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Tesla vs Mach E

JayTee

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Here is my take on dealers:

What many people fail to realize is that the MSRP of a vehicle is what Tesla charges all customers. They do not discount their price. They charge you the highest price possible for their vehicles. You in fact, are not getting a better deal buying direct. Why? How? Let me explain.

What Ford Motor Company does is give their dealers a wholesale price. What is wholesale? Wholesale pricing takes out all the true sales and support expenses needed to properly satisfy a customer. When you buy a vehicle, there is a lot of expenses that go into it:
  • Land to store inventory, banks to finance inventory with interest expense, sales teams that are paid, managers that oversee those employees. Finance staff on site to help with customer financing, trade in staff that properly value and purchase your trade in, detailers that will detail your vehicle. There are different state and local laws that drive the cost of the product up. A building that all this can be done in. All of which add a sizeable cost to the price of a product.
The dealerships purchase directly from the manufacturer at a cost that disregards those expenses. Ford Motor company for example has a Gross Margin of 14%. That is PUINY! On top of that the average upcharge margin on new vehicles are 5% from the dealer. Combined, you're looking at 19% profit of your purchase split 14% to the manufacturer and 5% to the dealer. So this is how that looks:

  • $40,000 Ford - $5,600 profit for Ford, $2,000 profit for the dealer. Total profit is $7,600. (Keep in mind these are using ideal averages sourced from friends and internet).

Tesla, on the other hand has a 35% profit margin on the Model 3.

  • $40,000 Tesla x 35% = $14,000 profit for Tesla.

Tesla has a high profit margin because they charge customers the MSRP price the dealers never charge the customers (due to competition among local ford dealers for example) & they minimize their sales and after sales support expenses tremendously. They don't really offer test drives, don't have showrooms, don't have a full sales staff calling customers, they deliver vehicles with obvious issues, the limited staff they do have is overwhelmed, delivery centers are removed from service so service related issues can't be handled during delivery, they don't buy trade ins unless its a Tesla, they don't, they don't, they don't. It is honestly one of the most value-less car buying experiences that leave so much to be desired.

Warren Buffet once said Price is what you pay, Value is what you get. Even though I've proven the direct sales model is flawed and valueless when it comes to buying a car, it's all about the value proposition that matters to you.

Exactly.

and this is a large part of the explanation for Tesla's high gross margin.

All of Tesla's selling costs go below the line in SG&A.

Much of Ford's selling costs get absorbed into that difference between wholesale and final selling price, which basically Ford incurs above the gross margin line.
 

JayTee

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You're looking at their NET profit on an income statement, I'm talking about GROSS profit. Gross profit it what the company profits after they take their direct expenses out of making the car. This includes all the materials, labor, and factory costs associated typically.

Here is the source, which of course may be a bad representation because when I look at their 2019 financial statment their gross profit across all their vehicles is roughly 23%, still higher than Ford's combined gross profit and factoring in dealer markup.

https://www.teslarati.com/tesla-china-model-3-gross-margin-39-percent-report/

https://ir.tesla.com/static-files/47313d21-3cac-4f69-9497-d161bce15da4

All the dealership costs for Ford effectively come out of gross margin. For Tesla they do not. They are in SG&A (operating costs). Tesla's gross margins are significantly overstated in comparison.
 

mark360

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All the dealership costs for Ford effectively come out of gross margin. For Tesla they do not. They are in SG&A (operating costs). Tesla's gross margins are significantly overstated in comparison.
Yeah & more importantly I was driving home the principle of dealer vs direct. They each shuffle around their expenses differently because they can with GAAP, so it's really hard to get the true numbers unless you analyze their GL to a level of detail I don't want to know :p.

Either way, in a capitalist society the consumer always wins.
 

JayTee

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Yeah & more importantly I was driving home the principle of dealer vs direct. They each shuffle around their expenses differently because they can with GAAP, so it's really hard to get the true numbers unless you analyze their GL to a level of detail I don't want to know :p.

Either way, in a capitalist society the consumer always wins.
This is a primary reason why their stock price is so insanely high. People erroneously believe that as soon as Tesla gains some level of scale, their profit is going to skyrocket.

I actually believe that their cost to sell a vehicle is going to increase as more competition enters the market (even excluding price squeeze). When you're only selling three or four models, and nobody else is selling a comparable EV, stores don't need large inventories for customers to shop and test. When there are 10 or 12 competing vehicles on the market, people are going to want to see and test drive them in comparison.
 

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This is a primary reason why their stock price is so insanely high. People erroneously believe that as soon as Tesla gains some level of scale, their profit is going to skyrocket.

I actually believe that their cost to sell a vehicle is going to increase as more competition enters the market (even excluding price squeeze). When you're only selling three or four models, and nobody else is selling a comparable EV, stores don't need large inventories for customers to shop and test. When there are 10 or 12 competing vehicles on the market, people are going to want to see and test drive them in comparison.
I agree, I've long said the direct sales model will be the death of Tesla. At some point they will have to partner with a company like CARQUEST to sell vehicles at scale.
 

dbsb3233

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This is a primary reason why their stock price is so insanely high. People erroneously believe that as soon as Tesla gains some level of scale, their profit is going to skyrocket.
Because the name Tesla is so synonymous with their cars, people often forget they do a lot with battery packs for other uses, like Powerwalls and Megapacks for utilities. Some suggest that's really what's driving a lot of the (ridiculous) stock price appreciation.
 

JayTee

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Because the name Tesla is so synonymous with their cars, people often forget they do a lot with battery packs for other uses, like Powerwalls and Megapacks for utilities. Some suggest that's really what's driving a lot of the (ridiculous) stock price appreciation.
Possibly, but if you look at their income statement those are tiny compared to cars, and their margins are lower. But you're certainly right that the typical Tesla stockholder makes every product announcement into the biggest thing ever.

Solar energy is an extremely competitive marketplace. Energy storage is pretty competitive and becoming more competitive. (imho)
 
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THIS! Their Loaners are complete POS haha. My Ford was in for service last week and I got a 2020 Ford Escape, the new redesign. It handled so well and was so quiet inside, for a $29,000 MSRP car new I couldn't believe it. BLIS, Adaptive cruise, lane keep assist, Apple carplay, auto climate, etc. with ecoboost engine. That thing would get up and go. Amazing value really.
I really liked the Escape hybrid. For reasons I don't understand, my wife and son did not. I still was looking forward to test driving the plug-in version, however the incentives on the Mach E made my decision easy.
 

efisher

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Because the name Tesla is so synonymous with their cars, people often forget they do a lot with battery packs for other uses, like Powerwalls and Megapacks for utilities. Some suggest that's really what's driving a lot of the (ridiculous) stock price appreciation.
No, they still purchase their batteries from third parties. They just co-locate with their supplier’s production facilities.
 

dbsb3233

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No, they still purchase their batteries from third parties. They just co-locate with their supplier’s production facilities.
Not talking the batteries themselves, I'm talking the end products (Megapacks and Powerwalls). The Megapack in particular is looked at as having a potentially huge future for grid power producers that want to use more sporadic wind and solar. It's small now but many expect that to explode soon and be the real money-maker for Tesla in the coming years, which some investors are betting on.

https://techcrunch.com/2020/07/22/t...ts-small-but-growing-energy-storage-business/
 

JayTee

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Not talking the batteries themselves, I'm talking the end products (Megapacks and Powerwalls). The Megapack in particular is looked at as having a potentially huge future for grid power producers that want to use more sporadic wind and solar. It's small now but many expect that to explode soon and be the real money-maker for Tesla in the coming years, which some investors are betting on.

https://techcrunch.com/2020/07/22/t...ts-small-but-growing-energy-storage-business/


I agree that this could be high growth, but I don't see how Tesla is better equipped to capitalize on it than battery producers or grid-scale electrical equipment providers. All it is is batteries, packaging, cooling, and controls.
 

dbsb3233

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I agree that this could be high growth, but I don't see how Tesla is better equipped to capitalize on it than battery producers or grid-scale electrical equipment providers. All it is is batteries, packaging, cooling, and controls.
It's nothing exceptional or proprietary, I'd agree. But they do have the products, success with it, and are building a reputation. And that often makes the difference on sales. Especially for government or quasi-government buyers like many of these big power providers, who tend to want to stick with safe, established suppliers.

Most products are boring and basic, but there are still companies that make a lot of money off of them. Suppliers that make transformers for power companies make a lot of money. And electrical cable. And telephone poles.
 

JayTee

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It's nothing exceptional or proprietary, I'd agree. But they do have the products, success with it, and are building a reputation. And that often makes the difference on sales. Especially for government or quasi-government buyers like many of these big power providers, who tend to want to stick with safe, established suppliers.

Most products are boring and basic, but there are still companies that make a lot of money off of them. Suppliers that make transformers for power companies make a lot of money. And electrical cable. And telephone poles.

Yes. Sales. But those companies exhibit low margins. at some point within the not too distant future, Tesla has to somehow get to around $30 billion in net profit to justify its current market cap.

And the longer it takes, the less valuable those earnings become.
 



 









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