Elon reveals Cybertruck details / production expectations on Q3 2023 call

[cvalue13]

The rear castings are piling up outside the factory and not going to scrap, so that is a good sign in that regard.

Ever consider this: those casting piling up outside *are* scrap

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[TyPope]

Ever consider this: those casting piling up outside *are* scrap

Those castings, if scrap, would not have been machined. I suppose the machining process could have been bad but that is not likely.

 

[AlDente]

Their margins even reduced are still miles above what any car maker does. Do you know the margins on a Toyota? The benchmark for all until Tesla arrived.
Tesla isn’t dumb and neither are there accounting folk. They’ll take market share and make money hand over fist with all the EV’s converting to NAC. And so on.

Toyota's profit margin is 8%. Tesla is down to 17% due primarily to the price cuts. Toyota sells nearly 10M cars a year and Tesla might make 1.8M this year. So volume

No offense, but you sound as if you get your investing advice from Jim Cramer.
The mainstream financial pundits want you to focus on the margins. In the long run, the margins from quarter to quarter don't matter, Tesla are miles more profitable than any other car company making BEVs.
Getting as many cars and trucks out the door to collect data to make FSD and robotaxi a reality is what will make Tesla investors wealthy in the next 7 to 10 years.
It's all about autonomy.

I'm reacting as a Tesla investor who understands how Wall Street values companies. It is a retail investors prerogative to criticize management when when they forget their fiduciary responsibility to the company. For many here, their "investment in Tesla is the $100 they used for a Cybertruck reservation. CEO accountability for the stock performance is part of the CEO job. We are all free to opine and that is what makes speculative forums like this so much fun. /s

 

[PilotPete]

I think Elon is worried that if they price it too high it won’t sell due to high interest rates and people will cancel their reservations or try to sell them.

On the other hand, if they lower the price too much for the sake of affordability they’ll be taking massive losses on a brand new vehicle, which as far as I know is the first time this would be happening to them. Tesla always had the highest margins in the industry. Now they’re falling below 8%. If this continues they’ll end up like Ford and be losing billions.

The direction Tesla seems to be trying to go in is volume production, but on a specialty vehicle this can’t be done instantly or even ever regardless of the demand, think S and X. Also, selling something for less and then raising the price later on is generally not the way volume production works. It’s also something customers don’t like. Most people want price stability with their investment holding its value, not prices attached to market value, which is really volatile right now.

If you want to look at the margins and the change in the margins, you need to look at the company as a completely package. Their margins include all the expenses of developing the CT, Semi, the new model, the 3 refresh, the Y refresh, new PW development, and things we don’t even know about yet. The only programs not incurring developmental expenses are the S and X. And they don’t sell in enough volume to counter all the development costs. Oh, and now we hear Tesla has been developing their own high res radar and testing it on the S and X, so there has been costs added costs in those programs. Oh, don’t forget all the construction in GFTX and the lithium refinery.

So, as has been said many times here, it looks like Tesla is playing the long game. And while they are spending butt-loads of cash building and developing new products, they still clear 8%.

 

[cvalue13]

Those castings, if scrap, would not have been machined. I suppose the machining process could have been bad but that is not likely.

machined how? And you think every one of them had been machined?

For the ones that had been you don’t think it’s possible that the machining process can be when flaws are discovered?

or let me put it a different way: what would you say if someone *told* you every CT casting seen outdoors at GFTX right now is non-conforming, headed to recycle/scrap?

 

[HaulingAss]

As for price point and profitability. It’s essential that the Cybertruck be priced not to lose money out if the gate (of course development costs have to be amortized over expected life) but.
I remember another Radical new concept Vehicle. The Eclispe jet, founded by Microsoft guru. Friction stir welding was supposed to cut costs and be More efficient. They sold the first one in 2007 and went broke after 2 years after producing 262 units. Each unit was sold at a loss of 500k I believe. The CEO said “It’ll get better when we sell more”. No; if you sell it at a loss more sales means more losses.
Be prepared for first Cybertrucks. to sell for 100k plus.

You think it's essential for the Cybertruck to be priced not to lose money out of the gate? Every car Tesla has made has lost money out of the gate (during the ramp phase of production), even considering that the development costs and equipment costs are amortized over their expected lives.

Ramping is hard because processes and lines need to be tuned to run smoothly, that means the production line has many stops and stops and runs at a much slower average pace until it's optimized. Much of the starting and stopping is driven by a desire to improve processes and (eventually) speed the line up (which reduces future costs). A longer ramp means a longer period that they are building each unit at a loss but all ramps start out in loss-mode.

The fact that the Cybertruck uses revolutionary automotive engineering and design, including new material science, and new manufacturing techniques, some of them transplanted directly from the company leading the space industry right onto the automotive production line, means the ramp will not be conventional or fast. It will likely take longer to ramp into profitability.

What this means is that Tesla will not know with any certainty what the long-term cost of production of the Cybertruck will be until they have ramped and perfected one production line. Knowing how Tesla thinks and operates tells me they will try to price it based on their estimated long-term price (eventual cost to produce + reasonable profit). There are many unknowns and at the early stage it is better for them to err on the side of high, rather than low. They don't have a history of doing what Rivian did with the R1T, which was to take a ton of pre-orders at a low price, deliver the first ones at the low price, and then tell all the remaining reservationists they would have to pay a lot more. The outrage of treating those with different reservation numbers so differently caused Rivian to back down within two days. Tesla will avoid doing that if at all possible.

That means they will err on the high side initially, but they will cut it close, taking some risk that it will be more expensive to build than anticipated. If Tesla guesses too low on the price on November 30th, it will take longer to become profitable and final margins will be much lower than anticipated, approaching break-even or possibly a small loss in the scenario where they simply guessed unreasonably low. But this is the line Tesla want to ride in the scenario they guess too low, in the (nearly) worst case scenario. So, they will err on the high side.

Rivian guessed too low, and is not as good at manufacturing efficiently as Tesla, and it has cost them dearly. Their strategy is to work to become more efficient over time but I think they might need to re-design the R1T and R1S to get past break-even. I don't think raising prices will work, in my opinion, they will probably have to lower them in order to maintain enough production and sales volume to get efficiency high enough and cost to produce low enough. Here's what their loss per vehicle looks like since they entered production:

Some will look at this chart and guess they are headed for profitability, because the trend looks good. But I think profitability (that zero in the lower left corner) will be a downward moving target as they are forced to lower prices to maintain/increase volumes and most of the easy efficiencies have already been realized. Increasing volumes is a primary method of reducing costs, so pricing really matters, automakers need to offer good value, or they can't offer good value. This chart does illuminate that ramping is a long, slow process.

Back to Tesla, according to their latest comments on the earnings conference call, their annual production capacity will be greater than 125K sometime next year and possibly increasing to 250K sometime the following year. This is lower than earlier comments indicated, perhaps giving rise to somewhat higher price expectations than I had anticipated previously. But Tesla knows they can't go too high without running out of buyers that can afford it, so they will keep the prices as close to the low end as possible, while erring on the high side to account for unknowns in terms of how much cost they can squeeze out of the cost to produce. They have to manage risk.

The more uncertainty Tesla has with regard to how much it will cost to produce in volume, the higher they have to price it to avoid the situation Rivian found themselves in when they wanted to raise prices on remaining reservation holders. So, it's a good thing Tesla didn't rush into the kicking off of initial deliveries. The more uncertainty they can remove, the less they have to pad initial pricing to avoid the Rivian problem (feeling compelled to raise prices on some reservation holders as the ramp progresses).

I've mentally added about $6K to my pricing estimates, based upon the most recent conference call. It sounds like Elon, in his enthusiasm to make the Cybertruck the most kick-ass pickup truck ever made, is having to drive his teams harder than ever to figure out how to keep the prices low enough to enable mass-market sales. If they get the price wrong, it will prevent it from selling in high volumes, making it even more expensive to produce. It's a fine line. But rest assured, Tesla would cancel production, or sell it at break-even, before they would allow the Cybertruck to become a six figure botique vehicle. The entire concept of the truck is predicated on being able to make and sell it in high volumes.

Of course the same S would cost about 90k now; so he could start off selling high and reduce price down the road once they recover investment

Fortunately, Tesla is well capitalized due to the last automotive boom cycle, over $26 billion of cash/equivalents and almost zero debt, so they don't have to try to reach profitability too quickly, while doing the distasteful thing of charging more for early reservationists and less to others in the same reservation pool. Macro economic uncertainty (affecting demand) and the huge backlog of reservations (affecting the length of time it will take Tesla to sell through reservation backlogs) makes the job of pricing the Cybertruck correctly more difficult. In two years time, good or poor economic conditions can affect new vehicle sales demand, raw material prices, labor prices, etc. The big demands of the UAW during these strikes, don't make things any easier, even though Tesla is non-union. This last item will have an upward pressure on the prices Tesla announces.

Personally, I think Musk is worrying a little too much about a bad economy, but it's certainly always a risk, and only time will tell.

 

[Crissa]

The argument they should start high and reduce the price later when they're ramped would cause lots of reservations to cancel, and then upset those early buyers as their trucks are devalued by Tesla.

It's the road to less profit.

-Crissa

 

[firsttruck]

or don't pull a Rivian

 

[charliemagpie]

Those castings, if scrap, would not have been machined. I suppose the machining process could have been bad but that is not likely.

It is possible they were testing the machining process.. They may be good,(I think they are) , but they may be scrap.

 

[Crissa]

They don't usually keep castings around if they're scrap.

-Crissa

 

[JWass]

This is what kind of dampens my enthusiasm. All I ever wanted was a EV truck that has a
>long range,
>towing power,
>foldable front mid-seat,
>towable four down
>and fifth wheel towing capability.
All those "intricate" things he's throwing at it (which is part of the insane delay), makes it not even the first ev pickup truck anymore.
Who needs four wheel steering, 14" of travel, tank mode for off-roading, bullet proof body, etc. etc.
But that's me....

Because what they are making appeals to the majority. Like it or not. The majority of truck owners commute to work, occasionally pick up garbage, a store run, a hardware store run, and that’s it. Thats the demographic just look at the stats. I life in rural country truck world. The majority never fully utilize their trucks for their main purpose. Hence the jokes about the small trucks of old could do what today’s trucks can. Sure some people use 5th wheel, heavy towing; and etc. but they represent the minority. Guaranteed. Hard pill to swallow. Just look at all the Coal Rollers with fat wheels and slim tires. They’re not hauling anything but their fat butts.

 

[JWass]

I get how everyone wants some amazing all off road hauling monster with crazy abilities. But let’s be honest. The majority of buyers of any truck in America are not utilizing it to its fullest. How can a pickup truck be the top selling vehicle in America and yet the majority of America’s populace doesn’t work in an industry requiring such a vehicle? ?
I’m not kidding myself. I will commute to work, haul my garbage, my bikes, luggage for a weekend away, and not much else. Yet, I appreciate the availability of the utility. But without the guilt of a gas hog.

 

[cvalue13]

Sure some people use 5th wheel, heavy towing; and etc. but they represent the minority.

and aren’t looking at 1/2 ton trucks, ICE or BEV

 

[HaulingAss]

On the other hand, if they lower the price too much for the sake of affordability they’ll be taking massive losses on a brand new vehicle, which as far as I know is the first time this would be happening to them. Tesla always had the highest margins in the industry. Now they’re falling below 8%. If this continues they’ll end up like Ford and be losing billions.

For your information, Tesla's 3rd Qtr. automotive margins are not 8%, they 17.8% (IIRC), the highest in the industry (of high-volume automakers). Amazingly, it's done with all EV's! No other automaker makes high margins on EVs, most lose money on every EV they sell.

The 8% figure you refer to are the net margins of the entire company. This includes expenses like building out their worldwide Supercharger Network (costs other automakers don't have), development costs of Optimus (humanoid robot), corporate overhead, construction and expansion of new factories, corporate taxes, etc. And here's the big one, Tesla is growing production while the rest are shrinking. That means Tesla is investing massively in future profits and all that comes at a high price to their overall net margins. The fact that it's a positive 8% is astounding!

In other words, it's a very misleading thing to quote in the context you quoted it. I have to assume it's because you read mainstream media articles that are purposefully designed to be misleading (without actually saying anything untrue). I'm not exaggerating here, most stories are the opposite of informational, because they are designed to mislead. And it looks like it still works to a degree.

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