2017 Investor Roundtable:General Discussion

[Subhuman]

For instance, will mainstream Model 3 buyers tolerate no service centers in many states, or one that is far away? Will they tolerate Rangers? Will they tolerate non-responsive delivery specialists, not to mention missed dates and on-again, off-again delivery dates?

The dealership issue is really a short term problem that tesla is working to solve on a number of fronts.

First they are trying to engineer the need for services away as much as possible by the design of the car. How often do you need to take an iPhone in for service. A car isn't exactly the same thing but you get the idea.

Second, once autonomous driving is in full swing it won't matter how far away the dealership is. They could change sevice hours to a midnight shift and the car drives to the dealer, gets repaired and drives home all while you sleep soundly in bed.

Autonomous driving is really the answer to the repair and delivery issue.

 

[RobStark]

Will they tolerate Rangers?

As much as someone "tolerates" concierge service from Ritz Carlton or American Express Black.

: Tesla's gonna punt, give up on its principles, and either open up a special, very restrictive, high-touch, expensive-to-get-into, requiring extensive training and certification, franchise dealership program, or partner with someone like AutoNation or CarMax with similar extreme certification and training and service and marketing standards, to sell and service cars in all the states that don't offer Tesla stores or service centers. That's my guess. Within next 12 months, possibly within next 6 months.

Franchised dealerships within the next 24 months? Zero chance.

Authorized service at Pep Boys,Firestone, or similar ? Maybe.

 

[Quesder]

The dealership issue is really a short term problem that tesla is working to solve on a number of fronts.

First they are trying to engineer the need for services away as much as possible by the design of the car. How often do you need to take an iPhone in for service. A car isn't exactly the same thing but you get the idea.

Second, once autonomous driving is in full swing it won't matter how far away the dealership is. They could change sevice hours to a midnight shift and the car drives to the dealer, gets repaired and drives home all while you sleep soundly in bed.

Autonomous driving is really the answer to the repair and delivery issue.

I don't know. If your car needs a repair, how can you expect that it can drive itself flawlessly to the service center hours away?

 

[Subhuman]

I don't know. If your car needs a repair, how can you expect that it can drive itself flawlessly to the service center hours away?

While I get your point how do must cars make it to the service center. The vast majority are drove to the dealer with minor issues. Powertrain failiure are not that common with Tesla vehicles and as mention in my previous post, Tesla will work to improve the design of the vehicle to make this sort of failure negligible.

I suppose an issue with autonomous driving feature might be a deal breaker though.

 

[kenliles]

My very-deep-in-the-money J19 *$120* Calls are actually in a position where executing them gives a better deal than selling them. They're selling for less than inherent value!

Very unusual.

That can happen especially on very low volume options coupled with large SP volatile days. I've had that happen on straight calls as well. It's an arbitrage created by the Market Maker not keeping up with the rapid change in SP. You can advantage by purchasing more, but beware your first purchase will usually cause a correction to eliminate the arbitrage. Not sure if it's automatic somehow , but that's what I've experienced. Haven't done that in a while however, so just offering what I've experienced in the past.

 

[dhrivnak]

For instance, will mainstream Model 3 buyers tolerate no service centers in many states, or one that is far away? Will they tolerate Rangers? Will they tolerate non-responsive delivery specialists, not to mention missed dates and on-again, off-again delivery dates?

Will Tesla be able to service a fleet of Model 3s? Especially in the many states in which there are zero service centers?

While lack of service centers could be a problem I think the average user would LOVE the ranger program. That is what I had my first three years and it was WONDERFUL.

 

[neroden]

Then buy some more! This happened to me a few weeks ago (I posted at the time but can't be bothered looking it up at the moment.) Classic arbitrage. I regret being offline most of the day, today was full of opportunity.

Oh, the spread was such that buying them would still cost more than the inherent value. I checked. But selling them makes no sense now.

 

[Sancho]

Tesla's on a mission, and we're just along to help keep financing options open so that they can achieve their mission. If TSLA does well as the mission proceeds it's just gravy, but nowhere near the priority objectives.

I totally agree with you. But since I also believe in the mission, I couldn't be happier with this. It would be difficult for me to parse how much I care about the money versus the mission, and Elon may parse it differently. But hey, the two are interrelated, and as long as both our net worths and our planet are being enhanced, let's sit back and enjoy the show.

Oh, I also need to parse my interests as consumer. I love my Model S, I hope someday to get one of those solar roofs, and where do I sign up for a brain implant to improve my memory?

 

[neroden]

Prediction: Tesla's gonna punt, give up on its principles, and either open up a special, very restrictive, high-touch, expensive-to-get-into, requiring extensive training and certification, franchise dealership program,

I think they can avoid dealerships. The direct-delivery model does work...

or partner with someone like AutoNation or CarMax with similar extreme certification and training and service and marketing standards, to sell and service cars in all the states that don't offer Tesla stores or service centers.

Not sell. Never sell.

Tesla certified repair shops (they don't sell the cars, they just repair them, and anyone who passes the tests can be certified) seem like a very likely idea. They're already doing this with body work, right? Why not with other repair work?

This also avoids nearly all of the "franchised dealership" issues.

 

[Intl Professor]

There's nothing new here but the fact that the New York Times got it right and the ubiquity of its readership.

https://www.nytimes.com/2017/04/03/business/tesla-ford-general-motors-stock-market.html?_r=0

News to me though was an explanation of the stock's volatility which must have been pretty obvious to more experienced investors here. I can't say they are right that the stock fluctuates since so much more of it is in few hands compared to the "institutional" carmakers.

 

[geneclean55]

Stock options for employees. Wasn't there some recent controversy over employee pay/conditions and Elon mentioned stock option benefits.

I think he does care about the stock price for multiple reasons.

 

[neroden]

There's nothing new here but the fact that the New York Times got it right and the ubiquity of its readership.

https://www.nytimes.com/2017/04/03/business/tesla-ford-general-motors-stock-market.html?_r=0

News to me though was an explanation of the stock's volatility which must have been pretty obvious to more experienced investors here. I can't say they are right that the stock fluctuates since so much more of it is in few hands compared to the "institutional" carmakers.

This quote did irritate me:

Once Tesla begins producing the Model 3, Mr. Musk expects production to ramp up quickly, with a goal of making 500,000 cars a year by 2018. Achieving that target will not be easy, Mr. Brauer said. “That’s five times growth in volume,” he said. “I don’t know of any car company that’s ever done that in a two-year period.”

Ford Motor Company between 1911 and 1913: growth in volume of a factor of 4.88.

Ford Production

So maybe Tesla doesn't quite get to five times growth and their 2018 production is only 4.88 times their 2016 production. I'm OK with that.

This is cherry-picking but it's very deliberate cherry-picking: this is the period when Ford got the assembly line really working. And this is when Musk is trying to get the fully automated production line really working.

 

[callmesam]

*Cross-Posting from Tesla Market Action*

Mark Spiegel's Short Thesis falsified by Mark Spiegel's link:

 

[Intl Professor]

OT as usual for me. Another "came across" today. The headline is sensational and misdirecting, the contents much like a bikini as a former student compared to statistics: what they suggest is interesting, what they conceal is crucial.

Blackwater founder held secret Seychelles meeting to establish Trump-Putin back channel

To steal from Churchill: the Middle East is like a quagmire within a quagmire, whirlpools within turbulent flow.

 

[KLC13]

Stock options for employees. Wasn't there some recent controversy over employee pay/conditions and Elon mentioned stock option benefits.

I think he does care about the stock price for multiple reasons.

Yes, and this increase in SP would definitely create support for Elon against UAW. TSLA employees know that the SP will take a hit if they go towards UAW, why would they risk losing $$'s on their stock options, specially this close to M3 launch (and continued SP run up).

 

[sundaymorning]

Tesla is now more valuable than Ford because it’s no longer just a car company

To sum it up, shorts are "roadkill".
Tesla no longer a car company.

If we move past 300 tomorrow, my guess is that it'll attract even more shorts, followed by strings of good news, moving the stock up even higher forcing more shorts to cover. It's game on as of yesterday. Anyone heard from @myusername?

 

[luvb2b]

i had not assumed much for zev credits, but let's just say it's down to $20 million.
on q1 2014 cars there were around $55m in rvg's. let's say $50m gets released.
q3 2016 they set aside 250m for rvg's. assume they don't have to set aside 100m (40% usa sales) - i believe that $100m goes to gross margin with the sale.
capex doesn't go to profit except through depreciation, right?
tesla energy contributes say $25-30m gross margin.
fewer cars in transit means lower finance charges, maybe $3-5m extra there.
higher unit sales adds about $10-20m in gross profit.

so i roughly estimate maybe 200-210m in profit items to make up for the 138m zev credits in q3 2016. that could be enough to turn the whole company to gaap profitabipity.

Yes, RVGs will be tailing off and added to earnings each quarter, but keep in mind that the amounts getting added back this past quarter will be RVG cars from Q1 2014, when sales were much lower (6457 deliveries). That 2.4b is quite backloaded given the huge ramp in sales up through when the RVG was discontinued in 2016. Also, 2.4b includes a good chunk of RVG that has not been discontinued - some non-US countries still maintain an RVG program.

agree we might get some ZEV credits but I'd guess under 50 million. Value has to be declining given oversupply and prospect of Trump eliminating the requirements.

I still think capex keeps us from getting to GAAP profit and opex keeps us from getting to non-GAAP profit, but there's still the possibility of surprises from areas no one knows how to model (TE/Solar).

 

[everman]

I've got my own meme created and ready for tomorrow morning...

Complete with Mark BS on the right...

 

[schonelucht]

on q1 2014 cars there were around $55m in rvg's. let's say $50m gets released.
q3 2016 they set aside 250m for rvg's.

I made a thread to discuss the financials of Q1 earlier. You can find it here : 2017Q1 results As i calculate it out, they will release 75M in RVG next quarter. Let me know if you can agree with how I got to that number, it's spelled out in the post. My conclusion however is that the automotive side of the business is not going to be GAAP profitable. Energy side is too much of a wildcard for me to estimate. I am hoping its impact on profitability will be minor so my conclusions are still worth something when discussing the overall company.

 

[Papafox]

My very-deep-in-the-money J19 *$120* Calls are actually in a position where executing them gives a better deal than selling them. They're selling for less than inherent value!

Very unusual.

I own a bunch of J19 120s too and trade regularly with deep ITM leaps. The good news is that with patience you can sell without realizing negative time value. It all depends upon the day. The problem with the J19 120s at the moment is that they've sunk into that never-never land of being a lower strike price than another leap of the same expiration date that has practically no time value being charged. I mean, would you rather buy a $100 or a $200 strike leap if the time value charge was the same for both? It's a no brainer, you'd go for the $200 leap because your money down is lower and your leverage is higher. Right now, the hot ticket for low time value J19s is the 150 strike price. A total of 22 of these traded Monday, with bid price including a couple dollars of time value. So, what you do if you trade within a retirement plan and don't worry about taxes is you wait for your chance to sell your 120s with little or no time value (there are daily fluctuations) and then you buy J19 150s for around $30 ($3000/contract) less. Let's say you have to pay $2 more in time value for the 150s, so you realize $2800 per contract freed up cash by selling a 120 and buying a 150. With 10 contract, that comes out to harvesting $28,000 cash while retaining the same earnings capability, and that money can be kept for a rainy day or reinvested. Overall, I say that deep in the money leaps work best in a 401K or an IRA because they need to be managed so that you stay reasonably close to the lowest cost (and hottest selling) low-to-no time value leaps. The farther your strike price falls within the zero time value range, the harder your leaps become to trade without offering some kind of discount (in which case it is better to exercise the option than sell it). My favorite method of changing strike prices is to do so on a day with rising prices throughout the day (like today) by buying a couple 150 strike J19s first, then when TSLA has gone up about $3, selling 2 of my $120s and thereby eliminating any trading penalty (and thus realizing $3000 cash harvest for each contract moved). Similarly, you can sell the 120s at a peak on a typical trading day and buy the 150s in a trough.