runs of our next generation cell designs. Kato’s long-term goal is to be the launch pad for new cells, one generation ahead of our mass production facilities, enabling faster iteration and smoother ramp ups of new designs.”

Other than the Earnings Report being a uniquely sober look at the challenges Tesla has always had throughout the 13 years they’ve been a public company, nothing material has changed at Tesla other than better margins than expected for MegaPacks.

Additional data points for why I believe battery supply is not a concern at this time, see below (sorry if some of the video and pictures don’t download for reference).

Panasonic is running a pilot 4680 production line at its Wakayama factory in Japan, and plans to start volume production later in the fiscal year that ends in March 2024.

Shoichiro Watanabe, chief technology officer of Panasonic Energy, last month said the company’s new Kansas battery plant will focus initially on 2170 cells, but it will eventually shift 4680 production to North America.

Last year, LG said it planned to open a new 4680 production line at its Ochang plant in Korea in the second half of 2023

Exclusive: Tesla taps Asian partners to address 4680 battery concerns

https://www.bloomberg.com/news/articles/2022-03-19/tesla-supplier-catl-weighs-sites-for-5-billion-battery-plant#xj4y7vzkg

Tesla Supplier CATL Weighs Sites for $5 Billion Battery Plant

In the US, ‘opened and currently ramping now’.

If you’ve ever wondered “Who makes Tesla batteries?”, the answer is chiefly Panasonic, although CATL is a key Tesla car battery manufacturer, due to the fact the two companies have agreed to produce lithium-ion batteries together at Tesla’s second “battery megafactory” next door to Giga Shanghai.

Who builds batteries for electric cars? EV battery manufacturers explained

https://www.google.com/gasearch?q=how%20many%20batteries%20is%20the%20company%20CATL%20supplying%20to%20Tesla&source=sh/x/gs/m2/5#fpstate=ive&ip=1&vld=cid:60859a0a,vid:adacXUdfPPI,st:0

IMG_1109.png

IMG_1108.png

This battery plant was built some 100 meters from the Tesla Gigafactory in Shanghai because Tesla is by far their largest customer.

CATL is not only the largest battery company in the world, in August they announced what is now being built…

IMG_1110.png

The LFP is the cheapest and most easy scaled up, and now is capable of 4C charging.

I was under the impression that Giga-Shanghai was already getting 4680s from CATL, albeit the wet chemistry of the first iterations. But, I wasn’t able to find my original source material on that.

The first half of this just released video is all about Tesla battery supply. The main point is the CATL factory built and up and running with massive rate of production, again right neck to door to Tesla Shanghai. The commentators explain, at least to my satisfaction, that battery supply will meet current production goals (including the 2 Million cars this year and the ramping Cyber truck up to 20k/ month by mid 2025).

Best

Jason

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I should not have stressed ‘debt.’ In fact I never did find out how the SaaS funding was done. I was not criticizing the SaaS investment strategy, you might remember how often I posted the videos about how the economics of SaaS worked.

At SA they keep talking about the cost of capital. When I tell them that the cost of capital from free cashflow is irrelevant they throw finance at me that is probably correct in the sense that there are competing uses for the capital. But from running a business point of view that is not relevant, you have to fund your growth. If you don’t have free cashflow you have to go to the financial markets and that means shareholder dilution, or you borrow which is riskier. My point is that, Tesla funding growth from free cashflow, is golden. And my second point is that Musk worrying about delay of free cashflow from Cybertruck is a realistic position to take. He has memories of sleeping at the Fremont factory worried about bankruptcy.

Denny Schlesinger

o o o o o o o o o o o o o o o o o o o o

We had the same problem with our management consulting startup but by securing cash (debt) we survived long enough to land our biggest contract ever. Theory and practice are the same only in theory, when push comes to shove, money in hand is king.

Years later, one of our suppliers said to me, “You guys owed us a lot money but paid it all off!” When I solicited the bank loan I asked him to give us good references if he ever wanted to get paid. Reluctantly he did. :wink:

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Tesla is the most promising investment I see at this time and keeping it safe makes a lot of sense to me. Funding growth from free cashflow is better than all the other alternatives.

at least in the near term?

Short term is trading. I’m in Tesla for the future: VPP, Optimist Robot, Dojo, GAI. EVs are just the beginning.

Denny Schlesinger

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Hi Smorg. Yes, the call was somber and not great. I’m a newer follower and listener of the calls but I haven’t heard a single one that’s great. The pattern is usually, call, Tesla sells off because the call is not up to analysts expectations. Bears hammer the stock for a bit, then reality hits and the stock gets back to performing. The first comment you highlight above is a perfect example.

Oh no… Cybertruck will take up to 18 months to hit 250K/yr capacity and cash flow!!

  1. How many competitor EVs are cash flowing?
  2. How many can cash flow within 18 months of introducing the new product?
  3. My takeaway from the same lines:

“CYBERTRUCK TO BE 3RD HIGHEST SELLING EV IN US IN 2024”

Lets say it next year they only produce/sell 100K. If this happens, then it’ll be the 3rd highest selling EV in terms of cars delivered, only behind Tesla Model Y & and Tesla Model 3.

NO OTHER CAR COMPANY IS SELLING 100K OF AN EV MODEL IN A YEAR.

Best selling EVs 1st half of 2023
F9IonHlWwAA4pI_

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eReadiness Report 2023

30% intend to purchase an EV in the next 2 years, 62% within 5 years

Commentator is obnoxious but info is very good, here https://youtu.be/KDiEO2sErXY?si=09UY7CpZJ8Cc9Ac8

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This second slide is from Tony Seba presentation on “What is Disruption”, see YouTube.

Some high quality assessment of expected adoption, IMO. Please argue this if you disagree.

Best

Jason

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Didn’t listen to the call, but if true, drives home how well Tesla really is doing.

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Other Tesla news yesterday:
BP buying $100M Superchargers. Doubt they’ll be the only big oil company to do so. Additional data point showing Tesla will make money off ALL EVs.

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You must be talking US only, as world-wide BYD is on track to sell over 100k Qin Plus BEVs this year.

More importantly, we need to remember that no other car company’s stock is at Tesla’s valuation, using just about any metric (P/E, P/S, Price to volume, etc.). There’s a ton of future growth expectations built into TSLA, and it was clear on the call that Musk and Tesla are trying to reduce expectations (walking back the 50% CAGR in deliveries and tempering CyberTruck ramp volumes) sooner rather than later.

The SuperCharger hardware purchase is interesting, and reinforces Tesla’s design and manufacturing prowess. We’ve known about Tesla’s SuperCharger costs being the lowest in the industry by far for a few years now, as Tesla as always been the lowest bid by far whenever a state takes bids on fast charger deployments. That said $100mil is a drop in the bucket for Tesla now. What will be interesting is to see if BP does the support and maintenance on this chargers, or whether that’s also farmed out to Tesla. Because I don’t think Tesla’s charger hardware is that much more reliable by nature (other than not having LCDs or keypads), it’s that Tesla has a network of mobile repair people that keep things up and running (yes, and made possible by the modular nature of Tesla’s hardware).

Charging is a tough business at which to make a profit. The hardware and install costs are high, maintenance is constant, and there’s price pressure on the product itself (everyone compares $/kWh to their own home/apartment rates). It’ll be interesting to see if big oil really thinks there’s a money-making market here, or if BP simply thinks $100mil is the price of good wiil.

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