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"A lot of crow being eaten around here" - Munro does a follow up to his Model 3 Teardown

"A lot of crow being eaten around here" - Munro does a follow up to his Model 3 Teardown

And it's glorious!

Admits he was wrong - is totally impressed with the car, the battery, the integration, and the profit! 30% at least.

Enjoy!

https://youtu.be/pAS-yjWj9DY

Sslnight | 16 luglio 2018

Sweet! Thanks for sharing!

Steven.haver | 16 luglio 2018

Awesome. Another strong indicator. :-)

Mike83 | 16 luglio 2018

As more people get their Teslas more people will want them. It is too easy.

RIP ICE | 16 luglio 2018

But, as with all corrections in the media, this one will get less than 1% of the coverage that the earlier, erroneous headline generated.

jordanrichard | 16 luglio 2018

A lot of that integration is because Tesla does most of the stuff in house so all of the components talk seamlessly to with each other. Other OEMS outsource all of their electronics to various suppliers. Also if should there be a problem, Tesla can send out a patch.

If there is an electronic/software glitch with a component, the OEM first has to reach out to the company that made that component. They have to come up with a fix for it, send that to the OEMs who then in turn send it to their dealers, who then contact the customer to bring their car in.

Coastal Cruiser. | 16 luglio 2018

Thanx KP. Indeed Sandy does admit he was wrong. But quite frankly, I'm just as skeptical as to why he is now "wrong", as back when he was "right". That is a remarkable pile of reports John sifted through, but my question is, where did Munro get their numbers?

And the rear view mirror cost comparison. Which Chevy Bolt mirror was Munro comparing? The plain vanilla rear view mirror in the entry level Bolt, or the mirror with the built-in video screen the rear facing camera connects to? Apples to apples? Doesn't appear to be. And how can Sandy brag about integration superiority when it is the Bolt that has the integrated camera? Clearly the electronics in the M3 are a magnitude more integrated. But what an example to use.

But again, where did Munro get their numbers? They aren't even using ranges. They're using specific numbers. Did Tesla just open the books and let Munro see the actual invoices? How does Sandy get 30% plus margin (he said gross margin and he also said net margin, so who knows which), when Tesla told us they were slightly negative for now, even for the heavily optioned models.

I'm not sure that anything conclusive can be drawn from Munro's work, and the same goes for all the folks out there estimating profitability. Franky, I'd be mildly surprised if even Tesla has an exact idea of profitability at this point.

KP in NPT | 16 luglio 2018

@CC, regarding the mirror: I'm betting he was comparing into the fancy mirror - his point I think was Tesla didn't need to do a fancy mirror since they have all the cameras, which do double duty.

regarding numbers - could they have priced out the parts based on insurance quotes?

My skepticism is more about - why did he not wait until he had all this information before putting out the first video? That one now seems like it was very premature, no? Was it for clicks? It's not very professional.

JAD | 16 luglio 2018

Sure don't see this hitting all the headlines yet. Guess i will get my popcorn and just wait for the coverage by Seeking Alpha, and others....

Coastal Cruiser. | 16 luglio 2018

Yeah, I don't understand his motivations completely. I suspect he is just as caught up in the youtube age as others. But I doubt he even needs the eyeballs to sell more reports. The people with 75K and a need to know, already know about Munro and will order the report.

I like your explanation of why he picked on the mirrors. Makes the most sense.

Insurance quotes? Perhaps in part.

jordanrichard | 16 luglio 2018

I think when he says "profitable", they are talking about parts/labor cost to build the Model 3 versus what they sell it for.

suren.petrosyan | 16 luglio 2018

Thanks for sharing OP.

dyefrog | 16 luglio 2018

It does make sense that if he's trying to sell his data and his previous videos basically said, "there's not much to like on this car," it would stand to reason that not many companies would have ponied up. Why would you care what your competition is doing if they really aren't competitive.
His opinion has slowly turned 180 as his last two videos have shown and basically he's now saying, "Hey, if you're not paying attention what these guys at Tesla are doing, you're going to be out of business soon." Sounds a little too convenient. Unless as KP stated, he shot off his mouth prematurely for the Youtube hits but in the process shot off his foot trying to sell his data.

mntlvr23 | 16 luglio 2018

@KP
Thanks +100

mos6507 | 16 luglio 2018

[I think when he says "profitable", they are talking about parts/labor cost to build the Model 3 versus what they sell it for.]

And considering all the various upcharges, that's not much of an achievement. Wake me when it is 30% profitable off of the base.

MTTPA | 16 luglio 2018

@dyefrog +1

@KP, thanks for the link.

Mathew98 | 16 luglio 2018

Why do morons have a hard time differentiating profit from a car and spending in capital expenditure?

You take the profit made from each car and spend it on more factories and equipment to make more profitable cars.

MX/MS = 25% profit margin per car.
M3 = 30% profit margin per car from this tear down.

It's 30% profit from the base car + upgrade options + warranty + under body coatings. Wait, the last one is for the ICEVs...

rdavis | 16 luglio 2018

It's hard for us to determine profit margin due to overhead costing we don't know about... how much does it cost to "power" the plant? What's the water bill? The Gas bill? What the cost of salaries from executives to designers? There is so much more to cost than just the parts and labor to put it together....

dalesmith1962 | 16 luglio 2018

@rdavis
Those other costs are used to determine the profit of the company, not gross margin on the cars.

rdavis | 16 luglio 2018

@dalesmith... understood.... but who really cares about gross profit margin... I'm much more interested in the net...

vishious911 | 16 luglio 2018

Good to see in this age and era, for an old guy to admit when he's wrong. Didn't even try to sugarcoat it.

carlk | 16 luglio 2018

This reminds me of how Jim Cramer has changed over the years. In the beginning it was it's not a good company or stock. Then it's it makes good cars but it's not a good stock. Then it's I don't understand the stock but I would never short it. Then it's I would not recommend the stock but I can understand why people are buying it. Then more recently he's on Elon's side in matters like M3 production or fight with shorts. People can be wrong or biased but those with some brain will eventually learn.

ravisundaramam | 16 luglio 2018

I have absolutely no desire to wake up sleeping trolls, I would just say good riddance.

SamO | 16 luglio 2018

I’m guessing that next quarter margins will be 40% on the P3D.

Boom

calvin940 | 16 luglio 2018

@ravisundaramam +1000

ravisundaramam | 16 luglio 2018

@rdavis: "but who really cares about gross profit margin... I'm much more interested in the net..."

Every person, analyst, stakeholder is interested in Gross Margin. In a nutshell, if the Gross Margin is negative, you can not make it up in volume. If you gross margin is positive we can calculate how many units you need to sell to break even. That will tell you how easy/difficult it is going to be to achieve net profit.

The German tear down put the cost of the car at 28,000$. Gross Margin over 40% Munro says 30% without saying 30% of what? 49K base price? The most important thing is both are saying positive numbers.

This is in serious contrast to earlier analysts estimate that Bolt and Leaf are selling at negative gross margins. They estimated Tesla is also working on negative gross margin, and you can't make it up by sale volume, so you need to raise capital, bond rating is already junk, ... it is going bankwupt! That is why all the shorts piled on and seriously shorted the stock, they were predicting Tesla going bankrupt in middle of June.

If the price stays around 300 to 320 range, the shorts can get out with just 1 billion in loss. 10% of the shorts have bailed out already, the short interest has dropped from 30% of float to 27% of float.

So the gross margin of very great interest and lots of speculation depends on it.

ravisundaramam | 16 luglio 2018

@@rdavis: Very conservatively, Munroe estimate is 15,000$ margin per car sold. Very conservatively if Tesla makes 4000 Model 3 a week in the second half of 2018, 104,000 units sold. That is 1.5 billion and change gross margin. On model 3 alone. Another billion from X and S lines. There is one Solar City bond coming due in Q3 at 1.5 billion. It is just a question of volume and sales.

Personally I think they are underestimating the margins. The software development has been paid for and there is no additional marginal cost per sale. For software gross margin is 99% and net is typically 40%.

That is why Ahuja is projecting net profit in Q3.

Coastal Cruiser. | 16 luglio 2018

"The German tear down put the cost of the car at 28,000$. Gross Margin over 40% Munro says 30% without saying 30% of what? 49K base price? The most important thing is both are saying positive numbers"

Amazing so many people are giving credence to these estimates. Maybe the estimates are correct. Hopefully they are. But with Tesla themselves stating negative margins until at least the ramp to 5K has happened, and it only just happened, I have to believe Tesla over the folks who presumably haven't seen the actual numbers.

andy.connor.e | 16 luglio 2018

Personally i've always had a hard time believing anything but the quarterly reports. Too much bias, stick to the raw data.

KP in NPT | 16 luglio 2018

@CC - I thought that statement was in the context of 5K to start making a profit because of recouping the initial investment. I thought the comparison to opening a lemonade stand and expecting to make a profit on the first cup without taking into account the booth and ingredients. :)

ravisundaramam | 16 luglio 2018

@Coastal Cruiser. The actual number does not matter. Now two independent tear downs are pricing gross margin in positive territory. This is in serious contrast to all previous industry consensus that BEV have negative gross margins, so you can never break even.

Musk mentioned in 2011, the battery technology is having its own variation of Moore's Law. Instead of 18 months for chips, it is 7 years for batteries. The energy density of battery packs are doubling every 7 years. Weight and cost are halving every 7 years. Exponential growth is very difficult to comprehend.

Take a simple problem, "A pond has some lilies and that double every day. It takes 30 days for the pond to be filled entirely with lilies. When was the pond half full?" The correct answer is 29 days. Exponential growth catches you unaware. It sneaks up on you. The Industry would be complacent at the tiny fraction of the pond being filled day after day. Suddenly 28 days later, it is quarter, next day half, 30th day full!

The legacy carmakers are on the mature end of exponentially decaying marginal returns. How much R&D and cost it took to go from 15 mpg vehicles to 25 mpg? It took order of magnitude of that much effort to go from 25 to 35. Can they every reach 45 mpg? when? At what cost? They can not comprehend battery tech catching up to them so soon.

Coastal Cruiser. | 16 luglio 2018

Ha ha. OK. You guys win. Neither Elon not Sandy laid out much detail, so who am I to throw a turd into the swimming pool?

Let's party like it's thirty-five-percent!

bernard.holbrook | 16 luglio 2018

@ Coastal - I don't think Elon said the the 3's margin was negative... I think he said the the margin on the $35K version of the 3 would be negative until 5000 units/week.

Thoughts?

Coastal Cruiser. | 16 luglio 2018

I read the investors letter a few times because I was preparing an article on the 35K car. Here is the quote I posted:

“… grow Model3 gross margin from slightly negative in Q1 2018 to close to breakeven in Q2 and then to highly positive in Q3 and Q4. Ultimately, the growth of Model 3 and the profit associated with it will help us accelerate the transition to sustainable energy even faster.”

I interpreted this to mean he was referring to current production cars. He did not stipulate anything about the numbers negative margin only being so if the car had not been configured with options. But others may have a different take on those words.

Here's the link the article. A link the letter is there: https://cleantechnica.com/2018/07/02/in-search-of-the-35000-tesla-model-3/

borne.by.wind | 16 luglio 2018

“A symphony of engineering”

greg | 16 luglio 2018

As I see it the biggest determinant of Model 3 profitability is the cost of the battery packs they use.

Given the huge investments made at GF1 to ensure it keeps churning out LR battery packs using the 2170 format you have to expect that there would be a huge negative margin right there for every pack made to now - until they get the LR battery packs costs closer to the expected long run cost. Especially given all the automation issues and reprogramming of robots they ran into when their supplier bailed.

And once they get the LR battery costs under control, they can look to the SR battery packs. Thats also why the SR cars aren't out yet - the SR packs are simply still too expensive. I suspect some people think the SR battery pack is simply a failed inspection LR battery pack, like various grade of Intel processors are. It doesn't work like that.
So SR's won't be LR packs with defective a few defective cells in it. Tesla would remake the pack as a first grade LR than ship it as a SR I am sure.

In other news, an analysis published today suggests that the ability of the rest of the usual-Tesla-Killer-suspects to catch and surpass Tesla might be more difficult than many guess.

As they will likely have a very hard time getting their battery pack costs down due the high levels of Cobalt they use compared to Tesla. With Teslas use of Cobalt per battery pack in the several hundreds of dollars of Cobalt, while the competition is more like 5 times that cost - (in the thousands per pack). Just for Cobalt alone. Add in the other materials in a pack plus BMS and you can see the costs for the packs to be too expensive for the competition to eat Tesla's lunch any time soon. By the time they catch Tesla, Tesla with have their next Gen battery packs ready to go.

tri_t_to | 17 luglio 2018

I don't think Munro is purposely trying to change this stance just to selling his report data. If you look at this history of the reports what he thought at the moment makes sense

Video 1: Fit and finish - I agree the fit and finish on my M3 is no where as good as my Acura RL. Glass room on the passenger side is about 1/4" higher than the driver which is causing wind noise on the passenger side but Tesla said it is within spec and won't replace it.

Video 2: Ride and cost estimate - He liked the driving experience but he wasn't sure they would be profitable. He assumption was based on an incompletely analysis of the build of material and the fact that Tesla was only making around 500 cars a week at that point.

Video 3: Update cost estimate - Build of material analysis was complete and his assumption was proven wrong.

ravisundaramam | 17 luglio 2018

@Coastal Cruiser You know more than I do about Tesla. Do you think the updated estimate of gross margins, be it from Monroe, be it from other sources, have been baked into the price of stock? Or is there a large pool of investors who think gross margin is still negative even for the higher priced models?

Mike83 | 17 luglio 2018

https://cleantechnica.com/2018/07/17/the-war-on-tesla-by-click-reporters...

Might explain the news medias strong anti Tesla bias.

ravisundaramam | 17 luglio 2018

It is a dirty business. The actual amount of revenue these click reporters bring is very small compared to the damage they cause to the affected parties. It is like burn down the barn and salvage the nails from the ashes. If you don't own the barn, you are ahead in this process!

Probably Tesla should consider delivering more eyeballs to rival networks. Musk interview to the rival network. Or even do some advertising in the rival network, a general sell the vision, not a specific product kind of warm and gooey ad.

cascadiadesign | 17 luglio 2018

"... By the time they catch Tesla, Tesla with have their next Gen battery packs ready to go."

That's one example of why competitors and many on wall street under-estimate Elon Musk. Unlike everyone else, Elon thinks eight steps ahead. Just look at the milestones Tesla has made in their relatively short existence. Each milestone fills in a piece of a very complex jigsaw puzzle.

hokiegir1 | 17 luglio 2018

@CC -- I think the reason people give so much weight to the German tear down is this Musk tweet:
https://twitter.com/elonmusk/status/1002272887892361216

ravisundaramam | 17 luglio 2018

Quote from Mike83's link: "I’m talking about the small retail shorts who for years now have been listening to business news that is distorted far to the negative side by bad actors such as Reuters, Business Insider, and certain elements within CNBC, to name just a few. Every year, shorts lose hundred of millions to billions of dollars by shorting Tesla’s stock, and 2018 looks to me to be shaping up for the biggest losses to TSLA shorts of all time. Might these shorts, after losing billions, consider class-action lawsuits against news outlets that intentionally distorted the prospects for Tesla’s stock? It’s a thought worth considering."

The big players know the root of these stories and what is to be trusted. They will get out leaving the small uninformed traders holding the bank. Would we ever know who the big shorters are and how much they made/lost and when the got in and out?

But class action suit against the news network is unlikely to fly. Even when Tesla proved some outfit lied in court, they simply claimed to be providing "entertainment" not news and so they can lie! Despite NEWS being splattered all over, if you really look at their listings, these will fall under opinion/entertainment section, not news section of their network.

carlk | 17 luglio 2018

I'm not too worried about those people. The tactic of Chanos likes is to create an environment that will prevent a business to continue to exist. That just won't work here. Tesla has too many supporters in terms of investors and customers to allow that to happen. If Tesla continue to make great cars and move business the way it planned to the result will speak to itself. Whatever those FUDsters say will not change that. You can't fool even the dumbest when surrounded by facts.

Amidst all those negativities the Model 3 has already emerged as a great success story on its way to be the best and most popular car with the best margin the industry has seen. If anything those negativities have only pushed Elon to do even better and faster. Other than some annoyance they have zero effect on changing Tesla's bright future.

ravisundaramam | 17 luglio 2018

https://www.teslarati.com/tesla-tsla-model-3-sustained-ramp-munro-30-per...

Quote: "Perhaps the most notable among Munro’s conclusion, however, was mentioned by Autoline Network in its video’s comments section. According to the network, Munro stated that he expects even the $35,000 Standard Range RWD Model 3 to still make a “double-digit gross profit.”

Mathew98 | 17 luglio 2018

It only took a day for Wall St. to notice and prop up the stock by $12.50 late in the trading today.

@KP in NPT won the race by a few miles.

KP in NPT | 17 luglio 2018

Ha @Mathew. ;)

@Mike sad but true. The "Tesla Vs the Shorts" post is also revealing https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-sellers.118431/ - I look forward to Tesla killing their numbers this quarter and next and shutting these jerks up. When Elon tweeted about his short burn of the century, he mentioned the numbers he was seeing. These margins might have been what he was talking about. Not gonna run out of money before bankwuptcy, much to the shorts' chagrin.

KP in NPT | 17 luglio 2018

Holy crap - Munro claims 36% margin on $48k+ Model 3 and 18% on $35k model

https://twitter.com/KelvinYang7/status/1019271954862354432

I don't know where he got these Munro numbers from - but if true - amazing. And P cars would be even higher!

socaldave | 17 luglio 2018

@KP - I'm curious about the 18% on the base M3. We don't yet know what'll be removed from the PUP, or if the base car gets a metal roof, or how much the smaller battery will cost, etc, etc, etc, etc. Regardless, this is great news, and I can't wait for 2018 to finish up with more and more FUDsters eating crow from the same trough!

KP in NPT | 17 luglio 2018

It's here - https://youtu.be/6iI4G8_o7hY

He mentions Sandy Munro's estimate for the SR at about 3:45. It sounds like it's his estimate.

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