Thread by @BradMunchen

1) A seriously moronic article came out on Seeking Alpha the other day, claiming $TSLA's GF3 would be profitable "next quarter". It's been removed, "pending resolution of a dispute". I posted a long rebuttal in the Comments section & was eager for a reply. Allow me to share.

2) @Long Term Tips
I was eager to see how you come up with GF3 being profitable in 2020 (as I had just published my SA article last week showing how it would be loss-making) but was disappointed to see that you had no real details nor any earnings model.

3) In the spirit of healthy debate, I'd like to express where some of the claims in your report are factually incorrect:

(A) Phase-1 is nearly complete: The factory was built in record time as expected, but it is hardly functional.

4) The leaked pictures you show of a blue Model 3 on the GF3 assembly line is shipped in from Fremont, as GF3's paint shop is not built yet. You can't do test runs without the paint shop, one of the most critical & expensive parts of a car factory.

5) Please check this recent tweet from a seasoned car/plant engineer on Twitter, who shows pictures of an uncompleted paint shop at GF3 as of this month: twitter.com
(B) GF3 ultimately has output of 500K/year: You reiterate this Musk claim, which is physically....

6) impossible without additional land space for a second factory. As I explained In Section-3 of my SA report last week, GF3's land area is only 214 acres. Chrysler's Belvidere, IL plant is 280 acres (31% larger than GF3), yet can only produce 333K Cherokees/year

7) (C) 2021 Gross Profit estimate of $4.6bn: If I'm doing your maths correctly, you're assuming an ASP of $48.7K and a gross margin of 20%. In order to generate $4.6bn of gross profit, this assumes $22.8bn in revenues ($4.6bn ÷ 0.2), which implies 468K of GF3 output in 2021,

8) assuming your ASP of $48.7K/unit. As stated above, this is physically impossible, given the size of GF3's land area can only do 300K at maximum.

(D) Luxury sedan demand of 500K is an "opportunity": You reiterate Tesla's claim from their Q1 update letter that the luxury sedan

9) market in China is a huge opportunity. Please note that the sedan market in China is crumbling almost as quickly as that in the US: SUVs as a percentage of total passenger car demand has risen from 14% in 2014 to 45% so far this year.

10) It should also be of concern that, despite being over 20% more expensive than the SR+, the BMW & Benz luxury SUVs have sold on average 10K units/month this year vs only 2.4K for the Model 3.

(E) Model 3 MSRP of $48,692: You are using the current pre-order price of the...

11) made-in-China Model 3 SR+. In Section-2 of my report (seekingalpha.com...), please see why Tesla will have no choice but to lower this to $40K, at most, which would translate into $35K at the factory price level, before 13% VAT is charged at the retail level.

12) The fact that total Model 3 sales this year at these prices have only averaged 2,449 units/month is proof that there is little demand for the Model 3 unless prices are drastically reduced.

13) (F) GF3 being profitable in "just one quarter": When any new car or factory is launched, the start-up costs/yield problems weigh so heavily that profitability is impossible during the first 6 to 12 months (if executed properly). Do you have any estimates of first quarter...

14) depreciation and other fixed costs? I published my GF3 earnings model in section-3 of my report for your reference.

(G) Gross profit margin of 20%: Do you have any key assumptions behind this estimate? I recall that Tesla said they achieved "around" this much in Q2 in...

15) Fremont, but the average price of a Model 3 in Q2 at was said to be $50K (at least in the US). If your price assumptions change given my analysis in point (E) above, how much do you think that margin comes down?

16) Also, do you have an estimate of what percentage of the GF3-made Model 3 is locally sourced parts versus imported parts? This will also have a huge impact on costs.

END

I guess I'll never get a response, but it was just as entertaining to see the article pulled.
$TSLAQ