TSLA Market Action: 2018 Investor Roundtable

[Zaxxon]

I'm not going to guess at each line's rate. I'll just be very surprised if they ramp up to 7500 sustained in the next 70 days, which is what I think it'd take. I could of course be wrong (and would love to be), but Tesla will have to show me.

[Edit: and I think focusing on the inevitable complete takeover of the midsize premium sedan market, as I've done this week, is more fun and predictable at this stage, anyway.]

 

[FirebirdAlpha]

Remember there were 2 weeks of shutdown time to install line improvements, which at 2,500/week equals 27,500...

When I think of "sustained production," I think of a long-run average that includes downtime in its calculation. A sustained production of 2500/week for 13 weeks should result in 32,500 Model 3s.

Anyone else find it interesting that Tamberrino released a note on June 26 predicting that Tesla would "miss" on model 3 deliveries, coming in below "consensus," rather than focusing on Tesla's production guidance?

No, because deliveries are what get them cash.

Elon said that Tesla would absolutely not raise capital during their last conference call. By saying that, he's drawing additional scrutiny to Tesla's delivery numbers because those are what get them cash to continue investing.

Also, it's really hard to see what makes 5000 Model 3s in a week meaningful. It seems like Tesla set an arbitrary target without giving context as to why its meaningful.

Given that Tesla is cash constrained and not raising capital, Wall Street analysts are going to focus on deliveries, sales, and quarterly performance. They're not going to use arbitrary metrics like "5000/week."

Also, it's a little weird that Tesla hasn't given any real guidance for the rest of the year yet. Are we done with "the ramp"?

• Q4 (1000) --> Q1 (2500): 150% increase
• Q1 (2500) --> Q2 (5000): 100% increase
• Q2 (5000) --> End of August (6000): 20% increase

 

[wipster]

When I think of "sustained production," I think of a long-run average that includes downtime in its calculation. A sustained production of 2500/week for 13 weeks should result in 32,500 Model 3s.



No, because deliveries are what get them cash.

Elon said that Tesla would absolutely not raise capital during their last conference call. By saying that, he's drawing additional scrutiny to Tesla's delivery numbers because those are what get them cash to continue investing.

Also, it's really hard to see what makes 5000 Model 3s in a week meaningful. It seems like Tesla set an arbitrary target without giving context as to why its meaningful.

Given that Tesla is cash constrained and not raising capital, Wall Street analysts are going to focus on deliveries, sales, and quarterly performance. They're not going to use arbitrary metrics like "5000/week."

Also, it's a little weird that Tesla hasn't given any real guidance for the rest of the year yet. Are we done with "the ramp"?

• Q4 (1000) --> Q1 (2500): 150% increase
• Q1 (2500) --> Q2 (5000): 100% increase
• Q2 (5000) --> End of August (6000): 20% increase

While I agree that 13 weeks of sustained production would have amounted to 32,500, they didn't have 13 weeks of production. They had 11 weeks of production that was all over the place that averaged 2,500 cars for the 11 weeks they were producing.

And as for guidance, did you not watch the shareholders meeting? The guidance was given there.

 

[Reciprocity]

Fine, but the sedan is the least desirable variant right now. CUVs and SUVs are much more desireable (as your link to Toyota highlights). Tesla is still in a good spot because they have no competition in the sporty, EV segment. Had they launched Model Y first, their demand would be astronomical (and possibly preclude the need for 3).

Tesla is smart. Don't try the most desirable format when your learning how to mass produce. Start small, then go big when you can make millions of cars and/or trucks.

 

[brian45011]

[QUOTE="Reciprocity, post: 2852498, member: 58331. Start small, then go big when you can make millions of cars and/or trucks.[/QUOTE]

When & where will Tesla start producing Semis for sale? Will the sale package include unlimited mega-charging at $0.07/kw-hr? When do they start construction of the mega-chargers?

 

[Zhelko Dimic]

I'm not going to guess at each line's rate. I'll just be very surprised if they ramp up to 7500 sustained in the next 70 days, which is what I think it'd take. I could of course be wrong (and would love to be), but Tesla will have to show me.

[Edit: and I think focusing on the inevitable complete takeover of the midsize premium sedan market, as I've done this week, is more fun and predictable at this stage, anyway.]

Not sure who you're discussing this with, but we'll be lucky to see 7.5K by the end of the year. Remember, Tesla basically abandoned any guidance for 10K, and was very fuzzy 'wait and see' last time this question was asked (in CC I think)

My speculations is that they'll go very lightweight on capex and we'll see only 6K, maybe 6.5K, whatever they can squeeze out of existing lines. This is a pure speculation; if they have more money or easy access to capital through additional credit lines, I'll be probably wrong, as they'll spend more and get further...

However, another disadvantage of additional large capex (only when it's put in use!) is that it would pressure margins again, and I feel @neroden is right with speculation that Tesla will want to be added to S&P500 ASAP, for which it needs Q3, Q4, and Q1/'19 to be profitable, and overall Q2+Q3+Q4+Q1/'19 > 0, i.e. profit from the last three quarters should be greater than loss in Q2. And loss in Q2 is going to be gigantic.

In line with this thought would be if capex increased in Q1'19, but without coming online quite yet*.
*And I know that some tooling is depreciated per unit produced, but some is not, it's depreciated over time, hence margin pressure at the very begging of using new capex...

 

[Zhelko Dimic]

... It seems like Tesla set an arbitrary target without giving context as to why its meaningful.

...

Seriously, you missed context?
I'm usually very slow to ignore new bears, as I hope for new insights, but you're having a very good chance to qualify quickly!

 

[Zhelko Dimic]

T$LA is trading at $315.xx in Europe right now, I’d like to see us $320 again tomo and then $350s by earnings.

I doubt bears care to operate on German exchanges.
I hope your wish comes true, but I'd expect renewed attacks tomorrow
And possibly going down some more before it's all said and done.

 

[jhm]

Ok apparently our short friends do not believe that Tesla was intentionally slowing delivery due to the funny tax credit thingy. Who are we to change their minds? I for one would be happy to buy shares from them.

I for one have lost interest in setting shorts right. I'm not even sure that losing money will change their minds. If they want to sell stupid cheap, I'll take the other side.

 

[jhm]

55% sequential growth is actually a disappointment vs. $380 valuation from last year since that growth should have happened half a year ago. So valuation is back to $300-ish which is fair. This valuation is based on anticipation of future potential, so it's a market consensus on how Tesla will progress. Growth is already baked into the valuation. The question is only of the first derivative, does today's reality exceed or underperform the consensus valuation from yesterday?

What I am saying is the stock went up in anticipation of not yet known but possible good news that folks guessed are coming based on Musk's behavior (like China GF with good financial backing). When that didn't materialize it went back to baseline.

But the sequential growth was not from the $380 price point. It was from the $300 price point just 3 months ago. What happened a year ago is water under the bridge. I'm simply arguing about what has transpired over the last quarter.

 

[jhm]

Wow, you are good at finding fine print, Brian -- I gotta hand it to you. Sharp catch. I have been snippy to you in the past, but you are the absolute best fine-print-reader here, and possibly the best I've ever encountered. Serious admiration. I caught the weird fine print in the 2022s, but I missed this bit in the 2019/2021s.

I will lay bets very few of the convertible holders actually read this. Which means that my analysis of *their* behavior remains accurate. And I am quite sure the Chanos types didn't read it either (they seem to write a lot of propaganda, but they don't seem to do much reading) so *their* behavior will be the same as predicted.

However this is basically a flat-out option by Tesla to not pay off the convertible bonds in cash. They can, if they like, make the conversion price $252.54; at that point anyone would convert if the stock was under $252.89 (accounting for the foregone final interest payment). They can do this "for a period of at least 20 days" and then actually turn off the "discount".

I suppose if any short-sellers see this they may try to drive the price below $252.89. That's gonna be damn near impossible to sustain, April dip notwithstanding.

So it's impossible for the short-sellers to starve Tesla of capital; they just haven't realized it yet. Nice work, whoever wrote that prospectus. Musk clearly knows this, and it's information which is available to the public.

I really should have bought some of those bonds.

So if I am understanding this correctly, board could offer say a 3.4483 conversion rate. This would allow bondholders to by shares effectively at $290. So long as the stock price is above $290, this represents free cash to bondholder who sells out. For example, the cash in bonds for shares with basis $290 and sell at a market price of say $305. Thus, they pocket $15 per share.

If the shorts wanted to foil that, they would have to push the price down below $290. But two risks await them. 1) Tesla settles debt without impact to cash flow. This destroys their whole liquidity crisis theory. 2) Institutional investor tee up to buy shares just above $290 knowing that shorts might just be crazy enough to try to knock down the price. If shorts refuse to comply, then they simply bid up the bonds themselves to get the shares at a price near $290. Either way the bondholders get bought out and newly minted share wind up in the hands of investors who appreciate item 1. Musk himself could be among those buying shares or bonds in this situation.

So the basic question is, what conversion rate is high enough to induce bondholders to convert? I don't think it needs to imply a huge discount like a $253 share price. It seems just a few percent should suffice, and this would also be in line with financing costs Tesla would incur if they were to do another round of capital raise. The board simply sets a rate high enough buyout the bonds with stock and it's done.

 

[Remus]

Also, it's really hard to see what makes 5000 Model 3s in a week meaningful. It seems like Tesla set an arbitrary target without giving context as to why its meaningful.

Once upon a time from a kindom far far away, one of the most populous one, there is a little e-commerce company called Alibaba. The company founder invented a shopping holiday at Nov 11th, when they offer huge discount on company pennies. People didn't understand why he would do this, not only the company lose money when providing the incentive, they got lots of customer complaint initially when their system can not keep up with the peak traffic. It didn't take long for the complaint disappeared completely...

OK I got lazy and do not want to explain this anymore.

 

[jbih]

focusing on the inevitable complete takeover of the midsize premium sedan market, as I've done this week, is more fun and predictable at this stage, anyway.]

I'm convinced that the Model 3 is attacking the whole midsize market, not only midsize sedans or premium midsize sedans... Because of lack of options. That's why I think it will take just as much market share from an Accord than from the BMW 3 series.

 

[CuriousSunbird]

So if I am understanding this correctly, board could offer say a 3.4483 conversion rate. This would allow bondholders to by shares effectively at $290. So long as the stock price is above $290, this represents free cash to bondholder who sells out. For example, the cash in bonds for shares with basis $290 and sell at a market price of say $305. Thus, they pocket $15 per share.

If the shorts wanted to foil that, they would have to push the price down below $290. But two risks await them. 1) Tesla settles debt without impact to cash flow. This destroys their whole liquidity crisis theory. 2) Institutional investor tee up to buy shares just above $290 knowing that shorts might just be crazy enough to try to knock down the price. If shorts refuse to comply, then they simply bid up the bonds themselves to get the shares at a price near $290. Either way the bondholders get bought out and newly minted share wind up in the hands of investors who appreciate item 1. Musk himself could be among those buying shares or bonds in this situation.

So the basic question is, what conversion rate is high enough to induce bondholders to convert? I don't think it needs to imply a huge discount like a $253 share price. It seems just a few percent should suffice, and this would also be in line with financing costs Tesla would incur if they were to do another round of capital raise. The board simply sets a rate high enough buyout the bonds with stock and it's done.

I've been thinking about this since Brian raised it a few months ago. Of course, if the conversion rate is anywhere below the relevant option-set price the people will convert However, there are a number of complications for the board:

1 A capital raise by this method is still a capital raise - it will show that Musk was wrong when he said no capital needed or wanted;
2 While the larger players will know about and expect this, a number of mid-level investors will not and will be negatively surprised by the dilution;
3 This will cause strong demand for puts and therefore may increase shorting - so leading the board to want to price the conversion lower; and
4 While a lot of converts have this feature it's rarely used - I think it would be seen as a sign of financial distress.

So, all in all, it's not quite as simple as it sounds.

 

[ggr]

I've been thinking about this since Brian raised it a few months ago. Of course, if the conversion rate is anywhere below the relevant option-set price the people will convert However, there are a number of complications for the board:

1 A capital raise by this method is still a capital raise - it will show that Musk was wrong when he said no capital needed or wanted;
2 While the larger players will know about and expect this, a number of mid-level investors will not and will be negatively surprised by the dilution;
3 This will cause strong demand for puts and therefore may increase shorting - so leading the board to want to price the conversion lower; and
4 While a lot of converts have this feature it's rarely used - I think it would be seen as a sign of financial distress.

So, all in all, it's not quite as simple as it sounds.

I dispute point (1): yes, it raises capital, but Tesla doesn't have to go to the market to do it, so the short view that Tesla can't convince the market to invest more is irrelevant.
The rest of your questions devolve from that, so they are irrelevant too.

 

[lklundin]

Um, it's being exported (to Canada) today.

The Q2 export to Canada helped to keep the US sales below 200k in Q2. For Q3 and Q4 the optimal strategy is to fill all domestic orders, since those two quarters have no cap on the full federal tax credit - so I would expect Q3 and Q4 exports to be very limited.

 

[jbih]

First of all, I know skabooshka/brodiefergusion are bears, but I personally trust skabooshkas numbers. It seems there is someone in the factory reporting the cars built per shift.

They're reporting Model 3s built per day as:

• July 1st: 370
• July 2nd: 18
  
• July 3rd: 5

Brodie Ferguson on Twitter

Production in Fremont may be halted for now. Are they redoing the lines again, for higher throughput?

 

[EnergyMax]

First of all, I know skabooshka/brodiefergusion are bears, but I personally trust skabooshkas numbers. It seems there is someone in the factory reporting the cars built per shift.

They're reporting Model 3s built per day as:

• July 1st: 370
• July 2nd: 18
  
• July 3rd: 5

Brodie Ferguson on Twitter

Production in Fremont may be halted for now. Are they redoing the lines again, for higher throughput?

Known
Google: Tesla Is Taking a Break After Hitting Model 3 Production Target

 

[schonelucht]

Was previously reported : factory shutdown to after July fourth to give employees chance to recuperate.

 

[lklundin]

Yes, it's surprising how few people realize that NUMMI was just a general assembly plant. Tesla is doing a lot more things than just general assembly inside the old NUMMI building. But there's no doubt they are out of space, they cannot expand unless they begin building cars in Nevada or break ground on Shanghai and Europe Gigafactories.

This is one reason why I expect that Tesla want their next generation of the Model S/X to use battery packs and drivetrains from the Nevada GF, to free up space in Fremont. Although not optimal, even a battery pack made in GF1 using a 2165 cell should be preferable, and with variants of the Model 3 motor foreseen also for the Semi, a sufficiently powerful version suitable for the Model S/X should be doable.

Another important reason would be to reduce the number of different parts that Tesla need to produce.