This is neither dirty nor a secret. Tesla is only able to sell these credits because they actually make zero-emissions cars, and they can only sell credits proportional to the cars they make.
If anything, it's a dirty secret that other manufacturers are able to get away with making polluting vehicles by purchasing credits from Tesla.
I agree that it's not a secret, but it is kind of dirty... it's all legal of course, but those credits aren't going to last forever, and unless Tesla can dramatically reduce their costs, they're going to run into problems when the credits expire.
And, regardless of whether it's a secret or not, the populist BULL TSLA!!!! crowd is largely ignorant of it.
That's the goal of those credits to make it easier for anyone looking to make electrical vehicles to succeed and reduce environmental pollution in the process of switching to Electric cars/trucks. And factor in the Health cost of Transportation related ICE pollution and that makes good financial sense for the credits to continue as the goal for the credits creation extends beyond only Tesla's business model.
The Heath affects of over a Century on ICE pollution must be part of the math as well. And one need only look at the degradation of Building Facades and Statues and the cost there in Urban areas from ICE related pollution and that's more billions spent there over the years as well.
This is the right way to look at this. Before even counting the regulatory credits, Tesla’s gross margin on their cars is the best in the industry. That means their cars are profitable on their own.
Their gross revenue is ~5% from regulatory credits. Which are not 100% profit by the way, because they had to build things to get those credits.
What the credits are doing is financing Tesla’s rapid expansion while allowing them to maintain positive net income.
Amazon, for instance, just maintained negative net income for decades to finance their growth. Tesla is doing it with the regulatory credits instead.
Shorts like to say that Tesla is “structurally unprofitable” because they finance future growth with regulatory credits and stock issuance.
What’s actually happening is that TSLA is growing at a 50% CAGR and that will absolutely increase current year expenses.
The fact that they can grow 50% YoY while maintaining a net profit building automobiles is nothing short of incredible.
Tesla's got Berlin and Austin Texas plants coming online and one need only go and watch the YouTube videos on those Factories to see that Berlin is almost Shell complete with those Buildings and already the lines are being installed by the German Millwrights. At Tesla's Austin Factory the Giga Press Die Casting machines can already be seen being assembled/installed even before the part of that Building Section's precast concrete roof is installed!
Those Giga Press Die Casting machines will free up more plant space for other operations to produce even more autos and Trucks as that Die Casting process matures and replaces even the robotic/other assembly steps that were required previously. So Tesla's earlier Fremont Die Casting production will be followed up by more and larger sections of the Autos/Trucks that are cast in a single step on to the point where the vehicle's entire unibody can be Die Cast in a single step.
And why are the gross margins best in industry? Do you think it has anything to do with the fact that they have a different model (no dealers) than other manufacturers, so comparing them is apples to oranges?
Despite that, gross margins are shrinking, and their net margins are terrible.
Also, can we stop comparing this company to Amazon, just because they both "lost money"? Their business models are not remotely similar.
Just because legacy auto has a painful and wasteful sales process doesn’t make comparing their vehicle gross margins “apples to oranges”. It means legacy auto needs to smarten up about their sales process.
Their gross margins do fluctuate quarter to quarter but over the last couple years on average have increased and they expect they will continue to do so as their new factories come online.
As I mentioned you have to example their operating profit (net margins) as a factor of their growth rate. Operating profit with no growth is the sign of a stagnating company.
No physical good manufacturing company can be both high growth and high operating profit. By definition profits are being spent on expanding the manufacturing lines.
The comparison with Amazon is because not many companies have year after year of CAGR in the realm of what Tesla has achieved.
>It means legacy auto needs to smarten up about their sales process.
No, it means their gross margins are necessarily lower because of the way the accounting works when manufacturers sell to dealers.
Anyway, gross margins are not profit margins, so why should they try to maximize them?
>Operating profit with no growth
Let me give you the 101 on base rates: Tesla is small (sub 1% market share), so therefore big growth numbers as a % is easy. VW is massive, and therefore high % growth numbers are hard.
VW made $12B in profit last year.
>The comparison with Amazon is because not many companies have year after year of CAGR in the realm of what Tesla has achieved.
Nonsense. No car companies have, lately, maybe. But plenty of companies have grown as fast or faster than Tesla. Their last 3 years of revenue are: $25B, $28B, $31B. Good, but nowhere approaching 50% CAGR.
The Author makes no mention of Tesla's use of that "Giga Press" Die Casting IP in its automotive fabrication process and how in one casting 70 different "body shop" assembly steps are reduced into one single casting step.
So Tesla will eventually get to the point where the entire car/truck unibody will be cast in one step and that cost and unit time to produce a car/truck will be further reduced. And if the other automakers can not match Tesla's productivity via those Giga Press Die casting processes they will not be able to compete on price with Tesla!
The Italian-Chinese die casting tech is available to other customers too - it just has less impact when you already have high-performing manufacturing lines vs building a new one. But companies are buying, and Tesla only happened to be first customer for the largest model at the time, IIRC.
Yes but the Others are not using that currently and Tesla's got some IP of its own included there to achieve such large Die Cast parts' production so there's that to consider. So Tesla has been making use of that and bringing that IP further along whereas the competition will have a learning curve that will not catch up to Tesla in time to keep Tesla from gaining more Electric Vehicle market share!
There is this(1) and I'm looking for some metallurgical patent that I read about but I have not bookmarked that page. So even if Tesla's not creating the Die Cast machines themselves there are alloy compositions and procedures that Tesla makes use of that are of proprietary nature such as recipes for metal alloys and casting procedures that produce acceptable results that are considered Trade Secrets related.
(1)
"Tesla Files Patent Application For Die-Cast Unibody Machine"
"Tesla Motors has once again made clear its interest in metalcasting technology, filing a patent application for a new series of aluminum alloys that the automaker claims can maintain high-yield strength while achieving high conductivity. More than this, the “high-performance diecastable aluminum alloys” described by Tesla also have “a high flowability and low susceptibility to hot tearing when diecast.” "(1)
(1)
"Patent Filing Indicates Tesla's Material Progress
The EV developer's research efforts reveal a plan to melt and cast an aluminum-nickel alloy with high-yield strength and high conductivity.
Mar 22, 2020"
Great from a manufacturing perspective, but I wonder what repairability is going to be like. It seems like it will be a lot more likely to write off a whole car if the whole frame is one piece.
19 comments
[ 2.4 ms ] story [ 53.3 ms ] threadAnd, regardless of whether it's a secret or not, the populist BULL TSLA!!!! crowd is largely ignorant of it.
The Heath affects of over a Century on ICE pollution must be part of the math as well. And one need only look at the degradation of Building Facades and Statues and the cost there in Urban areas from ICE related pollution and that's more billions spent there over the years as well.
https://tesla-cdn.thron.com/static/1LRLZK_2020_Q4_Quarterly_...
Regulatory credits were reported as $1.58 billion out of total automotive revenue of over $27 billion, or less than 6%.
Doesn't seem like excessive exposure. Does seem smart to take that money from dirty externality polluters.
Their gross revenue is ~5% from regulatory credits. Which are not 100% profit by the way, because they had to build things to get those credits.
What the credits are doing is financing Tesla’s rapid expansion while allowing them to maintain positive net income.
Amazon, for instance, just maintained negative net income for decades to finance their growth. Tesla is doing it with the regulatory credits instead.
Shorts like to say that Tesla is “structurally unprofitable” because they finance future growth with regulatory credits and stock issuance.
What’s actually happening is that TSLA is growing at a 50% CAGR and that will absolutely increase current year expenses.
The fact that they can grow 50% YoY while maintaining a net profit building automobiles is nothing short of incredible.
Those Giga Press Die Casting machines will free up more plant space for other operations to produce even more autos and Trucks as that Die Casting process matures and replaces even the robotic/other assembly steps that were required previously. So Tesla's earlier Fremont Die Casting production will be followed up by more and larger sections of the Autos/Trucks that are cast in a single step on to the point where the vehicle's entire unibody can be Die Cast in a single step.
Despite that, gross margins are shrinking, and their net margins are terrible.
Also, can we stop comparing this company to Amazon, just because they both "lost money"? Their business models are not remotely similar.
Their gross margins do fluctuate quarter to quarter but over the last couple years on average have increased and they expect they will continue to do so as their new factories come online.
As I mentioned you have to example their operating profit (net margins) as a factor of their growth rate. Operating profit with no growth is the sign of a stagnating company.
No physical good manufacturing company can be both high growth and high operating profit. By definition profits are being spent on expanding the manufacturing lines.
The comparison with Amazon is because not many companies have year after year of CAGR in the realm of what Tesla has achieved.
No, it means their gross margins are necessarily lower because of the way the accounting works when manufacturers sell to dealers.
Anyway, gross margins are not profit margins, so why should they try to maximize them?
>Operating profit with no growth
Let me give you the 101 on base rates: Tesla is small (sub 1% market share), so therefore big growth numbers as a % is easy. VW is massive, and therefore high % growth numbers are hard.
VW made $12B in profit last year.
>The comparison with Amazon is because not many companies have year after year of CAGR in the realm of what Tesla has achieved.
Nonsense. No car companies have, lately, maybe. But plenty of companies have grown as fast or faster than Tesla. Their last 3 years of revenue are: $25B, $28B, $31B. Good, but nowhere approaching 50% CAGR.
So Tesla will eventually get to the point where the entire car/truck unibody will be cast in one step and that cost and unit time to produce a car/truck will be further reduced. And if the other automakers can not match Tesla's productivity via those Giga Press Die casting processes they will not be able to compete on price with Tesla!
(1)
"Tesla Files Patent Application For Die-Cast Unibody Machine"
https://cleantechnica.com/2019/07/23/tesla-files-patent-appl...
"Tesla Motors has once again made clear its interest in metalcasting technology, filing a patent application for a new series of aluminum alloys that the automaker claims can maintain high-yield strength while achieving high conductivity. More than this, the “high-performance diecastable aluminum alloys” described by Tesla also have “a high flowability and low susceptibility to hot tearing when diecast.” "(1)
(1)
"Patent Filing Indicates Tesla's Material Progress
The EV developer's research efforts reveal a plan to melt and cast an aluminum-nickel alloy with high-yield strength and high conductivity. Mar 22, 2020"
https://www.foundrymag.com/materials/article/21126759/patent...