2017 Investor Roundtable:General Discussion

[Intl Professor]

In a similar position, mine is at 55%.

Mind you, I'm not complaining, but even Motley Fool warns against more than 15%! I think TSLA is a sure bet and have scolded wealth manager about selling NVDIA at $17!! which I'd purchased on the ubiquity of their chips and 1% yield. Looked like a safe investment, although I had no idea of their AI work. He bought some big pharma at their high, instead. Big losers in BIIB, JAZZ, and GILD. But as Techmaven has schooled me, we pay much more attention to stocks we love. Manager finally sold Jazz but that may have been triggered only because it lost 6% in the day.

 

[Dagger]

@Alketi Looks like you were right...

Elon Musk on Twitter

 

[ggies07]

View attachment 242610

@Alketi Looks like you were right...

Elon Musk on Twitter

****ing awesome!

 

[tinm]

I hope they do it intelligently, as in, keep a local (in-car) cache of the profile and just compare modification date-time stamps or something w/ server's copy, so car can usually run from local data. Sometimes there is no cellular data service. Don't wanna get stuck when there's no comms. And in this cyberwar era, the time will come when even the Tesla network goes down.

 

[schonelucht]

In many cases the broad details are in financial disclosures. Most of the Tesla details are in their 10K report footnotes.

I am probably dense here. Can you point out which page of the latest 10-K for example? Thank you.

 

[schonelucht]

I worked on setting up the white label Tesla financing in Australia. Can confirm, RV guarantee given to the bank, no subvention.

We've seen a few countries where banks offered below market rates on Tesla loans (for example 0.4% in Benelux, I believe something similar in Norway). Is the bank able to do that solely on the strength of the RV guarantee?

 

[CorneliusXX]

We've seen a few countries where banks offered below market rates on Tesla loans (for example 0.4% in Benelux, I believe something similar in Norway). Is the bank able to do that solely on the strength of the RV guarantee?

I worked for the bank, not Tesla. So I am only guessing what the actual agreement would be in Benelux countries. However my understanding is that banks in this region basically have free money (or effectively cheaper than free money) given the current interest rates in that area and ECB effects.

If you start with the 40bps rate, then add on (potentially) another 10bps from avoiding ECB negative rates - you end up with 50bps that needs to cover OpEx and losses. Assume losses are 0 due to the resale guarantee and the borrower quality of the people purchasing a $100k+ vehicle. This could allow an efficient bank to break even on a deal at 40bps in the weird interest rate environment we have at the moment. There's obviously quite a few assumptions built into this scenario.

In addition, there is a lot of power in Tesla's cache. All banks want to be seen as collaborating with tech innovation and green investments. They could well be prepared to lose money on every deal to be able to stick the Tesla relationship in every quarterly report. At the moment leasing volumes for Teslas are so small that break even or a small loss aren't really going to affect the returns on the loan pool of a reasonable large bank. I wouldn't be surprise if Tesla effectively has a "corporate subsidy" from banks and finance companies.

With the competition between banks for these green/tech accolades and my general knowledge of the negotiations, I am very confident that there is no subvention going on. Tesla shops hard for the best deal for their customers but that's where it would end. They are still supply constrained and sell expensive vehicles to rich people. It makes no sense to subvent deals in Benelux countries to chase the marginal deal while not being able to supply the rest of the world with enough vehicles. If the choice was between the customer paying 0.4% through subvention or more without it, then I think Tesla would only be going with the higher offer.

If banks are losing money, or not making enough on their current arrangements, I would expect to see leasing rates increase as Tesla moves to volume. What is sustainable at 100k vehicles worldwide will not be sustainable at 1m+.

 

[Ulmo]

Hey Elon (or anyone at Tesla reading this)!

Alevo,a battery supply in containers company in Concord, NC, at an ex-Phillip Morris plant (2000+ acres) just filed for bankruptcy. (I think there's a bigger back story).

Gigafactory 3 or 4 for a dime on the dollar??

Companies with names that sound like they are a pill that cause diarrhea don't tend to succeed with those names:

Alevo: Bankrupt
Atieva: Changed name (now Lucid)
Aquion: Bankrupt

Stop trying to use names that to us look like you're sloppily trying too hard to say the socially acceptable things that came out of someone's ass (note the letter A) while simultaneously being something that senile people in group homes see advertised on their Television sets in their common nursing home rooms that came straight from the mouth of a pharma marketing group that have to do something with how they're going to suffer and die; it means you're covering up an inability to do the necessary things. If the "trying to look right" names suck *** to begin with, how much does that say about the evolutionary capability of management? No company with a sucky name is destined to survive, without some strange error in luck or edge-of-the-bell-curve facts about it that spite the awfulness of their names. If you sound like a Detroit car model of the last 40 years, you'll probably fail.

Here's another hint: if somehow you've simultaneously figured out how to use the first letter of the word ass and fit that into a three syllable word that is 6 letters or less:

1. No English speaker will spend the time to say three syllables unless they really really want to. They'll close the script on you before step 1.
   
2. Yes, it stinks; see above full description.
3. You are too shy to use enough letters for the syllables you do have.

So, you used too many syllables and you're too shy to use more letters. Seriously?!

Successful non-monopoly USA company names, in their age:

• Ford (still doing OK)
• GM (did OK for a while)
• IBM (had a good run)
• Tesla (on the way to being huge, currently at Gigantic Station, so no sniffle of a company): I'd argue they should lose the name with the `a' on the end, and this caps their growth at some point. It might need a better name. Ford might buy it when Elon dies.
  
• Walmart (doing OK -- sucky name but fits their demographic OK)
• Berkshire Hathaway: sounds like a kidnap mafia group, but the name doesn't sound like ass at least.
• Apple (doing OK; had a great run. There's a difference between a fruit and a diarrhea pill. If you named your company Banana or Orange, it might have difficulty, but if you pick the very best fruit of them all in terms of basicness and pretty good regard, you'll do OK. Name taken, of course, so forget about fruits; other niche names like Blackberry also flamed out for a while, doing OK with their names, but had stupid leadership; you can't fix stupid.)
• Exxon (Sounds like she dumped you and started a graveyard; part of a dying industry, but still has reserves. Survived not due to good name but due to proprietary market positioning.)

The rest of the companies on the big company list are all the types of companies that make things that advertise on Television sets in nursing homes to old senile people that make products for suffering or death (yes, big Healthcare companies).

---

Edit:

I see where the stupid MBAs get their ideas from: they see some big companies with names like Amaze! It On, Ape Leo, and RAM IT CO, otherwise known as Amazon ($.4T), Apple ($.8T), and Aramco ($1T), and they say, YES, I'll copy those name formats ... let's see, what letters can I fit in there like that? Don't! You're being stupid: Amazon is a stupid name. Apple is a smart name, but it's taken; you can't have it. Aramco is a really stupid name, but survives off of proprietary, not advertising. I don't know why Sears closed their catalog when they could have put it online and been the next Amazon, but they're stupid, so they lose. Amazon succeeded because its owner is super brilliant, not because it has a good name. Aramco literally starts world wars and kills billions of human beings in order to make money. Is that what you're trying to do with your company? If it is, and you smell like ass when you say the name, forget it. You're not first.

 

[Alketi]

View attachment 242610

@Alketi Looks like you were right...

Elon Musk on Twitter

Cheers @Dagger. It was only logical.

 

[jbcarioca]

I am probably dense here. Can you point out which page of the latest 10-K for example? Thank you.

Please don't ever think off such questions as dense. The information itself is dense, sometimes intended to be so; or so I think when I'm in a cynical mood. Anyway here it is:
The link to the CY 2016 annual report is here:
Tesla - Annual Report
pg 35: "..During the third quarter of 2016, we discontinued our resale value guarantee program in North America. The resale value guarantee was originally introduced in 2013 to help to reassure customers that Tesla vehicles would retain value over time."

"Automotive Financing Options

We offer loans and leases for our vehicles in certain markets in North America, Europe and Asia primarily through various financial institutions. We offer a resale value guarantee in connection with certain loans offered by financial institutions. During 2016, we discontinued the resale value guarantee in North America, but continue to offer it in selected European and Asian markets. Resale value guarantees available for exercise during fiscal year 2017 total $179.5 million in value.

Vehicle deliveries with the resale value guarantee do not impact our near-term cash flows and liquidity, since we receive the full amount of cash for the vehicle sales price at delivery. However, this program requires the deferral of revenues and costs into future periods as they are considered leases for accounting purposes. While we do not assume any credit risk related to the customer, if a customer exercises the option to return the vehicle to us, we are exposed to liquidity risk that the resale value of vehicles under these programs may be lower than our guarantee, or the volume of vehicles returned to us may be higher than our estimates, or we may be unable to resell the used cars in a timely manner, all of which could adversely impact our cash flows. Based on current market demand for our cars, we estimate the resale prices for our vehicles will continue to be above our resale value guarantee amounts. Should market values of our vehicles or customer demand decrease, these estimates may be impacted materially.

We currently offer vehicle leases in the U.S. directly from Tesla Finance, our captive financing entity, as well as through a leasing partner. Leasing through Tesla Finance is now available in 39 states and the District of Columbia. We also offer financing arrangements through our entities in Canada, Germany and the U.K. Leasing through both our captive financing entities and our leasing partners exposes us to residual value risk and will adversely impact our near-term operating results by requiring the deferral of revenues and costs into future periods under lease accounting. In addition, for leases offered directly from our captive financing entities (but not for those offered through our leasing partner), we only receive a limited portion of cash for the vehicle price at delivery and will assume customer credit risk. We plan to continue expanding our financing offerings, including our lease financing options and the financial sources to support them, and to support the overall financing needs of our customers. To the extent that we are unable to arrange such options for our customers on terms that are attractive, our sales, financial results, and cash flow could be negatively impacted."

The real trick is going from these general statements, typical in notes, to specific numbers, Some are disclosed, some are not, and there is a constant accounting debate about whether such items are 'material' so must be disclosed or 'not material' in which case there are disclosed when management thinks there is an advantage in doing so.

For Tesla we do not have enough disclosure to know exact numbers that are sufficiently precise to interpret. On the face of recent resale acitivy it seems unlikely that Tesla is losing money on these value guarantees.

I hope that helps. When more detailed information is available it tends to be in supporting documentation for publicly disclosed secured inventory financing (for auto dealers and distributors this is called "floor planning". For manufacturers it may be in "work in process", "finished goods inventory" or a similar category. For Tesla we have only vague statements about the finished goods inventory financing credit lines. Anybody who claims accurate precise knowledge on this subject probably is either misinformed or basing opinion on non-public information.

I hope that helps. You definitely are asking good questions.

 

[schonelucht]

I worked for the bank, not Tesla. So I am only guessing what the actual agreement would be in Benelux countries. However my understanding is that banks in this region basically have free money (or effectively cheaper than free money) given the current interest rates in that area and ECB effects.

Nah. To decide if something is below market you need to factor in the opportunity cost as well. The very low interest loan on a Tesla costs them foregoing a higher interest loan on a different car (or different product). We are talking about for-profit banks.

In addition, there is a lot of power in Tesla's cache. All banks want to be seen as collaborating with tech innovation and green investments. They could well be prepared to lose money on every deal to be able to stick the Tesla relationship in every quarterly report.

I don't think that's a credible explanation. Why would a diverse set of banks in different countries all decide to run this time-limited promotion at the same time for quarterly bragging rights and then not actually brag about it?

They are still supply constrained

That's incorrect for the S/X.

 

[jbcarioca]

I worked for the bank, not Tesla. So I am only guessing what the actual agreement would be in Benelux countries. However my understanding is that banks in this region basically have free money (or effectively cheaper than free money) given the current interest rates in that area and ECB effects.

.... They are still supply constrained and sell expensive vehicles to rich people. It makes no sense to subvent deals in Benelux countries to chase the marginal deal while not being able to supply the rest of the world with enough vehicles. If the choice was between the customer paying 0.4% through subvention or more without it, then I think Tesla would only be going with the higher offer.

If banks are losing money, or not making enough on their current arrangements, I would expect to see leasing rates increase as Tesla moves to volume. What is sustainable at 100k vehicles worldwide will not be sustainable at 1m+.

Good points, I think. As a general rule high end cars have very, very low credit risk. There a handful of exceptions (Rolls Royce, Lamborghini were examples a decade ago, I do not know today). The same vehicles can have really large residual value risk. Tesla has been quite conservative in establishing their own guarantees by pegging them to vehicles that have high initial dealer margins and very expensive maintenance and repair. The drop in initial vehicle value in this class has always been very large. Tesla alone has continuous improvement on existing vehicles that does help reduce loss of value. They also have not subvented money factors nor interest rates, both of which reduce resale values. Mitigants to that rosy picture are the initial purchaser tax credits/rebates and the newness of Tesla as a manufacturer. So there is probably almost zero credit loss to financiers of Tesla, with residual values set pretty conservatively. Thus, third parties are elated because credit risk is their biggest worry. I speculate that the vast majority of Tesla purchases/leases are on auto-pay/direct debit which further decreases administration costs and credit risk. Finally, risk of loss due to accidents is lower for Tesla because virtually none of them will ever operate as uninsured vehicles.

In general these points apply globally. There are markets in which one or another of these points do not apply. We could become exceedingly detailed in these questions, which some of us might enjoy, but as investors there really is nothing to worry about at all.

Somebody might say LGD (Loss Given Default) may be extremely high. No question, it is, but POD (Probability of Default) is vanishingly low.

Model 3 will act just like Roadster, S and X in these respects. If I'm wrong I'll be devastated, but I really don't think there is much chance of being wrong.

FWIW, I led the financial evaluation of the sales and resale market risks for four completely new auto brand entrants in several countries. All the details were under NDA's that by now may be deemed expired but I still feel obligated to not identify them. The general issues described above worked everywhere. Unless the target market is truly entry level or lousy quality (say Toyota in the 1960's US or Subaru under Malcolm Bricklin in the US for example) the good credit and residual values tend to hold. Some fight hard for entry success because their initial offerings and/or distribution were so flawed. Tesla had those risks and obliterated them.

 

[schonelucht]

I hope that helps. You definitely are asking good questions.

Thanks, it does. So "Tesla finance" would be the entity that captures the federal tax credit? Supposedly fully consolidated, or am I missing some financial reporting on it in the releases?

 

[CorneliusXX]

Nah. To decide if something is below market you need to factor in the opportunity cost as well. The very low interest loan on a Tesla costs them foregoing a higher interest loan on a different car (or different product). We are talking about for-profit banks .

When you have too much cash the OC is -10bps form the ECB, not more advantageous lending. Remember, not all loans come with a resale guarantee and strong borrower credit scores. See previously mentioned article.

I don't think that's a credible explanation. Why would a diverse set of banks in different countries all decide to run this time-limited promotion at the same time for quarterly bragging rights and then not actually brag about it?

I can only go off what i directly know to state that loss leaders exist in real life. Happy for you to disagree.

That's incorrect for the S/X

Ok, I'll leave that to the experts.

 

[schonelucht]

When you have too much cash the OC is -10bps form the ECB, not more advantageous lending. Remember, not all loans come with a resale guarantee and strong borrower credit scores. See previously mentioned article.

Ok, let's assume market conditions are such that 0.4% Tesla loan was a sound business decision. Why was it then such a time limited offer (a few weeks)? And why was it the best offer in such disparate economies as the UK (not 100% sure there), Norway and Belgium, under different central bank regimes? It just makes more sense that there was something much more specifically going on with those cars at that time rather than with general economic circumstances.

I can only go off what i directly know to state that loss leaders exist in real life. Happy for you to disagree

I don't dispute they exist. I just find it not very credible that completely different entities in completely different markets all at the same time decide to engage in the same loss leaders? Would you not agree that is quite unusual?

 

[AudubonB]

Companies with names that sound like they are a pill

Moderator Note:
I almost deleted the post in its entirety as there is no justification for your writing style. Cut it out.

HOWEVER, you're off the hook this time, because the underlying message is one I share.

You did, though, miss my two favorite abominations: Allegis and Altria. There is approximately a 0% likelihood anyone without a fetish for corporate names beginning with the letter "A", or cheating, correctly can describe both these firms' activities.

 

[Ulmo]

nits: proprietary s/b propriety (re Aramco); Tes sounds like Tessy, short for Transvestite. Also caps growth. Will have to shed some decade once they start dropping the `a' on the end (Tesl sounds like Tussle). Nikola and Nikkie are also bad for similar reasons. It almost works to extend the name full out to "Nikola Tesla", but to do that, they'd have to become REALLY big, like own half the world's utilities and capture 90% of the sun used for electricity to be allowed to use such a great name as that.

 

[SteveG3]

Cheers @Dagger. It was only logical.

Yup, nice going Alketi.

Also fits with Elon's comments a couple of months back about a Tesla music service... that goal may or may not pan out well, but, it's not the wild off the course desperate swing that much of the media tried to characterize it as. Everything that makes you feel at home in your own car seemlessly in every Tesla you enter. I like Tesla's take on luxury : )

 

[CorneliusXX]

Good points, I think. As a general rule high end cars have very, very low credit risk. There a handful of exceptions (Rolls Royce, Lamborghini were examples a decade ago, I do not know today). The same vehicles can have really large residual value risk. Tesla has been quite conservative in establishing their own guarantees by pegging them to vehicles that have high initial dealer margins and very expensive maintenance and repair. The drop in initial vehicle value in this class has always been very large. Tesla alone has continuous improvement on existing vehicles that does help reduce loss of value. They also have not subvented money factors nor interest rates, both of which reduce resale values. Mitigants to that rosy picture are the initial purchaser tax credits/rebates and the newness of Tesla as a manufacturer. So there is probably almost zero credit loss to financiers of Tesla, with residual values set pretty conservatively. Thus, third parties are elated because credit risk is their biggest worry. I speculate that the vast majority of Tesla purchases/leases are on auto-pay/direct debit which further decreases administration costs and credit risk. Finally, risk of loss due to accidents is lower for Tesla because virtually none of them will ever operate as uninsured vehicles.

In general these points apply globally. There are markets in which one or another of these points do not apply. We could become exceedingly detailed in these questions, which some of us might enjoy, but as investors there really is nothing to worry about at all.

Somebody might say LGD (Loss Given Default) may be extremely high. No question, it is, but POD (Probability of Default) is vanishingly low.

Model 3 will act just like Roadster, S and X in these respects. If I'm wrong I'll be devastated, but I really don't think there is much chance of being wrong.

FWIW, I led the financial evaluation of the sales and resale market risks for four completely new auto brand entrants in several countries. All the details were under NDA's that by now may be deemed expired but I still feel obligated to not identify them. The general issues described above worked everywhere. Unless the target market is truly entry level or lousy quality (say Toyota in the 1960's US or Subaru under Malcolm Bricklin in the US for example) the good credit and residual values tend to hold. Some fight hard for entry success because their initial offerings and/or distribution were so flawed. Tesla had those risks and obliterated them.

Oh god, I love it when someone knowledgeable talks auto financing to me.

The drop in initial vehicle value in this class has always been very large. Tesla alone has continuous improvement on existing vehicles that does help reduce loss of value.

I would argue that this is a double edged sword. Continuous improvement is good compared to other automakers, but potentially bad against other Teslas. Not sure which effect is larger.

So there is probably almost zero credit loss to financiers of Tesla, with residual values set pretty conservatively. Thus, third parties are elated because credit risk is their biggest worry. I speculate that the vast majority of Tesla purchases/leases are on auto-pay/direct debit which further decreases administration costs and credit risk. Finally, risk of loss due to accidents is lower for Tesla because virtually none of them will ever operate as uninsured vehicles.

I concurr

In general these points apply globally. There are markets in which one or another of these points do not apply. We could become exceedingly detailed in these questions, which some of us might enjoy, but as investors there really is nothing to worry about at all.

I agree, there is nothing to worry about given the number of vehicles financed under the true "Tesla finance"

Somebody might say LGD (Loss Given Default) may be extremely high. No question, it is, but POD (Probability of Default) is vanishingly low.

Why do you say LGD would be high? I agree with the PD.

Model 3 will act just like Roadster, S and X in these respects. If I'm wrong I'll be devastated, but I really don't think there is much chance of being wrong.

Again I agree. Especially if the Tesla network comes on board. PD could be a factor, however in theory, the financier could take remote control of the vehicle and put it to work to repay the debt. This is a truly amazing thing to think about. Imagine if you missed a vehicle payment and your car just went out to work to pay it off? So strange to think about.

 

[CorneliusXX]

Ok, let's assume market conditions are such that 0.4% Tesla loan was a sound business decision. Why was it then such a time limited offer (a few weeks)? And why was it the best offer in such disparate economies as the UK (not 100% sure there), Norway and Belgium, under different central bank regimes? It just makes more sense that there was something much more specifically going on with those cars at that time rather than with general economic circumstances.



I don't dispute they exist. I just find it not very credible that completely different entities in completely different markets all at the same time decide to engage in the same loss leaders? Would you not agree that is quite unusual?

Have a look on the Tesla website right now for loan rates. If i look for % figures throughout Europe, there are plenty of countries offering 0.25% interest. Therefore i don't agree that the 0.4% was a limited edition, but just an economic decision.

I don't dispute they exist. I just find it not very credible that completely different entities in completely different markets all at the same time decide to engage in the same loss leaders? Would you not agree that is quite unusual?

I agree, it is very unusual. where else can banks get so much (consumer/market) exposure to greentech in one go? In my opinion, there are enough banks in each country to eat any negative returns on Tesla loans and that will occur until Tesla has meaningful volume compared to the loan book of the financier. This is the strength of the green/tech pull on funders.