2017 Investor Roundtable:General Discussion

[Lhan]

A few other thoughts / questions for the discussion:

1. I expect the Tesla Semi event to live up to the high expectations Elon set. I'm not normally a short-term trader, but I think there's an opportunity-play around this event. I also expect a "one more thing" style presentation. Whether it's more Gigafactory announcements or a live tug-of-war with a diesel truck or whether the next-gen Roadster rolls out of the back to the theme from Knight Rider...

2. Where will Tesla build the Semi?? I don't see how this gets built at Fremont. So, this means a future Gigafactory or Nevada. This means 2019-2020.

3. When does the pickup truck get announced? Have they changed plans, due to 3/Y demand?

4. When does the Model Y get announced? I expect it to be kept very quiet until the last possible moment. Many folks buying a Model 3 would prefer a Model Y, so I don't see how it benefits Tesla to move imminent Model 3 purchases over to Model Y reservations...

Thoughts?

I think the "one more thing" will be a medium truck.

 

[Snapdragon III]

I'm going to recommend (again!) to some friends and relatives investing in Tesla. I'm planning on pointing out that Elon said that Tesla could equal Apple in market cap. So Tesla's market cap is about $60 billion and Apple's is about $800 billion. That means (assuming that's correct) that Tesla's SP would increase by about 13 x $356 except for dilution.

Two questions, what's a reasonable estimate to use for dilution and what's a reasonable time frame?

Thanks!

Don't do it! If it turns out great they will never thank you and be secretly resentful for some reason, if it turns out a disaster they will totally blame you. Most likely, they will not invest based on your advice, then Tesla will skyrocket, and they will be resentful because you made them feel like an idiot for not following your advice. It is not win. Tell them about your investment, and why you are excited about it, and answer questions if they have them, but don't recommend that they invest.

 

[Lhan]

Sorry for being off topic, I think increasing the diameter of Falcon 9 should be better than the current Falcon Heavy three core approach. Three core approach is much more complex and more things can go wrong, and after landing they have to move them together for next launch. Just curious why did they take this approach. I guess there must be a reason. It's amazing anyway.

Diameter of Falcon 9 cores are optimized for road transport.

 

[Snapdragon III]

This is interesting...

Why does automotive lease revenue have 35% gross margin?

Maybe due to the higher than forecasted residual value of the cars?

Is the company booking the used car revenue to this line item?

I don't know anything about this, but could it have something to do with getting to keep the $7500 tax credit on lease vehicles?

 

[Snapdragon III]

Sorry for being off topic, I think increasing the diameter of Falcon 9 should be better than the current Falcon Heavy three core approach. Three core approach is much more complex and more things can go wrong, and after landing they have to move them together for next launch. Just curious why did they take this approach. I guess there must be a reason. It's amazing anyway.

Elon talked about this recently at the space station conference I think. He said it sounded easier at the time, but once they got further in they realized the stresses were totally different, and it was a huge pain and probably would have been better to start from a clean slate. Very similar to his comments on trying to make the Model X on the Model S platform.

 

[RobStark]

Probably use a generator for better efficiency because it's simpler and lighter but this would mean the duel more version probably won't be much more efficient.

 

[neroden]

I think there is an element of "you have to walk before you can run" here.

Tesla has no experience at large volume production. Once they gain that experience through the Model 3 and initial TE ramps, it would not surprise me to see growth accelerate with Tesla Semi, Model Y, additional Model 3 production beyond 10K/week, more TE production, additional S/X production, etc. But trying to accelerate faster than their incredibly ambitious current growth targets without the benefit of experience, while loading up on debt, would have been extraordinarily risky -- potentially creating existential risk.

I like the current plan quite a bit. But I do agree that they are going to be capital constrained very quickly given their advantages over the competition. I would not be surprised if they take on additional debt late this year or next year or raise capital next year to take advantage of their massive first mover advantage, but I think Elon will want to be careful to avoid taking on too much debt too quickly or creating significant dilution.

I will say that if there is a big stock runup next year, it would make it easier to raise the necessary capital through equity without a major dilution. Y'know, to get the same amount of money requires half as much dilution at $520 as it did at $260. If I were in the boardroom, I'd be planning on deferring any dilution until the market recognized the accomplishment of Model 3 mass production with a stock price increase.

 

[Oil4AsphaultOnly]

Sorry for being off topic, I think increasing the diameter of Falcon 9 should be better than the current Falcon Heavy three core approach. Three core approach is much more complex and more things can go wrong, and after landing they have to move them together for next launch. Just curious why did they take this approach. I guess there must be a reason. It's amazing anyway.

My guess is tooling. 1 standard sized core only requires one set of tools, forms, and frames. A larger sized core would require that they have a completely separate construction facility to deal with building it. Not to mention that they'd also have to change their software and live-fire testing procedure for the different nozzle arrangement associated with this larger diameter core. So since software and testing procedure needs to change anyway, any launch efficiency is offset by fabrication efficiency.

 

[neroden]

I'm sure they will do this in the future to help fund future GFs. However, they need to show profitability and that they "don't need" the money. Lenders hate lending to someone who NEEDS THE MONEY.

Yeah, perverse but consistently true.

This conversation came up in the past. Tesla's borrowing costs at this point would be too high (lower than junk status) to be worth it. Later, when they are profitable, that's when they could/should borrow to accelerate the GF buildout.

Some years ago I read an article on SeekingAlpha, which I lost long ago, by someone who had been in the bond business, and he figured out what interest rate Tesla would likely pay on straight bonds based on the interest rate they're paying on convertibles. (He also explained that convertible bond desks separate the equity and debt components of the bonds almost every time, always hedging one or the other.)

It actually wasn't that bad -- I think from my very poor memory it was 7.5%, which was lower than junk bonds at the time -- but it was higher than Tesla would want to pay.

 

[neroden]

If only 30% of the exterior footprint has been completed, does that imply the need for additional capital soon since "We had cumulatively incurred and capitalized costs of $1.98 billion and $825.3 million, respectively, for Gigafactory 1 as of June 30, 2017 and December 31, 2016."?

"As of July 31, 2017, there were 166,887,023 shares of the registrant’s common stock outstanding...As of April 30, 2017, there were 164,259,736 shares of the registrant’s common stock outstanding" That's about a 1.6% increase in 3 months without any public offering.

Mostly conversion of convertibles. I added shares on one line of my "fully diluted" model and subtracted them on another.

There is a steady drain from employee (executive) stock options, though, and I haven't calculated that.

 

[neroden]

About half was: Tesla - Current Report
Add up the form 4s for most of the rest.

Those who think Tesla can issue non-dilutive debt at will to raise new capital should check the restrictions in the Asset Based Credit Agreement (and other existing borrowing agreements) about Additional Indebtedness and other financial covenants.

I've talked to people who do this sort of stuff professionally, and I've followed corporate refinancing for years.

They can issue non-dilutive debt at will to raise new capital. The covenants are irrelevant: permission will be granted provided the priority order for creditors is clear.

The problem is the *interest rate* they'd have to pay on such debt, which is higher than acceptable.

 

[neroden]

Also of note:
View attachment 239933

Do we have to worry about the lobbying power of Big Flower, Big Nails, and Big Bowling? (All the other things on this list actually do have powerful lobbies.)

 

[neroden]

White is about to be replaced as the most popular car color

Tesla Motors Inc. last year told MarketWatch its most popular car color was solid black, followed by gray metallic and, you guessed, blue metallic.

Well, that's because they're overcharging for white.

White is still the most popular car color. It's chintzy to make people pay extra for it. But it will cause some people who don't care about car color to take black and save $1000 or $1500.

 

[neroden]

Didn't know that:

Quote:

Haissl said the battery technology used in the 220 mile version used a 45kWh battery, 5kWh less than expected.

That's almost unbelievable. That's an EPA efficiency rating of slightly over 205 wh/mile (you have to add charging losses to that), which is astounding.

 

[GoTslaGo]

That's almost unbelievable. That's an EPA efficiency rating of slightly over 205 wh/mile (you have to add charging losses to that), which is astounding.

Yes, I quoted it because I'm not sure to believe it.

Check out @renim's post over in the shorting oil thread. He found the EPA information showing the LR model 3 is a 78kWh battery. We conjectured from there the SR will likely be a 52kWh or 58kWh battery (using 0.66 or 0.75 multiples).

 

[neroden]

Disagree with full on debt binge. Rates are going up. Stock raise is more prudent at $400. We are a generation that has forgotten about what it is like to live in a riaong rate environment.

Um, a rising rate environment is when you issue 30-year debt.

Unless your credit rating is about to go up.

 

[neroden]

New York Times - Today: Under Trump, Coal Mining Gets New Life on U.S. Lands

I wrote the three people representing me in Congress asking them to disallow this, and instead help train workers for the solar and wind industries.

The coal companies' practice of defrauding the government of the legally required 12.5% royalty by "selling" the coal to themselves is particularly egregious, since that's blatant fraud. I wonder why they haven't been taken to court for this one? Perhaps it's a standing issue?

 

[neroden]

Sorry for being off topic, I think increasing the diameter of Falcon 9 should be better than the current Falcon Heavy three core approach. Three core approach is much more complex and more things can go wrong, and after landing they have to move them together for next launch. Just curious why did they take this approach. I guess there must be a reason. It's amazing anyway.

I think it's essentially the same reason why the rockets have nine identical engines each (not an approach used by other rocket makers).

 

[neroden]

While I understand your thinking, I disagree with your stand. I have been a critic as a consumer over some forty years. I am disregarding my first twenty as clueless Early on I could buy with strong confidence that the higher priced item was better built for longevity and quality. However, that became noticeably a foul the older I got. Manufacturers focused on bling instead of longevity and quality. So, then I had to turn my focus on trying to read between the lines Today, it is an almost certainty that manufacturers have achieved their goal of finding the bottom ~ so when I buy a new computer today I am ecstatic if it lasts more than two years.

Tip on computers: buy a "workstation". They are built to last much longer than laptops: about 10 years. And individual components can be replaced if they break. You don't want quite the top of the line: the sweet spot is about two CPU options down from the top of the line and about two memory size options down. Install Linux to avoid software-induced obsolescence (so, get one with hardware which is Linux-supported).

Laptops are hopless, I gave up on them.

 

[ValueAnalyst]

Yeah, perverse but consistently true.



Some years ago I read an article on SeekingAlpha, which I lost long ago, by someone who had been in the bond business, and he figured out what interest rate Tesla would likely pay on straight bonds based on the interest rate they're paying on convertibles. (He also explained that convertible bond desks separate the equity and debt components of the bonds almost every time, always hedging one or the other.)

It actually wasn't that bad -- I think from my very poor memory it was 7.5%, which was lower than junk bonds at the time -- but it was higher than Tesla would want to pay.

If Tesla can raise non-dilutive debt at 7.5%, and instead choosining to issue convertible debt, that would be idiotic because the cost of the latter is much higher, even accounting for hedges.

My guess is they haven't been able to, but going forward they will.