Something got me thinking, possibly due to the billions being burnt in out Tesla money
furnace.
I think I wanted to gain some perspective on all this, and how little it matters that
Tesla is losing a fortune right now.
I thought instead, we could focus on how much this factory actually will generate, and what
the return on asset will be.
In order to do this, we need to estimate the cost of the building, and then the marginal
profits the factory produces.
According to filings Giga Austin cost $1.06 billion to build.
Now this was just the building, and excludes all machinery, which is also kind of expensive.
Unfortunately I have to guess how much all those robots cost in CAPEX.
Well perhaps not guess entirely, we will go where we can to find clues.
If we go into Tesla's cash flow statements, we can actually see how much they have been
spending on CAPEX.
Since Tesla has broken ground on Texas in January 2021, Tesla has spent $6.5 billion
in CAPEX.
Of course Tesla were also building Giga Berlin at this time, although production had already
been going for a little while.
On top of that, Tesla are always spending CAPEX everywhere, Shanghai expansions, new
buildings for warehouses, new factories for megapacks, or even superchargers.
When we look at some of the quieter months, there tends to always be around $1/2b in CAPEX.
We have 5 quarters equating to $6.5 billion, which is 1.3 billion a quarter.
So if we remove $1/2 billion from $1.3 billion, perhaps there might be $800 million a quarter
being spent on these new buildings and equipment.
Over 5 quarters that's $4 billion.
Admittedly some of Berlin had already started, but I think the majority of the costs would
have come later, especially with the machinery.
I am happy to therefore estimate that Giga Texas was around $2 billion to build, including
equipment, and Berlin was probably in the same ballpark.
However, a lot of Texas is also used as a headquarters, and we really want to work out
the return on investment we are getting from the factories.
The headquarters is arbitrary in this scenario, as it wouldn't have made any difference if
it was in Texas or Silicon Valley.
However, we are trying to work out the full return on investment of the factories, which
would also include Cybertruck, and aside from the insane Cybertruck Gigapress, I dont think
a lot of the other manufacturing equipment has been purchased for the Cybertruck production
line.
Therefore we would need to include that.
However, we don't need things like paint shops.
But who knows what's required there, I think we should allow an additional $1/2 billion
though.
Alright, I think we have a reasonable ballpark as to what Texas cost, probably about $2.5
billion.
We will run with that figure, and see if it can give us some idea of the return a new
Tesla factory generates.
We are told the Model Y run rate will be one
every 45 seconds, which with 25% downtime works out at 525,000 a year, and perhaps 475,000
for the Cybertruck, when they are both at capacity.
Perhaps within a couple of years.
I actually think I have a good theory on Tesla's capacities which I look forward to talking
about soon.
Alright, 1 million total deliveries.
Like I said we will be at full alleged capacity,
so perhaps 2 years away, implying the 4680 cells should be in high volume production
and serving the vehicles with structural battery packs.
Thus effectively reducing costs and increasing margins noticeably.
I have chosen an ASP for the Model Y of $64,000,
I assume it would have improved along with the 4680 cells, plus Tesla's price increases,
relative to value and demand, I have not adjusted for inflation.
And as for the Cybertruck, I am going to place $75,000, remember this is in 2 years time,
so there maybe the lower cost dual motor available then.
Next we need to come up with the margins.
I have run models of how much margin Tesla could achieve with 4680 cells, front and rear
castings, structural battery packs, and new production processes.
40% was an easy margin to achieve, and that was before we had seen the price rises.
That 40% excludes any regulatory credits or FSD even.
And I don't even think any of you will disagree with me either.
If anything I can think of more reasons for it to be above 40 than below.
I think the Cybertruck could be closer to 50%, especially for the quad motor.
But we will wind it down to 40% anyway, and see what numbers we generate from that.
Anyway, we can make a nice simple table to illustrate all of this, and break it all down.
It results in a total of $27 billion gross profit.
This is obviously for an entire year.
But to give you some comparison, Q1 generated $4.9 billion in gross profit in autos, which
isn't far off $20 billion a year.
I.e.
the new Texas facility will generate more profit alone, than the total of Tesla's operations
in Q1 2022.
If that helps gather any perspective.
Now this is gross profit, we do have OPEX
to deal with too.
But the additional OPEX to run Texas is going to be minute compared to the actual profits.
I think it might be something like $100m extra a year.
But even if we make it $690 million, that still leaves $27 billion operating profit.
There was an interview back sometime ago with
Ron Baron, possibly over a year ago.
And he mentioned that the Model 3 Shanghai factory had cost $1 billion, and was returning
$2 billion.
I thought that was an exceptional return.
But of course the Model 3 factory hasn't really improved overly in run rate since then.
However, the Shanghai Model Y is running laps around the Model 3.
Not to mention the Model Y being a higher margin car.
Well that might imply that the Model Y is dong more like a 400% annual return rather
than just 200%.
These are such insane returns when we think of how much money is involved here.
Well we got the numbers we were looking for Texas, so lets see what they come to.
What we actually wanted here was the operating return on assets.
Which I think is going to be the best metric to illustrate how spectacular a return this
factory is.
Alright we did it, we used some numbers that were a little rough, but the results are definitely
showing us a good signal.
We basically have eventual operating income of around 10 times the initial factory cost,
just from this factory.
Practically 10 times the factory costs, every year coming in as profit.
Or even 2 and half times the factory cost every quarter.
This is hard to believe, but these are the numbers, I don't think these numbers could
have varied too far from the real numbers, perhaps at worse resulting in an 8 times return.
But we aren't close to finished yet.
We have the cathode factory, and a new phase 2 expansion planned already.
Tesla are not messing around with this factory, they plan on expanding it relentlessly.
With Elon claiming more than $10 billion to be spent on Texas, assuming we have already
had about 1/4 billion spent, then we are only 1/4 way.
On top of that, we are using Tesla's claimed alleged capacities, of which a lot of the
community, secretly suspects that possibly these figures are somewhat sandbagged.
I think that Model Y line should be closer to a million run rate within 2 years, and
a lot of you would agree with me.
I think what we have uncovered here, is that these factories, despite sounding like they
cost a lot of money, are actually extremely low cost relative to what they produce.
In fact we just discovered that they are practically paid off after a month of full capacity.
But like Elon says it will take longer to ramp them up, than it did to build the factories,
so it will still take time.
By the way Elon also said 10 giga factories, and if each one increased operating profits
$27 billion, then that would be $1/4 trillion extra profit, just from auto sales.
We have FSD too of course.
If it's feature complete by that stage, and maybe 1/3 of Texas cars adopt FSD, then that's
an additional $5,000 profit per vehicle, or $5 billion, or $32 billion total, which is
more like a 13 times return.
This is why I invest in this company.
There are so many easy ways to discover such vast profitability.
I don't see any signs of profitability with any other EV companies financials, whereas
it is literally bulging out of Tesla's.
And that is why I would always invest in Tesla over any other EV company.
If you think you are being clever having an EV portfolio, with Tesla and NIO, etc.
Then ask yourself why?
Why risk investing in the others, that have a smaller potential return, and a much higher
risk of going bankrupt.
Oh don't forget Tesla built 2 factories, Berlin
should be doing similar returns too.
Plus we have another one from China popping up soon, and we know they tend to get going
pretty fast over there.
I mean that is 4 new factory floors, all at capacity in 2 years, likely quadrupling existing
gross profit, and not raising OPEX anything noticeably.
So think what affect that might have on net profits, and then the stock price.
Yes, exciting, but that wasn't the point of this video.
The point really is, that we have just calculated how much Tesla's product is worth.
Remember Tesla makes one main product, machines that build machines.
And it looks like they can get a return of around 10x.
This is mind blowing, so Tesla just need to keep building more products.
Tesla is the machine that builds the machine, that builds the machine.