@ChrisBloomstran Happy to receive feedback on the way we’ve modeled the insurance business.
I’ll walk through the mechanics of it in a bit and you can let me know how you would amend.
But first I’d like to level set and clear up a few misperceptions.
@ChrisBloomstran 1)
As described in the blog, the “bear case” as we’ve defined it is the 25th percentile outcome.
It is not the *worst* outcome (which, as with all equities, is bankruptcy.)
The case detailed in the blog is one of many possible ways that outcome could occur.
@ChrisBloomstran Because we have tried to distill the model into independent inputs the 25th percentile outcome is not the downside case for each of those inputs.
The bear case of 3 coinflips is not 3 tails, but 1 heads and 2 tails.
@ChrisBloomstran Similarly a bear case will have some things that go better but more things that go worse.
@ChrisBloomstran 2) You don’t like the way we have modeled the insurance business; very clear!
And perhaps you don’t believe that Tesla enjoys any durable competitive advantage along that line.
That’s why we provided the model!
0 it out; there isn’t a material impact on expected value.
@ChrisBloomstran We think it has strategic value to Tesla and will contribute to customer retention and satisfaction, but as we currently have it modeled it is not a material driver.
But since we’ve caught your attention, and I’d love to understand it better, I’ll walk you through our thinking.
@ChrisBloomstran We believe Tesla will enjoy competitive advantage on vertical integration through insurance along 3 vectors.
1) Advantaged customer acquisition cost (due to their direct to consumer model and the digital interface in their vehicle.)
@ChrisBloomstran 2) Integrated telematics and data, inclusive of interior and exterior vehicle cameras, radar, and driver profiles.
(This should yield better underwriting and could be used to positively influence driver behavior.)
@ChrisBloomstran 3) Vehicles that will get safer over time with software upgrades via autopilot and full-self-driving advances.
The company will have a real-time understanding of these improvements and depending upon pricing-strategy may result in underwritten policies that grow more profitable.
@ChrisBloomstran Note, of those 3 advantages, they are only realizing the first at this point. They are not underwriting as you point out, but instead on-selling customers.
We model them as continuing to operate under that model (albeit on an increasing share of incremental new sales) until 2023
@ChrisBloomstran Mechanically they collect ~12% (varies) of commissions through 2023 at which point we assume that they begin to underwrite.
At that point they begin underwriting their own insurance at a ~70% loss ratio.
@ChrisBloomstran We then assume that they hold that per-mile pricing as the vehicle-safety improves by ~5% (varies) per year.
That vehicle safety improvement flows through to the bottom line in a lower realized loss ratio.
@ChrisBloomstran The number of new vehicle sales they tie to their insurance increases (as they open up more geographies), but we don’t assume that they go back and recapture customers that they didn’t sign on initial sale.
@ChrisBloomstran We also assume that they win insurance against all vertically integrated ride-hail (non robotaxi) miles at a per-mile premium to non-ride-hail vehicles; this becomes an important driver of insurance premiums in the non-robotaxi cases.
@ChrisBloomstran One last addition to the structural advantage discussion:
Tesla’s vertical integration through service should also offer them better cost-control on their underwriting.
@ChrisBloomstran Tldr:
not material to our modeled outcome;
Clear to us that they enjoy structural advantage in this space (contingent upon execution);
and we think we have modeled it appropriately.
Curious to hear your thoughts.
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people ask why google isn't shipping
isn't it obvious?
they are caught in the thorns of the innovator's dilemma
how does google make money?
they charge a toll to deliver a user from the text prompt to another website.
language models take the information in *all* other websites, compress it, and deliver it directly to the user.
No transit required.
And no toll paid.
A tangible example.
I want to buy a vacuum cleaner; what do I do a year ago?
I google: "which is the best vacuum cleaner"
(I'm not satisfied with just any old vacuum--I need the best)
Google serves me up a bunch of cost per click ads which I ignore (though perhaps they get some CPM revenue off the results--and some users click thru: kaCHING)
No, I am seeking to be informed. I scroll down to the reddit page where people vociferously debate the pros/cons of different vacuums. After some skimming, reading and considering, I have selected my vacuum.
Back to google.
A new search. Probably a cost per click to actually consummate the transaction.
What do I do now. Same query, but not in google's interface. In chatGPT. It has scraped all of reddit; it has synthesized the vacuum cleaner debate, not just across that site but across the wirecutter and cnet and probably amazon customer reviews as well.
And within that interface I can refine the things I want to know based upon how it answers. What if I want a vacuum that works dynamite on pet hair? What if I need cordless, or something that won't make too much noise?
GPT-4 will answer all of that, more precisely, completely and quickly than I can manage scanning across a few websites.
And it's pretty easy to say you're way clear to the OpenAI platform facilitating the commercial transaction at the end of the interaction as well.
But cynics wonder: 1) What if robotaxi never happens? 2) What if production scaling is arbitrarily constrained? 3) What if Tesla has to keep pricing aggressively to move units?
🧵
The value of an open source model is that you can reasonably disagree with our assumptions and generate your own expected value.
People ask what happens to our investment case if robotaxi capability never deploys.
The short answer: expected value of $900 per share.
As you can see, conditional upon robotaxi not working, we believe that Tesla will shift its business towards vertical integration through human driven ride hail.
What happens if Tesla doesn’t pivot to that opportunity either?
some real time reactions to the Tesla semi live stream
👇
The tri-motor configuration is clever. @skorusARK modeled this in our estimates for the vehicle
The point is to mix and match power to try to keep every motor operating at most efficient rpm
in our model weight has a surprisingly small impact on range/efficiency due to regenerative braking
the main loss due to weight is heightened rolling resistance on the tires