With the giga3 up, just needing to ramp production, Tesla basically beat the odds. Most of the hardest work is over. Largely because of the red carpet they rolled out for Tesla. I think Elon can be a real idiot, but let's look at why that deal was significant.
10% purchase tax on Teslas removed. Immediate 10% price reduction, increasing demand which was already growing.
About another 10% cost reduction coming from Tesla themselves, for China made Model 3s. Roughly a 20% cost reduction in all. 10% of which only came out of Teslas pocket.
However, 25% import duty removed. That's an immediate cost that goes right back into Teslas pocket for every Model 3 sold. And they'll sell every one in China.
So, adding them up, Chinese consumers will get a 20% cost reduction, and Tesla will get an immediate 15% improvement in margins for every Model 3 made at giga3.
But, there are some additional cost savings too. Both labor and parts will come in cheaper. And the logistical costs from shipping to China will no longer be incurred. That's not insignificant. So, all of a sudden, China became a pretty high margin market for model 3s, and with a 20% cost reduction, they'll sell them probably as fast as they make them.
The crossover market is also better. Model Y will probably be a pretty big hit, and more significant margins. Especially with the "Made in China" stuff, Tesla doesn't even need to advertise. That's crazy.
Their profitability in the short term just depends on how fast they can ramp, given they went through the Fremont nightmare and probably planned to get up and going as efficiently as possible. That's logical. The sweet spot is probably 3k vehicles per week, and then they'll be rolling downhill for the most part.
And the capex depreciation thing reminds me of when my options trading buddies at big tradinghouses were extremely confident, and even mocking me, for buying 5k shares of AMD at $10. Or when I bought nickel futures. I even tried to tell them Enphase and a solar ETF was the easiest money they'd ever make (my area of expertise). Rubber stamp benchmarks simply do not apply in some circumstances. Especially in emerging, capital intensive industry. Because no one in the US does it anymore. It's a foreign concept to finance guys, because we quit doing it. In this case, you would expect capex to be higher than depreciation for a duration, you simply cannot scale in that type of market and prepare for profitability, while also being technologically competitive. If you live in the US, it probably hasn't been done in your lifetime. Finance, and simple lack of will, has meant the US has largely lost this ability. If we want to be global competitors in next gen manufacturing, which is a niche we need to pursue, given the "material age" we're about to enter, we're going to have to find this ability again, and we need to tailor finance + gov flexibility to pursue these endeavors, because there will be a lot of "depreciation > capex " moments. China isn't scared of it, happens frequently, and they are the reason every technology becomes economically viable, as the best scalers in the world. If they had our research abilities, which they're catching up on, they will corner ever single emerging market like they already did with silicon, just about every electronic, solar, and will soon output more batteries than the rest of the world combined. Step changes are coming, and so is automation, there are opportunities arising, we need more companies to be like Tesla. We also need to stop the throat slitting by big finance, who would gladly see US companies trying to put a premier manufactured product on a global scale, go bankrupt if it meant they increased profitability by 2% for one quarter.
That being said, objectively speaking, I think we can largely assume that China's red carpet move with Tesla has probably assured their success. Maybe not in a quarter, probably not in two. But, I'll probably buy some shares, because 3k/week is the sweet spot, and I think they likely hit that faster than people think. I think it's assured in 2020, and scaling up Model Y, next year will be the last "unprofitable" quarters we see, and once sentiment turns, that'll probably be the last time you get it near this price. I'd much rather be 10 months early, than late.