TSLA Market Action: 2018 Investor Roundtable

[Fact Checking]

I personally doubt an upgrade will happen prior to the Q4 ER.

I think the most likely timing for a Moody's upgrade of Tesla would be after the March 1 maturity of the $920m notes, i.e. after the 1Q2019 earnings report in the early May 2019 time-frame. That should give them ample time to observe cash flow and speed of ramp-up.

If they want to be super consistent they might upgrade end of March or early April after the 1Q2019 delivery report, at around the 1 year anniversary of their downgrade, but a mid-May upgrade is defensible as well.

 

[CorneliusXX]

When Moody's issued the downgrade earlier in the year, they indicated they were doing it primarily because of the slow model 3 ramp and the effect on Tesla's dwindling cash balance. It seemed odd to me that they did it just 1 week before the Q1 delivery numbers were released. Apparently they felt confident in their assessment that the ramp was going very poorly regardless of the actual Q1 delivery numbers. They were correct of course, but it seemed odd that they didn't wait for the actual delivery numbers for Q1 before issuing a downgrade. This time, if Moody's issues a downgrade AHEAD of the critical Q3 ER, again due to a worsening cash situation, that would be ridiculous. If Q3 financials show an improving cashflow situation, there is no need for a downgrade. If they instead show a worsening cashflow situation, then a downgrade is warranted. I personally doubt an upgrade will happen prior to the Q4 ER.

Moody's right before Q1 deliveries, SEC right before Q3 deliveries. Perhaps we should start quarter end FUD bingo.

My guess for Q4 quarter end is Saudis force Wahhabi on tesla. Tesla no longer allowed to pay interest on it's loans - default imminent.

 

[Drax7]

I completely agree. I've been driving mine for over a month now. I loved my S. I love this 3 even more. Part of what is so frustrating, probably to Elon as well, is that Tesla is finally there - producing an average of 4,000+ per week, the car is awesome and people completely love it, yet...the stock is tanking. Looking at the price action over the last few months, you'd think Tesla was at a similar point to about 1 year ago. Not even close. They ARE executing now. I keep seeing twitter posts and input from commentators that Tesla might eke out a profit for Q3, but it's downhill from there. I also see that nearly everyone on the bearish/short/media side appears to believe that there is no way Tesla is going to be cash flow positive for Q3 and going forward. I think part of the reason TSLA tanked so hard this past week is with the rising interest rates, investors believe Tesla will find it very difficult to fund their growth moving forward in a profitable way. There really don't seem to be many people that expect Tesla to have positive cash flow for Q3. If Tesla managed things well, according to the estimate from @luvb2b, they should be at least $500M cash flow positive with an outside shot at $1B. The media/shorts can spin things negatively very easily, but that's a tough one to make go away in support of the "Tesla is doomed and will need to be recapitalized/restructured soon." When I've seen people mention that Tesla will be cash flow positive, it is totally blown off and denied by the skeptics. It seems obvious to me that the market may well yawn at a small profit for the quarter. However, anyone yawning at significantly cash flow positive has their head in the sand.

Tornado type growth, that is 50% plus, along with positive cash flow and positive eps,
Coupled With a sustainable moat, will eventually rule. The numbers will do the
Talking . The cars are so impressive Tesla actually has pricing power, no
Sitting around the table at night holding hands praying to maintain their
Sticker price.

Apples ecosystem gives them pricing power, Tesla is developing its
Own , with superior software, battery pack, engines, supercharging, range,
Computer interface, autopilot, etc..

CAsh flow positive implies a sustainable going concern, not required to raise capital ,
unless they intend to add additional plants. That will be easy given their track
Record. Once they reach sustainable free cash flow, that’s positive cash flow
After capital investment, then Mr. Buffett will be compelled to buy the stock.

 

[Dangleitus]

Once they reach sustainable free cash flow, that’s positive cash flow
After capital investment, then Mr. Buffett will be compelled to buy the stock.

I doubt buffet would ever consider adding tesla to his holdings - it quite literally doesn't fit any of the metrics he has written about in his shareholder letters. Large capex, large cash burn, very expensive and in a competitive rapidly changing field. He wants cheap/simple businesses that he can buy a big part of which kick cash back to BRK. Its really that simple.

Back in his stock "trading" days ( when he used to hold for around a year), he would buy distressed equity selling at less than the net asset value of the company, but tesla has too much debt for that to be the case currently.

I do not think that tesla has any suitors for its common, and likely because of their short term debt situation will have to restructure sooner than later.

 

[Drax7]

I doubt buffet would ever consider adding tesla to his holdings - it quite literally doesn't fit any of the metrics he has written about in his shareholder letters. Large capex, large cash burn, very expensive and in a competitive rapidly changing field. He wants cheap/simple businesses that he can buy a big part of which kick cash back to BRK. Its really that simple.

Back in his stock "trading" days ( when he used to hold for around a year), he would buy distressed equity selling at less than the net asset value of the company, but tesla has too much debt for that to be the case currently.

I do not think that tesla has any suitors for its common, and likely because of their short term debt situation will have to restructure sooner than later.

Moat, pricing power, sustainable free cash flow, stock buyback, at the right valuation , is what Buffett
Does, assuming it meets a basic human need.

Anyways, that’s far into the future, maybe beyond his investing career.

 

[CorneliusXX]

Moat, pricing power, sustainable free cash flow, stock buyback, at the right valuation , is what Buffett
Does, assuming it meets a basic human need.

Anyways, that’s far into the future, maybe beyond his investing career.

I agree with the previous post re Buffet. But we know conclusively that Silver Lake and a German OEM would have taken Tesla private at $420 per share as that information was made public during the bidding process. So to say there are no suitors is woefully incorrect.

 

[Dangleitus]

Moat, pricing power, sustainable free cash flow, stock buyback, at the right valuation , is what Buffett
Does, assuming it meets a basic human need.

Anyways, that’s far into the future, maybe beyond his investing career.

He likes buybacks when they are at good prices, not high prices. He talks about this in shareholder letters. As for sustainable cash flow, It isn't here for tesla, and their existing cashflow problems are worrisome . He generally avoids high capex industries, and can't remember the last time he talked about investing in any auto company other than BYD.

I would not place much faith in a BRK bailout of the common. He is more apt to bail out a bank ( saloman), or buy warrants like he did with Bank of America after the financial crisis.

Edit: I forgot to mention his (profitable) investment in BYD.

 

[Drax7]

He likes buybacks when they are at good prices, not high prices. He talks about this in shareholder letters. As for sustainable cash flow, It isn't here for tesla, and their existing cashflow problems are worrisome . He generally avoids high capex industries, and can't remember the last time he talked about investing in any auto company.

I would not place much faith in a BRK bailout of the common. He is more apt to bail out a bank ( saloman), or buy warrants like he did with Bank of America after the financial crisis.

At present Tesla has no free cash flow, let alone sustainable. Sustainable free cash flow
Usually leads to stock repurchases. Tesla is not there, neither is amazon .

 

[mongo]

At present Tesla has no [reported] free cash flow, let alone sustainable. Sustainable free cash flow
Usually leads to stock repurchases. Tesla is not there, neither is amazon .

Without dividends, or equity cap raises, the number of shares/ price per share is irrelevant. I think Musk's compensation plan backs it out also. Sustainable cash flow will lead to more factories/ models/ superchargers/ store locations or even lower prices.

 

[Boomer19]

For years we have been dealing with shorts who have ruthlessly attacked this company with no sense of right or wrong and no concern for our planets future. Elon shows some courage and fights the establishment and you abandon him, pathetic. Grow some balls and realize that the cute acronym shorts enrichment commission does no harm to anybody and only acknowledges what we all know is true - that the system is rigged against clean energy, against the status quo. you shouldn't be angry at Elon. You should be angry st the supposedly impartial SEC which magically made this lawsuit appear 4 days before the best delivery numbers in the companies history. That's no coincidence.

yep,
no wonder the sec expedited the case so quickly, which surprised a lot of people... but if you think about it, it’s not that surprising at all, given the way that everything is different when it comes to tesla.

 

[Tslynk67]

I have seen that movie! I was going to ask you if that's what it was from, but I couldn't remember the title! Thanks for posting it, I really liked the movie... a bit odd, but quite enjoyable (unless you live in the North of Norway)!

I still get fits of giggles when I remember the scene in the cave

 

[Tslynk67]

Musk and Straubel really in Dubai?

If so, great news.

Tweet

“Excited to bring the largest sustainable energy project in history to Dubai”.

Versus

“Hope shortville puts on some long pants. Boss battle is over for the shorts and their SEC overlords”.

Careful, Elon might see that second suggestions and copy-paste it to his Twitter feed, you know how he's always copying us...

 

[BenPrice]

Did we ever get a date estimate for European localization and delivery?

Would be awfully nice to send a boat of high ASP 3s over in Q4.

 

[dondy]

I agree with the previous post re Buffet. But we know conclusively that Silver Lake and a German OEM would have taken Tesla private at $420 per share as that information was made public during the bidding process. So to say there are no suitors is woefully incorrect.

Silver Lake is venture money transmuter. They prefer to avoid public companies. It's not that much to gain there.

 

[avoigt]

Yes, and this probably happened to sedans already. BMW sales in the U.S. dropped significantly:

And while some of this is due to the much needed refresh, I think BMW is fooling themselves thinking that the 3-Series refresh coming next year is going be able to turn the trend around significantly, while they are taking their sweet time to make EVs in volume: ~2025?

Personally I think BMW botched the 2019 7th generation 3-series design:

Way too aggressive, masculine and visually complex IMHO - the coup of the Model 3 was its more neutral design which makes it appeal to a much broader group of people - even across gender boundaries. BMW customers are ~70%+ male already - by shifting it further towards the macho end of the spectrum they reduce the car's cross-gender appeal even more.

Compare it to the Model 3:

(And I tried to find an image that shows the Model 3 from a similar angle and with similar color.)

It's no contest IMO, and I believe Tesla will be able to find a similarly genial exterior design for the Model Y and the pickup truck (Model P?) as well.

Talking about BMW does fool themselves.....

"According to the senior BMW exec, electric vehicles will always be more costly than gas-burners. “No, no, no,” was Frölich’s reply when asked if EVs will ever equal the prices of equivalent conventional cars. “Never.”

“It’s very simple,” says Frölich. In EVs with 90 to 100kWh battery packs, the cell cost alone will be $17,000 to $25,000. “You can produce whole cars, only with the cost of the battery,” he says. And Frölich doesn’t buy into the theory that when batteries are being produced in larger numbers, prices will fall. Instead, he deflects — noting certain materials in batteries which may become more expensive.

An example, he claims, is cobalt. “When everybody wants to have cobalt, the prices of cobalt will not go down, they will go up,” Frölich predicts. Nevertheless, he says BMW is working to secure low prices for cobalt out until 2030. “We are the only ones who are doing that,” Frölich claims.

Even though BMW plans to grow its portfolio of electrified vehicles, Frölich sounds anxious about leaving the gas-guzzling internal combustion engine behind. “So, it’s a nightmare that an electrified vehicle will cost the same as a combustion-engined car,” Frölich says.

I call this a confirmation that BMW is not going full electric but just put a toe in the water....

Its my prediction as of today that VW, Audi and BMW do not understand EVs really. Even worse I believe they do not have a good connection to their customers and still do not realize what they want. Innovation and constant improvement seems to not be a part of the thought process of the Board Member as well.

People who are that short sighted and repeating factual wrong information (compare to Ron Barons note about Battery costs today of 12 - 13k, not understanding shrinking requirement of cobalt ect.) should be fired and replaced quickly to get prepared for the EV future.

BMW Board Member Talks About Electric Car Cost Nightmare

 

[traxila]

2 neighbors flagged me down today to ask me about my Model 3. I was surprised at their lack of any knowledge for the Model 3 or Tesla at all. This is how it really is in the real world, still tons of people out there that know next to nothing about electric cars. But word of mouth is spreading, people are seeing more and more Model 3's out there. Demand will continue to rise because out in the real world, people really really want this car.

Very few people understand Tesla, or their products. I don't understand why Tesla refuses to take any measure to educate the public and build the brand. Of course, it can't grow fast enough, doesn't have enough money and has severe problems with representation in the press.

No one knows that range anxiety is null and void in a Tesla... no one except Tesla owners. No one understands that you can charge your car at home, at night, at low cost and never stop at a gas station. No one knows that you can drive through California and the car will plan your charging stops.

Tesla and EM's image are constantly vilified by the press, but I never see anything done about it... The hit piece by the NYT cost the company millions of dollars in SP and brand value... Did anyone at Tesla make an effort to stop it? Correct it, Counter the story.

I don't particularly like marketing or spending money on AD budgets... but come on... the customers are not getting it done all by themselves, I try but the number of people I can reach everyday is meaningless. EM does what he can, but sometimes he is just not the right person... a number of his tweets have been destructive. And... isn't he a little busy running a number of disruptive companies. Busy, too tired, and likely too smart to answer stupid questions repeatedly.

Remember all of Apple's ads. Apple too was vilified. They had the entire MS Windows world (everybody) hating them because of Apples price and status, (sound familiar?). But Apple made the commitment to be creative about it, got extended press regarding their ads, won awards for their advertising, and now have reached the market cap EM aspires to... Why not copy success?

I understand that Tesla can not make the product fast enough... volume is a failure point... but the press is tearing apart this company and nothing is being done to stop it.

Another rant of mine about advertising, preached to the opposite of the choir... disagree away...

but.... how are sales going to grow? (I also really need to know how production volume could grow, without raising additional capital, cannot wait for this ER)[/QUOTE]

Tesla does not refuse. They just do not spend money on ads. Do you see where that money would come from at this point? As they cannot possibly meet demand since day one, I cannot think of a worse way to burn cash than to hand it to the so called mass media.

They would never be able to sway them now anyway. The forces against Tesla hand billions of dollars to the MM on a monthly basis. Do you think throwing a few mill here and there on ads would change the meme out there right now?

Legacy car manufacturers, oil companies, utilities AND mass media would LOVE to see Tesla burn. (Notice I did not even mention the billions shorts have bet on Tesla bankruptcy.). Because that is what their pocketbooks say, and come on you don’t live forever who gives a rat’s ass about the state of the climate thirty years from now. Thankfully, people like us don’t need to mix with the rabble. Now pass me the goddamned single malt, I need to book that vacation on my private jet.

 

[neroden]

Whats worse is that im not really sure how to even hedge against these kinds of deleveragings.

Step one, don't owe any money yourself. Step two is the harder step.

How are people here going to handle are 50-80% correction in the overall market, when a bad week of FUD sends some into a frenzy? (Directed at no one in particular)

Well, I picked companies which I think will still make money even in a bad economic environment, and an 80% loss still leaves me with enough to live on, if I get lucky enough to have no more medical disasters. I realize that isn't possible for everyone.

 

[Stretch2727]

Talking about BMW does fool themselves.....

"According to the senior BMW exec, electric vehicles will always be more costly than gas-burners. “No, no, no,” was Frölich’s reply when asked if EVs will ever equal the prices of equivalent conventional cars. “Never.”

“It’s very simple,” says Frölich. In EVs with 90 to 100kWh battery packs, the cell cost alone will be $17,000 to $25,000. “You can produce whole cars, only with the cost of the battery,” he says. And Frölich doesn’t buy into the theory that when batteries are being produced in larger numbers, prices will fall. Instead, he deflects — noting certain materials in batteries which may become more expensive.

An example, he claims, is cobalt. “When everybody wants to have cobalt, the prices of cobalt will not go down, they will go up,” Frölich predicts. Nevertheless, he says BMW is working to secure low prices for cobalt out until 2030. “We are the only ones who are doing that,” Frölich claims.

Even though BMW plans to grow its portfolio of electrified vehicles, Frölich sounds anxious about leaving the gas-guzzling internal combustion engine behind. “So, it’s a nightmare that an electrified vehicle will cost the same as a combustion-engined car,” Frölich says.

I call this a confirmation that BMW is not going full electric but just put a toe in the water....

Its my prediction as of today that VW, Audi and BMW do not understand EVs really. Even worse I believe they do not have a good connection to their customers and still do not realize what they want. Innovation and constant improvement seems to not be a part of the thought process of the Board Member as well.

People who are that short sighted and repeating factual wrong information (compare to Ron Barons note about Battery costs today of 12 - 13k, not understanding shrinking requirement of cobalt ect.) should be fired and replaced quickly to get prepared for the EV future.

BMW Board Member Talks About Electric Car Cost Nightmare

Odd that he does not even begin to consider the total cost of ownership (TCO) of the cars. I think the luxury segment is where the customers are more likely to consider TCO as they have the ability to absorb the higher upfront costs knowing it will save them money in the long run. This is one reason Tesla's strategy is brilliant by focusing on the high end.

 

[dondy]

Just a simple reminder.
The modern stock exchange system is a man made system. The rules are arbitrary and are chosen by a small group of people. More of it the rules are fuzzy and the "game masters" have significant freedom in rule interpretation or changing. They also have amazing instrument SEC which can arbitrary lock outside traders accounts and let their stocks burn.
If after seeing what happens with TSLA anybody still thinks that there is any "open market", "price discovery" etc. is extremely stupid or totally delusional.
Modern Stock Exchanges are casinoes. Companies' stocks are tables. Rules of the table are determined by the biggest players or inside "guests" who decided to play there. The house always win.
TSLA reportedly shorted by pretty much all major banks. City bank, Morgan Stanley, GS, etc.
Clowns like Einhorn etc. are just faces and provide small % of the short interest.

 

[lklundin]

Talking about BMW does fool themselves.....

"According to the senior BMW exec, electric vehicles will always be more costly than gas-burners. “No, no, no,” was Frölich’s reply when asked if EVs will ever equal the prices of equivalent conventional cars. “Never.”

“It’s very simple,” says Frölich. In EVs with 90 to 100kWh battery packs, the cell cost alone will be $17,000 to $25,000. “You can produce whole cars, only with the cost of the battery,” he says. And Frölich doesn’t buy into the theory that when batteries are being produced in larger numbers, prices will fall. Instead, he deflects — noting certain materials in batteries which may become more expensive.

An example, he claims, is cobalt. “When everybody wants to have cobalt, the prices of cobalt will not go down, they will go up,” Frölich predicts. Nevertheless, he says BMW is working to secure low prices for cobalt out until 2030. “We are the only ones who are doing that,” Frölich claims.

Even though BMW plans to grow its portfolio of electrified vehicles, Frölich sounds anxious about leaving the gas-guzzling internal combustion engine behind. “So, it’s a nightmare that an electrified vehicle will cost the same as a combustion-engined car,” Frölich says.

I call this a confirmation that BMW is not going full electric but just put a toe in the water....

Its my prediction as of today that VW, Audi and BMW do not understand EVs really. Even worse I believe they do not have a good connection to their customers and still do not realize what they want. Innovation and constant improvement seems to not be a part of the thought process of the Board Member as well.

People who are that short sighted and repeating factual wrong information (compare to Ron Barons note about Battery costs today of 12 - 13k, not understanding shrinking requirement of cobalt ect.) should be fired and replaced quickly to get prepared for the EV future.

BMW Board Member Talks About Electric Car Cost Nightmare

It is also notable that BMW does not understand that the ongoing development of the battery technology is driven towards a lower price point.
So when the price of cobalt (that he mentions) goes up, an innovative company like Tesla change their battery technology to use less cobalt.

The decrease in Tesla's cobalt use is public knowledge so I have to imagine that Frölich has a preconception that BMW should continue to make ICEs and that he is just justifying this in whatever way he imagines to make sense. Inclusively or'ed with the possibility that he is actually ignorant on the topic.

And I agree that it is very likely that the other German car makers think like BMW.

I watched that recently linked interview with Nissan's Carlos Ghosn. Although he is also in the business of making both ICEVs and BEVs, he seems to have a much better understanding of how the BEVs will continue to evolve.