6 ms·

Fundamentally, what is it that prevents the established auto makers from making changes mid lifecycle? Seems like Tesla keeps pulling it off; why can’t GM? Is

by mwint 5y ago

Fundamentally, what is it that prevents the established auto makers from making changes mid lifecycle? Seems like Tesla keeps pulling it off; why can’t GM? Is it that the component specification+acquisition cycle you describe is optimized to take as long as the development cycle of a new car?

syntaxing 5y ago
Disclaimer: I work and worked for subsidiaries of big automakers but this opinion is of my own. I would guess it’s a mixture of culture, cost, and scale. Culture wise, Tesla is extremely vertically integrated so that gives them a lot more breathing room. Cost wise, Tesla pretty much still sells car at a loss and relies heavily on carbon offset subsidies for income. When your revenue is established, trying to change margin or anything is probably much more difficult. Lastly, it’s scale, while Tesla is trying to catch up, the throughput of the major automakers is absolutely mind defying. The whole system is an oil machined that any sort of downtime is detrimental and difficult once the line is established. To put into perspective, Tesla “monumental” Q2 quarter shipped 200K cars or so. GM in the US only sold 200K per month.
- panick21 5y ago
  > Cost wise, Tesla pretty much still sells car at a loss and relies heavily on carbon offset subsidies for income. I'm sorry but that is just straight up complete nonsense. Like seriously, you are directly disagreeing with public financial statements. We know exactly how much margin Tesla has, with and without carbon offset. The simple fact is, Tesla has leading automotive margins even when you exclude any carbon credits.
  - mcguire 5y ago
    Hmm. I'm not sure I'd go strongly either way. According to reports (https://www.cnn.com/2021/01/31/investing/tesla-profitability/index.html https://www.cnn.com/2021/01/31/investing/tesla-profitability...) Tesla received $1600M in regulatory credits and had a net income of $721M. If you look at the 10K (https://www.sec.gov/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm https://www.sec.gov/Archives/edgar/data/1318605/000156459021...), Tesla received $27,236M in automotive revenues (which includes sales of regulatory credits, thanks Elon). The corresponding cost of sales is $20,259M giving gross profit of $6,977M and gross margin of 26%. But after that, you have operating expenses ($4,636M) (blah, blah, interest, taxes, other, blah) and a final net income of $721M.
    - pokerhobo 5y ago
      Tesla has to deduct the “cost” of issuing new shares for stock compensation like for their CEO. It’s not a cost as in they spent cash, but is deducted because it lowers shareholder value. A better sense of their actual profit/loss is their free cashflow which is positive even after your deduct ZEV credit sales.
      - hef19898 5y ago
        Cash flow =|= profit. You can be cash positive and profitable (best case), cash positive and not be profitable (at least you won't go under automatically), cash negative and profitable (you face the risk of going bancrupt by running out of cash) or cash negative and not profitable (usually dead). Whatvyhe other poster did was diving into Tesla's sec fillings. Those show: Tesla is offering stock -> they still raise money Tesla is selling emissions certificates -> that explains most, if not all, of their profits. Not sure how new funding factors into their cash flow, and I am too lazy to look it up. It does seem so, that Teslas car business isn't enough to stand upon for now.
    - panick21 5y ago
      What matters in terms of what we are discussing now is automotive margin. Their 'Automotive gross margin' is 28.4%. If you exclude regulatory credit that is still '25.8%'. Those are flat out great margin number in the automotive industry. These facts literally disprove this phrase: > Tesla pretty much still sells car at a loss Unless you simply interpret that phrase differently then everybody else. If you want to make a larger statement about Tesla on a company level, that is a whole different thing. If you want to ignore unit economics Q2 they made 354 million $ in credits. Total GAAP gross margin 24.1%, ignoring credits its still 21.8%. I'm to lazy to calculate the operational margin, but its still good excluding regulatory credits. This regulatory credit storyline is literally on its last legs. Tesla is still a growth company and their margin and profitability are already good despite them not even having manufacturing in all large markets. In Q2 they didn't even build their high margin vehicles. My main point being again, claiming that Tesla sells vehicles at a lose, is literally nonsense. Find the numbers here: https://tesla-cdn.thron.com/static/ZBOUYO_TSLA_Q2_2021_Update_DJCVNJ.pdf?xseo=&response-content-disposition=inline%3Bfilename%3D%22q2_2021.pdf%22 https://tesla-cdn.thron.com/static/ZBOUYO_TSLA_Q2_2021_Updat... Any claim that Tesla has no business without credits is just fundamentally wrong. And Q3 looks like it will beat these numbers again.
- brianwawok 5y ago
  You need to read their financials closer. They are profitable without offsets.
csours 5y ago
Small company risk is failure to grow. Big company risk is every other failure. Tesla is valued as a growth/tech company. As long as people believe in their growth, they get more cash. I don't personally understand how Tesla hasn't had more problems with their apparently uncontrolled engineering changes. At least part of it is customer enthusiasm for the product papering over any drawbacks. It's not that GM can't make changes like this, it's that GM WON'T make changes like this. All of this is, again, solely my own opinion.
- kjksf 5y ago
  Alternatively, maybe just like SpaceX has faster development cycle AND greater safety and reliability of rockets, Tesla has faster development cycle AND greater safety and reliability of cars? Judging by the number of recalls, Tesla doesn't seem to be doing worse than GM, Porsche or Ford.
  - vvanders 5y ago
    Their EMMC issue on the S was pretty egregious, that's something you get right in even basic consumer electronics. They also had numerous issues with door handles(I had two fail once the car was outside of warranty). There's things they do well but I don't know if I'd qualify them as having better reliability.
- optimiz3 5y ago
  Tesla is past the cash raising phase though - they are massively profitable and actively retiring debt early. https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000095017021000524/tsla-20210630.htm https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/0000... "On July 16, 2021, we issued a notice of redemption to the holders of the 2025 Notes informing the holders that we will redeem the notes in full in August 2021 at a redemption price equal to 102.65% of outstanding principal amount, plus accrued and unpaid interest, if any."
  - csours 5y ago
    They are raising money by selling stock.
hef19898 5y ago
Tesla has yet to do even a face lift on its Model S. In the meanwhile most incumbent OEMs either came up with EVs based on existing platforms or completely new EV platforms.
- panick21 5y ago
  First of all, they just did a 'face lift' on the Model S. And its not the first one either. Other OEM might have new platforms, but those platform are built with supplier and OEM themselves often do not make the detailed choices.
willcipriano 5y ago
That would be disruptive to the fiefdoms and all put all the feudal lords into a tizzy.
rootusrootus 5y ago
The little changes are going to end up as technical debt they will pay for later. And notice that they haven’t come out with any meaningful refresh of any of their cars, some of which have been on the market quite a while. It’s definitely too soon to suggest they have a good, effective update strategy.

by mwint 5y ago

syntaxing 5y ago

Disclaimer: I work and worked for subsidiaries of big automakers but this opinion is of my own. I would guess it’s a mixture of culture, cost, and scale. Culture wise, Tesla is extremely vertically integrated so that gives them a lot more breathing room. Cost wise, Tesla pretty much still sells car at a loss and relies heavily on carbon offset subsidies for income. When your revenue is established, trying to change margin or anything is probably much more difficult. Lastly, it’s scale, while Tesla is trying to catch up, the throughput of the major automakers is absolutely mind defying. The whole system is an oil machined that any sort of downtime is detrimental and difficult once the line is established. To put into perspective, Tesla “monumental” Q2 quarter shipped 200K cars or so. GM in the US only sold 200K per month.

panick21 5y ago
> Cost wise, Tesla pretty much still sells car at a loss and relies heavily on carbon offset subsidies for income. I'm sorry but that is just straight up complete nonsense. Like seriously, you are directly disagreeing with public financial statements. We know exactly how much margin Tesla has, with and without carbon offset. The simple fact is, Tesla has leading automotive margins even when you exclude any carbon credits.
- mcguire 5y ago
  Hmm. I'm not sure I'd go strongly either way. According to reports (https://www.cnn.com/2021/01/31/investing/tesla-profitability/index.html https://www.cnn.com/2021/01/31/investing/tesla-profitability...) Tesla received $1600M in regulatory credits and had a net income of $721M. If you look at the 10K (https://www.sec.gov/Archives/edgar/data/1318605/000156459021004599/tsla-10k_20201231.htm https://www.sec.gov/Archives/edgar/data/1318605/000156459021...), Tesla received $27,236M in automotive revenues (which includes sales of regulatory credits, thanks Elon). The corresponding cost of sales is $20,259M giving gross profit of $6,977M and gross margin of 26%. But after that, you have operating expenses ($4,636M) (blah, blah, interest, taxes, other, blah) and a final net income of $721M.
  - pokerhobo 5y ago
    Tesla has to deduct the “cost” of issuing new shares for stock compensation like for their CEO. It’s not a cost as in they spent cash, but is deducted because it lowers shareholder value. A better sense of their actual profit/loss is their free cashflow which is positive even after your deduct ZEV credit sales.
    - hef19898 5y ago
      Cash flow =|= profit. You can be cash positive and profitable (best case), cash positive and not be profitable (at least you won't go under automatically), cash negative and profitable (you face the risk of going bancrupt by running out of cash) or cash negative and not profitable (usually dead). Whatvyhe other poster did was diving into Tesla's sec fillings. Those show: Tesla is offering stock -> they still raise money Tesla is selling emissions certificates -> that explains most, if not all, of their profits. Not sure how new funding factors into their cash flow, and I am too lazy to look it up. It does seem so, that Teslas car business isn't enough to stand upon for now.
  - panick21 5y ago
    What matters in terms of what we are discussing now is automotive margin. Their 'Automotive gross margin' is 28.4%. If you exclude regulatory credit that is still '25.8%'. Those are flat out great margin number in the automotive industry. These facts literally disprove this phrase: > Tesla pretty much still sells car at a loss Unless you simply interpret that phrase differently then everybody else. If you want to make a larger statement about Tesla on a company level, that is a whole different thing. If you want to ignore unit economics Q2 they made 354 million $ in credits. Total GAAP gross margin 24.1%, ignoring credits its still 21.8%. I'm to lazy to calculate the operational margin, but its still good excluding regulatory credits. This regulatory credit storyline is literally on its last legs. Tesla is still a growth company and their margin and profitability are already good despite them not even having manufacturing in all large markets. In Q2 they didn't even build their high margin vehicles. My main point being again, claiming that Tesla sells vehicles at a lose, is literally nonsense. Find the numbers here: https://tesla-cdn.thron.com/static/ZBOUYO_TSLA_Q2_2021_Update_DJCVNJ.pdf?xseo=&response-content-disposition=inline%3Bfilename%3D%22q2_2021.pdf%22 https://tesla-cdn.thron.com/static/ZBOUYO_TSLA_Q2_2021_Updat... Any claim that Tesla has no business without credits is just fundamentally wrong. And Q3 looks like it will beat these numbers again.
brianwawok 5y ago
You need to read their financials closer. They are profitable without offsets.

csours 5y ago

Small company risk is failure to grow. Big company risk is every other failure. Tesla is valued as a growth/tech company. As long as people believe in their growth, they get more cash. I don't personally understand how Tesla hasn't had more problems with their apparently uncontrolled engineering changes. At least part of it is customer enthusiasm for the product papering over any drawbacks. It's not that GM can't make changes like this, it's that GM WON'T make changes like this. All of this is, again, solely my own opinion.

kjksf 5y ago
Alternatively, maybe just like SpaceX has faster development cycle AND greater safety and reliability of rockets, Tesla has faster development cycle AND greater safety and reliability of cars? Judging by the number of recalls, Tesla doesn't seem to be doing worse than GM, Porsche or Ford.
- vvanders 5y ago
  Their EMMC issue on the S was pretty egregious, that's something you get right in even basic consumer electronics. They also had numerous issues with door handles(I had two fail once the car was outside of warranty). There's things they do well but I don't know if I'd qualify them as having better reliability.
optimiz3 5y ago
Tesla is past the cash raising phase though - they are massively profitable and actively retiring debt early. https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/000095017021000524/tsla-20210630.htm https://www.sec.gov/ix?doc=/Archives/edgar/data/1318605/0000... "On July 16, 2021, we issued a notice of redemption to the holders of the 2025 Notes informing the holders that we will redeem the notes in full in August 2021 at a redemption price equal to 102.65% of outstanding principal amount, plus accrued and unpaid interest, if any."
- csours 5y ago
  They are raising money by selling stock.

hef19898 5y ago

Tesla has yet to do even a face lift on its Model S. In the meanwhile most incumbent OEMs either came up with EVs based on existing platforms or completely new EV platforms.

panick21 5y ago
First of all, they just did a 'face lift' on the Model S. And its not the first one either. Other OEM might have new platforms, but those platform are built with supplier and OEM themselves often do not make the detailed choices.

willcipriano 5y ago

That would be disruptive to the fiefdoms and all put all the feudal lords into a tizzy.

rootusrootus 5y ago

The little changes are going to end up as technical debt they will pay for later. And notice that they haven’t come out with any meaningful refresh of any of their cars, some of which have been on the market quite a while. It’s definitely too soon to suggest they have a good, effective update strategy.