I don't dispute the Moody's rating, but I want to comment on the cult-status that Elon enjoys (and in fact is addicted to). The popular press (including Barron's, Bloomberg and other financial press) frequently publish articles with leading, and fawning headlines, like today's "Tesla Goes After America’s Top-Selling SUVs". It is amazing, and a bit maddening, to see TSLA's constant price cuts as a good sign for the company. An automobile company has an enormous amount of fixed cost, including the supplies and raw materials in inventory to make cars. They're scaled up to manufacture at a certain rate -- they will surely sell 100% of all of the cars that they manufacture. They won't donate them, or give them away, but they'll sell them at whatever price is necessary to unload inventory. All that really matters is demand. They can spend money on advertising, or lower prices.
Eventually, reduction in demand can lead to scaling back of manufacturing rate, but there's no evidence that TSLA is cutting back on any scale. So they're going to sell all of their vehicles at the highest price that the market allows. If they're cutting prices, it is because they see inventories building up (or the imminent likelihood of oversupply of cars). In 2023 TSLA will face 35 competitive models, up dramatically from 2022. Ford says that they'll manufacture 200,000 units in 2023. This, alone, will be a significant volume of competition for TSLA. But add to that the products coming from Volkswagen, GM, and Kia/Hyundai, not to mention Mercedes, BMW, and Volvo, and we're going to see some real competition.
One of TSLA's story lines is that they can make EVs cheaper than everyone else. Maybe, maybe not, we'll see. In any event, most conventional manufacturers have been selling their first EV models at a loss -- it seems to me that every auto mfr. needs a viable, strong, competitive EV line to avoid bankruptcy in 3-5 years. GM is targeting 25% EVs by 2025. Their need to be in the game will put pricing pressure on TSLA. They can finance EVs, to some extent, with their other lines.
We don't know how rapidly EV adoption will happen -- I won't be surprised to see some period of rapidly increasing demand. I bought one last year (a Kia Niro EV) because two friends gushed about their EVs (a Tesla and a Chevy Bolt). I gained confidence that the range was adequate (mine is 240-300 miles, depending on season), and that the charging infrastructure is in place. I've been thrilled with the EV experience -- I see no reason why almost every family would want one (of two cars) to be an EV right now. There is still some hassle for cross-country trips, and there is still some definite burden for doing this in an EV. The only real barrier is pricing -- but that should change rapidly as competition heats up.
So, it remain unknown how increasing competition will scale with increasing demand. TSLA investors are banking that the company can scale up manufacturing by 2-3x over the near term, with little erosion in gross margins. That seems like a losing bet to me, but stock prices are often disconnected from market reality for fairly long stretches. The Elon cult effect is strong!
Yes, we're looking at Wall Street continuing to do the bidding of Oil & gas. Elon is a disruptor beyond Wall Street's payrolls, and IIRC Ron Barron jumped back in to the tune of how many shares? How can Moody's ignore Mr. Barron as well? Honestly, I don't look at the Xquarter production #s for Tesla's viability valuation(s): we need quality, and the Tesla Teams are already producing 1Million mile cars. Almost zero Corporate debt, sticking to his promises/directives in the Master Plans, and now an XCorp merge on the horizon again!? To the Moons!
Thank you for your insight, the bears don't get it, or they have there own agenda and their false narrative. I appreciate your knowledge and wisdom! Have a great day!
Logic is obscured by other incentives. Thanks for your data and logic approach to reassessing credit ratings. I am anticipating a "see we told you so" moment on the horizon when data pointed to inaccurate ratings in both positive and negative directions. Appreciate you, your perspective and all your efforts!
Moody’s management took ratings hypocrisy to an entirely new level in Jan 2023. Staff performed the typical annual update and then management choose to quietly hide their shamefully illogical Tesla report behind a $250 paywall.
Applying strategic main stream media journalist pressure following Moody’s management failures to sound timely alerts for recent bank runs…brilliant timing!
Thank you, Alexandra for your most insightful and lucid article. The biases of the rating companies are so very obvious as you articulated so well. While it is maddening, the long game with Tesla shall win out. I look forward to your next commentary. Have a wonderful day.
There must be a tremendous amount of pressure on Moody's to downplay Tesla, but they jeopardise their model and their appearance of non-bias if they don't acknowledge the obvious. Rock and hard place, anyone?
I'm no expert, but I've been looking at the possible parallels between Apple in the early 2000's and Tesla now. I didn't fully understand why Apple made the moves they did. They started making lots of cash and the stock price didn't really give them credit for their product line. Apple decided to take loans at very low rates. Why would they do that when they had more cash in the bank than almost any other company? I think the answer is they wanted to force the rating agencies to give them better credit. And when they got the better rating, suddenly the stock started to rise, and the stigma of their previous troubles was over.
Mar 22, 2023Liked by AlexandraMerz @TeslaBoomerMama
Great breakdown. I do agree more with Moody's about the narrow product line and the 'slow pace of new products'. From a simple perspective this is a legitimate argument. As a deeply informed Tesla it is the opposite. Almost all profit comes from Model 3 and Y. 2 models is really narrow
Traditional auto relies on many models and they change the looks on a regular basis, mainly to disquise that there is really nothing substantial new and to offer each type of customer what they want. Some like buttons, some don't. Tesla only has minimalistic/modern. Some like buttons and a more traditional look. The exterior look hardly changes and that is also a real down side in many ways. People just want to be seen, with the latest product, not a look from 2017.
In reality Tesla displays the fastest rate of innovation ever, mainly from the inside! On the long run, this pays out, big time. However, people just want to see new stuff also from the exterior, the looks, the feel etc. As an example why does software change so much, so often in smart phones, while essentially it is not much new really. Once again: allthough huge Tesla bull and about 99% invested in $TSLA. Moody's still has good arguments here. $TSLA could easily improve on this without adding complexity to much by offering some alternative looks.
Also imho, the delay of the Cybertruck has hurt Tesla as a company and the stock significantly. So product line is widening on the near term, but you can not blame a conservatieve agency like Moody's that maybe the exceptionally strange looking Cybertruck might not materialize. Even my wife thinks this is the most ugly car ever. Personally, I am convinced this will be a game changer for $TSLA and most importantly will expand TAM and also widen product line from 2 to 3 models!
Same goes for Megapcks which are not mentioned at all. From Moody's point of view understandable. As a $TSLA investor, I expect this to be income stream number 4 (or even 3) withina few years. Again larger TAM but also important broadening product line. And the Megapack is really very broad as it is outside car market. Elon has more than once said that energy will be about as big as Vehicles. I agree on that, but currently not substantial and not relevant for credit rating. Looking 2-3 years out, It will contribute significantly solving to this Moody's point: narrow product line.
As an investor, I am excited about this development in the near future (2-3 years) as well, because it will contribute to the credit ratings, but also reduce risks for more traditional investors and large institional funds.
The next gen vehicle will be awesome. If $TSLA can pull of anything close to this 50% cost reduction for a compact vehicle, this will chanhe everything. Obviously TAM and product line will be hugely improved. But come on: let that sink in. Lets say at least 30% is cost reduction, regardless of size of the car, then it would imply that Tesla can easily achieve huge gross margins on their products while at the same price point, competition is only trying to achieve minimalistic margins. That really ends most of the competition. It seems it would be coming soon from Mexico, but I think they intentionally do not disclose this.
I don't dispute the Moody's rating, but I want to comment on the cult-status that Elon enjoys (and in fact is addicted to). The popular press (including Barron's, Bloomberg and other financial press) frequently publish articles with leading, and fawning headlines, like today's "Tesla Goes After America’s Top-Selling SUVs". It is amazing, and a bit maddening, to see TSLA's constant price cuts as a good sign for the company. An automobile company has an enormous amount of fixed cost, including the supplies and raw materials in inventory to make cars. They're scaled up to manufacture at a certain rate -- they will surely sell 100% of all of the cars that they manufacture. They won't donate them, or give them away, but they'll sell them at whatever price is necessary to unload inventory. All that really matters is demand. They can spend money on advertising, or lower prices.
Eventually, reduction in demand can lead to scaling back of manufacturing rate, but there's no evidence that TSLA is cutting back on any scale. So they're going to sell all of their vehicles at the highest price that the market allows. If they're cutting prices, it is because they see inventories building up (or the imminent likelihood of oversupply of cars). In 2023 TSLA will face 35 competitive models, up dramatically from 2022. Ford says that they'll manufacture 200,000 units in 2023. This, alone, will be a significant volume of competition for TSLA. But add to that the products coming from Volkswagen, GM, and Kia/Hyundai, not to mention Mercedes, BMW, and Volvo, and we're going to see some real competition.
One of TSLA's story lines is that they can make EVs cheaper than everyone else. Maybe, maybe not, we'll see. In any event, most conventional manufacturers have been selling their first EV models at a loss -- it seems to me that every auto mfr. needs a viable, strong, competitive EV line to avoid bankruptcy in 3-5 years. GM is targeting 25% EVs by 2025. Their need to be in the game will put pricing pressure on TSLA. They can finance EVs, to some extent, with their other lines.
We don't know how rapidly EV adoption will happen -- I won't be surprised to see some period of rapidly increasing demand. I bought one last year (a Kia Niro EV) because two friends gushed about their EVs (a Tesla and a Chevy Bolt). I gained confidence that the range was adequate (mine is 240-300 miles, depending on season), and that the charging infrastructure is in place. I've been thrilled with the EV experience -- I see no reason why almost every family would want one (of two cars) to be an EV right now. There is still some hassle for cross-country trips, and there is still some definite burden for doing this in an EV. The only real barrier is pricing -- but that should change rapidly as competition heats up.
So, it remain unknown how increasing competition will scale with increasing demand. TSLA investors are banking that the company can scale up manufacturing by 2-3x over the near term, with little erosion in gross margins. That seems like a losing bet to me, but stock prices are often disconnected from market reality for fairly long stretches. The Elon cult effect is strong!
Yes, we're looking at Wall Street continuing to do the bidding of Oil & gas. Elon is a disruptor beyond Wall Street's payrolls, and IIRC Ron Barron jumped back in to the tune of how many shares? How can Moody's ignore Mr. Barron as well? Honestly, I don't look at the Xquarter production #s for Tesla's viability valuation(s): we need quality, and the Tesla Teams are already producing 1Million mile cars. Almost zero Corporate debt, sticking to his promises/directives in the Master Plans, and now an XCorp merge on the horizon again!? To the Moons!
Excellent article Sherlock Holmes !
Signed Doc Wats.
Thank you for your insight, the bears don't get it, or they have there own agenda and their false narrative. I appreciate your knowledge and wisdom! Have a great day!
Logic is obscured by other incentives. Thanks for your data and logic approach to reassessing credit ratings. I am anticipating a "see we told you so" moment on the horizon when data pointed to inaccurate ratings in both positive and negative directions. Appreciate you, your perspective and all your efforts!
Excellent as always, Alexandra! Thank you.
Moody’s management took ratings hypocrisy to an entirely new level in Jan 2023. Staff performed the typical annual update and then management choose to quietly hide their shamefully illogical Tesla report behind a $250 paywall.
Applying strategic main stream media journalist pressure following Moody’s management failures to sound timely alerts for recent bank runs…brilliant timing!
Tesla Bears are not persuaded by logic or facts.
So the defaulted banks had great financial leadership, and Telsa, which has $20 billion in cash, does not. Makes sense-NOT!!
Thank you, Alexandra for your most insightful and lucid article. The biases of the rating companies are so very obvious as you articulated so well. While it is maddening, the long game with Tesla shall win out. I look forward to your next commentary. Have a wonderful day.
There must be a tremendous amount of pressure on Moody's to downplay Tesla, but they jeopardise their model and their appearance of non-bias if they don't acknowledge the obvious. Rock and hard place, anyone?
I'm no expert, but I've been looking at the possible parallels between Apple in the early 2000's and Tesla now. I didn't fully understand why Apple made the moves they did. They started making lots of cash and the stock price didn't really give them credit for their product line. Apple decided to take loans at very low rates. Why would they do that when they had more cash in the bank than almost any other company? I think the answer is they wanted to force the rating agencies to give them better credit. And when they got the better rating, suddenly the stock started to rise, and the stigma of their previous troubles was over.
Another masterpiece. Thank you ❤️
Alexandra thank You.. ❤️ 👋🏻😘
Great breakdown. I do agree more with Moody's about the narrow product line and the 'slow pace of new products'. From a simple perspective this is a legitimate argument. As a deeply informed Tesla it is the opposite. Almost all profit comes from Model 3 and Y. 2 models is really narrow
Traditional auto relies on many models and they change the looks on a regular basis, mainly to disquise that there is really nothing substantial new and to offer each type of customer what they want. Some like buttons, some don't. Tesla only has minimalistic/modern. Some like buttons and a more traditional look. The exterior look hardly changes and that is also a real down side in many ways. People just want to be seen, with the latest product, not a look from 2017.
In reality Tesla displays the fastest rate of innovation ever, mainly from the inside! On the long run, this pays out, big time. However, people just want to see new stuff also from the exterior, the looks, the feel etc. As an example why does software change so much, so often in smart phones, while essentially it is not much new really. Once again: allthough huge Tesla bull and about 99% invested in $TSLA. Moody's still has good arguments here. $TSLA could easily improve on this without adding complexity to much by offering some alternative looks.
Also imho, the delay of the Cybertruck has hurt Tesla as a company and the stock significantly. So product line is widening on the near term, but you can not blame a conservatieve agency like Moody's that maybe the exceptionally strange looking Cybertruck might not materialize. Even my wife thinks this is the most ugly car ever. Personally, I am convinced this will be a game changer for $TSLA and most importantly will expand TAM and also widen product line from 2 to 3 models!
Same goes for Megapcks which are not mentioned at all. From Moody's point of view understandable. As a $TSLA investor, I expect this to be income stream number 4 (or even 3) withina few years. Again larger TAM but also important broadening product line. And the Megapack is really very broad as it is outside car market. Elon has more than once said that energy will be about as big as Vehicles. I agree on that, but currently not substantial and not relevant for credit rating. Looking 2-3 years out, It will contribute significantly solving to this Moody's point: narrow product line.
As an investor, I am excited about this development in the near future (2-3 years) as well, because it will contribute to the credit ratings, but also reduce risks for more traditional investors and large institional funds.
The next gen vehicle will be awesome. If $TSLA can pull of anything close to this 50% cost reduction for a compact vehicle, this will chanhe everything. Obviously TAM and product line will be hugely improved. But come on: let that sink in. Lets say at least 30% is cost reduction, regardless of size of the car, then it would imply that Tesla can easily achieve huge gross margins on their products while at the same price point, competition is only trying to achieve minimalistic margins. That really ends most of the competition. It seems it would be coming soon from Mexico, but I think they intentionally do not disclose this.
All together: excited to be a $TSLA investor
I'm patiently waiting for institutional investors to also understand that 'rating agencies are irrelevant (for Tesla)'
Thanks @TeslaBoomerMama for breaking it down for us 🙏