2017 Investor Roundtable:General Discussion

[TrendTrader007]

and suddenly i feel very sad for you.

who taught you this?

i'm just kidding bud! you're alright
just some black humor. i happen to be in an anti-philosophical mood
okay let me set the record really straight: i really have no disagreement with what you say. You're obviously an extremely intelligent and thoughtful/ analytical person and what you said makes total sense to me. i just happen to be intransigent and not overly amenable to reason and when i am posting on these forums i really don't take myself too seriously. there is always an underlying existential despair which drives certain individuals to do irrational things but then only the irrational ones succeed.
from here on i have zero cause for any significant disagreement with your ideas because i think you're a super smart person

 

[vgrinshpun]

i'm just kidding bud! you're alright
just some black humor. i happen to be in an anti-philosophical mood
okay let me set the record really straight: i really have no disagreement with what you say. You're obviously an extremely intelligent and thoughtful/ analytical person and what you said makes total sense to me. i just happen to be intransigent and not overly amenable to reason and when i am posting on these forums i really don't take myself too seriously. there is always an underlying existential despair which drives certain individuals to do irrational things but then only the irrational ones succeed.
from here on i have zero cause for any significant disagreement with your ideas because i think you're a super smart guy

How do you know that?

 

[defc0n]

Just to set the record straight I could be a billionaire and still drive that Civic. The amount of money I make or lose or have has absolutely nothing to do with my lifestyle choices as a consumer. I play the game this way because I like winning more than anyone else I personally know of and as Ted Turner said money is how we keep score.
Making money to me is just a game. I really don't care to use it (other than to make more money)
Who's the richest man in the cemetery: that is the name of the game

I think I could find some ways to spend some of that money if you wont!

 

[GoTslaGo]

FYI: List of the 19 richest dead people (one is still alive):

The 20 richest people of all time

@TrendTrader007 pretty hard to match any of them. My suggestion (mentioned before). Ditch the Civic, and get yourself a safer car at least (doesn't even have to be a Tesla). And enjoy some of the money you make. Life is short and the grave will be here sooner than we all think.

 

[luvb2b]

um, who said i was a guy?

because i think you're a super smart guy

 

[kenliles]

i did not mean to suggest that he would forcibly jack the share price.

what i meant is there is a menu of revenue that could be chosen to be realized this quarter or next, i think. they can choose when and how many zev credits to sell. the ap update came so late you could say it wasn't proven well enough to take now and push it to next quarter.

good management wouldn't take everything off the menu this quarter and then leave nothing for next. they would likely smooth volatility or choose to help show growth.

Thanks for that clarification. I would agree they will do that as a well managed tactic if within easy reach; and there's also excellent reason to believe that is the case- primarily with accelerated PV of the SCTY future values. Agree with all of that- [in fact a few (including me) believe the timing of the merger was exactly to accomplish that.]

Counter risk to that supposition, is Musk will accelerate CapX to aggressively advance mission and growth, swamping the availability of easy reach GAAP profit for 4 consecutive.
Given that scenario would have to play out over at least 2-3 quarters (even with revised outlooks); I think the best way to advantage both possibilities is to leverage with stock and J19C DITM- with perhaps some discretionary risk funds targeting J19C OTM.

Perhaps more specifically is my concern readers will draw too much correlation to 2013 (and associated squeeze), with big plays on ER short-term calls. There are some similarities, but IMO the fundamental differences override those similarities. From market condition, to macro, to shorts, to specific Tesla investment community participatory anticipation. I do believe the ER will provide more SP kick- although not a 2013 repeat;

Fantastic work spearheading this analysis. Really looking forward to your cost numbers luvb2b. Thanks again- invaluable contribution

 

[TrendTrader007]

um, who said i was a guy?

sorry! my bad
it was a typo

 

[TrendTrader007]

FYI: List of the 19 richest dead people (one is still alive):

The 20 richest people of all time

@TrendTrader007 pretty hard to match any of them. My suggestion (mentioned before). Ditch the Civic, and get yourself a safer car at least (doesn't even have to be a Tesla). And enjoy some of the money you make. Life is short and the grave will be here sooner than we all think.

lol gimme a break dude!

 

[TrendTrader007]

How do you know that?

sorry! i apologize it was a typo
okay, changed it to person
i'll be more careful in future

 

[brian45011]

They're profitable. SolarCity has stated this so many times in so many ways; they have stated that they simply do not sign contracts which are unprofitable; they have had a history of higher prices than their competition; and I believe they're telling the truth about that profit. I don't think they're very profitable, though, and I do think they've been uncompetitive (growth not good). This is why i've been treating the solar business as effectively breakeven.

You simply do not get it. SCTY has claimed their contracts are profitable based on the assumption that there will be a high percentage of renewals in years 20 to 30, then you state:

The renewals are worthless. Nobody's going to renew at the contracted prices. I don't consider there to be any significant liability from the "obligation to remove the systems". More likely, SolarCity will sell the systems to the homeowner for pennies plus the discharge of obligations. Or offer a new PPA at much lower rates.

Furthermore: "We have incurred net losses in the past, and we had an accumulated deficit of $77.9 million as of December 31, 2016." SCTY's excessive cost of customer acquisition can't be ignored.

The evidence is that SolarCity's default rate will *probably* remain very low, though there is some concerning news of less-well-underwritten recent transactions. But that's OK because their stated intent is to get out of the lease/PPA business, so this isn't going to propagate or expand

Getting out of the lease/PPA business does nothing to counteract the default risk of existing, legacy contracts.

" In 2016, seventy one actions relating to fixed charges were taken by utilities around the country. In the event that effective net metering programs are limited in California, Arizona and other key markets or any such fees or charges are imposed, our ability to attract new customers and compete with the price of electricity generated by local utilities in these jurisdictions may be severely limited, and such unaccounted for increases in the fees or charges applicable to existing customer agreements may increase the cost of energy to those customers and result in an increased rate of defaults under our customer agreements."

" If the retail price of energy available from utilities were to decrease for any reason, we would be at a competitive disadvantage. As a result of these or similar events impacting the economics of our customer agreements, we may be unable to attract new customers and we may experience an increased rate of defaults under our existing customer agreements."

Those PPAs are generally less than 5 years old and contain escalator clauses that thus far have outpaced the rise in local utility prices for energy because electrical energy is commonly priced based on the marginal cost of natural gas which has benefited from fracking. If that phenomenon persists, the pressure will build and an increasing rate of defaults will likely ensue

 

[luvb2b]

but capex doesn't affect earnings meaningfully, only through depreciation which tesla records typically in cost of goods sold.
an opex ramp could cause a problem, but they're not going to be delivering that many more cars in july/august so it seems a bit early to hire now and have people sitting around idle for 6 months.

said it before and will say again - this time there's no way that i have found to earn 2013 type payouts. the cost to borrow was much higher making the calls much cheaper. this time the losers on the other side of the trades won't be in such horrible shape as they were in 2013.

thanks for the kind words. let's hope i'm not walking into a trap.

Thanks for that clarification. I would agree they will do that as a well managed tactic if within easy reach; and there's also excellent reason to believe that is the case- primarily with accelerated PV of the SCTY future values. Agree with all of that- [in fact a few (including me) believe the timing of the merger was exactly to accomplish that.]

Counter risk to that supposition, is Musk will accelerate CapX to aggressively advance mission and growth, swamping the availability of easy reach GAAP profit for 4 consecutive.
Given that scenario would have to play out over at least 2-3 quarters (even with revised outlooks); I think the best way to advantage both possibilities is to leverage with stock and J19C DITM- with perhaps some discretionary risk funds targeting J19C OTM.

Perhaps more specifically is my concern readers will draw too much correlation to 2013 (and associated squeeze), with big plays on ER short-term calls. There are some similarities, but IMO the fundamental differences override those similarities. From market condition, to macro, to shorts, to specific Tesla investment community participatory anticipation. I do believe the ER will provide more SP kick- although not a 2013 repeat;

Fantastic work spearheading this analysis. Really looking forward to your cost numbers luvb2b. Thanks again- invaluable contribution

 

[winfield100]

I would instead buy deep in the money calls (back when the stock was closer to $240, I bought some $120 Jan 2019 calls). Basically I'm putting half the money down (and the other half I have to pay in Jan 2019 in order to execute the option), so it's like borrowing money.

so if i bought a 1/18/2019 call for $136.40, i would pay $13,640 today and $13,640 by or before 1/18/2019 for 100 shares, or ~$27,280?

 

[vgrinshpun]

i said sorry! i apologize

No need to - at least to me...

I just could not resist the remark, as I find this deliciously humorous - just a funny reflection on the society we belong to. And that includes me, as I had the same strange assumption as you once, a long time ago, and was pleasantly surprised (startled) by @luvb2b

 

[dennis]

Any infos on recent insider buying/selling?

Not trying to be a jerk but this question is irrelevant in most tech companies. First off the executives don't buy in the open market because they get there stock through options and restricted grants. If you are an insider and you buy in the open market you are precluded from selling for 6 months.

On the selling side, salaries in tech companies tend to be lower because a big part of the compensation is the upside on the stock options. Given that you are working your tail off and never see your family you can reward them or yourself with a new car/house/etc. To do this you cash in some of your options and sell them for a big profit. It has nothing to do with what you may think of the company's future outlook.

Elon (and Larry Ellison of Oracle) have this thing about not wanting to sell any stock. So instead they borrow against the value of the stock in order to maintain their high flying lifestyles. Ellison is reported to have a $10B credit line secured by Oracle stock and Elon's is supposedly $475M.

The bears think it is a negative that there is more insider selling than buying at Tesla but they don't understand how this stuff works at high tech companies.

 

[kenliles]

Re: discussion on leveraging beyond a stock position. Want to go on record here as someone who has done both margin and lots and lots of LEAPS with very significant amounts of $s and volume in both position and trade volume (used to day trade as well).

If you want to leverage beyond stock position, there is no comparison between margin and DITM LEAPS. On every scale: financial, risk, use of capital, time value, even with liquidity considerations. DITM LEAPS are clearly superior in virtually every way.
Everybody should do what they are comfortable with first and foremost-
If that's margin, then that's what it is
But for readers considering the choice, DITM LEAPS are my strong recommendation.
Otherwise just stick with the stock you can cash-hold; sit by the pool and have a Marg while you wait- with salt

 

[kenliles]

but capex doesn't affect earnings meaningfully, only through depreciation which tesla records typically in cost of goods sold.
an opex ramp could cause a problem, but they're not going to be delivering that many more cars in july/august so it seems a bit early to hire now and have people sitting around idle for 6 months.

said it before and will say again - this time there's no way that i have found to earn 2013 type payouts. the cost to borrow was much higher making the calls much cheaper. this time the losers on the other side of the trades won't be in such horrible shape as they were in 2013.

thanks for the kind words. let's hope i'm not walking into a trap.

Yeah good point- on the CapX depending on how they actually finance the GFs etc. They may well be able to do both. And thanks for repeating on the 2013 payouts scenario. Seen a number of posters talking supposition otherwise and those reminders are well served.
Don't think there's a Bull trap on this as long as the investment timeframe fits the analysis. Which you have been careful to enumerate. Thanks very much
Here's hoping your right

 

[AcesDealt]

.

Re: discussion on leveraging beyond a stock position. Want to go on record here as someone who has done both margin and lots and lots of LEAPS with very significant amounts of $s and volume in both position and trade volume (used to day trade as well).

If you want to leverage beyond stock position, there is no comparison between margin and DITM LEAPS. On every scale: financial, risk, use of capital, time value, even with liquidity considerations. DITM LEAPS are clearly superior in virtually every way.
Everybody should do what they are comfortable with first and foremost-
If that's margin, then that's what it is
But for readers considering the choice, DITM LEAPS are my strong recommendation.
Otherwise just stick with the stock you can cash-hold; sit by the pool and have a Marg while you wait- with salt

If you end up wanting to hold tesla for 10 years, you will have ended up paying taxes every time your calls expire, right? That is a major negative. The actual point earlier about 1 or 2% better carrying, ignoring things like bad fulfillment spreads which make it worse, are kind of small in comparison. The only part that seems beneficial is the strike price sets a max loss. I was rather shocked to see how little it cost for 200 strike, since that seems like a rather substantial possibility. And then if you day trade, probably unsuccessfully of course, those spreads should be brutal.

 

[luvb2b]

You simply do not get it. SCTY has claimed their contracts are profitable based on the assumption that there will be a high percentage of renewals in years 20 to 30

at least for the last few quarters (see pg 13), the contracts are profitable even assuming renewals are zero. and we know they are not zero - these systems are not going to suddenly be worthless even though they produce power.

SCTY's excessive cost of customer acquisition can't be ignored.

q4 shows big steps towards fixing it.

Getting out of the lease/PPA business does nothing to counteract the default risk of existing, legacy contracts.

true, but as time goes on i believe more and more of this risk is contained within the spe's. at least the damage is limited that way? also, while i believe some defaults will come, i'm not sure the market will price them until we see it happen. i remember looking at fannie mae's balance sheet in the winter of 2001 thinking "omg they're levered 50x insuring $1 trillion of mortgages. they will surely go broke." it took another 6 years before people started to figure it out. i hope we are safe from that effect for a couple quarters while unemployment is so low.

Those PPAs are generally less than 5 years old and contain escalator clauses that thus far have outpaced the rise in local utility prices for energy because electrical energy is commonly priced based on the marginal cost of natural gas which has benefited from fracking. If that phenomenon persists, the pressure will build and an increasing rate of defaults will likely ensue

but solarcity was not carrying a lot of direct balance sheet exposure. the spe's etc. would get wrecked yes, but we're talking about 1.6b of non-recourse debt. there won't even be 100% losses on that debt. if it goes sour, it's not going to bring down the house.

i get that you're negative on solarcity, but aren't you worrying about the things that haven't even started to happen yet (on their financials)? i guess i'm saying you may well be right but the market won't start pricing it without more evidence?

In addition, we have experienced extremely low historic default rates on payments from our customers, with average net loss rates in 2016 less than 1%. Our financial strategy is to monetize these assets at the lowest cost of capital. We share the economic benefit of this lower cost of capital with our customers by lowering the price they pay for energy. -scty 10k​

 

[30seconds]

A few questions

1. why care if there will be renewals in 20 or 30 years if the contracts are cash flow positive to TSLA right now?
2. the beauty of buying a company when the valuation is low is that you park things like accumulated deficit into goodwill and write it down against future profits. why in the world would anyone ignore the cost of customer acquisition when it has just been changed into a depreciating asset for accounting purposes?
3. what kind of price decline from utilities are you assuming in order to drive a significant increase in default rates?

You simply do not get it. SCTY has claimed their contracts are profitable based on the assumption that there will be a high percentage of renewals in years 20 to 30, then you state:



Furthermore: "We have incurred net losses in the past, and we had an accumulated deficit of $77.9 million as of December 31, 2016." SCTY's excessive cost of customer acquisition can't be ignored.



Getting out of the lease/PPA business does nothing to counteract the default risk of existing, legacy contracts.

" In 2016, seventy one actions relating to fixed charges were taken by utilities around the country. In the event that effective net metering programs are limited in California, Arizona and other key markets or any such fees or charges are imposed, our ability to attract new customers and compete with the price of electricity generated by local utilities in these jurisdictions may be severely limited, and such unaccounted for increases in the fees or charges applicable to existing customer agreements may increase the cost of energy to those customers and result in an increased rate of defaults under our customer agreements."

" If the retail price of energy available from utilities were to decrease for any reason, we would be at a competitive disadvantage. As a result of these or similar events impacting the economics of our customer agreements, we may be unable to attract new customers and we may experience an increased rate of defaults under our existing customer agreements."

Those PPAs are generally less than 5 years old and contain escalator clauses that thus far have outpaced the rise in local utility prices for energy because electrical energy is commonly priced based on the marginal cost of natural gas which has benefited from fracking. If that phenomenon persists, the pressure will build and an increasing rate of defaults will likely ensue

 

[luvb2b]

could someone help me with how to deal with revenue that took place between tesla and solar city before the merger, and how it would change after the merger?

for example if you look in tesla's 10k at the combined proforma summary financials for tsla+scty, you'll find that the sum of tesla revenue + sum of solarcity revenue > proforma combined revenue.

i am guessing this is because tesla (for example) hires solar city to install solar on the gigafactory or superchargers, just as solarcity buys powerwalls from tesla to sell to its customers. there may be other transactions too.

i feel like this could reduce revenue but on net would be a positive for the bottom line? an example transaction would be great.

thanks in advance.