2017 Investor Roundtable:General Discussion

[ValueAnalyst]

The sole S&P inclusion requirement Tesla does not currently possess is to have the sum of the trailing 4 quarters be positive as well as the most recent quarter.

I think s&p inclusion would significantly increase the liquidity (which would limit constant manipulation by shorts) but it wouldn't necessarily increase the valuation of the company.

A successful and profitable ramp-up of the Model 3 is what TSLA needs for a sustainable SP rise throughout 2017 and beyond.

 

[jhm]

I agree that this is the weakest link in my argument. I will be listening carefully for any commentary around the size/capacity of the additional Gigafactories.

Having said that, I still think the experience of having built GF1, the flexibility that comes with introducing design innovations and automation to the next-gen Gigafactories from ground-up, and better access to capital going forward will overwhelm any downside to manufacturing cars and batteries under one roof, which actually can be a positive on its own.

What they need is big factory space in major continents and the permits to use that space. What specific products they build in those spaces are secondary issues and can adapt to emerging needs.

For example, IIRC Tesla is using some GF1 space to build motors and inverters. This was not part of the original plans, but why not? It clears up space in Fremont for more vehicle assembly, and the logistics from GF to Fremont are favorable.

So I think the view we should have is that a Gigafactory is a big enough manufacturing space that Tesla can build whatever mix of products there at scale, and the specific product mix will unfold in real-time. That sort of flexibility is what Tesla really needs to grow at ludicrous speed, and they need that flex space ASAP.

Fun game: besides solar panels, what else might Tesla build in GF2?

I'm thinking semi trucks.

 

[Reciprocity]

uh oh...

Commerce Secretary Ross to announce plan to probe imported aluminum: source

 

[jbcarioca]

uh oh...

Commerce Secretary Ross to announce plan to probe imported aluminum: source

Lessee, we have milk, softwood lumber, now aluminum. No problem, he's preparing to exit NAFTA.

 

[AudubonB]

ValueAnalyst (#12920):
I don't understand in the least how inclusion to the S&P 500 could increase liquidity.

• There are many hundreds of billions of dollars' worth of investment pools that must structure their portfolios so that they align with the S&P basket. These are not just the gargantuan Vanguard, etc., Index-mirror funds, but also many managed pension funds, although these latter often have a small degree of flexibility within, say, the 500-universe of this index.
• 
  
• Those shares are in effect taken OUT of circulation
• 
  
• Now, this is to a very large extent a Good Thing: first, there is an inexorable drive for amassing shares by these funds upon the company's entry into the S&P; second, once safely ensconced into such funds, there are that many fewer shares available for trading.
• 
  
• In a lot of cases, the index-fund-held shares can be available for lending. Ridiculously scary proposition, in my view, but then, I don't short.
• 
  
• Given Tesla's current ±$50bn market capitalization, its share of the S&P500 would be approximately 0.225%*. I have not been able to come up to more than a one order of magnitude size of the "Must Include" pool, but that number of mine is $10^12. That gives $2.25 billion of $300 stock, or 7.5mm shares.
• 
  
• That's a fair approximation, I think. And a lot of shares out of circulation.

* On edit: for further reference, at today's market capitalization, that puts TSLA right about at the #100 mark. That's another inflection point, as there are some large-capitalization index funds that are S&P100-mirrored.

 

[MitchJi]

Of course. But that's in the future for scaling

I'm talking about initial launch

What he said was not limited to the future scaling.

IMO the comments were that Tesla is releasing the AEB in response to the CU complaint is inaccurate. They are releasing it as soon as its ready.

The CU complaint is also ludicrous given that when Tesla released AP 1 CU complained about Tesla releasing "beta" software.

Also I'm pretty sure that the AEB is free.

 

[Reciprocity]

IMO the comments were that Tesla is releasing the AEB in response to the CU complaint is ludicrous. They are releasing it as soon as its ready.

I agree, Tesla is not going to screw with safety features, which is why it took this long to get it. I needs to be nearly perfect whereas Autostear and TACC can be just good enough. The difference is that a situation where someone dies from AEB failure vs someone not paying attention with autostear. You cant have the safest cars without AEB and I think its a bigger selling point. It was the only feature that I was annoyed was not available sooner on my X ,but I get why and im happy I didnt need it.

 

[ggies07]

I looked it up a while ago, and based on Australian market I believe it was higher than Powerwal 2 (on a per KWh basis) I do not have time to dig it out, but comparison is available from the Australian internet Sites.

As far a I remember, Powerwall also has wider ambient temperature range...

This is from the electrek article:

Tesla Powerwall 2 has no competition – comparison with LG Resu and SonnenBatterie

 

[erthquake]

This is from the electrek article:

Tesla Powerwall 2 has no competition – comparison with LG Resu and SonnenBatterie

View attachment 224530

Note that today's announcement by LG includes a 9.8 kWh version.

 

[mmd]

I agree, Tesla is not going to screw with safety features, which is why it took this long to get it. I needs to be nearly perfect whereas Autostear and TACC can be just good enough. The difference is that a situation where someone dies from AEB failure vs someone not paying attention with autostear. You cant have the safest cars without AEB and I think its a bigger selling point. It was the only feature that I was annoyed was not available sooner on my X ,but I get why and im happy I didnt need it.

But CR just validated the claim in the lawsuit, that the feature was promised by Dec 2016.

"When we purchased our latest test car, we were assured automatic emergency braking would be enabled by the end of 2016," said Jake Fisher, director of Consumer Reports' Auto Test Center.

BTW, does anyone else see the supercharging for apartment dwellers as another demand lever right before ER? Earlier stance was to require home charging. If there were enough potential buyers in that category, why go after the apartment folks now? That requires big investments in the super charger network, when Tesla needs that cash for M3 ramp.

 

[MitchJi]

Blackrock: U.S. Auto Industry Faces a Hard Road Ahead


Blackrock: U.S. Auto Industry Faces a Hard Road Ahead
The U.S. auto industry is in the midst of what looks to be a slow-motion car crash. Despite the best efforts of President Donald Trump, market forces are working against traditional car makers. Whether it be demand for environmental friendly vehicles, the rise of autonomous autos or the advent of the ride sharing culture, the outlook for the big three — General Motors (GM), Ford (F), and Chrysler (FCAU) — is bleak.

"Traditional automakers and parts suppliers are faced with serious challenges given that automation and electrification of vehicles require financial muscle and expertise that many currently lack," Blackrock said in an April report on the outlook for the auto industry. "They generally have lower profit margins than the technology companies disrupting the auto industry."

Social Change
Hybrid vehicles are no longer a fad; they represent a society-wide shift in preferences. The 2016 Paris Agreement that aims to reduce global temperatures has also put added pressure on the auto industry. According to Blackrock, the global transport sector has seen the fastest rise in global emissions, and under the Paris Agreement, the sector is required to contribute 20 percent of greenhouse gas reductions from energy use by 2050. (See also: Are Hybrid Vehicles Worth The Extra Cost?)

More evidence society is moving towards environmentally friendly vehicles came in 2016 when four cities — Paris, Madrid, Athens and Mexico City — said they would ban diesel cars by 2025. In the U.S., despite the government's plan to relax fuel emission standards, Blackrock says it is unlikely to affect the growth in the hybrid sector as regulation will face tough opposition with some states already introducing state legislation to fight the Federal laws.(See also: Is It the End of the Road for the Diesel Auto Industry?)

Technological Change
Meanwhile, technological advances are both lowering input costs and improving supply chain efficiencies, which is reducing the profit pool for the entire industry. Blackrock notes that advanced driver assistance systems (ADAS) will become standard features in vehicles costing a few hundred dollars, putting pressure on assembly plants. (See also: Elon Musk's Neuralink to Save Humanity From AI.)

The biggest shake-up the auto industry has ever seen has been the rise of Elon Musk and Tesla Inc. (TSLA). In early April, the electric vehicle company surpassed General Motors as the most valuable car company despite yet to turn a profit. Tesla is hoping that by taking the human element out of driving, accidents will reduce. In 2016, the U.S. recorded its second consecutive year of increases in road accidents caused by human error, one of which was cell phone distraction.

The Bottom Line
Despite the best efforts of President Trump to bring auto maker jobs back to the U.S., growing evidence suggests that his efforts may be futile as societal shifts towards hybrid and environmental cars continue. Weighing on the auto industry is the rise in ride sharing apps, led by Uber. One condo in San Francisco is offering free Uber rides for apartments without parking spaces; clearly, the paradigm is shifting.

 

[austinEV]

I Luvb2b said before its 4 total quarters of profitably on average, so you need this quarter and next to be profitable if you include q3 and q4 last year. But I could be wrong.

the way i read it the last 4 quarters total need to show gaap profit and the most recent quarter needs to show a gaap profit. if they come in with a gaap profit this quarter as i expect, a modest q2 gaap profit should get them to meet all the criteria.

this was actually an impossibility based on their operating plan if not for the solarcity acquisition (how ironic is that!). the inclusion of massive solarcity nci's could easily result in back to back gaap profits, which is why i beat that sorry plug senseless.

Luvb2b is correct. Here are the rules:
http://ca.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf

Financial Viability. The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter. For equity real estate investment trusts (REITs), financial viability is based on GAAP earnings and/or Funds From Operations (FFO), if reported. FFO is a measure commonly used in equity REIT analysis.​

 

[doctoxics]

Note that today's announcement by LG includes a 9.8 kWh version.

Below is a link to an Australian supplier of the 9.8 kwh version with no inverter at a cost of 11,499 (~$8,600).

LG Chem Lithium Ion Battery - 9.8kWh - 400V - Batteries

 

[luvb2b]

thanks @austinEV

maybe i am wrongheaded but this is the biggest consequence of positive earnings that i think nobody is prepared for. and these days those index funds are monsters and full of long term holders trying to optimize long term taxes. it's basically the same as saying some 5-10% of the float is going to vanish in 6 months if it happens as i expect.

Luvb2b is correct. Here are the rules:
http://ca.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf

Financial Viability. The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter. For equity real estate investment trusts (REITs), financial viability is based on GAAP earnings and/or Funds From Operations (FFO), if reported. FFO is a measure commonly used in equity REIT analysis.​

 

[sub]

Luvb2b is correct. Here are the rules:
http://ca.spindices.com/documents/methodologies/methodology-sp-us-indices.pdf

Financial Viability. The sum of the most recent four consecutive quarters’ Generally Accepted Accounting Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should the most recent quarter. For equity real estate investment trusts (REITs), financial viability is based on GAAP earnings and/or Funds From Operations (FFO), if reported. FFO is a measure commonly used in equity REIT analysis.​

Doesn't this imply that all 4 qrts do not have to be positive, only their sum? That would make it even easier.

 

[geneclean55]

Doesn't this imply that all 4 qrts do not have to be positive, only their sum? That would make it even easier.

I don't think thats what it is implying. I think thats what it is stating.

 

[Gerardf]

and The Big Rollover,
she begins---
BMW uses fear factor to rally staff in move to EVs

"
Inside a bright auditorium at an abandoned airfield near Munich, rows of men and women gaze at images flashing by on a giant screen: a Mercedes sedan; Porsche and Jaguar SUVs; the face of Elon Musk. "We're in the midst of an electric assault," the presenter intones as the Tesla chief's photo pops up. "This must be taken very seriously."

The audience is composed of BMW Group employees flown in for a combination pep rally/horror film intended to make them afraid about the future of the industry. The takeaway: The market is shifting in ways that were unimaginable just a few years ago, and BMW must adapt. The subtext is a recognition that the company has gone from leader to laggard.
"

Hmm, BMW management.. remember November 2014 ?

Tesla, BMW Chat Over Possible Partnership, Elon Musk Says

BMW: No Interest In Tesla Cooperation, Musk Was Posturing For PR

 

[luvb2b]

it increases liquidity because it increases the number of participants who will trade the shares. everything from pensions, index funds, options market makers to futures arbitrageurs - they'll all be forced to participate (as you pointed out). any time the index fund gets more assets it has to buy, when that pension fund pays its obligations it has to sell, when s&p futures get arbitraged, etc. etc. i believe there are academic studies that support this view, but didn't find any fast enough to link.

your approximation of 7.5m shares taken out of circulation roughly matches my thought, that it would be 5-10% of the float.

I don't understand in the least how inclusion to the S&P 500 could increase liquidity.

• There are many hundreds of billions of dollars' worth of investment pools that must structure their portfolios so that they align with the S&P basket. These are not just the gargantuan Vanguard, etc., Index-mirror funds, but also many managed pension funds, although these latter often have a small degree of flexibility within, say, the 500-universe of this index.
• 
  
• Those shares are in effect taken OUT of circulation
• 
  
• Now, this is to a very large extent a Good Thing: first, there is an inexorable drive for amassing shares by these funds upon the company's entry into the S&P; second, once safely ensconced into such funds, there are that many fewer shares available for trading.
• 
  
• In a lot of cases, the index-fund-held shares can be available for lending. Ridiculously scary proposition, in my view, but then, I don't short.
• 
  
• Given Tesla's current ±$50bn market capitalization, its share of the S&P500 would be approximately 0.225%. I have not been able to come up to more than a one order of magnitude size of the "Must Include" pool, but that number of mine is $10^12. That gives $2.25 billion of $300 stock, or 7.5mm shares.
• 
  
• That's a fair approximation, I think. And a lot of shares out of circulation.

 

[jbcarioca]

I don't understand in the least how inclusion to the S&P 500 could increase liquidity.

• There are many hundreds of billions of dollars' worth of investment pools that must structure their portfolios so that they align with the S&P basket. These are not just the gargantuan Vanguard, etc., Index-mirror funds, but also many managed pension funds, although these latter often have a small degree of flexibility within, say, the 500-universe of this index.
• 
  
• Those shares are in effect taken OUT of circulation
• 
  
• Now, this is to a very large extent a Good Thing: first, there is an inexorable drive for amassing shares by these funds upon the company's entry into the S&P; second, once safely ensconced into such funds, there are that many fewer shares available for trading.
• 
  
• In a lot of cases, the index-fund-held shares can be available for lending. Ridiculously scary proposition, in my view, but then, I don't short.
• 
  
• Given Tesla's current ±$50bn market capitalization, its share of the S&P500 would be approximately 0.225%. I have not been able to come up to more than a one order of magnitude size of the "Must Include" pool, but that number of mine is $10^12. That gives $2.25 billion of $300 stock, or 7.5mm shares.
• 
  
• That's a fair approximation, I think. And a lot of shares out of circulation.

Institutional ownership of TSLA has risen by >5% from Tencent alone, and the consequence of Tencent will have already brought others into TSLA. Judging only by 13F filings TSLA has 62.37% institutional ownership now. I fully expect there will be 75% or more soon after the Model 3 intro, if not before. That makes life less secure for individual investors, but likely will continue to increase shares available for lending.

At the rate we're going now we could increase the odds of a VW-style short squeeze, but that probably will not be likely until next year. I haven't examined this issue closely, but I do think it is well worth doing. It will be material for all of us, especially if something silly like inclusion in the S&P happens. That will definitely increase the automatic inclusion in index funds and will on balance, eventually be a benefit. In the short run there will be a serious shortage of conventional float, i.e. trades between buyers and sellers rather than shorts and options. Higher volatility will be the notable short term effect unless lots of other money is following Tencent.

 

[AudubonB]

luvb2b -
I see the point that you are making: more share-trading will needs be occurring. That is not, though, in my book, increased liquidity, although it certainly is akin to it.

Irrespective, it puts inexorable upward pressure on the stock price. Aw shucks.