2017 Investor Roundtable:General Discussion

[brian45011]

I find myself comforted by having many banks as the ultimate loan partners, as that translates as customers to some competition along with an increased ability to provide these loans. At some point, Alliant will have all of these loans that they want (fits into their risk and interest profile, etc..); Tesla already has multiple banks they can use to satisfy this demand.

Thanks It's a black box, but I wouldn't be surprised if the financial institutions receive some kind of benefit for fronting the loans, equivalent to the residual value guarantees afforded the bank leasing "partners."

 

[jimmyjohn]

Also, didn't GM go bankrupt a couple of years ago? Talking about a bad track record..

GSE (Freddie Mac) effect of an implicit government safeguard / backstop to financial obligations; essentially an implicit guarantee to fulfill GM management's future failures.

Government-sponsored enterprise - Wikipedia

 

[dennis]

I would believe this. Actually, I would very strongly believe this. The Samsung cells were probably ordered months ago and are on their way already.

It's becoming clearer and clearer that there are some hiccups which are slowing down the ramp-up of storage cell production at the Gigafactory. If I had access to one of these questionable private investor phone calls, I'd ask about it.

We've had multiple hints of this: slow deliveries on Powerwalls, slow deliveries on Powerpacks, tours pointing out the future fast automated pack assembly line which wasn't working, rumors that it wasn't working, continuing to import S/X batteries from Panasonic, importing Samsung batteries before, importing Samsung batteries now, Musk talking about battery supply bottlenecks, possibly even on Model 3, failure to finalize long-term raw materials supply contracts (we'd hear about those from the other end), and statements that the Gigafactory batteries won't be cost-competitive until the Fourth Quarter...

Schonelucht apparently thinks this means the Gigafactory batteries are more expensive than buying off the market long-term, but Musk and Straubel have said absolutely nothing to indicate that.

I think this all points to a problem with the production ramp.

In short, they may be producing more kwh than any other single factory.... but they're not producing as many as they planned to at this time. They've been keeping mum about what's going on, but something has been slowing the battery production ramp.

So far I have read more than 50 posts about the Samsung cells (more to come I'm sure). Not one of them has pointed out that Tesla has always planned to assemble packs at the GigaFactory with cells sourced elsewhere. Originally it was 35gWh cells and 50 gWh packs. Later Tessa said they hope to triple that based on improving manufacturing density and efficiency.

I think we all assumed that those cells would be coming exclusively from Panasonic. Apparently not.

 

[22522]

How much does *land* cost?

The large presses are extremely expensive, actually. The entire inventory system probably costs less than one huge press. But more importantly, where is Tesla going to *put* another large press, while the parts inventory sits spread out across half the floor of the factory?

It makes a lot of sense to build vertical for inventory. If they can get an automated system for insertion and removal of parts, it's a huge labor savings.

Oh, and paint systems have a long lead time due to the emissions permitting.

Maybe they want to demonstrate and sell these sorts of systems to other people.

Demonstration purposes for integrated software and hardware.

The list is now: AWK, Shigeo Shingo, and a rotational assignment as a product engineer in a million square foot factory where I came to appreciate the overhead associated with one part. As a design engineer this makes me more driven toward minimum parts. Designers who don't have the factory store room/ and kitting experience see a minimum pain for them path that uses more parts, and they take it. (There should be no such thing as production hell).

 

[esk8mw]

Thanks. You have AGAIN confirmed that my opinion is well-founded and correct. Keep on going, you're providing more and more evidence. Perhaps you just don't want to see what's really going on.



Of course. So the M&A person is good. The IP person is completely incompetent. The securities person is inviting trouble, but probably will turn out well. The litigation person is incompetent. I can't speak at all to employment, which is almost invisible from outside, but what little we've seen from leaks doesn't look good to me. As for one other category... in 2013, they clearly didn't actually have anyone at all handling state licensing and regulations (or they were incompetent, I don't know which).

This is still a very bad track record in hiring by Todd Maron.

P.S. Permitting and contracts for superchargers is, according to a leak, done by an outside contractor, apparently with no involvement from Tesla's legal department -- apparently this change is what sped up supercharger installs.


I know for a fact that they've broken the law in black-and-white areas. It does tend to color my view of other areas.



If they think that "we're buying the Australia project batteries from Samsung" isn't material -- if they think "we weren't producing the first 50 prodution cars on a production BIW line, they were hand built" isn't material, uh... sure, this is sort of a grey area. You could claim that this wasn't material. But you'd be wrong.





Citation needed. They've actually given entire POWERPOINT PRESENTATIONS to select groups of investors which they haven't published. It's trivial to publish those; it costs nothing at all. $0. It is cheap and it is easy. It does not require publishing any questions from the investors.

At the moment, I don't think anyone's inclined to complain.... simply because the investors getting these presentations are routinely leaking the information, so it ends up being public quickly anyway. Good for them.

But it's silly for Tesla to rely on that.


Why? Because these investors need to feel, emotionally, like they're doing illegal insider trading, even if they're not really? I suppose that makes sense, if the investors are really emotionally driven.

I'm going to make a contrast: I've followed the actions of legal teams of other companies over the years.

IBM's is unconditionally stellar, always doing everything right. ExxonMobil is arguably evil but tactically extremely effective. Berkshire Hathaway is exceptionally good at all their legal work.

GE, 3M, and several railroad companies I've followed have mediocre but competent legal teams, who are effective most of the time.

Tesla is well below any of those by any external measure. Now, sure, you can say that's just because they're a startup. That's probably true. But they're getting bigger. It's about time they hired a competent in-house general counsel instead of using Elon's divorce lawyer.

OK. This will be my last post on this topic to you because I'm quite sure I can't talk any sense into you. I thought I should speak up to bring you back down to Earth because you are ranting as an uninformed outsider looking in, while I actually work in this field - in this exact environment. Imagine someone outside your area of expertise telling you exactly how things are in your world, complete with exaggerations, incomplete information, absolute certainty in the opinion and handing out Disagrees to the person in the position to actually give an informed opinion based on years of real life experience all the while. It's frustrating.

It is absolutely amazing to me that you proclaim to have the ability to declare multiple presumably hardworking and well-credentialed people as totally incompetent - as a complete outsider and with absolutely zero legal training yourself. That's...curious. You base this off a few minor pet issues that you are not even qualified to evaluate (e.g., quality of low-level legal briefs you claim you could write better...ok). You don't see 98% of these folks' work output (substantially all is internal) and you feel perfectly fine going on a public forum and blasting them all as incompetent. Alrighty then.

Your view of "material" investor information - from a legal standpoint - is simply wrong. The Samsung thing and hand-built thing most likely do not meet the test, despite your self-assured 100% certain proclamation otherwise. Is the information new? Yes. Is it interesting? Yes. That's not enough to make it material in the eyes of the law. You aren't going to base an investment decision on a battery supply chain fact for one project (yes, even if it's big) and the build status of 30 cars. Even if you disagree on this point, realize that it is a gray area and Tesla knows the SEC isn't going to bring action against them for something this minor and questionable. The SEC prefers easy wins (like hiding or deliberately misstating bet-the-company type of issues).

Your point about the cost of making things available on the website being $0 is just hopeless. It's clear to me you have not worked in this type of corporate environment in this type of role. You realize these slides aren't put together on the fly, right? The audience causes the entire calculus to change in preparing the materials. One slide deck can cost $100k, easily, and often much more. If it's headed for broad dissemination it's basically treated like earnings materials. It's put together by a team consisting of Legal, IR, FP&A, Marketing, outside lawyers, PR consultants, investment bankers, other third party consultants and possibly other internal teams, depending on content. If published, you need to get web design, IT, third party vendors and other areas involved. Not to mention all the costs involved if there will be live Q&A and other bells and whistles, transcribers, sign language interpreters, etc. It's not just the money, either - it's the time. Do you have any idea how long it takes to get sign-off on all these things?

Compare to a presentation intended for a narrow, sophisticated investment audience. It can be focused and put together by a small team with the requisite expertise, with minor Legal oversight. That doesn't mean it has secret, different material information - it means it doesn't have to be dumbed down for the world to understand and can be less polished.

The slippery slope thing is a real concern, by the way. If Tesla gives us more access, guess what? It's never enough. People will demand more and more and keep moving the goalposts. Those clamoring for more access will never be satisfied and IR knows that. Let them run their business.

OK. Go ahead and give me that disagree again, twist my response to declare that it actually supports your 100% correct argument and continue ranting about how people you don't even know are totally incompetent in a public forum for another 30 paragraphs. Last word is yours.

 

[ValueAnalyst]

Exhibit 99.2

Tesla Agrees to Issue and Sell $1.80 Billion of Senior Notes

PALO ALTO, Calif., Aug. 11, 2017 – Following the announcement of Tesla's proposed $1.50 billion senior notes offering on August 7, 2017, Tesla today announced that it has agreed to issue and sell $1.80 billion in aggregate principal amount of senior notes due in 2025 (the “Notes”), representing a 20% upsize. The Notes will have an annual interest rate of 5.30%, and the transaction is expected to close on August 18, 2017, subject to customary closing conditions.

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

The Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. The Notes are being offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.

 

[mmd]

Tesla reports that it has spent $1.98 billion on the GF through 6/30/17. Before the 6th amendment none of that was reachable as Collateral, yet the available commitment in ABL was increased by less than a third ($0.625 billion) of that sunk cost--and that does not even consider the increase in Collateral value related to increases in other PP&E and Inventories.

So Tesla spent ~$2B to complete only 30% of the GF? And after 16 months of being "operational" and 3 years of starting construction, still doesn't produce enough cells to supply only 130 MWh project in 6 months? How much will it cost to build it to 100% as promised back in 2014?
Tesla bulls will be delighted when Tesla begins building the next 4-5 Giga factories.

Looks like Tesla is in the market to buy cells just like the other car makers and energy storage companies. It is really surprising, because nearly a year ago, Tesla said their cell cost is much lower due to 'economies of scale'.

 

[Dennisj00]

@mmd, this may explain it better. . . 2017 Investor Roundtable: TSLA Market Action

 

[Oil4AsphaultOnly]

Wild Guess - but any chance this facility is multi-purpose and also solves the parking issue?

zero. Notice that there aren't any inter-level ramps?

 

[Bet TSLA]

That's the kind of lying behavior I would expect from a franchise dealership, not Tesla. I hope the person that sent the email is terminated immediately.

I got a call from Tesla a couple of months ago, wondering if I wanted to upgrade my P85. The guy made that same claim, about needing to upgrade this year if I wanted to get the tax rebate. I told that was very unlikely to be true, and that he should check his information with his manager.

I found it disturbing but didn't follow up. I probably should have.

 

[D-egg-O]

That's the kind of lying behavior I would expect from a franchise dealership, not Tesla. I hope the person that sent the email is terminated immediately.

I was told the same thing by one of my local sales people (I have the text message history to prove it). This was the same individual that told me the dual motor batter pack would max out at 90kWh. Needless to say, I don't trust anything coming from this person's mouth anymore.

 

[Krugerrand]

BTW It has been over 4 months now that Lucid Motors has been trying to raise either $240M for the first phase(20k cars per year) of their Arizona Factory or $700M for the whole enchilada(130k cars per year).

I read a month ago they had an offer to fund the first phase of the factory but Lucid did not like the strings attached.

That doesn't seem like enough money.

 

[graphix25]

Questions to the crowd.

I know 48v will not increase acceleration/speed but will it improve smart suspension? Allowing a superior active/magnetic suspension to what is available in the market place?

Or at least the performance of the audio/infotainment system?

Could Tesla offer a near audio competition type system without adding hundreds of pounds of wiring and extra lead acid batteries?

Tesla doesn't leave $40k grand on the table from auto performance enthusiast why leave $15k-$20k grand on the table from audiophiles if it is easy to pickup?

A good point, the extra voltage could add options for more flexible suspension components. Anything that requires higher power would potential benefit from 48v systems. Examples would include electric turbo chargers, hybrid propulsion systems, active anti-roll bar to name a few. Active suspension components and the desire to simplify the wire harness design is likely what is driving Tesla to switch to 48v. The industry has been slowly moving to 24 and 48v subsystem components mostly driven from hybrid power-trains. All the tier-1 suppliers are designing their next generation components to 48v. I expect for Tesla to move to it's new advance wire harness design it will require transitioning to 48v at the same time. I don't see model y going to crazy with active suspension components (advanced suspension, active anti-roll bars). High performance computer platform needed for autonomous driving could also benefit from a 48v system. My gut tells me for true level-5 they are going to need a lot more horsepower compute wise then what is found today in the model s/x/3. Machine learning systems take eminence amount of compute horsepower. They are underestimating what will be needed.

A good article that discusses 48v.
Why Cars Are Moving to 48-Volt Electrical Systems - ExtremeTech

 

[kenliles]

Probably true,
unless your living in (N/S)Korea
or Guam

 

[Krugerrand]

However, stamped parts are produced in house, on a fixed number of presses (two large ones). To make the Y at Fremont (if they do), they will need new die sets for the panels. These will either need another press line, or to time share with the S,X, and 3.

There are more than two large press lines. There's a third 'new' one (two years old now?) in there that is not a Schuler line. I've seen pictures on the Internet of it. And of course there are a couple of other press lines that make smaller parts, but are still not 'mini' presses or anything. Next person who goes on a tour needs to count the lines for us.

So throwing those thoughts together, I can see larger batch runs of stamped pieces optimizing die change over and production rate. Also allows total vehicle build rate to approach total stamping output rate regardless of the number of presses. They do this now, but on a smaller scale (100k on one press per year vs 500k on 2 vs 1,000k on x?)

That's not how it works or how it is done. *We've* had this discussion in the past. There is no extra time available to make larger part runs to bank parts - please don't make me explain that again. They will run exactly what they need for a week/weekish at a time and as they decide to increase production of vehicles they will increase parts runs at the same rate.

Die changes are for the most part automated so don't take nearly as much time as you might think. But no, they won't make extra parts even if the new buildings are for parts storage. There's something called 'shelf life' that applies to certain materials, aluminum being one of them. It goes 'bad' and then doesn't form right, splits, wrinkles etc... so has to be used within a certain time frame (from start to finish - including things like hemming). And there's something called 'particulates' that if parts are left sitting too long they will collect. You don't want that accumulating on class A body panels because they've been sitting around.

Oh, it can also help when/ if they refresh the dies. Build ahead the stampings so you hit the max number just as you bank enough parts to cover vehicle builds during the refresh (no idea what that time is).

Not usually. New die sets have to go through a number of 'trials' that can take days or weeks to complete depending on a million different factors and possibilities. There's never any way to know how long a trial will take to complete and the new die sets ready to produce parts at rate. Typically trials are scheduled during press 'down time', often conflicting with things like press maintenance times. When the trials are completed for all the pieces involved in the refresh, the die sets will simply be inserted into the production schedule when it's time to make the refresh cars.

One time when parts are banked is when a die/die set is being pulled out of rotation for repair/maintenance. But again, it won't be weeks of extra parts being banked. It might be an extra day or two, or maybe a week if it's a major project.

 

[Krugerrand]

How much does another large press cost compared to a building that large, all the automation in it (or handling to get parts into and out of it), and all the inventory that is in it?

How much does another paint system cost?

The new Schuler press LINE (it's a line of 4/5 presses depending on the line - it's not one press) had to have cost somewhere in the 60-100 million range.

 

[Krugerrand]

The used schuler press was $50mil. I would expect that a new one to cost at least triple that. I don't know how much that building costs, though.

They didn't pay $50 million for the used Schuler press LINE. That was the cost as a NEW press LINE. They only paid $42 million for the whole Fremont factory. If I remember correctly, they paid like $5 million for that press LINE.

 

[Krugerrand]

Mongo, you likely know this.

In changeover, setting the closing height is the long time constant: too open and you don't form the part and too closed and you break something that takes a long time to replace. On smaller presses you build up every die you have, no matter how deep the draw, to have the same closing height.

You're talking shut height and while that plays a role in part formation it isn't the only thing that matters. Cushion pressure, press cycle timing (how fast the press cycles a single stroke), tonnage, blah, blah, blah all plays a role. And no, shut height isn't necessarily the same from one die set to another. It will be consistent for a single die set, obviously. And no, you don't automatically 'build up every die' etc..... The dies will have been designed with a particular press line in mind. The die sets are very unlikely to be press line interchangeable unless you've got two press lines of very similar dimensions and design.

 

[Krugerrand]

It would be good to know how common it has been for presses this size to be used in North American auto assembly plants.
If using that is the norm, then the number of shuttered plants in NA would suggest how likely it would be for Tesla to purchase additional used presses. I believe for something the size and complexity of these presses, not only the price of new will be much higher, worse the time to deliver once ordered will be much longer as well. Stamping presses might be one of the major constraints on ramping total production as quickly as Tesla would prefer and could otherwise achieve. Thoughts?

Industry standard is approx. one year to design, manufacture and install a brand new press line. The last two press lines Tesla has purchased have been brand new. They've either been unable to find suitable used ones, or they've determined the cost/maintenance/service differences support new lines over used one.

A big advantage of new press lines is that they are more and better automated than older ones and they can be custom made to whatever specifications a company wants.

 

[mongo]

That's not how it works or how it is done. *We've* had this discussion in the past. There is no extra time available to make larger part runs to bank parts - please don't make me explain that again. They will run exactly what they need for a week/weekish at a time and as they decide to increase production of vehicles they will increase parts runs at the same rate.

I'm confused, are you saying the line can't run faster and bank parts (no extra time) or that it does run faster and banks a week of parts?

If the 3 is 10k per week, and they bank a week of parts, and the gap between parts is two inches, in a single row that is 1,666 feet, or more than a quarter mile, for one part.