TSLA Market Action: 2018 Investor Roundtable

[ValueAnalyst]

Anyway. The point is: this is about execution. Elon has the ingredients he needs; more money isn’t needed nor wanted. Model 3 production has ramped, and organic profits will suffice to squeeze shorts, so that we can finally move onto Master Plan, Part Deux. All we need to do is sit on our hands, and if you’re bored, come join us and toy with a few bears on Twitter.

 

[mrdoubleb]

To be clear, I was talking about Tesla purchasing Ford, not the other way around. Tesla has a larger market cap. After 3 consecutive profitable quarters (Q3, Q4, Q1), should be much more feasible.

Well, ok, no offense but possibly an even worse idea. They could purchase some unused plant, like they did with NUMMI, which gives them a head start on building out production capacity and having skilled workforce... but there are a lot of caveats.

As others said, if they purchased, say, Ford, they would get all the liabilities as well. Warranty for old ICE products, cleaning up the potential environmental impact of old factories, integrating a workforce of tens of thousands of people world wide, dealing with terms negotiated by unions, just to name a few. Especially the latter is something that often strangles large companies, limiting their agility.

 

[Esme Es Mejor]

The only fear would be the stranded assets and legacy liabilities.

Every legacy automaker will have stranded assets, but there should be far fewer if it’s in the hands of Tesla. Aggressively convert ICE production capacity into EV capacity. Have Ford follow Volvo (owned by Geely)’s lead and declare this the final generation of their engines. Sell off any diesel projects/capacity to any other automaker foolish enough to think it has a future.

Legacy costs/liabilities are more difficult. The plants in Mexico aren’t unionized, so that shouldn’t be an issue, but the U.S. plants are. I don’t have a good answer on this issue yet, other than that capacity & profits would likely grow faster than these legacy costs. But I’d like to have a better answer.

 

[RobStark]

Ford is being hammered for having way too much cash on hand w/out enough innovative ideas to spend it on.

Ford's $28 billion cash pile doesn't buy love on Wall Street

Ford was the only Detroit automaker to survive the Great Recession without bankruptcy and Federal bailout because it had a huge cash pile.

Ford's $28B is in order for it to survive the next Recession.

GM has a similar sized cash pile. FCA does not.

 

[YasB]

Ford was the only Detroit automaker to survive the Great Recession without bankruptcy and Federal bailout because it had a huge cash pile.

Ford's $28B is in order for it to survive the next Recession.

GM has a similar sized cash pile. FCA does not.

I'm more and more convinced that a lot of people here underestimate, what a recession, accompanied by higher interest rates and margin compression means for a low margin, highly capital intensive industry like the automotive industry. There is a pretty good reason for those companies to keep that cash around.
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Regarding that china factory:
Some pages ago somebody linked a spreadsheet with estimates of Teslas car and storage production, revenue and profits. If i remember correctly, that person had Tesla at 1.5 million cars and 70k trucks by 2022 or 2023. (700k Model 3, 700k for Model Y, 100k S+X). I'm puzzled why people would assume that's a realistic outlook. Somehow it takes Geely, a chinese automaker that knows everything about the local environment, more than 5 years to build a plant and ramp production. They are currently investing $5billion to create manufacturing capacity for ~300k NEVs per year near Shanghai. Take out a bit for that gearbox factory and add back a bit more for battery production and you should have a ballpark figure, of how much it should cost Tesla.

Geely Holding Group has signed an agreement with the government of Changxing County to set up a complex for new energy vehicles (NEV) in East China’s Zhejiang province, reports Yicai Global. The carmaker plans to invest over CNY33 billion (USD5.2 billion) in the project, which includes a CNY22 billion assembly plant for NEV with an annual capacity of 300,000 vehicles, a gearbox factory, and a CNY10 billion industrial park for auto parts.
Geely to invest USD5-bil. in setting up NEV production base in China

Yet some people here expect, that Tesla is able to spent less for a lot more production capacity. Of course that's including battery production and they'll do it much faster. Sometimes i'm even told, that Tesla won't need to raise capital to do this and will finance it by Model 3 profits, that are supposed to go from negative gross margin to industry leading net margins in a quarter or two. Probably the leftover savings they will be able to realize when they are building that truck factory will be sufficient or so. I really don't get it.

 

[Seesaw]

For 500k production capacity and battery production in a relatively expensive location it should be 5 billion or more.

I don’t think they would be funding the battery part themselves, but in the end it’s not a huge imposition for a company. To put it into perspective Tesla paid almost 6 billion for SolarCity when you include its debt

 

[RobStark]

Yet some people here expect, that Tesla is able to spent less for a lot more production capacity. Of course that's including battery production and they'll do it much faster. Sometimes i'm even told, that Tesla won't need to raise capital to do this and will finance it by Model 3 profits, that are supposed to go from negative gross margin to industry leading net margins in a quarter or two. Probably the leftover savings they will be able to realize when they are building that truck factory will be sufficient or so. I really don't get it.

And you probably never will.

Geely is trying to copy global best standard practices. Probably benchmarking Toyota and Hyundai.

Tesla is innovating like their hair is on fire.

Geely is trying to chart a path that maximizes profits while limiting risk.

Tesla is on a Mission to lead humanity's transition from a fossil burning economy to a clean sustainable economy.

It might crash and burn. Or Tesla customers and investors might cut it extra slack vis-a-vis a normal corporation when Tesla needs it most because they believe in the Mission.

Does Geely have dozens of people marketing for Geely products with professional quality videos on the internet for free and thousand of customers/salespeople selling Geely cars to friends and family for only in kind token compensation?

 

[WarpedOne]

YasB:

I really don't get it.

We see that.
We also see that you do not want to get it and will not get it.

So, just move one everyone, nothing to get here ...

 

[aubreymcfato]

Good news:
#Tesla registered 6,032 new #Model3 VINs. ~100% estimated to be dual motor. Highest VIN is 69601.
Source: Model 3 VINs on Twitter

 

[mongo]

my recollection of long-term net margin targets discussed by Tesla for the Model 3 is something like 10-12%. unless I missed a major update from Tesla, assuming the annual run rate as of July is 250K, it looks like you think Tesla heavily sandbagged those projections... can you share your assumptions for normalized (post ramp) Model 3 ASP and net margins? wondering what you are basing any numbers substantially different than guidance on.

You're way low.

The German tear down of the 3 LR estimated 28k in parts and assembly cost, Elon was asked about this:
Twitter

Fred Lambert
May 31
Replying to @elonmusk
You agree that the cost could go down to ~$28,000 on average at 10k units/week?

Elon Musk
May 31
Definitely

That's 28k cost on a 49k vehicle. 43% margin (at 10k/ wk). Applying that cost to SR, the GM is 20%.

Assume base LR is break even at 5k/wk:
EAP is 5k, that is 9% GM on 54k
P is 4k for AWD (assume at cost) and 11k for P upgrade. 11k on 64k is 17% GM.
P-EAP is 16k on 69k: 23% GM.

(On mongo's planet, Q2 numbers come out early, and they're a (good for longs) doozy...)

 

[Reciprocity]

Firebird, do your own research. We're not going to do your homework for you. Yes, the Twitter shorts are spreading FUD, not facts. You don't need "someone to convince you", you need to do your homework and actually find the facts. Like I have done. Read all the footnotes in all the corporate documents, scour the Internet for the lectures revealing technical details, the actions of all the other carmakers in the world, etc. Drive the cars and figure out what other owners think.


No, we'd love to discuss a critical perspective, we just don't want to deal with nonsense which we debunked literally years ago. You have to educate yourself up to our level on TSLA before you can have a critical conversation. It's like asking professors to discuss things with toddlers.

Admissions exam -- come back when you can answer these questions.
(1) Explain the economic concepts of one-time costs, fixed costs, variable costs, and economies of scale. Use Tesla as a specific example.
(2) What are the reasons why electric cars will sell as fast as they can be manufactured? What defects in an electric car can cause it to not sell that fast?
(3) What is the underlying common theme in all complaints by Tesla owners about the company?

God bless you nero, but some people can't be saved and are destined to be separated from their money. Fudsters have been emboldened because the macros have been bailing them out. Every trade war scare, every Muller update.. the macros won't save them for ever.

It's important to note that fud on Twitter is having an impact on perceived solvency, as Galli recently coined it and @jesselivenomore has defined as a goal for shorts, and TMC members should take some time each day to counter fud on Twitter. We are starting to turn the tide with facts and it appears more and more are following our lead. Reach out to @MacRocket if you have any questions and want to help fight fud on Twitter. He has really done a great job organizing the fight against fud. I was personally inspired by people like @ValueAnalyst and Ross Gerber who where lone voices on Tweeter fighting the good fight, but now there are dozens of us making a few dozen tweets a day to counter fud. You will recognize many from TMC, but we need more. Many is these fudsters are paid full time to spread coordinated fud and it has an impact. It beats arguing the nuances of how great Tesla and Elon are in TMC all day. Not to bag on TMC, but it is a bit of an echo chamber with the occasional knucklehead wondering buy to spam the financial threads. You know the names.. mmd, myusername, curious sunbird or firebird or whatever bird they are this week.

Enlist today. Fight the good fight. Counter fud on Twitter with facts and humor.

 

[ValueAnalyst]

Good news:
#Tesla registered 6,032 new #Model3 VINs. ~100% estimated to be dual motor. Highest VIN is 69601.
Source: Model 3 VINs on Twitter

6,032 times $20,000 = $120m cap raise, without the 3% banker fees.

 

[Reciprocity]

4 years to get to max production rate... seems slow for Tesla... unless its 5k for model 3 in 2 years and then 5k for model Y 2 years later ?
Either way, doesn't fit Elon's MO to give realistic time tables...

Tesla went from 0 model 3s to 5k/w in about a year with no prior setup to duplicate. Buildings go up in China lightening fast. Whole sky scrapers go up in weeks. Tesla is sandbagging it for real.

I think there is a case to be made that Tesla could have a building and GA4 like line in place by years end with knock down kits for S3X being shipped early next year. By mid 2019 they could be building cells, packs and motors.. ala GF1 with the remainder of the kits coming from the US. By the end of 2019, they could very well have production in place for model 3, though this might take longer depending on 10k/w configuration. Could see kits continue for S/X ala Tilberg for on going production. The timeline should be more in line with 10k/w in 2 years, 2.5 years max.

Also consider the capex impact. What's described above would be capex efficient because capex would coincide with production, making payments due as cars are coming off the line, lowering the impact of capex on the balance sheet. A cheap GA4 like line for kits could be paid for by deposits and soon after, deliveries. That is why the tent line should have been ridiculously bullish. It means everything I described here is not fluff, but really could happen in a few months, hell they could finish painted kits in a tent in China this year, though I doubt they will.

Think of it in stages. Finance land, finance building, setup sprung structure while enormous building is being built. Setup GA4 like line with minimal capex, maybe ship the one you got. Ship knock down kits. Profit.

 

[landis]

but have you seen the roof of the gigafactory? There is 1 reason why it isn’t finished and it looks like $.

Only as in optimizing use of $.
There is already a sufficiently sized installation to gather data to confirm benifits of proposed installation approach. Finishing insallation prior to confirmation could be wasteful if refinements are desirable.
And then there is demand compitition for GF2 output.

So you diluted your point...

 

[Reciprocity]

Guys, Q2 is already over. Tesla is currently cash flow positive. Q2 will be terrible on the books, but the corner was turned 11 days ago. Going forward, Tesla is a 7k+/w company. Assuming S/X are 2500/w the rest of the year, Tesla will hit 8k+/w by the end of the month. Cash flow positive means better credit ratings, no chance of Bankwuptcy. Tesla does not need to raise money, but should if the price is right. It's not right, right now. But soon will be.

 

[tivoboy]

Anyway. The point is: this is about execution. Elon has the ingredients he needs; more money isn’t needed nor wanted. Model 3 production has ramped, and organic profits will suffice to squeeze shorts, so that we can finally move onto Master Plan, Part Deux. All we need to do is sit on our hands, and if you’re bored, come join us and toy with a few bears on Twitter.

i think they are going to need 4-6B if they want to build Chinese gigafactory and assembly plant. Some of this might be FDI but I don't think they will want that, AND they managed to get around not having to have a local 25% ownership stake. Still, I don't see M3 and current MS/X providing that much raw capex for these expansions.

 

[YasB]

Tesla is innovating like their hair is on fire. [...]

We see that. We also see that you do not want to get it and will not get it. [...]

It was probably to much to hope for a valid argument, why Tesla is supposed to achieve more with less CapEx, except the common "They innovate and you are kind of dumb or unwilling." theme. Some reasoning, why cumulated CapEx from 2015 to 2018 is around $10 billion, most of it spent for Fremont and the Gigafactory, and why it will be different with the new factory would have been nice. Well, i should probably be glad the two of you descended to my level and answered in the first place. So thanks for your valuable contribution.

 

[WarpedOne]

Tent.

Q.E.D.

 

[Mich]

Buying shares on the open market, provides $0 cash to Tesla. But I do think a strategic partnership is definitely possible.

Tencent could say they buy every share below 900 USD so Tesla could make an efficient cap raise and burn out shorts ;-) But this will not happen either..

 

[Mader Levap]

I guess I don't get that kind of silly hyper-optimism too.

Tesla is doing great things already without that all "new factory in 2 years for only one bln $!!!!111" unrealistic nonsense.