2017 Investor Roundtable:General Discussion

[ValueAnalyst]

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.

Elon predicted 25% margin at 500k/year rate (2H18).

 

[ValueAnalyst]

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.

There also are a lot of funds who can only invest in companies included in major indices. All I'm saying is the bid/ask spread should decline dramatically if TSLA gets included in S&P500.

But I don't base my investment strategy on these things so I'm sure others know more about this than me.

 

[ValueAnalyst]

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?

I really don't see potential inclusion in S&P500 being much of a game changer for this stock.

If making money was so easy, we would have a lot more hedge funds that anticipate such inclusions/exclusions. This is not the case.

 

[ValueAnalyst]

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 agree with this.

luvb2b - would you say inclusion in S&P500 (if it happens anytime soon) would boost the share price? Would you say it would cause a short squeeze? If a short squeeze were to happen, would it be larger if TSLA was added to s&P500, say next month, before shorts can cover?

I highly doubt the answer to these questions is yes, but I would be very interested in reading your thoughts.

 

[DurandalAI]

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 save $1,000/yr with my Leaf compared to a 30mpg car, plus $120 or so in oil changes, and probably another $100/yr in other ICE related expenses. I expect to own my Model 3 for at least 12 to 15 years, so at $1,220/yr in savings, that is $14,640 to $18,300 savings over my expected life of the vehicle. Additional savings if I'm able to drive less by having car availability from self-driving, allowing us to drop the number of cars in the household from 3 to 2. Cost savings go up considerably with the cost of gas going anywhere above the $2.20/gal it is in my area as well.

 

[racer26]

I really don't see potential inclusion in S&P500 being much of a game changer for this stock.

If making money was so easy, we would have a lot more hedge funds that anticipate such inclusions/exclusions. This is not the case.

Such inclusions/exclusions don't happen very often with companies that have 50B+ market caps.

When TSLA gets added to the S&P, all of the S&P tracking funds (of which there are many) have to buy it. That will put buying pressure on it. The size of those funds means that they will have to acquire something around 5-10% of TSLAs outstanding shares in very short order, and essentially remove it from circulation.

TSLA typically only trades something like an average of about 4% of its outstanding shares per day. Trying to acquire 5-10% of TSLAs shares in a short time span will drive the price up significantly - especially when so many of the shares are already in the hands of long-term holders. This is essentially the same concept as 'days to cover' for shorts - someone is forced to buy a lot of shares (like more than the daily average volume) in a short time span, and the result is that its very difficult to do that without dramatically driving the price up.

That should also cause a number of the shorts to want to head for the exits since the effect of those shares being bought by the S&P trackers is removing them from the float, which will make it harder for the shorts to exit in an orderly fashion when someone cries wolf.

Someone with more experience than me might be able to say how it works - I'm not sure how long those index tracker funds will have to acquire their shares, or how long before it is added to the S&P we will know about it.

 

[Waiting4M3]

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.

Lithium is locally from Nevada. Tesla says they will source cobalt from North America. Not sure where they get their nickle, which is a large % of the cathode.

For the rest of the car, most of MS/MX is made in the USA, so no different than the M3, so shipping cost should be comparable per unit weight. One difference is that GGF is also making the motor for the M3, a lot of it is Copper wire, so that also does not require overseas shipping, but the MS motor weighs 70lb, so not significant compared with the batteries.

 

[DurandalAI]

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.

Shanghai Shipping Exchange
$611 per container to ship from China to West Coast. I don't think the shipping savings would be nearly that much. Feel free to call bunk on the above data if there's something I'm missing.

 

[ValueAnalyst]

Such inclusions/exclusions don't happen very often with companies that have 50B+ market caps.

When TSLA gets added to the S&P, all of the S&P tracking funds (of which there are many) have to buy it. That will put buying pressure on it. The size of those funds means that they will have to acquire something around 5-10% of TSLAs float in very short order, and essentially remove it from circulation. That should also cause a number of the shorts to want to head for the exits since the effect of those shares being bought by the S&P trackers is removing them from the float, which will make it harder for the shorts to exit in an orderly fashion when someone cries wolf.

For this to happen, Tesla would have to announce a GAAP profit of $400M on May 3, or $200M total in the next two quarters.

I don't see this happening given the upcoming Model 3 ramp-up. In fact, I don't expect any significant GAAP profits until 2H18. Tesla needs to invest in superchargers and sales/service centers instead of playing the index inclusion/exclusion game. I don't believe squeezing shorts is what motivates Elon or the Tesla team. That's the kind of short-termism that does not align with the company's mission or Elon's history.

We may still see a short-squeeze in 2017, but I don't think it will be because inclusion in S&P500.

 

[Waiting4M3]

I save $1,000/yr with my Leaf compared to a 30mpg car, plus $120 or so in oil changes, and probably another $100/yr in other ICE related expenses. I expect to own my Model 3 for at least 12 to 15 years, so at $1,220/yr in savings, that is $14,640 to $18,300 savings over my expected life of the vehicle. Additional savings if I'm able to drive less by having car availability from self-driving, allowing us to drop the number of cars in the household from 3 to 2. Cost savings go up considerably with the cost of gas going anywhere above the $2.20/gal it is in my area as well.

and I can't wait for Tesla to run their own car insurance

 

[racer26]

Shanghai Shipping Exchange
$611 per container to ship from China to West Coast. I don't think the shipping savings would be nearly that much. Feel free to call bunk on the above data if there's something I'm missing.

I'm quite certain that it costs more than $611USD to ship a standard container from China to the West coast. I'm not sure what that index is or what it means, or what currency it is in, but I know how much it costs to ship a lot of big heavy things, and $611 for something the size of a container doesn't square with my experience.

For this to happen, Tesla would have to announce a GAAP profit of $400M on May 3, or $200M total in the next two quarters.

I don't see this happening given the upcoming Model 3 ramp-up. In fact, I don't expect any significant GAAP profits until 2H18. Tesla needs to invest in superchargers and sales/service centers instead of playing the index inclusion/exclusion game. I don't believe squeezing shorts is what motivates Elon or the Tesla team. That's the kind of short-termism that does not align with the company's mission or Elon's history.

We may still see a short-squeeze in 2017, but I don't think it will be because inclusion in S&P500.

I'm not saying I expect this to happen this quarter, or even next quarter. I'm saying that when S&P inclusion happens, it will be significant.

I expect it will happen with probably the 3Q17 ER. Small chance on the 2Q17, near certain 1Q18.

This has nothing to do with squeezing shorts or anything else, just pure profit. When can TSLA reach GAAP profitability in the trailing 4 quarters? That's the only question.

The last few results:

4Q16 = ($121M)
3Q16 = $22M
2Q16 = ($293M)

There is a few components here - CapEx does not count toward GAAP profitability - so spending for Model 3 and other projects doesn't really matter. RVGs from 13 quarters ago are expiring and adding to GAAP, but not non-GAAP.

To make it on the 1Q17 ER, it would need to be around $400M profitable GAAP - this is essentially impossible. On 2Q17, it would need to be 100M profitable, plus whatever impact 1Q17 has, which might be doable.

 

[erthquake]

This doesn't smell right.

Tesla's Autopilot Unit Loses Another Senior Programmer

It quotes from The Information, "One reason for the defections: the sense that Tesla’s Autopilot unit is more focused on semi-autonomous features like lane-keeping plus adaptive cruise control than on developing a fully self-driving car, as CEO Elon Musk has promised to do."

Checking out Alexandre Haag LinkedIn page, it says he left in December 2016, and then worked for a stealth-mode startup from January until March. So perhaps he was one of the employees that Sterling Anderson poached which means the lack of full self-driving is likely BS.

 

[ValueAnalyst]

I'm quite certain that it costs more than $611USD to ship a standard container from China to the West coast. I'm not sure what that index is or what it means, or what currency it is in, but I know how much it costs to ship a lot of big heavy things, and $611 for something the size of a container doesn't square with my experience.



I'm not saying I expect this to happen this quarter, or even next quarter. I'm saying that when S&P inclusion happens, it will be significant.

I expect it will happen with probably the 3Q17 ER. Small chance on the 2Q17, near certain 1Q18.

This has nothing to do with squeezing shorts or anything else, just pure profit. When can TSLA reach GAAP profitability in the trailing 4 quarters? That's the only question.

The last few results:

4Q16 = ($121M)
3Q16 = $22M
2Q16 = ($293M)

There is a few components here - CapEx does not count toward GAAP profitability - so spending for Model 3 and other projects doesn't really matter. RVGs from 13 quarters ago are expiring and adding to GAAP, but not non-GAAP.

To make it on the 1Q17 ER, it would need to be around $400M profitable GAAP - this is essentially impossible. On 2Q17, it would need to be 100M profitable, plus whatever impact 1Q17 has, which might be doable.

Capex does count toward GAAP profitability, through depreciation. Tesla has significantly increased cap-ex in the last couple of quarters as it built out Gigafactory, so expect depreciation to increase as cars are produced. My guess is Tesla will be using "unit of production" method, so some of the cap-ex that's already spent has not been hitting depreciation yet. (I was a CPA before my decade in M&A).

In addition, it's not just the cap-ex that Tesla will be spending throughout the ramp-up. It's also hiring of sales people etc. that will be included in operating expenses.

GAAP profitability should not be expected in 2H17. As a long-term investor, I would rather Tesla reinvest all gross profits from Model 3 into building additional Gigafactories.

I would agree that inclusion in S&P500 may happen in 2018, but let's hope that shorts are squeezed out by then anyway.

 

[Waiting4M3]

Shanghai Shipping Exchange
$611 per container to ship from China to West Coast. I don't think the shipping savings would be nearly that much. Feel free to call bunk on the above data if there's something I'm missing.

The USD/FEU (40ft container) from Shangai to US West Coast is $1326. But it's not just the container cost. I'm also basing my pricing on what my forwarder charge me, which includes packing for ocean shipment (like barrier bags). You don't want your battery cells to sit in the middle of the ocean for a month and rust from salt water, right? This adds bulk/weight, so you end up paying a lot more than just the container cost.

 

[Lump]

New calls for Elon Musk to 'dump Trump'

CNBC devoted 4 minutes to this guy & his cuase.

Doug Derwin, Silicon Valley startup investor, discusses his push to get Elon Musk to 'dump Trump.' Derwin says President Trump's policies directly contradict Musk's core values.

 

[MP3Mike]

On 2Q17, it would need to be 100M profitable, plus whatever impact 1Q17 has, which might be doable.

So we would need a total of $100M in profit between 1Q17 and 2Q17. So ~$50M/quarter. Is that possible for the next two quarters given what SolarCity brought to the table?

 

[Waiting4M3]

This has nothing to do with squeezing shorts or anything else, just pure profit. When can TSLA reach GAAP profitability in the trailing 4 quarters? That's the only question.

The last few results:

4Q16 = ($121M)
3Q16 = $22M
2Q16 = ($293M)

There is a few components here - CapEx does not count toward GAAP profitability - so spending for Model 3 and other projects doesn't really matter. RVGs from 13 quarters ago are expiring and adding to GAAP, but not non-GAAP.

To make it on the 1Q17 ER, it would need to be around $400M profitable GAAP - this is essentially impossible. On 2Q17, it would need to be 100M profitable, plus whatever impact 1Q17 has, which might be doable.

I think people are putting the cart in front of the horse here. If we can make $100M in Q1/Q2 '17 while ramping M3, then S&P inclusion will probably not be the main reason PPS will be going up, way up, maybe not even a short squeeze will be noticed. I mean who notices a bubble popping in a nuclear explosion?

 

[EnzoXYZ]

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.
"

Good obvious read by BMW that every model 3 testing has a BMW 3/4 series chase vehicle. You better bet this is no coincidence and the target is squarely on BMW's back. Model 3 is going to absolutely kill 3/4 series, C class, etc...

 

[dennis]

What you're describing is what I was leading towards with my early post, that they probably used robots, possibly ones that are on the S or X lines during the 2 week shutdown to do the RC build. Otherwise, I don't think that Elon Musk's predictions of 1,000/week only a month in would be possible, let alone the 5,000/week before the end of 2017. The closer we get to July, the closer I really think Tesla will meet or very barely miss its projections on M3 production unless "stuff happens."

There has been a lot of speculation about M3 production - using the S/X line, using robots to build the release candidates, already having a M3 production line in place and the robots being for another line, etc. Much of this comes from Musk's statement that they used production tooling to build the RC's, and that being extrapolated to mean a production line. Here's what I think is happening:

1) The RC's used production tooling, meaning the hard tooling used to produce 100K's of stamped parts, not the soft tooling used to build prototype quantities (500 or less).

2) Tesla wouldn't be disrupting the Model S/X production with prototype production for the Model 3. Other than the paint shop, I doubt if any S/X production facilities were used. One possibility is the existing stamping presses (while Model 3 press is being installed). But Tesla owns a tool and die operation in Michigan so it is quite possible they could have stamped the prototype body parts there.

3) Based on reports from factory tours, we know that in late December the areas designated for Model 3 BIW and assembly were empty spaces (I was there). Subsequent reports have talked about robots being installed in those areas. But no completed production line.

4) Remember the picture a couple months ago of "Pilot Team Area 51" with the partial Model 3 frame visible? This is where the RC's have most likely been hand assembled.

tl;dr - The Model 3 release candidates are being built using production tooling but hand assembly. The first Model 3 production BIW and assembly lines are currently being installed in preparation for beginning production July 1.

 

[anticitizen13.7]

New calls for Elon Musk to 'dump Trump'

CNBC devoted 4 minutes to this guy & his cuase.

Doug Derwin, Silicon Valley startup investor, discusses his push to get Elon Musk to 'dump Trump.' Derwin says President Trump's policies directly contradict Musk's core values.

While I dislike President Trump and many of his policies, he is leading the US government for at least the current term, and I think it is better for Elon to have a seat at the table than needlessly make enemies.

Musk and Trump actually have a great deal in common: both are avid salesmen who sell big dreams and sometimes use controversial hyperbole. Both are ambitious and want to be the biggest and best. Elon is even more into big construction than Donald: Gigafactory, Tesla Fremont, Falcon Heavy, ITS, and more Gigafactories are magnitudes larger in ambition than Trump's tower, hotels, licensed buildings, and golf resorts. The chances of Derwin's campaign succeeding are only slightly higher than 0%. IMO.