2017 Investor Roundtable:General Discussion

[racer26]

Is that our cap raise?

I don't really understand what I'm looking at. Can someone less-ignorant-than-me on the subject enlighten me?

 

[The Blue Owl]

Why do lawmakers continue to harp on EVs for being coal-powered?

This is why.

(The article is of wider relevance. Recommended.)

 

[Jonathan Hewitt]

Is that our cap raise?

I don't really understand what I'm looking at. Can someone less-ignorant-than-me on the subject enlighten me?

I think these are the main points if I read it right:
-Telsa has to pay 11.5% interest if TSLA is above 60% of it's current price.
-At maturity they have to pay back the principle if TSLA is above 60% of it's current price.
-TSLA can buy back the notes any point from June onward if TSLA is above 60% of it's current price.

My interpretation is Elon wants a safety net to keep the company from getting hurt badly (bankrupt?) if things go horribly wrong but didn't want to dilute shareholders at a measly $250/share when over $1,000/share is possibly right around the corner. This way they get the cash from the notes now so if something bad happens and the stock drops 40% then TSLA keeps all the money and they are sitting a lot better than if they didn't issue the notes.

If nothing bad happens the stock may skyrocket, they then do a stock offering, and they buy back the notes. If we skyrocket in the next 3-6 months the amount of interest paid wont be that significant and everyone wins (Except TSLA shorts).

EDIT: This is just a structured product. TSLA receives no money from the transcation. Structured product - Wikipedia

 

[racer26]

This is why.

(The article is of wider relevance. Recommended.)

Nice article. Does not make it less frustrating that people seemingly incapable of reason continue to run things.

While I agree with the article's premise (that our reasoning functions are flawed as individuals because of things like confirmation bias) I would still expect that our legislative system's design seeks to find the optimal solution by taking a democratic vote from an array of people (whose biases should therefore average out and become less impactful on the end result).

 

[racer26]

I think these are the main points if I read it right:
-Telsa has to pay 11.5% interest if TSLA is above 60% of it's current price.
-At maturity they have to pay back the principle if TSLA is above 60% of it's current price.
-TSLA can buy back the notes any point from June onward if TSLA is above 60% of it's current price.

My interpretation is Elon wants a safety net to keep the company from getting hurt badly (bankrupt?) if things go horribly wrong but didn't want to dilute shareholders at a measly $250/share when over $1,000/share is possibly right around the corner. This way they get the cash from the notes now so if something bad happens and the stock drops 40% then TSLA keeps all the money and they are sitting a lot better than if they didn't issue the notes.

If nothing bad happens the stock may skyrocket, they then do a stock offering, and they buy back the notes. If we skyrocket in the next 3-6 months the amount of interest paid wont be that significant and everyone wins (Except TSLA shorts).

Seems to make some sense - but I could also see buying them back with off-the-hook Model 3 profits and skipping the dilution altogether. Only other part I don't necessarily understand is the document reads as though its MS guaranteeing the principle, not TSLA. That could just be me not knowing the way these things are typically underwritten or whatever, though.

 

[Matias]

So investor gets 11.5% return. What happens after three years?

I think these are the main points if I read it right:
-Telsa has to pay 11.5% interest if TSLA is above 60% of it's current price.
-At maturity they have to pay back the principle if TSLA is above 60% of it's current price.
-TSLA can buy back the notes any point from June onward if TSLA is above 60% of it's current price.

My interpretation is Elon wants a safety net to keep the company from getting hurt badly (bankrupt?) if things go horribly wrong but didn't want to dilute shareholders at a measly $250/share when over $1,000/share is possibly right around the corner. This way they get the cash from the notes now so if something bad happens and the stock drops 40% then TSLA keeps all the money and they are sitting a lot better than if they didn't issue the notes.

If nothing bad happens the stock may skyrocket, they then do a stock offering, and they buy back the notes. If we skyrocket in the next 3-6 months the amount of interest paid wont be that significant and everyone wins (Except TSLA shorts).

So if after three years Tsla is below 60% of the current price, investor loses the principle?

 

[MitchJi]

Not good. An ex Tesla employee who went from being an advocate for the company to someone whose experience has caused M3 reservation holders to cancel.
Repairing My Tesla Model S Has Been an Utter Nightmare -- and It's Mostly Tesla's Fault -- The Motley Fool

Repairing My Tesla Model S Has Been an Utter Nightmare -- and It's Mostly Tesla's Fault
I still don't have my car back.
Seven months, three weeks, and three days.

That's how long it's been since my Tesla Model S was involved in an accident and I still don't have my car back. That's nearly eight months of rather large monthly payments for a car that I'm unable to drive; nearly eight months of incrementally higher costs associated with insurance and registration for a car that's sitting in the shop; nearly eight months of having to find and arrange alternative transportation; nearly eight months of having to buy gas again, while the gas savings had previously offset part of said large monthly payments; nearly eight months of impatiently waiting to get back a car that I absolutely love; nearly eight months of regularly prodding Tesla for updates with little to no success.

You may assume that my car was involved in some sort of catastrophic incident that required a protracted period of time to repair. Nope. It was a run-of-the-mill accident (more details later). Tesla is predominantly responsible for why it is taking so long, because out of those eight months, over five of them were spent doing nothing but waiting for parts.

Let me back up a bit and start from the beginning.
<Snip> (story about his purchase)

Like most Tesla customers, we became involuntary but not unwilling advocates for the company, fielding a constant string of questions from friends, family, and strangers regarding how the car worked as well as about the necessary behavioral adjustments associated with going all-electric. We also attracted the typical confounded stares when we'd put something in the frunk, or put the kids in the rear-facing seats that we had Tesla retrofit post-delivery.

A couple months after taking delivery, we placed a reservation for a Model 3 on March 31, the day that Tesla unveiled the vehicle and started taking deposits.

July 11, 2016: Accident day
I was actually at the Tesla factory in Fremont, California, when the accident occurred (I worked for Tesla very briefly during the summer of 2016). My wife called me frantically, exasperated that she had been involved in an accident. Most importantly, she was largely unharmed; just some minor whiplash that she quickly recovered from. She was more concerned that the car had been injured. She had been driving home from work, sitting stationary at a stop light, when a young driver failed to hit the brakes in time and rear-ended the vehicle at a relatively low speed.

Here's the picture I asked her to take of the car immediately after the impact:

It looks worse than it was, in part because the Model S and Model X contain more aluminum than most vehicles. Aluminum crumples much easier than steel since it's a softer metal. This is also an important safety feature since the crumple zones are both larger and able to absorb more impact, with the downside being that aluminum is more expensive. A consequence is that Tesla accidents look really bad because the vehicles get mangled, but the functional benefit is minimal intrusion into the passenger cabin.

Less than six months after we had taken delivery, our Model S was off to the shop.

Nearly eight months later...
While Tesla performs most routine service itself, it outsources major body work to a network of third-party body shops that are certified by Tesla. The certification process is expensive and time-consuming, but certified body shops will garner most of the local business (there is only one certified body shop in my immediate area).

Shortly after receiving my damaged car, the body shop started tearing down the vehicle to assess the
damage, and ordering the parts that would be necessary for the repair. The vast majority of the repair time has been gobbled up here. I had heard and read stories about Tesla parts taking longer to deliver relative to the rest of the industry, but that's somewhat expected for a young car company with just one factory. Anecdotally, stories of it taking two to three months for Tesla to deliver parts are not uncommon. After three months had passed and the body shop had still not received all the necessary parts, we began reaching out to Tesla directly through their customer service channels, which serves as a liaison to the internal parts department.

Initially, no customer service representative that we interacted with was willing to take ownership of our issue. We kept getting passed between representatives with little to no useful information (a customer service manager eventually took ownership of handling our issue after repeated escalations). Parts had started to trickle in, but there still weren't enough to start the repair so our car continued to sit idly. Two of the more pertinent parts were a rear lift gate and rear quarter panel, which were still outstanding. During one of the escalations in November (four months after the accident), Tesla guaranteed us that all parts would arrive at the body shop no later than the last week of November. They didn't.

In mid-December, the shop finally received enough (but not all) parts to start working on the car. At that point, the holidays were nearly upon us, and every industry slows down around that time of year. The body shop would begin the repair in early January 2017 after the holidays. There were still a few outstanding parts, including bulb rivets. I would think that something as basic as rivets would be among the easier parts to deliver, but evidently I'm wrong (and not alone). We again contacted customer service, and Tesla again assured us they had just shipped the remaining parts for overnight delivery. Frankly, we didn't have much faith at this point, as we had been told this before. But in the final week of January, the shop confirmed that they had indeed received all remaining parts necessary to complete the repair. It looked like light at the end of the tunnel, six months in. At this point in the story, the car has spent more time in the shop than in our possession.

A couple weeks ago, the body shop updated us that the car was about to enter the paint shop, at which point it should only be a couple more weeks to reassemble the painted pieces and then perform electronics calibrations and a few other outstanding items. It turns out that the 12V battery is also now in need of replacement, as it will no longer hold a charge (perhaps related to how long the car has been sitting idle?). The shop ordered the battery a week and a half ago. Tesla uses exactly one specific supplier for its 12V batteries, which is struggling to keep up with Tesla's demands. We're now looking at yet another delay for the 12V battery, which is a part that most people are able to purchase for their vehicles locally within 15 minutes.

As soon as Tesla delivers this battery, the car will be ready within a day or two. It's supposed to be ready this week, but at this point I have incredibly low expectations, as we are again waiting on Tesla to deliver.

Tesla is known for having a generous loaner policy when vehicles are being serviced, but sadly this policy does not apply to body work.

The driver that hit us was uninsured, so we had to file our claims through our collision coverage, and we have coverage for a rental. But our rental coverage maxes out at 45 days, which is typically sufficient time for most body repairs. Having already known that our repair would probably take at least two months, I knew we would need to arrange alternative transportation. Even if we opted to use our insurance company's negotiated rental rates, it would cost approximately $1,000 per month to rent a car. That's in addition to the monthly loan payments that we are still paying.

Fortunately, my parents are retired, and as such have little need for their cars. My mother graciously agreed to let me borrow her car as long as needed, which relieved us of having to bleed out a small fortune ($7,000 by now) in rental fees for an indefinite and still ongoing period of time.

What this means for investors
To say that this whole experience has been traumatizing would be an understatement. As long-standing investors and newfound customers, it has profoundly shaken our faith in Tesla as a company. Thus far, Tesla has not given us a reason as to why our parts were so severely delayed, so we have no indication as to whether or not this is a one-off exception or if there is some systemic problem within Tesla's parts operations. While we've been waiting, Tesla has delivered tens of thousands of vehicles, including about 29,000 Model S sedans.

Some of Tesla's weakness here is certainly related to its own ability to produce parts, which continues to improve every month. Theoretically, parts production should improve as Tesla continues to ramp its overall manufacturing capacity, but it seems like this can't be the only reason. I'm mildly confident that my case is an outlier, but even if it is, it's still disconcerting that situations like this can slip through the cracks after repeated escalations and assurances.

It also calls into question Tesla's ability to support its existing customer base, which is of critical relevance to whether or not Tesla can support a massively larger customer base. The company is still targeting 500,000 units in 2018. As many analysts and pundits point out, the mainstream is far less forgiving for this sort of thing compared to enthusiastic early adopters.

We are now questioning our Model 3 reservation. We haven't finalized our decision, nor will we have to for a few more months. Owning two Teslas now seems like a significant risk should one of them ever be involved in any type of accident, small or large. In sharing our story with other Model 3 reservation holders, we know that a few of them canceled as a direct result, since our run-of-the-mill repair has devolved into an utter nightmare.

 

[Drax7]

250 * 1.6 = $400

Nice !!

Let the rally begin.

 

[Thumper]

Document shows no Aggregate principal amount, so what is the total cap raise?

 

[MitchJi]

Nice article. Does not make it less frustrating that people seemingly incapable of reason continue to run things.

While I agree with the article's premise (that our reasoning functions are flawed as individuals because of things like confirmation bias) I would still expect that our legislative system's design seeks to find the optimal solution by taking a democratic vote from an array of people (whose biases should therefore average out and become less impactful on the end result).

We just did that and we got trump.

 

[3Victoria]

This is why.

(The article is of wider relevance. Recommended.)

Thanks for that link. Extremely interesting. How to compensate for obvious flaws in our thinking processes.

 

[dennis]

I've been puzzling over the disconnect between Tesla's seemingly low forecast of 47K-50K 1H17 deliveries and US deliveries of new Model S and X moving to May one to two months ago. Then I found this today:

Now, Global Equities Research’s Trip Chowdhry has an update from Tesla’s factory, noting that production has restarted:

[Yesterday] the production at TSLA’s Fremont factory was restarted and activity levels were in full swing
Both Model S and Model X were on Test Tracker, which clearly indicates that production has restarted
The comprehensive view is the following: Production is ramping up and will achieve 2,000 to 2,100 vehicles per week by next week. This week will be around 1,000 to 1,500 vehicles produced

Shutdown was 2/20 supposedly to 2/28. But if we are to believe this report nothing was produced last week, and 1/2-2/3 volume this week. Plus I thought we were told that production would be at 2,400 per week by last December, not 2,000-2,100.

My takeaways:
- Tesla is production constrained in Q1, but at a production level well below the optimistic forecasts I have been reading on TMC
- Tesla is optimizing for the Model 3, not for Q1/Q2 S & X production. This is a good thing long term, but there could be some short term stock price pain associated with the reporting of Q1/Q2 numbers.

 

[vgrinshpun]

250 * 1.6 = $400

Nice !!

Let the rally begin.

Where are you getting this? Are you referring to the downside threshold of 60%, i.e. trigger for NOT paying monthly coupon. If so: $50 x 0.6 =$150...

 

[racer26]

I've been puzzling over the disconnect between Tesla's seemingly low forecast of 47K-50K 1H17 deliveries and US deliveries of new Model S and X moving to May one to two months ago. Then I found this today:

Shutdown was 2/20 supposedly to 2/28. But if we are to believe this report nothing was produced last week, and 1/2-2/3 volume this week. Plus I thought we were told that production would be at 2,400 per week by last December, not 2,000-2,100.

My takeaways:
- Tesla is production constrained in Q1, but at a production level well below the optimistic forecasts I have been reading on TMC
- Tesla is optimizing for the Model 3, not for Q1/Q2 S & X production. This is a good thing long term, but there could be some stock price pain following Q1/Q2 reporting

Anybody know when we heard about increased staff/parts ordering commensurate with going 3-shifted on the final assembly line?

Seemed strange to me that at the time of the shutdown, Tesla said there would be no impact on 1Q17 results because they'd 'added production days to compensate', when the factory is already operating 7 days a week.

But; 8-10 days of shutdown at the 4Q16 rate would be equivalent to 16-20 shifts, or about 3 weeks of the shifts made up for by 3-shifted operation.

Of course, that ignores lower throughput due to training on the first part of that. Seems to me that if the factory shutdown prepared it for 3-shifted operation, then the shutdown could be made up for by the end of 1Q17.

 

[3Victoria]

We just did that and we got trump.

Yes, averaging probably doesn't work. In any binary decision, confirmation bias and the waterfall of information supporting both options results in extreme splitting of the populous. Yikes. The articles suggest our superficial understanding if any problem tends to make us more sure of our position. Understanding the true complexity reduces the extremity of our views. Likely explains thr binary viewpoint about Tesla! Consider the seemingly superficial understanding of most of the 'analysts'.

 

[SwTslaGrl]

Perhaps the structured investment could attract a new type of investors (wealth management), used as diversification etc.

 

[GoTslaGo]

I think these are the main points if I read it right:
-Telsa has to pay 11.5% interest if TSLA is above 60% of it's current price.
-At maturity they have to pay back the principle if TSLA is above 60% of it's current price.
-TSLA can buy back the notes any point from June onward if TSLA is above 60% of it's current price.

My interpretation is Elon wants a safety net to keep the company from getting hurt badly (bankrupt?) if things go horribly wrong but didn't want to dilute shareholders at a measly $250/share when over $1,000/share is possibly right around the corner. This way they get the cash from the notes now so if something bad happens and the stock drops 40% then TSLA keeps all the money and they are sitting a lot better than if they didn't issue the notes.

If nothing bad happens the stock may skyrocket, they then do a stock offering, and they buy back the notes. If we skyrocket in the next 3-6 months the amount of interest paid wont be that significant and everyone wins (Except TSLA shorts).

See page 8 of the note prospectus.

Looks more like they will establish a SP base price (let's say 250).

If the SP drops to below 60% (150) then their contingency clause kicks in and you can lose it all.

If the SP remains between 150 to 250 then you collect interest at 11.5% per month for 3 years.

If SP shoots to the moon, the notes are callable, you get your principle back plus the last month interest (and whatever interest you got before that).

This is a quick read

 

[vgrinshpun]

I've been puzzling over the disconnect between Tesla's seemingly low forecast of 47K-50K 1H17 deliveries and US deliveries of new Model S and X moving to May one to two months ago. Then I found this today:

Shutdown was 2/20 supposedly to 2/28. But if we are to believe this report nothing was produced last week, and 1/2-2/3 volume this week. Plus I thought we were told that production would be at 2,400 per week by last December, not 2,000-2,100.

My takeaways:
- Tesla is production constrained in Q1, but at a production level well below the optimistic forecasts I have been reading on TMC
- Tesla is optimizing for the Model 3, not for Q1/Q2 S & X production. This is a good thing long term, but there could be some short term stock price pain associated with the reporting of Q1/Q2 numbers.

I think that Trip Chowdry is prone to oversimplification and wildly inaccurate prognostications that historically are all over the map. I would take anything produced by him with a large grain of salt.

 

[racer26]

See page 8 of the note prospectus.

Looks more like they will establish a SP base price (let's say 250).

If the SP drops to below 60% (150) then their contingency clause kicks in and you can lose it all.

If the SP remains between 150 to 250 then you collect interest at 11.5% per month for 3 years.

If SP shoots to the moon, the notes are callable, you get your principle back plus the last month interest (and whatever interest you got before that).

This is a quick read

Nobody seems to have answered whether this is TSLA issuing debt, or MS issuing a derivative product based on TSLA SP, but otherwise unrelated to TSLA (ie. TSLA doesn't get the money, and its not the cap raise we're looking for).

Reddit comments seem... inconclusive on the subject as well.

 

[Lump]

This isn't being issued by Tesla, its a MS product put together to be sold.