Tesla's March 1 Investors Day

Investment Analysis Clubs Macro Economic Trends and Risks
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Perhaps you could explain(hopefully without the snark) why that matters? AIUI, though they’re shifting towards the new designs, Tesla still uses 2170’s in some of their Model 3 and Model Y (link below) - and even if they weren’t still doing it, they certainly could have chosen to continue to do so. So the Semi definitely takes batteries that could have gone into other models

Yes, they are. Or at least, Cybertruck is. Or more specifically, Tesla needs more than two models at high volume to fulfill its mission.

No single model of car - no matter how good it is - has ever sold more than about ~1.5 million units (the peak year of Corolla sales). That’s not because of car quality. People’s needs and preferences in a light vehicle are just too varied. Even if you make the single-best midsize SUV that’s ever been or ever will be made, there’s only so many people who want a midsize SUV with those specific features.

Last year, Tesla sold about 770K Model Y and 475K Model 3. Because the Cybertruck won’t be in high-volume production until 2025, for Tesla to grow ~50%, it needs to grow those models at least 50% per year (and they may have to grow the Y faster, since Model 3 sales actually fell last year from 2021, and consumer preferences generally run 2:1 SUV’s to sedans).

Even at 50%, that means Tesla would have to produce at least 1.2 million Model Y this year, and 1.7 million Model Y next year. IOW, the best-selling car in the world this year (definitely achievable), and blowing through the record for most cars of a single model ever sold in a year next year. And still needing to grow a lot in 2025, since Cybertruck and “Model 2” will not be contributing more than a few hundred K in production those years.

That’s…well, it’s a real risk to the mission. Selling more than 2 million units of a single model? It doesn’t matter how good the Model Y is - the most desirable car in the world in any given year has never been able to move more than 1.5 million, because what people want in a car varies so much. Not having a third high-volume model in a timely manner puts the mission at risk, if the variety of consumer needs and preferences puts an upper limit of how much of the same car you can sell. That risk is outside of Tesla’s control, but a third high-volume vehicle was likely necessary to keep on track.

The Cybertruck made sense as a third high-volume model. After SUV’s, pickups are the next largest slice of the U.S. market. About 20%, and three of the top six selling vehicles are pickups. It was a good choice. Not getting it done, though, subjects the mission to a really significant risk.

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For 2023? Probably about equal … both will produce negative margins. Ford because it starts will low-ish margins and because a 1+ month line stop costs a lot of $$$, and Tesla because it’s all startup costs for most of the year. In 2024 or 2025? I think Tesla will mostly set the profit margins based on the prices they choose at various times. The last 6 months have shown that for the most part, Tesla determines the profit margins of almost all EVs sold in the USA and many other places.

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No idea. In the near term, both will be severely supply constrained - so margins will depend more on the consumer demand profile than the production efficiency profile. Even in the long-term, the Cybertruck has a…well, an unusual design aesthetic. And as I noted above, Tesla’s going to need to move a lot of them to stay on track with their production targets. Even Musk has considered the possibility that the design may dampen consumer demand for the truck, if people don’t share his aesthetic. So Tesla may have to accept a lower price for the Cybertruck.

But I’ll push back on your assumption - that the real test of production competence is profit margin. Again, the key point here - margins depend on both demand and supply side factors. For example, Coca-cola’s margins depend far more on their brand and consumer demand levels than how efficient they are at physically producing syrup.

And there’s other aspects of production competence as well. If you had a company that’s got slightly higher margins than your competitors on the models you make, but it takes you twice as long to get your production lines and factories geared to introduce a new model - well, there’s an argument that the other company is more competent at producing cars.

Ford unveiled the Lightning in 2021, and had was able to get production started in 2022 - during the pandemic and supply chain crises. That’s pretty good. Other companies were able to introduce new mass-volume EV models during the pandemic - the VW ID.4, the Hyundai Ioniq 5 - without ill effect. No one’s saying that Tesla isn’t good at manufacturing cars. They’re great at manufacturing cars off the Model 3 platform. But they haven’t yet shown how good they are (or not) at bringing new products to market in a timely manner. And that is part of manufacturing cars.

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I’m not overly worried about demand. Tesla will spend the first three years of production just getting through its reservation list. It also appears the Cybertruck may have started a new vehicle type. Cyberlandr is an independent company that builds a collapsable camper that fits in the Cybertruck bed. When used with the optional cybertruck solar panels one can go off grid for days if not weeks at a time. They remarkably have already acquired $150M in reservations, with much of the interest coming from companies.
CyberLandr Exceeds $150 Million in Reservations With Growing Commercial Demand | Newswire

In 2024, a bunch of electric pickups will be entering the market, including the GM silverado, the Stellantis Ram 1500, and presumably Rivian will be able to ramp up production to be more competitive. They all look like the F150 and will likely be competing with each other. Not a bad thing to be as distinctive as the Cybertruck.

Your Coke example isn’t really relevant. Production costs don’t matter when production is cheap, as it is with sugared carbonated water. Production efficiency becomes more important as the cost of building something increases. Brand is more important than production costs when it comes to the profit margins of pants. The opposite is true with nuclear reactors.

Pushing back on your push back, if I take longer to start production but end up having significantly lower production costs, I will probably outcompete you in the long run. Tesla was not simply developing the Cybertruck, it was also developing a state of the art Gigafactory in Austin that is custom designed to build the vehicle.

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Pushing back on the pushback to my pushback - that depends entirely on the market. On the relative importance of timely production vs. lower costs, the importance being able to introduce new products (or refresh/update the existing ones) quickly vs. having more cost-efficient stalwarts.

The global auto market is highly fragmented among countless different makes and models in a variety of different automotive classes in order to cater to the diversity of consumer preferences. And the EV market is brand new - there’s a rush to grab market share.

Tesla let Ford have a year-and-a-half head start on producing electric pickups for the U.S. market. We’ll get to see in the intermediate term whether that has any market impact on them. It seems like it would be easier to convert reservations to sales after the initial limited production launch if you’re the only volume pickup on the market, than if there’s a Ford Lightning for immediate purchase in every dealership. But we shall see.

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Not that big a deal since in the first half year Ford produced only about 13,000 electric F150s and have started this year with a production stoppage due to battery issues.

One also has to look at the reason for the Tesla delay. The Cybertruck is supposed to have the 4680 battery cells produced by a newly developed dry coating process that at least one battery expert says could save as much as $5,500 per battery pack. Unfortunately, the mass production of the pack produces too many rejects at the time of this report.

If Tesla gets this working it will have a better battery that can be made faster and cheaper than the competition. That’s a big advantage. Not a bad trade off for the delay.

Tesla appears to also be making deals with Korean 4680 makers as insurance.

Delays are unfortunate, but not surprising when it comes to new technology.

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That’s not that unusual. Six months after production started on the Y, Tesla had only sold about 13K as well. We would expect that the first half-year of Cybertruck production would similarly be low-volume. Tesla’s delay with the Cybertruck is allowing Ford to get through the early low-volume portion of the ramp-up (and work out their production kinks) a year and a half before Tesla gets to its low-volume portion of the ramp-up. Like Ford, Tesla will also have to go through a period of low-volume production.

100% agree. But the choice to use 4680’s instead of 2170’s (which a lot of Tesla vehicles are still made with) was a production decision by Tesla. IGU can provide more color on the history of the 4680 development, but that model battery wasn’t in production - and perhaps not even in development - when the Cybertruck was first spec’d out and unveiled in 2019. So it’s pretty likely that the initial spec out was for 2170 batteries, and they made the choice to wait for the 4680’s somewhere down the road.

Tesla wants to be able to build and sell about 4 million cars in 2025. Obviously there’s lots of auto makers that have built that many cars in a year. So that would be an incredible, amazing accomplishment for Tesla, but one that there’s lots of precedent for at the manufacturer level.

However, there’s very little likelihood that even 10% of those cars will be S, X, or the new platform. Which means that to meet that goal, they either needed Cybertruck to be at high volume by then…or for either (and possibly both) Model 3 and Model Y to sell more vehicles that year than any single model of car has ever sold - nearly two million units or more. And that would be unprecedented. The failure to stay on track for the Cybertruck subjects them to the risk (likelihood?) that there’s only so much demand for any single specific vehicle model, no matter how good it is.

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