2017 Investor Roundtable:General Discussion

[RobStark]

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.

Tesla doesn't offer solid white. But they should. The color options are really limited.

Tesla charging $1k for Model 3 or $1.5k for Gen II in 3 Coat Pearl White is inline with competitors.

But it will cause some people who don't care about car color to take black and save $1000 or $1500.

That is brilliant insightful analysis.

 

[GoTslaGo]

Tesla doesn't offer solid white. But they should. The color options are really limited.

Tesla charging $1k for Model 3 or $1.5k for Gen II in 3 Coat Pearl White is inline with competitors.

They used to. Black or white were included when we bought our S (2015)

 

[ValueAnalyst]

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.

Yes. This is pretty much how it usually works out. Really weird.

 

[MXWing]

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.

Good analysis on human behavior.

Also can be summarized as "No good deed goes unpunished".

I pretty much leave it at "It can be risky going long Tesla. Much riskier going short."

 

[W84M3]

 

[JBRR]

Motors and generators are virtually identical. It wouldn't make sense to put a generator on the front, unless it also functioned as the motor.

my bicycle has a dynamo on the wheels for its lights. It's not a motor though. I assume a generator is a lot simpler and cheaper than a motor?

 

[ValueAnalyst]

Tesla just announced a $1.5B non-dilutive debt offering.

This is slightly below the $2B of non-dilutive debt capital that I yesterday said Tesla should raise: 2017 Investor Roundtable:General Discussion

As I also said yesterday, it would be idiotic for Tesla to raise equity capital if it can do what it just did: 2017 Investor Roundtable:General Discussion

I repeat that Tesla will not need another equity raise, ever. @jhm - have you adjusted your model? No more dilution beyond ~200m shares.

Tesla will use the $3 billion on its balance sheet for Model 3 ramp. This cash will be used to accelerate subsequent Gigafactory buildout (I know this is not what they said in the press release).

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Tesla Announces Proposed $1.5 Billion Offering of Senior Notes

PALO ALTO, Calif., Aug. 07, 2017 (GLOBE NEWSWIRE) -- Tesla today announced that it intends to offer, subject to market and other conditions, $1.5 billion in aggregate principal amount of its senior notes due 2025 (the "Notes"). The Notes will be senior unsecured debt obligations of Tesla. The interest rate, redemption prices and other terms of the Notes are to be determined.

Tesla intends to use the net proceeds from this offering to further strengthen its balance sheet during this period of rapid scaling with the launch of Model 3, and for general corporate purposes.

 

[22522]

my bicycle has a dynamo on the wheels for its lights. It's not a motor though. I assume a generator is a lot simpler and cheaper than a motor?

They might be able to put something in the hubs, but seems like weight might be an issue. I have not done the work.

 

[Capn Bob]

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.

I'm curious, why would they be "secretly resentful"? I've managed to get 9 family members and friends to invest in TSLA (200k or so between them), and without exception they've all thanked me for the advice and have assured me that they understand the risks involved. Shouldn't we be attempting to get as many of our friends and family as possible to invest, as long as they appreciate the risks?

 

[Lessmog]

OK, maybe I misremember, but I think one limit of Fremont is the paint shop capacity, due to the max amount of solvents released.

The Bay area has been pretty heavily polluted with many kinds of organic solvents like xylene, toluene etc since the 60's wild expansion in semiconductor industries and this stuff has rather nasty health effects on populations exposed to them in air or water. I recall a hair raising narrative some 30 - 35 years back by a Dr Ladue or Larue, M.D. about how companies bought tons of it, stored in underground tanks and without any clue of their consumption rate simply ordered more and more when they ran low. How much evaporated? How much leaked into the water tables? Nobody seems to know -- but background concentrations are still high.

So this looks like a well founded, hard limit. Nevada appears to be a bit more Wild West when it comes to permits ...

ValueAnalyst said: ↑
How long does it take to build another paint shop? Cost is not even a consideration at this point. It's time.

However, permitting is. Tesla is allowed a certain maximum paint shop capacity at Fremont, due to environmental concerns with emissions. Money really should not be thrown at that "problem" unless to invent more efficient processes. And maybe Tesla is doing that. Who knows?

Are you telling me that California government is slowing down the world's transition to sustainable energy, because they're concerned about emissions from Tesla's paint shop?

After pages of discussion, I think the most likely answer is that Tesla's working in the background to ramp production up beyond its currently stated goals.

TSLA investors don't have to assume this, because at $350/share, the stock doesn't even incorporate the "bullish analyst" Gene Munster's sandbagged projections.

I felt pretty sure we had discussed the paint shop emissions issue, but it was late here and I had an early appointment this morning so I missed your quick reply before. Sorry to have posted and run!
Just did a quick search on this forum; cf :
Demand
2017 Investor Roundtable: TSLA Market Action
2017 Investor Roundtable:General Discussion referring Tesla’s paint shop is no bottleneck for Model 3, Tesla says ‘on track for 500,000 cars in 2018’
and for example Short-Term TSLA Price Movements - 2016 (quoted here in part) :

Now, at a time when Tesla was projecting about 100k/year, it doesn't really make any sense for them to give a permit to produce up to 520k cars in the next two years, then stop. Also, from the very first time Elon mentioned the new paint shop, he always said it was targeted for 500k/year. The only sensible way I can read this is that they already have been granted a permit to paint 520k/year.

Five minutes later... the actual current permit is available at Tesla Motors Inc. By my quick read of the 370-page document, I am unable to tell how many total vehicles it would enable them to make and paint. But it's dated as signed in August 2015, so it clearly post-dates the other references. It requires a compliance report, which is also there, to allow continued production. So I guess they comply.

So yes, I was telling you that authorities in California (state or local) do have a say to the scale of industrial emissions. Many people in Flint would feel much better now if that had been true of Michigan some years ago. IIRC they can't even afford to bring in drinking water by tankers any more. Brings back the Pb in leadership ... or how the saying goes.

Now, that's not to say that Tesla cannot handle it, but a situation does exist. In some places health and environment standards still have meaning. We should be glad.

 

[schonelucht]

Tesla just announced a $1.5B non-dilutive debt offering.

This is slightly below the $2B of non-dilutive debt capital that I yesterday said Tesla should raise: 2017 Investor Roundtable:General Discussion

The terms for this offering are not yet public, but the previous convertibles are only hedged for their dilutive effect should the stock perform substantially WORSE than the targets you project. So you must pick : Tesla stock will soar before 2020 and then these offerings are dilutive. Or the stock will move largely sideways till then and then they won't.

 

[ValueAnalyst]

The terms for this offering are not yet public, but the previous convertibles are only hedged for their dilutive effect should the stock perform substantially WORSE than the targets you project. So you must pick : Tesla stock will soar before 2020 and then these offerings are dilutive. Or the stock will move largely sideways till then and then they won't.

IIRC, the converts are hedged with warrants, so they are dilutive only up to the warrant price, agreed? Also - I believe previous debt raise announcements said "convertible" in the press release.

 

[myusername]

I'm curious, why would they be "secretly resentful"? I've managed to get 9 family members and friends to invest in TSLA (200k or so between them), and without exception they've all thanked me for the advice and have assured me that they understand the risks involved. Shouldn't we be attempting to get as many of our friends and family as possible to invest, as long as they appreciate the risks?

"I've managed to get 9 family members and friends to invest in TSLA"

I have an email I'd like to send you... all you have to do is give me $1... then forward it to 8 other people... and then they'll send it to 8 other... and we'll all be rich.

 

[Capn Bob]

"I've managed to get 9 family members and friends to invest in TSLA"

I have an email I'd like to send you... all you have to do is give me $1... then forward it to 8 other people... and then they'll send it to 8 other... and we'll all be rich.

How much are you up currently, myusername?

 

[Lessmog]

They might be able to put something in the hubs, but seems like weight might be an issue. I have not done the work.

The simpler explanation is a typo.
Model 3 is engineered to be easy to make, why would they put in complicated and unproven stuff?

 

[myusername]

How much are you up currently, myusername?

would you like me to send the email to you as well?

 

[Capn Bob]

would you like me to send the email to you as well?

C'mon, surely you can do better than that. Don't let me down, you're my main source of amusement on this forum. Wouldn't be the same without you, xx

 

[schonelucht]

IIRC, the converts are hedged with warrants, so they are dilutive only up to the warrant price, agreed?

No, not agreed. It is the other way around. The hedge transaction covers dilutive effect from the lower onversation rate up to the price set by the warrants. Beyond that, Tesla (well, it's current shareholders) are naked wrt dilution

In connection with the offering of the 2022 Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of 3.0 million shares of our common stock at a price of $327.50 per share. The cost of the convertible note hedge transactions was $204.1 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to certain specified events) a total of 3.0 million shares of our common stock at a price of $655.00 per share. We received $52.9 million in cash proceeds from the sale of these warrants. Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to reduce potential dilution from the conversion of the 2022 Notes and to effectively increase the overall conversion price from $327.50 to $655.00 per share.

If the stock price is $2000 in 2022 then bondholders will ask shares (at $327.50/piece) from Tesla instead of cash. Tesla will purchase shares from hedge underwriters (at $327.50/piece). Warrant buyers will purchase sales from Tesla (at $655/piece). Tesla gains an additional $655-327.5 in cash for each share due to the bondholders but will have to sell another share to the warrant holders. So Tesla is down 2 shares and has the option to buy only 1 so net dilutive effect of 1 share. Essentially it will be as if Tesla offers stock at (at best) $655 in 2022.

 

[22522]

my bicycle has a dynamo on the wheels for its lights. It's not a motor though. I assume a generator is a lot simpler and cheaper than a motor?

On a bike, I don't like the weight penalty, as it is a lot heavier than a hub shell. On a car, the disc brake rotor is already heavy. Not sure the penalties are as much...

Thank you.

 

[ValueAnalyst]

No, not agreed. It is the other way around. The hedge transaction covers dilutive effect from the lower onversation rate up to the price set by the warrants. Beyond that, Tesla (well, it's current shareholders) are naked wrt dilution



If the stock price is $2000 in 2022 then bondholders will ask shares (at $327.50/piece) from Tesla instead of cash. Tesla will purchase shares from hedge underwriters (at $327.50/piece). Warrant buyers will purchase sales from Tesla (at $655/piece). Tesla gains an additional $655-327.5 in cash for each share due to the bondholders but will have to sell another share to the warrant holders. So Tesla is down 2 shares and has the option to buy only 1 so net dilutive effect of 1 share. Essentially it will be as if Tesla offers stock at (at best) $655 in 2022.

Ok that makes sense thank you. My analysis assumes ~200m diluted shares anyway.