2017 Investor Roundtable:General Discussion

[dennis]

Some musings about inventory cars, price reductions, option bundling and demand:

We know that over the past 12 months Tesla has moved strongly from delivering most cars as custom builds to delivering the majority of its sales from inventory. During the past three months five of my friends have purchased either a Model S or Model X - all were delivered from inventory. At the same time Tesla has significantly reduced the number of options, bundling some features that were previously optional into the base product.

Taken together, these two initiatives have some significant impacts:
- Simplifying manufacturing and the supply chain
- Reducing manufacturing cost
- Enabling even more sales to be fulfilled from inventory since the configuration a buyer wants is likely to be in inventory
- Smoothing out the lumpy quarterly sales pattern, which was set up by the need to get custom configurations in the hands of customers by the end of the quarter worldwide
- Potentially increasing the number of cars that can be produced in a given time period from the same production facilities

By reducing the manufacturing cost, Tesla has two choices of what to do with the savings
- increase the gross margin/gross profit
- pass the savings along to customers by lowering prices, which has the effect of increasing demand because of price elasticity

It appears that this quarter Tesla has chosen the latter path, cutting prices on the higher end models and bundling in previously optional features. This should increase demand. Whether that is needed to fulfill previous levels of production, or whether Tesla is producing more cars because of these changes and therefore needs to create incremental demand should be known in early October when Tesla reports Q3 deliveries.

 

[AlMc]

Off topic BUT: Just checked 'My Tesla Page' and both my first day/stand in line reservation for my 3s are gone. I am sure it is a glitch OR I really made someone mad (definitely possible) on TMC and I have been banned from purchasing Tesla products.


EDIT: Seems it was a glitch that many people experienced: Back now ( midnight EST ). No change, was hoping for a configuration page.

 

[AlMc]

I post this for information only. I don't see we go to 'max pain' tomorrow. If we do I will be a very unhappy Tesla conservative bull

 

[UnknownSoldier]

Is anyone else surprised by how light the volume has been on the run up this week?

I'd like to hear opinions from more experienced traders on what this might mean.

September is historically a light volume month.

TSLA tends to run up when there's nothing interesting happening.

 

[30seconds]

This is not a given. He may also be buying them from new shorts. He may be buying them from longs who now have a different opportunity.

I agree that, if there's a short squeeze in TSLA, it will likely be a lot more than 8% (more than 100% if you ask me), but his question was if there is a mathematically sound correlation, and the answer to that question is a sound no.

Trying to buy an 8% position would drive price way higher than this

 

[mmd]

It appears that this quarter Tesla has chosen the latter path, cutting prices on the higher end models and bundling in previously optional features. This should increase demand. Whether that is needed to fulfill previous levels of production, or whether Tesla is producing more cars because of these changes and therefore needs to create incremental demand should be known in early October when Tesla reports Q3 deliveries.

That's some contradiction from what Tesla wrote about Q2 deliveries. Plenty of P100D and ~92 100D MS still listed in their visible inventory.
Yet Tesla also guided for lower gross margins in Q3.

Tesla - Current Report

The major factor affecting Tesla’s Q2 deliveries was a severe production shortfall of 100 kWh battery packs, which are made using new technologies on new production lines. The technology challenge grows exponentially with energy density. Until early June, production averaged about 40% below demand. Once this was resolved, June orders and deliveries were strong, ranking as one of the best in Tesla history.

If both of these are true, then soon after Tesla resolved the production shortfall of 100 kWh packs, Tesla had to push these into the inventory (depreciation chamber) and cut prices. This, despite an implied big backlog of orders for these from previous quarter.

 

[Ulmo]

More UAW shenanigans...

Labor Takes Aim at Tesla in Private Letter to CA Dems

Those mobsters would be taken to court in a fast millisecond by Tesla if they tried to pass a law like that. AFL-CIO is gross. They are embarrassing. I haven't seen them take any actions which would be in concert with wanting to be good.

 

[GoTslaGo]

I post this for information only. I don't see we go to 'max pain' tomorrow. If we do I will be a very unhappy Tesla conservative bull

Watch out trying to calculate Max Pain at "odd" hours (for reference the created time was 2:02 EST). For whatever reason the data becomes incorrect and subsequently Max Pain winds up being all over the place (not just for TSLA). Being on the west coast this usually means any calculation late at night is wrong... so unless I can calculate before 9 pm PST, I don't bother anymore.

 

[Ulmo]

Trying to buy an 8% position would drive price way higher than this

Not in dark markets.

 

[Papafox]

Tesla Model 3 will wipe out BMW 3 Series sales, says investor

Just wanted to point out that my next door neighbor has a Model 3 on order. She'll be getting rid of her BMW 325 when the Tesla is ready.

 

[EinSV]

An interesting nugget from the update earlier this week from perennial TSLA bear Brian Johnson of Barclays.

His "base case" calls for 840K cars sold in 2022, which he calculates leads to a present value of only $145/share.

What he derisively calls a "blue pill" scenario (suggesting only delusionally optimistic TSLA investors think this will happen) involves sales of 2M+ vehicles in 2022. With this volume, and a P/E of 45-60 due to expectations of continuing growth, he estimates the present value of Tesla stock at $1400-$1800/share and possibly higher depending on expectations for other parts of the business (Semi, Tesla Network, TE). He weights the likelihood of the "blue pill" scenario materializing very low (7%), so his overall PT is low $210.00.

But what Johnson calls the "blue pill" scenario is effectively company guidance -- 1M vehicles in 2020 plus growth of ~41% per year for two years would result in 2M vehicles in 2022.

So the take home message is that one of the most pessimistic TSLA analysts on Wall St believes TSLA is undervalued by a factor of 4-5 compared to the current SP ($377), assuming it can hit 2M+ vehicles in 2022 and still show robust growth potential.

Also worth thinking about this the next time someone says that the market has already priced in Tesla hitting its targets. Not a chance that is true IMO.

A Tesla Skeptic Grows Weary of Fighting Investors’ Dreams
A Tesla Inc (TSLA) Bear Lifts Price Target, an Apple Inc. (AAPL) Bull Less Than Impressed by iPhone X
Barclays Says Tesla Overvalued and Asks What a Tweet Is Worth

 

[TradingInvest]

An interesting nugget from the update earlier this week from perennial TSLA bear Brian Johnson of Barclays.

His "base case" calls for 840K cars sold in 2022, which he calculates leads to a present value of only $145/share.

What he derisively calls a "blue pill" scenario (suggesting only delusionally optimistic TSLA investors think this will happen) involves sales of 2M+ vehicles in 2022. With this volume, and a P/E of 45-60 due to expectations of continuing growth, he estimates the present value of Tesla stock at $1400-$1800/share and possibly higher depending on expectations for other parts of the business (Semi, Tesla Network, TE). He weights the likelihood of the "blue pill" scenario materializing very low (7%), so his overall PT is low $210.00.

But what Johnson calls the "blue pill" scenario is effectively company guidance -- 1M vehicles in 2020 plus growth of ~41% per year for two years would result in 2M vehicles in 2022.

So the take home message is that one of the most pessimistic TSLA analysts on Wall St believes TSLA is undervalued by a factor of 4-5 compared to the current SP ($377), assuming it can hit 2M+ vehicles in 2022 and still show robust growth potential.

Also worth thinking about this the next time someone says that the market has already priced in Tesla hitting its targets. Not a chance that is true IMO.

A Tesla Skeptic Grows Weary of Fighting Investors’ Dreams
A Tesla Inc (TSLA) Bear Lifts Price Target, an Apple Inc. (AAPL) Bull Less Than Impressed by iPhone X
Barclays Says Tesla Overvalued and Asks What a Tweet Is Worth

Brian Johnson assigns 2% probability for the optimistic scenario, which I think should be 80+%.

 

[EinSV]

Brian Johnson assigns 2% probability for the optimistic scenario, which I think should be 80+%.

Johnson's weightings of different scenarios are extremely pessimistic. For example, his "baseline" auto estimate of 840,000 vehicles in 2022 (which he calls "optimistic" lol) is weighted 65%, even though it implies Tesla is more than 2 years behind its 1M in 2020 target. I would weight the odds of that scenario happening below 5%.

For clarification, some of the articles quoted the 2% "blue pill" figure, but the Street (of all places) had an image of his different weighted scenarios, which shows 5% for "blue pill auto" and 2% for "blue pill auto plus new biz" which as I understand it includes some added upside from Tesla Semi, Tesla Network etc.:

Note that the "forced sale" and "stalled auto" scenarios together are given a 28% weighting, compared to 7% probability of essentially meeting guidance. So the low SP target in this analysis seems to be driven fundamentally by pessimism about how well Tesla will perform in selling/producing cars, not a complicated debate about how to calculate its value.

Barclays Says Tesla Overvalued and Asks What a Tweet Is Worth

 

[JBRR]

By now I'm pretty sure that NVDA and TSLA has positive correlation as a trading pair, and I wouldn't be surprised if some algos out there agree.

They almost almost move in tandem to some degree.

 

[Krugerrand]

Hi racer26, could you please give more details about the cargo space part? To me it seems not the case unless you add the frunk.

I'm pretty sure I read that Model S cargo space was 30 cubic feet and Model 3 was 15.

 

[racer26]

Hi racer26, could you please give more details about the cargo space part? To me it seems not the case unless you add the frunk.

Is the frunk not cargo space? Pretty sure I use my frunk to carry cargo on a semi-regular basis.

According to this: 2016 BMW 3 Series Sedan Features & Specs | Edmunds 2016 328i has 13.0cuft of cargo volume.
According to this: Model 3 Model 3 has 15.0cuft.

 

[racer26]

I'm pretty sure I read that Model S cargo space was 30 cubic feet and Model 3 was 15.

I was suggesting that a rational objective person would easily select Model 3 over a BMW 3-series. Model 3 is cheaper to buy, cheaper to operate, has faster acceleration, has more cargo volume, and does all of the above while also being better for the environment.

Quesder challenged my assertion of Model 3 having more cargo volume, but wanted to exclude the frunk for some reason. Sure, Model S has *more* cargo volume, but Model 3 unquestionably has more than a 3-series.

 

[racer26]

I was suggesting that a rational objective person would easily select Model 3 over a BMW 3-series. Model 3 is cheaper to buy, cheaper to operate, has faster acceleration, has more cargo volume, and does all of the above while also being better for the environment.

Quesder challenged my assertion of Model 3 having more cargo volume, but wanted to exclude the frunk for some reason. Sure, Model S has *more* cargo volume, but Model 3 unquestionably has more than a 3-series.

I'll add, this is all as I expected Tesla would do.

Tesla wants their products to be the no-brainer choice. The customer never has to wonder if the Tesla product is the best one available, it just is. I fully expected Model 3 to be better than BMW 3 series on every metric. I'm actually a bit surprised by Model 3 being launched with 220mi range compared to bolt's 238.

BUT.

We already know from here: [Spoiler Alert + Mild Speculation] Tesla has created a monster! that Tesla has sandbagged the EPA numbers for Model 3. To come up with LR's 310mi range, they are using a 65% aerodynamic drag factor (lower % = more drag compensation), where essentially all other makers use 70% on their vehicles, and Tesla themselves uses 73% on S/X (which makes sense, because S/X are some of the slipperiest cars on the road). Model 3 has a lower Cd than even S/X, so if anything, this number should be higher than 73%.

If Tesla used 70% like other automakers, Model 3 LR's EPA range should be 334mi without the sandbagging, 7.7% higher than advertised.

Can we extrapolate from this that Model 3 SR's not-sandbagged EPA range should be 7.7% higher? That would be 237mi, or essentially the exact same as Bolt.

 

[dennis]

That's some contradiction from what Tesla wrote about Q2 deliveries. Plenty of P100D and ~92 100D MS still listed in their visible inventory.
Yet Tesla also guided for lower gross margins in Q3.

If both of these are true, then soon after Tesla resolved the production shortfall of 100 kWh packs, Tesla had to push these into the inventory (depreciation chamber) and cut prices. This, despite an implied big backlog of orders for these from previous quarter.

Like I said earlier Tesla chose to cut prices to generate demand. We don't know yet if they were also able to increase production and that is why they needed additional demand.

 

[Bobfitz1]

Tesla Semi: "The big rig is now set to be shown off for the first time on October 26, however, in Hawthorne, California (which is where the SpaceX HQ is located)." I'm quoting from Dave T's weekly newsletter. Does anyone know why Elon is doing Semi Reveal in Hawthorn rather than Fremont? Does Hawthorne have more event space?