Whitney Tilson’s email to investors discussing Tesla Inc (NASDAQ:TSLA)’s global unit market share; Volkswagen having issues with its ID.3 electric vehicle.
Tesla's Global Market Share
6) Here is a friend’s response:
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
The NYT article makes it sound like Tesla has some sort of dominant market share. Well, let’s take a look at Tesla’s global market share in EVs:
|Global||Tesla Model 3||Tesla total||Total EV sales||Tesla M3 %||Tesla total %|
Tesla’s global unit market share in EVs is larger than anyone else, but it’s nowhere near dominant.
For the first five months of 2020, Tesla’s EV market share is 18%:
If you’re at 18% market share, is the rest of the industry just a bunch of collective “also-rans?”
Yes, any one of them has smaller market share -- nobody else is over 7% -- but this is an extremely diverse industry. The two largest brands in EVs are Tesla (18%) and BMW (7%) followed by Volkswagen (also 7%), and then BYD (6%).
Perspective, folks -- perspective!
7) I asked him if Tesla could end up like Apple, with 20% market share – and 100% profit share. He replied:
Tesla today has 0.5% global unit market share. It looks like, this year, they could approach 0.6% if all goes well. In five years, perhaps they could breach the 1% level. That is if everything goes outrageously well.
As for profits, let’s first realize that thanks to the governments around the world imposing expensive CO2 standards, there may not be any collective industry profits at all for the automotive industry as a whole. So, if Tesla were to make a single dollar of profit, that may be 100% of industry profits :)
Or Tesla global market share could just constitute 1% of the industry-wide collective losses. That may be more likely.
8) Regarding Tesla’s guidance that it will make (and sell) 500,000 cars this year, here are a friend’s comments (most importantly, note the data on how Model 3/Y sales have “collapsed” in both the U.S. in Europe this year):
I think it ends up being relatively close to 500K. But think about what 500K would mean for 2020.
Last year, Tesla sold 377,000 cars. Hitting 500,000 means a 123,000 increase. We can round that up to 150,000 if you prefer, for a 2020 total of 527,000. It’s in that ballpark.
What was different about 2019 compared to 2020? Tesla added two things, that both took effect early in the first quarter of 2020:
- The China factory.
- The Model Y.
The China factory was to have an initial capacity of 150,000 cars. Well, that’s pretty much the entire increase expected for the second half of 2020. So, there should be no surprise that 2020 sales would be approximately 150,000 higher than 2019.
Without the China factory, Tesla’s 2020 would still be around the same level as 2019.
The same thing with sales to date -- not looking forward to the second half of 2020. Without China, Tesla’s Model 3/Y sales have gone down dramatically in both North America and Europe:
|Model 3/Y||Europe||N Am||Asia||TOTAL|
As you can see, sales in Europe and North America have collapsed. In any case, they’re nowhere near flat, let alone providing for even the slightest amount of growth.
At the end of the day, if Tesla manufactures Z number of cars, they will sell Z number of cars. That goes for every automaker and for that matter every other widget-maker. It’s just a matter of price -- and the resulting margin.
As we have seen with the incessant price cuts, Tesla will always be willing to sacrifice margins on the altar of unit growth -- and now more than ever, when they have hit that four quarters of GAAP profitability. There is no question that we haven’t yet seen the last of the 2020 price cuts, barring some extreme inflation.
Another friend responded:
I don’t see Tesla doing more than 105,000 in Q3. That would leave 220,000 necessary for Q4, and there is zero chance that will happen.
400k will be the outcome. And that is 10% growth in the last year Tesla will have the market to itself.
If they do 400k and the market is going to be flooded with alternatives in 2021 - where do you think the stock will be?
Friend #1 replied:
My Q3 estimate is higher than 105,000. I think Tesla should be able to produce at least 120,000 cars in Q3. It’s too early to say, of course.
And then guess what? Tesla will of course sell every car it makes. If legitimate end-customers won’t buy them, Tesla will sell them to The Board of Trustees of Wirecard’s Chinese bank account.
It’s as certain as Amen in church that if a Tesla has been produced during the quarter, it will be sold by the end of the quarter -- come hell or high water. If you can’t sell them for $40,000 to a regular consumer, I am sure some entity who fronts for the Chinese government will buy them for $30,000. At 11:59pm on September 30, almost not a single Tesla car will be unsold -- anywhere in the world.
You may remember the Summer of 2014 in China. Tesla sold its first Model S cars into China in decent quantity. We knew they were being absorbed by resellers. Tesla denied it. Then, a few months later it all came out. Why would it be any different now, other than Tesla having a far more powerful Chinese power who is in a position of doing it much bigger favors than the tricks it had to employ in 2014?
With China doing Musk so many favors, what are they getting in return?
Volkswagen Is Having Issues With ID.3 EV
9) VW is having problems with its ID.3 EV: VW’s first mass-market EV suffers delay thanks to software struggles. Here are a friend’s comments:
The ID.3 entered production in the Zwickau factory in November 2019 and was supposed to commence deliveries in January 2020. There have now been multiple delays and the latest official word is that VW will deliver the first batch of 30,000 units of the ID.3 in late September. I believe it when I see it.
If the article is true, and AppConnect and Heads-up display are the only two delays, then I have these comments:
First, AppConnect. Those are the connected services to VW’s own infotainment interface. They have been working in every VW model for several years already. Why they have a problem getting it to work in their 100th car model with this functionality, I have no idea. It worked just fine in the 99 prior models already on sale with this software.
(I am using 100 as a round number there, obviously. The real number is in that general ballpark.)
In turn, the thing about AppConnect is that most Volkswagen drivers don’t even use it. Why? Because they have Android or iPhone. You see, if you have iPhone or Android, you are most likely to use Apple CarPlay or Android Auto, as compared to AppConnect. Essentially all cars in the market today have Apple CarPlay and Android Auto -- except Tesla.
That begs the question of VW bothered delaying delivering the ID.3 because of this in the first place. I don’t have the answer for that. Perhaps there’s something else that’s missing, that we don’t know about.
Second, the heads-up display. For starters, not every ID.3 has it. It’s not on the base model. It’s only on the highest trim or two. In other words, it’s not an essential function of the car.
As with AppConnect, the heads-up display is already available on a very long list of VW models. It’s typically part of the higher-end trims of most VW models, except those near the bottom. Why would that relatively easy technology have caused a delay in the ID.3? As with AppConnect, I don’t know and it doesn’t make any sense.
As with Android Auto and Apple CarPlay, it should be pointed out that Tesla remains just about the only manufacturer that doesn’t offer any heads-up display of any kind.
I’ve been inside the VW ID.3. It’s a vehicle eminently tailored to European tastes. It doesn’t beat the Model 3 on a few specs, such as acceleration and recharging speed. However, it’s perfectly tailored to Europe on almost every other metric. The manufacturing quality will be there.
The door handles won’t freeze in the Winter. The sunroof won’t leak when you drive it through a car wash. The rear bumper won’t be torn off if you drive it through a water puddle. The paint job will be real. The seats will be screwed in right, and won’t fall apart after the first week. You can actually get the car serviced and repaired the same day, as opposed four months from now. And so forth.
It will be a formidable competitor. There are also SEAT and Skoda variants of it arriving around year-end 2020.
Again, that is all based on the assumption in the article that those are the two issues with the ID.3, and nothing else. I have no idea if that’s true or not.
Later, he added:
As for the Volkswagen ID.3, here is a sign that perhaps -- just perhaps -- we may have seen the final delay for this first entry in the VW Group's MEB platform:
— Jürgen Stackmann (@jstackmann) July 22, 2020
Jurgen Stackmann (VW's head of sales) has been tweeting several times over the last 48 hours about the first media drive of the ID.3. Usually, an automaker doesn't do a media drive of *that kind* (a large group, as opposed to a single journalist or tiny group) if the broad consumer availability is more than approximately two months away. If that's the case, then we are indeed on track for seeing the VW ID.3 in consumer hands by the end of September.
Production of the ID.3 started in November 2019. By January or February, they had manufactured approximately 30,000 units. They have been sitting still on parking lots since then. The plan had been, entering 2019, that those deliveries would have begun in January 2020. In the end, those deliveries will have been at least 8 or 8.5 months delayed.