Expecting Another Model 3 Miss, but Remain Upbeat on Tesla Story

Next week, likely Jan 2nd or Jan 3rd, Tesla will release delivery and production numbers for the Dec-17 quarter. We estimate Model 3 deliveries will total 2,500 vehicles, below the Street at 5,200. We’re looking for Model S and X deliveries to total 26,600, which is in line with the Street (link to our model here). Separately, the last update on Model 3 production calls for “a production rate of 5,000 Model 3 vehicles per week by late Q1 2018,” which we believe is ambitious.

Tesla’s behind in Model 3 production, but ahead of the competition in building the car of the future. The reason we remain upbeat on the Tesla story despite the prolonged Model 3 production problems is that EV and autonomy are the future. Tesla is fighting to gain production scale to create that future. While other car manufacturers build gas-powered vehicles at scale, building autonomous EVs is a vastly different process that will require traditional auto manufacturers to re-engineer their production facilities. That means every automaker that wants to compete in the future needs to go through the production pain Tesla’s experiencing today.

Model 3 breakout in 2019. While reservation holders grow anxious and investors frustration continues to mount, we continue to stress that production over the next several quarters will be largely a guessing game, and that short-term production numbers do not materially affect the long-term story. We predict a breakout year for the Model 3 in 2019 which means, until then, other elements like solid Model S and X production numbers, increasing energy deployments like the South Australia installation, and future vehicles (Roadster, Semi, Model Y, and pickup truck) will stoke investor optimism.

Fremont flyover shows hundreds of Model 3s. Though it is far from the goal of 5,000 per week, we have seen encouraging signs that Model 3 production is ramping up. Hundreds of Model 3s have been spotted at delivery centers and at the Fremont factory shown in a video here, several suppliers reported that they are back to working with volume in line with Tesla’s guidance of 5,000 vehicles per week, and Model 3 invitations to configure seem to be accelerating. Nonetheless, we encourage bracing for a production miss and further reassurance that bottlenecks are being addressed. More to come the first week in January.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Tesla Model; Semi Adds 10% to 2023 Revenue

As of today, our model now reflects both the Semi and Roadster. We expect combined these two segments will add about 2% to the Street’s 2020 revenue and about 10% to 2023 revenue, almost entirely from the Semi. Given Tesla’s history of missing manufacturing deadlines, the vast majority of Street estimates currently do not factor in the Semi or the Roadster.

Impact to model. We believe Tesla will begin shipping Semi’s in the Jun-20 quarter, later than the 2019 target Musk laid out at the Semi unveil event earlier this month. In 2020, we believe Tesla will ship 3,250 Semi’s, and account for ~2% of total revenues, but as demand begins to inflect we anticipate the company will ship 40,000 units by 2023. Assuming a $171k average selling price, we believe in 2023 the Semi can generate $6.8B in revenue and account for ~9% of total sales.  We expect the Roadster to add about 1% to 2023 revenue.

Expect Semi profit margin to be similar to overall company. There has been little color provided on the margin profile of the Semi.  Our belief is the margin profile will be similar to Tesla’s current margin. This is based on the positive margin effect of the Semi using motor and battery components similar to the ones used in the Model 3 and benefit from economies of scale, and the negative margin impact of building a low volume Semi cab. We believe these two forces will offset yielding margins inline with current levels. Since we believe the Semi can add ~10% to our original revenue estimate, we believe the company will be able to capture most of this additional upside on the bottom line. Our new 2023 EPS is $16.62, which is up from our prior estimate of $15. Link to model here.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.
Posted in Tesla  • 

Tesla Semi; Price & Preorder Tailwinds

Pricing. After Tesla’s Semi and Roadster event on November 16th, we speculated that the Semi would cost $250k, which turned out to be far too high a estimate. Tesla’s Semi with a range of 300 miles will cost $150k, and the 500-mile range option will cost $180k. Tesla is also accepting 1000 reservations for the $200k ‘Founders Series’ Semi, requiring customers to pay in full up-front. These prices are “expected base prices,” so we anticipate an ASP of $180k, which is a positive for gaining the widespread adoption necessary to disrupt an industry.

Cash flow from preorders. Over the past week and a half, preorders for the Semi have been rolling in from some of North America’s largest logistics providers. Tesla has not provided any info on how many deposits they have accepted, but so far, six different companies were excited enough to announce them (more below). Excluding a Founders Series purchase ($200k), a reservation requires a $20k payment. The cash flow from these reservations is a unique way for Tesla to raise funds as they face Model 3 production issues and ambitious plans around charging infrastructure and energy storage. If they sell out the Founders Series Semi preorders (1,000 available), they will raise $200M. Coupled with 1000 available $250k Roadster reservations ($250M potential), Tesla stands to raise $450M – nearly double the $226.1M raised in their 2010 IPO. While some investors may view this as more smoke and mirrors, we argue that it is a scrappy and creative way for a company that is pushing the envelope to thrive under adversity. We believe in Tesla’s mission and recognize that achieving uncommon results sometimes requires uncommon methodology.

Here are some of the companies that have reserved Semis so far:

Walmart has ordered 15 trucks – 5 to be used in the U.S. and 10 in Canada. Walmart has experimented with new trucking technology in the past, and is calling this early adoption a test. Tesla hopes order volume will increase if the trucks prove to decrease cost of operation. Walmart operates a network of about 6,000 tractors, so 15 will have little impact on the fleet. Walmart’s operations, however, are the Tesla Semi’s bread and butter – the average distribution center services 90-100 stores within a 200-mile radius, so the truck can conceivably make a delivery and return to the facility on a single charge.

J.B. Hunt, one of the country’s leading carriers, said it has reserved, “multiple” tractors to be used on the west coast. CEO John Roberts adds, “Reserving Tesla trucks marks an important step in our efforts to implement industry-changing technology.” Their fleet is much larger than Walmart’s, at 15,000 vehicles, so “multiple” may mean more than a few.

Meijer, a supermarket chain based in Michigan, has placed orders for 4 trucks and called it a “small financial commitment” to test new truck technology, “which has the potential to not only reduce our carbon footprint, but also realize cost savings that will allow us to keep prices low for consumers.”

Others, such as Canadian grocer Loblaw (25 trucks) and Canadian logistics provider Bison Transport (number unknown) have preordered Tesla trucks, reaffirming international demand. Also, NFI, a supply chain provider based in New Jersey that specializes in port services, has preordered an undisclosed number of trucks.

The case for buying one. Cost savings, primarily. As Musk laid out on a slide seen below, the fuel and performance savings have the potential to make a significant impact over time. In this case, Tesla suggests a 17% lower per mile cost of operation, and once platooning is implemented, the cost savings could be 47% less than a diesel truck. Tesla says on the new Semi tab of their website, “electric energy costs are half those of diesel. With fewer systems to maintain, the Tesla Semi provides $200,000+ in fuel savings and a two-year payback period.”

We did our own back of the envelope calculation with these numbers in mind, as well as some input from the American Transportation Research Institute and came up with a similar cost savings over a 20-year timespan. While we believe it will take longer than two years, fuel and maintenance savings will more than recuperate the incremental cost of the Semi over its service life. As Bob Lutz says in a CNBC interview, “these are people that operate by spreadsheets, and if you show them lower operating costs, then they’ll be interested.”

Aside from per mile cost savings, the Tesla Semi, via its improvement on many key issues with trucks today, may help remedy another problem in the industry – turnover. There is a massive shortage of truck drivers, some companies face turnover rates north of 90%, and driver recruitment and retention is a major cost that is not factored in on a per mile basis. The Tesla Semi may ease the burden with a better and safer driver experience. Some of the truck’s features include:

  • Enhanced Autopilot
  • Interior built around the driver with a centered seat, dual monitors, better visibility, and enough room to stand in the cabin
  • Predictive maintenance for fleet management
  • Windshield made of impact resistant glass
  • Independent electric motors that will not allow the truck to jackknife by adjusting torque automatically
  • Brake pads that won’t need replacing because the kinetic energy that would usually wear them out is harnessed to recharge the battery
  • Low center of gravity from battery pack prevents rollovers

Hurry up and wait. Despite the excitement and speculation about what (or if) Tesla’s Semi will do to the industry, their focus for the foreseeable future remains ramping up Model 3 production. This is a do or die hurdle – neither the Semi, nor the new Roadster will see the light of day until it is accomplished, so our optimism surrounding the trucking opportunity will have to wait.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Posted in Tesla  • 

2017 Loup Ventures Holiday Gift Guide

Here are a few gift recommendations for the 2017 holiday season:

And here’s a look ahead to 2018 with some of the products we’re hoping for:

  • Apple HomePod | Apple’s foray into the smart speaker market.
  • Apple iPhone X Plus | We’d love a larger screen for our iPhone Xs.
  • Oculus Go | Oculus’ $199 standalone VR headset.
  • Magic Leap | Augmented Reality glasses.
  • Tesla Model 3 | Already on the market, we’re hoping to see shorter reservation times.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Tesla’s 100-Day Countdown Pushes Team to Do the Impossible

While many question the feasibility of Elon Musk’s bold claims, this fall he put his money where his mouth is, embarking on an ambitious energy project in South Australia. We are betting that the project is on track, and will be completed the first week of January within the aggressive 100-day window. Get ready to score one for Musk pushing his team to the do the seemingly impossible. More importantly, hitting the 100-day goal is a positive for the future of Tesla, given that companies who achieve the impossible change the world.

Several months after storms left critical power infrastructure damaged leading to frequent rolling blackouts, a twitter conversation led Musk to claim Tesla can build the world’s largest grid-scale battery in 100 days (powered by wind farm), or it would be free. Shortly afterwards, Tesla was selected out of 90 bids from other companies. The papers were signed on Friday, September 29th, beginning the 100-day countdown that will end on January 7th, 2018. If it’s not finished on time, Tesla stands to lose about $50 million.

What they’re doing.

Today, we believe the project is largely complete and is expected to be operational by December 1st. Tesla was granted approval to start working on the project before signing the grid connection agreement (Sep 29), making a true countdown difficult to estimate. In our minds the clock starts when ground is broken, however, we are confident the time constraint will still be met as a Dec 1 completion implies a start date as early as mid-August.

The battery, which is actually a system of connected Powerpacks, will be plugged into a wind farm near Jamestown and operated by French renewable energy company Neoen. With a capacity of 100MW (next largest is 30MW), or enough to bring power to 30,000 homes, the system is the largest in the world by a factor of 3 and will bring stability back to the region that is powered by 48% renewable energy. As we detailed in a note on Tesla’s mission here, grid-scale battery storage is one solution to the key problem with renewables – there is a disconnect between when power is generated and when it needs to be deployed. Most grids use dirty and expensive “peaker plants” to meet peak demand each day, but batteries can be charged during times of low demand and deployed as needed.

Why it matters… reality distortion field 2.0.

This project is important for two reasons, but it must be completed on time. First, it would prove that Musk can actually meet the deliberately aggressive deadlines that he sets, something that has investors and the public concerned after missing Model 3 production goals. Companies that change the world set and meet aggressive goals. Think back to how Steve Jobs’ “reality distortion field” propelled Apple to perfect the smart phone and launch mobile as we know it today. Musk drives his teams with similar goals that seem distorted from reality. One Tesla employee recently mentioned to us that she’s ok with Musks’ targets, stating “anyone can set a goal that’s achievable, leaders set goals that are hard to reach”. Second, it would be a massive validation for Tesla’s Energy segment that is often seen as a distraction from their core business. If Tesla can prove battery installations to be both functional and profitable it may serve as a catalyst for similar projects in the future, including a potential rebuild of Puerto Rico’s power infrastructure which remains a possibility. With the project tracking ahead of the deadline, we expect this to be a win for Tesla Energy and a step toward the public buying into Tesla’s mission of transitioning the globe to sustainable energy.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Posted in Tesla  •