TSLA Market Action: 2018 Investor Roundtable

[TSLA_Hopeful]

I used to work in Procurement at a F500... there is nothing alarming at all. We asked for suppliers to adjust contracts many times and often included rebates (although not frequently)....to take this one piece and report it as Tesla is having cash difficulties is false and disingenuous.

One thing to add is that while generally your company does not want to be known as a bad customer.... anything you can pull to get savings is a win.... it’s just a matter of weighing the long term relationship with the supplier vs the desire to get more TVC (total value creation). Seems like Tesla has leverage with this supplier. In fact I would be more worried if Tesla didn’t try this at all.

 

[sundaymorning]

Everyone knew the FUD was going to get stronger leading up to the Q2 ER. It's pretty astounding how bad it has gotten. I think from the bear's side, the most effective thing they can do now is to try to get people seriously questioning Tesla's immediate survival. Would you buy a car from a company you were worried might not be around in a year or two? Most current owners are used to this and can deal with it, but new buyers to Tesla may really struggle with it.

“Is Tesla be around in a year or two?”

I’ve heard this same repetivr headline since 2012-present. Same old $h1t but from a different fly this time.

4th Q cant come soon enough.

 

[shootformoon]

Why?

I haven't seen any stories about GM negotiating prices with their axle suppliers, or Apple attempting to get a better deal on LCD displays. No doubt there have been memos there.

So the existence of a memo does not, in and of itself, "surely" necessitate a story.

What remains to be seen is if the contents of any memo are being accurately represented.

This is exactly the point. I think large manufacturers renegotiate prices with suppliers all the time. But it does not show in the news because it is a non-story. Only tsla has this paparazzi treatment.

 

[ZsoZso]

It appears stating any negative views on demand, is taboo here, (unless you are known to be long). Seems to be a legitimate question with investors elsewhere and even today, others are posting links, questioning the strength of demand here.

Let me address the "negative views on demand":
1. Tesla currently has >420,000 reservations/orders for Model 3 with a production rate of ~5k/week
2. Therefore, at current production rate they would need 84 weeks that is more than 1.5 years to fulfill the backlog.
3. During that time many more new orders will be placed, so this time will grow!
4. In light of this, no sane person would seriously entertain the idea of a demand problem.

So if you want to talk about demand problems, then you are either:
a) joking
b) trolling
c) or insane
Take you pick!

Once Tesla has cleared the backlog and moves into the MO of other car manufacturers, i.e. producing cars without orders to dump them into numerous dealership lots for several months in the hope that one day a sucker will walk into the dealership and the sales people there will be able to convince him/her to buy that dust collecting hunk metal, then and only then we can start talking about real demand problems.

In the meantime, Tesla demand problem only exists in the imaginary alternate universes of some delusional people and we would like to focus the discussion on actual reality here.

ps: to elaborate on #3 above: people do not like to wait years when they make a purchase decision, once the backlog is reduced to a time-frame that is acceptable to people on any model, e.g a few weeks to couple of months, then a lot more people will be willing to place an order, so backlog shortening has a tendency to slow down, so eliminating the backlog could take many many years.

 

[dc_h]

Anyone read this yet? Thoughts on meaning? Bears and bulls will be spinning.

Tesla Asks Suppliers for Cash Back to Help Turn a Profit

 

[Compton]

Anyone read this yet? Thoughts on meaning? Bears and bulls will be spinning.

Tesla Asks Suppliers for Cash Back to Help Turn a Profit

Did you read any of the last couple of pages before posting?

 

[EngRyan]

Anyone read this yet? Thoughts on meaning? Bears and bulls will be spinning.

Tesla Asks Suppliers for Cash Back to Help Turn a Profit

Honestly without seeing the memo it's all speculation but a title of "Tesla negotiates with suppliers" is more straight forward but less interesting.

I worked for a company that did that with Cisco because some stuff we bought didn't "mesh network" like advertised and they eventually admitted it 2 years into the project. Or with Motorola because the batteries were failing early and bulging. And those aren't exactly small companies.

My guess is a part didn't perform as was expected or required more rework than suspected as that's when you start talking about rebates. Whoop de do...

 

[brian45011]

More transparency is almost always good.

Something about a disinfectant?

 

[EngRyan]

Something about a disinfectant?

Only problem with that is releasing internal discussions with vendors about pricing is suuuuper not kosher. Even if the memo doesn't state exact prices.

 

[CuriousSunbird]

I use this place aa one stop shop for all information. So I enjoy it if mods let's one of the near info gets posted once. But


As a short, do you agree that the amount of negative articles targeting tesla is very curious?

I often see 3 negative articles in a day on zerohedge. I don't remember BAC gets that many during 2008.

Maybe not, but in 2008 I think GM probably did.

 

[sundaymorning]

Why?

I haven't seen any stories about GM negotiating prices with their axle suppliers, or Apple attempting to get a better deal on LCD displays. No doubt there have been memos there.

So the existence of a memo does not, in and of itself, "surely" necessitate a story.

What remains to be seen is if the contents of any memo are being accurately represented.

So GM pays face value the asking price year after year to suppliers whose cost decreases each year? Now I know why nvestors do t want to touch GM stocks, and why Apple has to cancel the iPhone X.

All jokes aside it’s quite prudent that Tesla is negotiating with suppliers now, a very good time for them to consider lowering their charges even more. A good move, this is great news and a win for the company.

 

[gluu]

What you described is possible but business units that perform such execution are not known as HFT. It is also not generally called front-running, and is known as internalization or execution. One major player who would do what you describe is Citadel, a hedge fund, which has many business units, including a HFT unit. As far as I know they are not breaking laws and separate internalization from HFT. Agency execution business units pay for client flow and would internally match the orders as you described, avoiding any fees as well. This is never seen by the lit markets. HFTs are the ones with the quotes in the lit markets you are describing as being front run. Notice that internalizers would also send adverse flow to the lit markets as well, further hurting HFTs.

The nuance is understanding that HFT is not all of electronic trading. Everyone trades electronically and there are many diverse participants.

This question implies that front-running prevents execution. It does not. Tesla's NBBO often has a wide spread. Firms that pay for order flow can easily receive orders that are between the NBBO spread, including orders that cross.

Example: NBB is 312.32, NBO is 312.82. Order flow comes in to a firm paying a broker to route to them. First with a limit sell of 312.40, followed by a market buy 930 microseconds later. The order flow recipient front-runs these orders, selling to the market buy for 312.81 and immediately buying from the limit 312.40 sell order, pocketing 0.41 risk free in the process. Both public parties got execution. The market buyer got a price better than the national offer at 312.82 so they could be happy and certainly can't be mad. The limit sell got their order filled right away too at their limit so they aren't complaining either. This is probably not illegal but it is still front running because the firm that paid for the order flow used a millisecond or so to re-order (in time) these crossed orders and place their own in-between for a risk-free profit. It is obvious that this order flow is non-public information. If it was required to be routed directly to NASDAQ, the national best offer would have dropped to 312.40, and the market order would have filled at 312.40. The order flow firm, not participating would get nothing and the market buyer would have gotten a better price.

Order flow firms don't front every order, only those that they are certain or predict will be profitable for them. For the order flow that doesn't cross at a risk-less profit, the order-low firm forwards it to another venue, or perhaps executes some for their own account depending on other expectations they have.

Notice that the buyer still got to buy the shares, thus "accumulates their long position" even though it cost them more than it would if no front-running were happening.

It is quite easy to observe trades that could fit this pattern when the volume is slow during the mid-day. There is often multiple trades at diferent prices taking place between the spread as the bid and offer remain unchanged. It's also true that some customers could be led to believe that they got "better" pricing than the spread because of intermediaries. But in this example, it is not because of the wonderful work of the middle man, it is in spite of it. I understand that you say there are no HFT firms that pay for order flow, so this can't happen at any HFT firm. I'll take your word for it.

But it is very peculiar that you try to tell us that a front-run customer could not get an order filled. Why would you say that?

 

[CuriousSunbird]

It appears stating any negative views on demand, is taboo here, (unless you are known to be long). Seems to be a legitimate question with investors elsewhere and even today, others are posting links, questioning the strength of demand here. Is it possible to discuss the "bear view" in the context of a discussion? I've been called "an idiot" and "dishonest" and I'm fine with that, because along with those insults, I learn something new .with each post.

.

I agree that they probably have a demand problem, but discussing it here seems to generate more heat than light so I have given up raising it until there is some new data.

 

[StockCynic]

I used to work in Procurement at a F500... there is nothing alarming at all. We asked for suppliers to adjust contracts many times and often included rebates (although not frequently)....to take this one piece and report it as Tesla is having cash difficulties is false and disingenuous.

Except it is not only this one piece that suggests Tesla is having cash difficulties. You could start with the balance sheet and see that their net working capital deficit equals the entirety of their current cash position (and that was as of 3/31/2018, that ratio will have deteriorated further this quarter). Asking for cash refunds, for work completed in 2016, is HIGHLY unusual.

Tesla has a 55 billion dollar market cap why not just go sell some equity and raise cash?

 

[EngRyan]

Except it is not only this one piece that suggests Tesla is having cash difficulties. You could start with the balance sheet and see that their net working capital deficit equals the entirety of their current cash position (and that was as of 3/31/2018, that ratio will have deteriorated further this quarter). Asking for cash refunds, for work completed in 2016, is HIGHLY unusual.

Tesla has a 55 billion dollar market cap why not just go sell some equity and raise cash?

Look you have me and TSLA_Hopeful saying this is really not that abnormal. Seeing as I saw it twice in a three year span and I'm not in procurement I'd say it's not "HIGHLY unusual".

Yes balance sheet and all the rest we've heard it before, not even going to agree or disagree, we're just saying this story is another shrug in reality and is neither here nor there in terms of OMG Tesla needs cash meow.

I agree with you, if they do need money at the end of the day I'd bet they do that... which is really counter to your original point. You negotiate with suppliers from future discounts to asking for cash back because that's what a good company does. Seen it all before.

EDIT: Let me add the reasoning on why you ask for the cash back in the first place instead of just credit or future discount. When you are asking for cash it's usually because the vendor *sugar* the bed in some way, my case was promised feature not working and early failure of product. You ask for money back as a shot across the bow because the other two options lock you into that supplier in the future. So you're basically saying look you cost me money and you are going to pay me for that and we MAY decide to continue forward with you given the price is right AND you clean up your act.

To me that's the most likely case and what happens from my experience. However if Tesla was specifically asking for this deal from all vendors I would worry that they are being that much of a dick to all their vendors. But that wouldn't even make sense in the first place as to me there's usually a reason to ask for that.

 

[Do It]

Except it is not only this one piece that suggests Tesla is having cash difficulties. You could start with the balance sheet and see that their net working capital deficit equals the entirety of their current cash position (and that was as of 3/31/2018, that ratio will have deteriorated further this quarter). Asking for cash refunds, for work completed in 2016, is HIGHLY unusual.

Tesla has a 55 billion dollar market cap why not just go sell some equity and raise cash?

Elon doesn't want to raise capital through stock because he thinks the stock is worth more and he has a good chance squeezing by. This is simply a shrewd business man optimizing his gain. Second half of 2018 is max Q for Tsla and it will be generating a lot of cash and self-funding after that. This is clear to me and a lot of other people so there would be no problem for tsla to raise money if it has to - who wouldn't want to be part of a company on the verge of making a lot of cash? "Capital market is closed to tsla" is just FUD.

If you worry about tsla not able to access capital if it needs a billion or two before generating ton's of cash, then you are a victim of FUD.

 

[mmd]

One thing to add is that while generally your company does not want to be known as a bad customer.... anything you can pull to get savings is a win.... it’s just a matter of weighing the long term relationship with the supplier vs the desire to get more TVC (total value creation). Seems like Tesla has leverage with this supplier. In fact I would be more worried if Tesla didn’t try this at all.

But I think if it's an attempt to juice numbers for some particular quarter, then it is prone to being classified as accounting fraud by auditors. Long time ago, a Price Water House manager of auditors was giving examples of items they look for using software; a case study for data mining/anomaly detection.
One example was, a friendly customer places a large order before the quarter close because the CEO requests and promises something in the golf course, so he can meet the quarterly numbers. Next quarter that order is canceled for some reason.

if Tesla is doing something similar to juice a specific quarter's numbers at the cost of paying later, then I don't see why it is materially different from that. I suppose, it depends how strict the auditors are in sniffing these out.

 

[EngRyan]

But I think if it's an attempt to juice numbers for some particular quarter, then it is prone to being classified as accounting fraud by auditors. Long time ago, a Price Water House manager of auditors was giving examples of items they look for using software; a case study for data mining/anomaly detection.
One example was, a friendly customer places a large order before the quarter close because the CEO requests and promises something in the golf course, so he can meet the quarterly numbers. Next quarter that order is canceled for some reason.

if Tesla is doing something similar to juice a specific quarter's numbers at the cost of paying later, then I don't see why it is materially different from that. I suppose, it depends how strict the auditors are in sniffing these out.

Looks like Elon already echo'd your thoughts on twitter.

"Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter."

 

[oneday]

It appears stating any negative views on demand, is taboo here, (unless you are known to be long). Seems to be a legitimate question with investors elsewhere and even today, others are posting links, questioning the strength of demand here. Is it possible to discuss the "bear view" in the context of a discussion? I've been called "an idiot" and "dishonest" and I'm fine with that, because along with those insults, I learn something new .with each post

There’s a thread in the investor section for this exact subject. Demand

If you are a short, I think this is one of the smarter places to go. Where else can you hear the long arguments so conveniently assembled? SA used to be good but now there are few sensible/numerate longs left.

Maybe you should heed your advice and do more hearing (reading). And less of whatever it is you are actually doing.

I agree that they probably have a demand problem, but discussing it here seems to generate more heat than light so I have given up raising it until there is some new data.

Once again there is a thread for that. Demand
But I will agree with you, they have a demand problem. Too much.

Anyways, it would be really nice if you two would post in the relevant thread.

We already have a problem with Brandolini’s Law here across multiple subjects, so the more we can isolate issues the easier it will to stay on topic and actually have more meaningful conversation.

If you two don’t know what Brandolini’s Law is, it’s also known as the bullshit assymetry principle and goes like this:
“The amount of energy necessary to refute bullshit is an order of magnitude greater than to produce it.”

Hence a lot of our disdain for trolls.

 

[Tslynk67]

Guys (and gals?), we enter a critical period. I expect full-Plaid FUD for the newt week until we get to the EC. So gird your loins, keep the faith and get noisy via any channel you have to push-back against the total BS that's raining down upon us.

I see how this procurement memo going to be negatively spun, basically if there's any sign of profitability, the enemy will call "foul" and say it's an artificial situation engineered by Elon - same as they basically did for the 5k/w end of June.

Stay strong, our future is at stake!!