2017 Investor Roundtable:General Discussion

[dalalsid]

Excellent, then get an even better rating for the packaged fund?

Where did I hear about this back in 2006-2007? Hmmm...



A sane overview / disccussion of Tesla's bond issue here:

Behold the Sheer Artistry of Tesla's Bond - Bloomberg Gadfly

Downvote my posts all you want. Tesla will face reality sooner or later when the tide turns.

It's not a matter of if, it's a matter of when.

PS: It's also telling that none of the points I raised

- 1GW vs 10GW in solar capacity
- 100-200k Model3 in H2 2017
- past debt issuances in 2014-2016 for the very same tickets/promises. namely Model3 and GF1,

were discussed.

You're back!! Stormy weather??

 

[vgrinshpun]

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[ValueAnalyst]

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.

I think people now see that, but it opens the question, "why can't anyone else buy these cells from Samsung?"

 

[Reciprocity]

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.

Pretty sure I posted almost exactly this about an hour after the news broke. So needless to say, I agree. You must be ignoring me!

 

[vgrinshpun]

Bond investors give Tesla a $1.8 billion endorsement

"It's a milestone for a company from a relative unknown to what it is today," said David Knutson, head of credit research at Schroders Investment Management.

While the ability of Tesla to raise so much cash with such a low rating might revive memories of market bubbles such as the dot-com boom, strategists said that analogy did not apply.

"Tesla is not one of these companies," said Stan Shipley, a strategist at Evercore ISI in New York.

Despite lingering skepticism, there has been no shortage of funds to fuel Tesla's ambition to popularize electric cars.

Investors who jumped on the bandwagon have been rewarded.

Tesla has raised $3.3 billion in convertible bonds, which have performed well, in step with its stock.

 

[ValueAnalyst]

That's definitely one thing that could change the landscape. A/F/C would have a learning curve to catch up to T, however they have the technical knowledge and financial firepower to scale quickly. Maybe not 1-2 years, but certainly in 5. The only question is if the have the will and the staying power to spend (WAG) $20b-50b creating a worldwide scale vehicle.

Exactly. Focus will be the differentiating factor. They will not be as focused on this as Tesla.

Aside from everything else Apple manufactures, note that Tim Cook keeps saying "autonomous systems," not "autonomous cars."

This also opens the question, "why can't Tesla expand into the autonomous systems (beyond cars) that Tim is talking about?"

Apple will increasingly become a competitor to Tesla, and Tesla partnering with Google may go a long way appeasing this concern.

Apple/Foxconn has some announcements looming in the background, and Elon has (at least publicly) taken them lightly.

I have to admit I don't intuitively understand the appeal from the debt buyers' perspective. Their maximum upside is 5.3%, but that presumes that Tesla's absolute worst case scenarios are taken off the table and that they get paid back. If you take the worst case scenarios off the table, surely the equity risk:reward is more appealing? Of course there has to be some X% where this works, the market decided 5.3% using experience and bond raters and comps and so on, and for me there would have to be SOME percentage I'd make that deal, but my intuition is like err.. 10%? Given how little debt Tesla has presumably there isn't a lot of risk on the table for senior positions. I figure I've made it this far without fully grasping the logic of the credit markets, so I can continue being ignorant but if there's any magical explanation that would give me an epiphany how it can be such a low number I'm open ears.

My answer to you is very simple: If you are an investor in TSLA, then you probably estimate the probability of a bankruptcy at very close to zero, if not zero. If the bankruptcy risk is zero, it would be asinine to not lend to a company at 5.3% in today's low rate environment.

Credit rating agencies got this one wrong, Tesla deserves a better rating than junk, but their hands are tied with traditional credit methodologies that heavily weight EV/EBITDA ratios. Tesla's credit rating will improve very substantially by end-2018.

Bond investors give Tesla a $1.8 billion endorsement

Everyone is missing the most important implications of this bond deal around valuation.

Tesla's ability to issue non-dilutive debt at a low cost benefits the company and its shareholders in three ways:

1. Lower-than-expected cost of debt lowers the company's discount rate;
2. The fact that Tesla can now finance its growth with debt, instead of through equity secondaries, allows the company to lever its balance sheet, which lowers the company's discount rate; and
3. Since the company can now issue non-dilutive debt, the company no longer needs to dilute its existing shareholders by 7-10% each year, as has been the case in the past.

These are all very positive developments for Tesla's long-term shareholders, and why I have been pushing for a non-dilutive bond deal.

 

[vgrinshpun]

I think people now see that, but it opens the question, "why can't anyone else buy these cells from Samsung?"

Anybody can buy cells from Samsung, and do.

The Tesla specification cells, however, will be available only to Tesla, and this is only tip of the iceberg. Tesla's pack technology and cell management is the main differentiator.

 

[ValueAnalyst]

Anybody can buy cells from Samsung, and do.

The Tesla specification cells, however, will be available only to Tesla, and this is only tip of the iceberg. Tesla's pack technology and cell management is the main differentiator.

Retail investors need to be informed of this. Tesla has not been great at explaining its competitive advantage around what you just mentioned in layman's terms. If you can explain it to me, and if I agree with your line of logic, maybe I can help through articles.

Also - please confirm this: "Tesla specification cells will be available only to Tesla." Does Tesla own a patent on this specification? I thought they shared this technology with Panasonic? What are the protections around this advantage?

 

[Reciprocity]

Exactly. Focus will be the differentiating factor.

Aside from everything else Apple manufactures, note that Tim Cook keeps saying "autonomous systems," not "autonomous cars."

They may make a car, we don't know, but they won't be as focused as Tesla on it.

This also opens the question, "why can't Tesla expand into the autonomous systems (beyond cars) that Tim is talking about"

Apple will increasingly become a competitor to Tesla, and Tesla partnering with Google may go a long way appeasing this concern.

Apple/Foxconn has some announcements looming in the background, and Elon has (at least publicly) taken them lightly.

Literally no one is building $5B battery factories. Until they are, it's all smoke and mirrors. There just aren't enough batteries and no amount of money will get you batteries in time to compete. Even if someone was building more factories today, the market for those batteries is highly fragmented. This is similar to iPhone vs Android. The inefficiencies built into the fragmented market will make it very difficult for competitors to make profits. Someone like Apple could burn enough cash to catch up, but the time scale would be more like 5 years then 2 and probably longer because they haven't even broken ground yet. Tesla's deal with Samsung is another thing that makes it difficult, current battery manufactured already have contracts with companies so if Apple is not one of them, then they have to wait in line. Until you see dozens of factories breaking ground, add 5 years, that's when competition will arrive. Tesla will be 5 years ahead of where they are today so it could could take decades to catch up. Competition was part of Tesla's plan all along, they want it and need it. They just want to stay ahead of it, and I see no end in sight to that lead.

 

[ValueAnalyst]

Literally no one is building $5B battery factories. Until they are, it's all smoke and mirrors. There just aren't enough batteries and no amount of money will get you batteries in time to compete. Even if someone was building more factories today, the market for those batteries is highly fragmented. This is similar to iPhone vs Android. The inefficiencies built into the fragmented market will make it very difficult for competitors to make profits. Someone like Apple could burn enough cash to catch up, but the time scale would be more like 5 years then 2 and probably longer because they haven't even broken ground yet. Tesla's deal with Samsung is another thing that makes it difficult, current battery manufactured already have contracts with companies so if Apple is not one of them, then they have to wait in line. Until you see dozens of factories breaking ground, add 5 years, that's when competition will arrive. Tesla will be 5 years ahead of where they are today so it could could take decades to catch up. Competition was part of Tesla's plan all along, they want it and need it. They just want to stay ahead of it, and I see no end in sight to that lead.

What if Apple has been working with Foxconn/CATL and announce 5 Gigafactories this week w/ start of production in 2019 and full scale by 2022?

 

[JRP3]

Tesla's pack technology and cell management is the main differentiator.

Not sure I completely agree with this. Tesla's main differentiator is their use of NCA cell chemistry, which is currently the most energy dense available, and which allows them to pack more kWh's into vehicles. The pack architecture and cell management is simply the direct result of using NCA chemistry in small cylindrical format.

 

[GSP]

Anybody can buy cells from Samsung, and do.

The Tesla specification cells, however, will be available only to Tesla, and this is only tip of the iceberg. Tesla's pack technology and cell management is the main differentiator.

Do you have a source for Samsung supplying a Tesla specific cell design, or are you just assuming that will be the case since that is what Tesla does with Panasonic?

Perhaps Samsung is making their own design for "21700" format cells and Tesla bought those "generic" cells for the Australia Powerpacks.

GSP

 

[scaesare]

I think people now see that, but it opens the question, "why can't anyone else buy these cells from Samsung?"

I suspect @vgrinshpun is correct. Although Tesla may contract with Samsung (or Panasonic via partnership) to manufacture them, I suspect the intellectual property regarding them (chemistry, anode/cathode design, case design, foregoing cell-level safety features, etc...) remains Tesla's. As such, while we can buy cells from thoe manufacturers, they aren't necessarily the same.

It's long been widely held that the Panasonic NCR18650B or NCR18650G cells are close to Tesla's, but not necessarily exact.

Lots of companies hold IP and contract out manufacture. To use the favorite examples: Foxconn manufactures for Apple, and you and I can buy from Foxconn, but we can't buy the exact parts to make an iPhone.

 

[vgrinshpun]

Not sure I completely agree with this. Tesla's main differentiator is their use of NCA cell chemistry, which is currently the most energy dense available, and which allows them to pack more kWh's into vehicles. The pack architecture and cell management is simply the direct result of using NCA chemistry in small cylindrical format.

We are generally talking about the same thing.

The use of NCA energy dense cells, which were considered "too risky" by others is enabled by the Tesla innovation in pack technology and cell management.

I am not trying to argue this, however, as it will be "chicken and egg" kind of discussion.

 

[ValueAnalyst]

I suspect @vgrinshpun is correct. Although Tesla may contract with Samsung (or Panasonic via partnership) to manufacture them, I suspect the intellectual property regarding them (chemistry, anode/cathode design, case design, foregoing cell-level safety features, etc...) remains Tesla's. As such, while we can buy cells from thoe manufacturers, they aren't necessarily the same.

It's long been widely held that the Panasonic NCR18650B or NCR18650G cells are close to Tesla's, but not necessarily exact.

Lots of companies hold IP and contract out manufacture. To use the favorite examples: Foxconn manufactures for Apple, and you and I can buy from Foxconn, but we can't buy the exact parts to make an iPhone.

That analogy is helpful, but Apple did not say, "All Our Patent Are Belong To You."

 

[vgrinshpun]

Retail investors need to be informed of this. Tesla has not been great at explaining its competitive advantage around what you just mentioned in layman's terms. If you can explain it to me, and if I agree with your line of logic, maybe I can help through articles.

Also - please confirm this: "Tesla specification cells will be available only to Tesla." Does Tesla own a patent on this specification? I thought they shared this technology with Panasonic? What are the protections around this advantage?

A lot could be gleaned from Tesla patents, but reading through them is long and arduous process. You can start with this one, just to get overall 101 on construction of the Tesla battery pack.

Regarding the cells, it is most definitely not a generic cell. The only generic part is the format. Telsa battery management system (BMS) is designed for a specific cell. It is not Tesla buying Samsung generic cell and then designing the pack and BMS to fit. It is the other way around - Tesla provided cell spec to Samsung. Then Tesla spec cell manufactured by Samsung can be used with the Tesla pack design and BMS.

As far as patents are concerned, they are **NOT** a blue print on how to build stuff. The patent is just a description of the principles intentionally void of specific details. There is huge amount of R&D work hours required to design and produce stuff after general principles described in a patent are formulated. And this process could lead to significantly different implementations, although starting point could be the same - a particular patent.

 

[ValueAnalyst]

A lot could be gleaned from Tesla patents, but reading through them is long and arduous process. You can start with this one, just to get overall 101 on construction of the Tesla battery pack.

Regarding the cells, it is most definitely not a generic cell. The only generic part is the format. Telsa battery management system (BMS) is designed for a specific cell. It is not Tesla buying Samsung generic cell and then designing the pack and BMS to fit. It is the other way around - Tesla provided cell spec to Samsung. Then Tesla spec cell manufactured by Samsung can be used with the Tesla pack design and BMS.

As far as patents are concerned, they are **NOT** a blue print on how to produce stuff. The patent is just a description of the principles intentionally void of specific details. There is huge amount of R&D work hours required to design and produce stuff after general principles described in a patent are formulated. And this process could lead to significantly different implementations, although starting point could be the same - a particular patent.

This is very helpful thank you. I will have to research the topic in depth before I feel comfortable including in an article, but it's helpful to know that someone with your level of knowledge is convinced on Tesla's advantage around this.

I expect the Samsung deal to be a focal point of the next bear round. "ICE makers can purchase batteries from Chinese suppliers" has been a pillar of the bear argument, and this deal (since Tesla has not provided any detail to support what you laid out) can easily be construed to support the bear argument for bears to continue to manipulate retail investors.

We are generally talking about the same thing.

The use of NCA energy dense cells, which were considered "too risky" by others is enabled by the Tesla innovation in pack technology and cell management.

I am not trying to argue this, however, as it will be "chicken and egg" kind of discussion.

This is very helpful and also explains why earlier FUD focused on fires and safety issues.

 

[ValueAnalyst]

I now realize that I should have done a lot more research into Tesla's battery technology before investing in TSLA.

This was naive of me, so I need to correct this mistake ASAP.

In the meantime, I estimate that 99% of retail investors in TSLA do not understand Tesla's competitive advantage around battery technology.

If anyone has any connections to Investor Relations, I would recommend a Jim Cramer interview with JB Straubel.

 

[ggr]

I think people now see that, but it opens the question, "why can't anyone else buy these cells from Samsung?"

They probably can, but who needs them? A couple of low-volume motorcycle manufacturers, Faraday Future, Lucid? Any others we are aware of?

Edit: I wasn't thinking of stationary storage, so I add to the question: do any of the storage competitors use small cells like Tesla? I thought they almost all used pouch or prismatic? But I don't know.

 

[ggr]

Retail investors need to be informed of this. Tesla has not been great at explaining its competitive advantage around what you just mentioned in layman's terms. If you can explain it to me, and if I agree with your line of logic, maybe I can help through articles.

Also - please confirm this: "Tesla specification cells will be available only to Tesla." Does Tesla own a patent on this specification? I thought they shared this technology with Panasonic? What are the protections around this advantage?

It can be specified in a contract, even if there's no patent. They just tell Samsung, "To get this order, you have to promise not to reveal our design or formula, or to sell these cells to others." By way of example, Samsung manufactures cellphone chips for Qualcomm (my ex), and had to make similar guarantees... including not to put Qualcomm tech into their own chips, because they are a competitor as well.