A Postcard from Adam Jonas

Morgan Stanley analyst Adam Jonas sent this letter to clients while in Madrid this week:

A Letter from Madrid

Last night, I was walking briskly through the streets of Madrid’s Barrio de Salamanca to meet my father in law (Juan Luis) at a local bar to watch El Clasico (scoreless, but entertaining match… a moral victory for Real Madrid).

Along the way, I passed a cherry red Tesla Model 3 Dual Motor parked on the side of the road, sandwiched between two compact diesels. Two thoughts entered my mind at that very moment:

1. Made in America –– I’m looking at a high tech, high value device that is actually made in America. Here I am in the middle of the Spanish capital looking at a $60,000 product that is manufactured in California. I struggled to think of any other high tech/retail product of a similar value bought by Spaniards that is actually made in the USA.

2. How much did it cost to make this car? –– When we discuss Tesla with investors, we find we must frequently to go great lengths to explain how… unusual it is to make cars in California. Besides Tesla, there is no volume car manufacturing in the state of California. Ford closed its San Jose plant in 1983. GM closed its Fremont assembly plant in 1982 and its successor NUMMI JV was closed in 2010… with significant modification today being the Tesla Fremont facility.

That little red Model 3 wasn’t just made in the US… it’s made in Silicon Valley. With Silicon Valley input costs, regulations, taxes and workers paying Silicon Valley rents. Out of Tesla’s nearly 50k global employees, we estimate between 20,000 and 25,000 US employees are directly involved in the development and manufacturing of its vehicles… with the majority of this group located in Fremont, CA and Sparks, NV. The Tesla Fremont factory itself having to adapt to numerous production challenges over the years. Our team’s collaboration with our China team suggests there is very significant room to improve cost and margin at Shanghai Giga compared to the current Fremont factory. We see Fremont as sort of a test bed of automation and human assembly techniques that, while providing the largest volume of beloved BEVs delivered today… has substantial room to be improved. For further reading on this topic, please see our report.

Adam Jonas, Morgan Stanley

Glad Jonas is enjoying the holidays. Would have loved to see his face when he spotted that Model 3:

“Is that a Dual Motor Model 3? Shit, Tesla might be onto something here. Maybe the company isn’t worth $10 after all”.

Adam Jonas spotted a Model 3 in Madrid. Read his thoughts on Made in America, and the enormous potential of Gigafactory Shanghai: @elonmusk @tesla

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