2017 Investor Roundtable:General Discussion

[racer26]

Is there any historical precedent to a stock the size of TSLA being added to the S&P while simultaneously having ~20-30% of its float sold short?

 

[Lessmog]

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.

So. 62+% institutions, Elon ~22+% iirc and Tencent maybe hoarding some more makes at least ~85% hard to reach. If ER means TSLA qualifies for S&P listing and another ~7.5% tied up in index funds &c -- that would leave much less than 10% float on what, 20+% shorts? Sorry, don't have an envelope handy to do enhanced math and can't reach my socks so limited to ten digits here.

Looks a lot like look out, shorts! Hehe. GLTA.

 

[schonelucht]

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

Did anyone already do a tally how much shares the recent buys from the large institutions (Tencent and Fidelity) took out of the market? We are looking at a 50% increase since they likely started so it gives a good indication of the upward pressure.

 

[Yggdrasill]

I don't see that as an issue for the next 200 years (as I showed).

You did? When?

Once the subsidies end, electric cars will succumb on their own. People like to compare them to I-phone. But I never heard of subsidies for I-phones.

BEVs no longer need subsidies. They *did*, only a few years ago, but we're past that point. Nothing is stopping BEVs.

The fact is that BEVs are superior to ICE vehicles, when it comes to operating costs, noise/vibrations, performance, user friendliness/comfort, the environment, convenience, safety, self-sufficiency and a few other things.

The big down side has been purchase cost, but the cost is continually dropping. Every BEV to date has been produced in fairly low volume, where the Model 3 is the first BEV to be produced in truly large volume. Technology advances are dropping the price on BEVs too. You are continually getting better and better high-power components for use in the motor controllers and chargers, at a lower price, and the energy density of the battery chemistries is continually improving.

BTW, making the drivetrain of electric cars is really trivial. Hook up a motor to a battery. It's a fifth grade project. See how fast Bolt was brought to market by GM? If market really likes electric cars, it won't take them too long to adapt. In fact, it's the ICE manufactures that have been the largest EV sellers for the last few years.

Making a BEV isn't extremely hard - making a good affordable profitable BEV in massive scale, however; that's hard. Currently only Tesla is trying to do so, and I think Tesla will be successful.

 

[AudubonB]

I am trying really, really hard to find the fly in the ointment and the worm in the apple in the cascade of Tesla news, fundamentals and market dynamics - long-term and short-term; macro- and micro.

I must not be trying hard enough.

Post #5,000!

 

[Fallenone]

Well, given that the Model S/X achieved more than 20% gross margins at ~500 cars/week level, and that Tesla is aiming to achieve thousands of Model 3's per week by 4Q17, why do you predict it will take another full year after that for the Model 3 to get to even 15% gross margin?

If anything, I would think that the Model 3 will get to 15-20% gross margin level even quicker than Model S/X due to the quicker ramp-up as well as the pricing power that Tesla now enjoys vs. in its earlier years.

Because:
A. The ramp up production for Model S, albeit very fast in its own merits, was on a gradual scale. So early productions don't share the burden of unused equipment planned for 10x the ongoing production level. This is not the case for Model 3.
B. Early Model S had much more expensive options with fat margins. For Model 3, it is planned that they will produce more base versions and therefore overall margins would be thinner. Let alone Model 3 itself is a lower end product and would not have as high gross margin as Model S/X everything else held constant.

And for Model X. It suffered negative gross margins for two quarters. And >20% gross margin was only achieved after a year after production.

 

[jbcarioca]

So. 62+% institutions, Elon ~22+% iirc and Tencent maybe hoarding some more makes at least ~85% hard to reach. If ER means TSLA qualifies for S&P listing and another ~7.5% tied up in index funds &c -- that would leave much less than 10% float on what, 20+% shorts? Sorry, don't have an envelope handy to do enhanced math and can't reach my socks so limited to ten digits here.

Looks a lot like look out, shorts! Hehe. GLTA.

The >62% is based on 12/31/2016 13F filings so the >5% of Tencent is not included nor the insider holdings of ~25%. Thus the total is around 92% or so, not much less. Of course institutional holdings are also buying and selling and some are shorts also. However one looks at this the largest holders are among net buyers, plus Tencent. Obviously institutional demand has been a material factor in the recent runup. It seems to me that the recent typical trading volume of >5 million per day may tend to diminish in future months unless there is a new public issue.

Because of the massive growth we all expect from Tesla dilution may not be so much a factor as capital adequacy and avoidance of excessive debt servicing. I therefore think we'll see a new common stock offering sometime within the next few months, probably larger than the ;last one. Alternatively it would be quite logical to spin off:
1. Superchargers as a separate entity funded by revenue supported debt and equity with a carefully designed method to ensure effective operating quality, if not legally defined control. That, properly structured could provide close to a Billion Dollars from the YE 2017 network with a similar financing to support another doubling in size during 2018.
2. Sales and Service Centers in several different vehicles to comply with legal and regulatory requirements in numerous US States and also in a number of countries. Those could also be structured to retain rigid adherence to Tesla standards and methods while allowing external financing of the sales and service networks.
In combination those two steps would raise 4-5 Billion Dollars while reducing overall future capital requirements. Both would tend to make Tesla distribution appear to be more conventional and make operating results easier for analysts and investors to understand.
Taking these steps would also allow investors with different risk profiles, like insurance companies, participate by securitizing the revenue pools. Those pools might well be able to be investment grade, so being much cheaper than present financing.

The tricks are how to accomplish these goals while still ensuring the maintenance and enhancement of Tesla distribution. Tricky, perhaps but easy to do technically. The role of Tesla innovation and control could be ensured with appropriate technical service and operating agreements.

Were such an approach followed TSLA would then be trading as the technology company it is without being encumbered by the 'public utility' functions and sales/service.

I may be delusional but I cannot see how TSLA can accomplish all it needs to during the next few years without something like this.

 

[D-egg-O]

Let alone Model 3 itself is a lower end product and would not have as high gross margin as Model S/X everything else held constant

Calling a $35K car low end is a silly argument. I think you may be confusing the $17K Bolt with a $20K LG battery and powertrain.

 

[jbcarioca]

Calling a $35K car low end is a silly argument. I think you may be confusing the $17K Bolt with a $20K LG battery and powertrain.

Fallenone did not say "low end" but "lower end product...[than] Model S/X..." Methinks that was a statement of fact, not conjecture.

 

[Reciprocity]

Calling a $35K car low end is a silly argument. I think you may be confusing the $17K Bolt with a $20K LG battery and powertrain.

When you calculate lower TCO the $35k base model 3 is actually very competitive against a $23k Camry without any incentives. A lot will depend on the residual value of the Model 3 vs the Camry, but with some creative financing you could even have the same payment per month when you factor in gas vs electric, maintenance and insurance assuming savings from FSD and other driver assist and safety software.

 

[D-egg-O]

Fallenone did not say "low end" but "lower end product...[than] Model S/X..." Methinks that was a statement of fact, not conjecture.

You're right, my bad. Still think my Bolt argument holds, especially after test driving it.

 

[D-egg-O]

When you calculate lower TCO the $35k base model 3 is actually very competitive against a $23k Camry without any incentives. A lot will depend on the residual value of the Model 3 vs the Camry, but with some creative financing you could even have the same payment per month when you factor in gas vs electric, maintenance and insurance assuming savings from FSD and other driver assist and safety software.

I don't disagree with this.

One part of the gross margin equation we have to consider is the cost to Tesla. The premium minimalist design language Tesla uses is a brilliant strategy, in my opinion. A simple interior is also a lower cost interior, and Tesla is charging a premium for it.

 

[Waiting4M3]

Because:
A. The ramp up production for Model S, albeit very fast in its own merits, was on a gradual scale. So early productions don't share the burden of unused equipment planned for 10x the ongoing production level. This is not the case for Model 3.
B. Early Model S had much more expensive options with fat margins. For Model 3, it is planned that they will produce more base versions and therefore overall margins would be thinner. Let alone Model 3 itself is a lower end product and would not have as high gross margin as Model S/X everything else held constant.

And for Model X. It suffered negative gross margins for two quarters. And >20% gross margin was only achieved after a year after production.

Regarding A: It's funny I just came from a thread where people are screaming "why we're just getting the robots now, it's only 2-3 months from production!!" and yet here we're worried about unused equipment eating into margins.

Regarding B: what would be your estimate of M3 margin at 250K/yr run rate? I think 20% or more, maybe not 30% as MS/MX can potentially hit, but IIRC from what Tesla said in ER Q4'16, it should be pretty robust for an affordable EV.

Regarding MX negative margin, primarily due to FWD, and manual rework on other fit/finish issue if I understood it correctly. M3 doesn't have the FWD (or similar hubris items), and Elon said that the RC build already has better initial build quality than MX. So I think we shouldn't equate MX ramp to M3 ramp. That's why most of us are investing in Tesla now, right? we think that the street is too pessimistic about M3 ramp, based on MX data.

 

[Reciprocity]

Regarding MX negative margin, primarily due to FSD, and manual rework on other fit/finish issue if I understood it correctly. M3 doesn't have the FSD (or similar hubris items), and Elon said that the RC build already has better initial build quality than MX. So I think we shouldn't equate MX ramp to M3 ramp. That's why most of us are investing in Tesla now, right? we think that the street is too pessimistic about M3 ramp, based on MX data.

I believe you mean FWD not FSD?

 

[jbcarioca]

I don't disagree with this.

One part of the gross margin equation we have to consider is the cost to Tesla. The premium minimalistic design language Tesla uses is a brilliant strategy, in my opinion. A simple interior is also a lower cost interior, and Tesla is charging a premium for it.

Yes, I agree. The biggest question, perhaps, is whether Tesla saved enough through automation and design simplification to allow higher margins. Of course the Gigafactory role in that is also critically important. As it is today we really cannot know. I suspect they'll end out with fairly healthy margins (12-15% say) by mid 2018. I think that enough to be seriously long TSLA, but we just must wait to see how well Tesla can execute.

 

[Waiting4M3]

When you calculate lower TCO the $35k base model 3 is actually very competitive against a $23k Camry without any incentives. A lot will depend on the residual value of the Model 3 vs the Camry, but with some creative financing you could even have the same payment per month when you factor in gas vs electric, maintenance and insurance assuming savings from FSD and other driver assist and safety software.

I think a M3 with good supercharger access would be an ideal ride sharing car, new, good looking, quiet, airy back seat, fast, low maintenance.

 

[Waiting4M3]

I believe you mean FWD not FSD?

yes, thanks, correcting it if I still have time.

 

[Lessmog]

The >62% is based on 12/31/2016 13F filings so the >5% of Tencent is not included nor the insider holdings of ~25%. Thus the total is around 92% or so, not much less. Of course institutional holdings are also buying and selling and some are shorts also. However one looks at this the largest holders are among net buyers, plus Tencent. Obviously institutional demand has been a material factor in the recent runup. It seems to me that the recent typical trading volume of >5 million per day may tend to diminish in future months unless there is a new public issue.

Because of the massive growth we all expect from Tesla dilution may not be so much a factor as capital adequacy and avoidance of excessive debt servicing. I therefore think we'll see a new common stock offering sometime within the next few months, probably larger than the ;last one. Alternatively it would be quite logical to spin off:
1. Superchargers as a separate entity funded by revenue supported debt and equity with a carefully designed method to ensure effective operating quality, if not legally defined control. That, properly structured could provide close to a Billion Dollars from the YE 2017 network with a similar financing to support another doubling in size during 2018.
2. Sales and Service Centers in several different vehicles to comply with legal and regulatory requirements in numerous US States and also in a number of countries. Those could also be structured to retain rigid adherence to Tesla standards and methods while allowing external financing of the sales and service networks.
In combination those two steps would raise 4-5 Billion Dollars while reducing overall future capital requirements. Both would tend to make Tesla distribution appear to be more conventional and make operating results easier for analysts and investors to understand.
Taking these steps would also allow investors with different risk profiles, like insurance companies, participate by securitizing the revenue pools. Those pools might well be able to be investment grade, so being much cheaper than present financing.

The tricks are how to accomplish these goals while still ensuring the maintenance and enhancement of Tesla distribution. Tricky, perhaps but easy to do technically. The role of Tesla innovation and control could be ensured with appropriate technical service and operating agreements.

Were such an approach followed TSLA would then be trading as the technology company it is without being encumbered by the 'public utility' functions and sales/service.

I may be delusional but I cannot see how TSLA can accomplish all it needs to during the next few years without something like this.

Wow. That seems to amplify my point. 92% + 5-10% leaves very little room for shorts to cover.

Your spinoff ideas are frankly beyond me but they look intriguing.

The future is bright, if the planet and basic foundations can be stable. We may moan when we are dead but I won't care.

 

[Waiting4M3]

Yes, I agree. The biggest question, perhaps, is whether Tesla saved enough through automation and design simplification to allow higher margins. Of course the Gigafactory role in that is also critically important. As it is today we really cannot know. I suspect they'll end out with fairly healthy margins (12-15% say) by mid 2018. I think that enough to be seriously long TSLA, but we just must wait to see how well Tesla can execute.

One data point, a 85kwh MS battery pack weighs 1200lb, with 7100 cells, each cell weighs ~0.1lb, so we have 700 lb of cells. Shipping from Asia to US via ocean freight costs ~$1.50 per lb. So the cells in the 85kwh pack would cost $1k to ship.

 

[techmaven]

One data point, a 85kwh MS battery pack weighs 1200lb, with 7100 cells, each cell weighs ~0.1lb, so we have 700 lb of cells. Shipping from Asia to US via ocean freight costs ~$1.50 per lb. So the cells in the 85kwh pack would cost $1k to ship.

Well, it is unclear what materials the Gigafactory takes as input. Likely, the lithium nickel cobalt oxide in powder form is still shipped in, as least initially, as is the synthetic graphite. Unclear where the steel comes from for the cans. Over time, Tesla may have more domestic and on-site production of raw materials. There are still plenty of opportunities for cost efficiencies even if all the raw materials are sourced overseas.