2017 Investor Roundtable:General Discussion

[neroden]

Just to remember how crazy that period was, I moved most of my assets to Fidelity money market funds. Then began to research the money market holdings and discovered that Fidelity had significant exposure to mortgage backed securities. At that point, I moved all assets to US treasuries. When one of the lesser money market funds announced that they could not guarantee 100 % principal, the Federal Government stepped in to guarantee all money market accounts.

Yeah, I remember reading the list of securities in the Schwab money market funds and going "wait, what? this isn't safe". I figured Schwab would bail them out (they *did*), but I went and looked at Schwab's financial statement at the time to make sure they *could*, and I switched stuff into NY-muni-only money funds (which had a better profile, though I was worried by the high proportion of Puerto Rican debt... that was a prescient 10-year-early thing to be worried about)

The thing to remember is that this sort of massive market dislocation happens repeatedly. Yeah, 2008 was a big one, but 1929 was bigger, and if you go before 1929, they happen roughly every 10 years! (FDR really did change things in the markets.)

 

[neroden]

Asset managers worry a LOT about what clients think of their portfolio. And at the end of the day, it's about keeping/growing client base, not directly about performance. This is why "window dressing" is a thing.

I honestly feel like there's a conflict of interest between managing for the purpose of increasing your client base and doing the best for your clients.

 

[larmor]

I've been a firm believer in buy and hold since early 2012, but I think it is time to think about exiting this stock for a while. What I'm thinking of is taking advantage of how the market values Tesla (and stocks in general), in order to increase the position. I'm 100% invested in Tesla, which makes it impossible to add shares during periods where Tesla trades at lower prices (as I don't use margin).

Okay, so more specifically, what am I thinking of? Right now, everything looks pretty darn good for Tesla. Model S and Model X production is humming along nicely; gross margins are approaching 30%; Gigafactory + Model 3 ramp is apparently on schedule; and solar panels and energy storage is looking good as well. However, I think it is a very, very high probability that there will be several problems with ramping Model 3 production. I think that is absolutely unavoidable. Don't get me wrong: I'm super bullish for Tesla in the long-term, but I know that just a couple of months of delay for Model 3 production would mean negative earnings, decreasing liquidity cushion etc. Model 3 issues aren't even unexpected for Elon, JB, +++, as the production start this summer is set very optimistically in order to push suppliers to deliver on time. But, Wall Street is going to react very negatively when they get the news of production delays, articles of quality issues are going to be all over and stories of how a small startup, i.e. Tesla, is never going to be able to compete with the incumbents. I simply don't think Wall Street is able to look more than a couple of quarters into the future.

I think this is all unusually predictable. Selling a portion of the Tesla portfolio when the hype for Model 3 is at an all-time high, should give some pretty good opportunities to increase the position by buying back when everybody starts doubting Tesla's ability to scale production. Still, the hard questions remain: What time is the right time to sell, and why to buy back? I don't think Elon or Tesla's management is going to admit issues until it is inevitable. The model 3 launch is going to be a huge event where the product will be hyped. We might get some hints as of how production is going by how much they are trying to push Model S + X over Model 3. I think information about production issues first will be available with delivery numbers later this year (Q3 and Q4).

In conclusion, I think it would be wise to wait for the stock to rise in the next month or two. When everything is looking great and the first news of Model 3 production start is arriving, I think it is wise to scale back on the Tesla position. Then, as we are getting closer to 2018, it is time to go all in again. Anyways, the future for Tesla is exceptionally bright, and I've never been more positive. It's just a question about how we can maximize our returns without missing the train at the station.

Agree with above. Plus initial M3 for up to 6 months production and until volume is large: 200 to 400k will lose money or break even. The market will have a conniption with this--beacuse it is Econ 101, with lower volumes, to ensure better quality, is de facto lower revenue with similar costs or even higher costs. This is a volume play, and like any manufacturer of widgets, need to make greater than a threshold number (unknown) to start making a profit.

 

[DaveT]

I've been a firm believer in buy and hold since early 2012, but I think it is time to think about exiting this stock for a while. What I'm thinking of is taking advantage of how the market values Tesla (and stocks in general), in order to increase the position. I'm 100% invested in Tesla, which makes it impossible to add shares during periods where Tesla trades at lower prices (as I don't use margin).

Okay, so more specifically, what am I thinking of? Right now, everything looks pretty darn good for Tesla. Model S and Model X production is humming along nicely; gross margins are approaching 30%; Gigafactory + Model 3 ramp is apparently on schedule; and solar panels and energy storage is looking good as well. However, I think it is a very, very high probability that there will be several problems with ramping Model 3 production. I think that is absolutely unavoidable. Don't get me wrong: I'm super bullish for Tesla in the long-term, but I know that just a couple of months of delay for Model 3 production would mean negative earnings, decreasing liquidity cushion etc. Model 3 issues aren't even unexpected for Elon, JB, +++, as the production start this summer is set very optimistically in order to push suppliers to deliver on time. But, Wall Street is going to react very negatively when they get the news of production delays, articles of quality issues are going to be all over and stories of how a small startup, i.e. Tesla, is never going to be able to compete with the incumbents. I simply don't think Wall Street is able to look more than a couple of quarters into the future.

I think this is all unusually predictable. Selling a portion of the Tesla portfolio when the hype for Model 3 is at an all-time high, should give some pretty good opportunities to increase the position by buying back when everybody starts doubting Tesla's ability to scale production. Still, the hard questions remain: What time is the right time to sell, and why to buy back? I don't think Elon or Tesla's management is going to admit issues until it is inevitable. The model 3 launch is going to be a huge event where the product will be hyped. We might get some hints as of how production is going by how much they are trying to push Model S + X over Model 3. I think information about production issues first will be available with delivery numbers later this year (Q3 and Q4).

In conclusion, I think it would be wise to wait for the stock to rise in the next month or two. When everything is looking great and the first news of Model 3 production start is arriving, I think it is wise to scale back on the Tesla position. Then, as we are getting closer to 2018, it is time to go all in again. Anyways, the future for Tesla is exceptionally bright, and I've never been more positive. It's just a question about how we can maximize our returns without missing the train at the station.

If your holdings are in a tax-deductible account then I think you have a better chance of having it work than if your holdings were in a taxable account. Just curious was your position 100% since 2012? Or did you add along the way?

 

[neroden]

Yes just like Amazon delivering fresh food in an hour was still unthinkable 10 years ago.

Actually, it was thinkable (google Webvan). It just wasn't *possible*. And you know what? It still isn't possible in most of the US.

Reasoning by analogy will lead you astray.

 

[ValueAnalyst]

I honestly feel like there's a conflict of interest between managing for the purpose of increasing your client base and doing the best for your clients.

I completely agree. This is why I initially wanted to charge all of my clients half of outperformance over S&P500 with 0% management fee, but the SEC limits performance-fee structure to clients only with $1m or more in their account with me (not net worth, they must have $1m+ invested with me). I think this is a stupid rule, and it leads to the conflict of interest you mentioned, but it is what it is.

 

[racer26]

Agree with above. Plus initial M3 for up to 6 months production and until volume is large: 200 to 400k will lose money or break even. The market will have a conniption with this--beacuse it is Econ 101, with lower volumes, to ensure better quality, is de facto lower revenue with similar costs or even higher costs. This is a volume play, and like any manufacturer of widgets, need to make greater than a threshold number (unknown) to start making a profit.

I actually believe this is a big part of why Tesla chose July 1, 2017 as the targeted start date.

What better day to choose than the first day of a quarter? You maximize the amount of time you have to get things up and running smoothly before reporting. If they launched the Model 3 line nearer to the end of a quarter, that quarter would look atrocious in terms of margins on them. If they can ramp quickly, this gives the best chances of showing positive margins on Model 3 from the first report they appear on.

 

[neroden]

Ehhhh. I'm pretty solidly convinced that man will be green and renewable when and only when it is economically the best choice and not a moment sooner.

Tesla has specifically been the leader in *making* electric cars the economical best choice. (And also appealing to the other quirks of human psychology to get people to switch.) So I think it is important.

 

[racer26]

Tesla has specifically been the leader in *making* electric cars the economical best choice. (And also appealing to the other quirks of human psychology to get people to switch.) So I think it is important.

Hugely important.

Tesla (by which I mostly mean Elon) understands this. They understand that if you want to change the world and get everyone to stop using fossil fuels, merely producing an electric car, or some solar panels isn't good enough. The product has to be superior to the fossil fuels on its merits before you will ever get widespread adoption.

This is why Elon says the solar roof will be a no brainer (looks better, lasts longer, is cheaper, AND produces power for you). Model 3 appeals to a similar thing - on a 5-year TCO basis, Model 3 will be cheaper than most any vehicle that isn't an econobox (for people who drive the average amount per year). With Tesla Network, Model 3 might even be a profitable investment.

 

[elasalle]

Finally figured out why the SP is up today 16-year old CEO creates Tesla Model 3 in Minecraft after meeting Elon Musk

 

[Bet TSLA]

The rear view mirror controls can be eliminated in two ways:
1) Use the cameras,
2) Put the driver's eyes in the same place every time, no matter how tall or short they are. (If you do that there is no need to adjust mirrors, as the factory setting is perfect for everyone).

As Tesla is all about moving to full self driving, choice number two has no chance of happening. And choice number one may happen for a little while, but when the car is driving itself there is no need for rear view mirrors at all, never mind their controls.

 

[tander]

You mean newer than what Elon said at the TED talk just a few days ago?[/

guess that answers the next question of when the last update was!

 

[erha]

If your holdings are in a tax-deductible account then I think you have a better chance of having it work than if your holdings were in a taxable account. Just curious was your position 100% since 2012? Or did you add along the way?

Great point. Taxes, combined with the fact that I'm not able to time the market on a daily or weekly basis, is why I haven't sold a stock in several years. I traded some leaps last year to avoid the problem of paying tax on stocks bought before the run-up in 2013.

My first stock purchase ever was 9 shares of Tesla in February 2012. I wanted to learn more about the stock market and figured out that buying some shares in my favorite company would be a fun way to do it. I was fully prepared to loose that small investment. Then, as I started paying more attention to Tesla and hanging out on this forum, I got more and more bullish. I kept adding and was 100% invested by October 2012. I've added some over the years whenever I have some funds available, but most of my shares are from 2012. I'm a student now and back in 2012 I was still in high school, so my investment is relatively small compared to others on this forum (less than 400 shares). I think the risk of being 100% invested in Tesla is reasonable for me as I'm so early in life. If Tesla were to go bust it would definitely hurt as I would start my career with an empty savings account and a student loan, but I would still do fine.

 

[ggies07]

Not sure what this will be like, but this webinar starts now:

U.S. Energy Storage Pipeline Surpasses 10 GW, But How Much Will Get Built?

 

[SteveG3]

#1 is fair. #2/3 - you're streeeeeetching.

What really bothers me is why are American shorts keeping TSLA down while Chinese companies take huge stakes at incredibly low prices in a company that has the potential to become the largest in the world.

Perhaps, to some extent anyway, there are U.S. hedge funds working for the vast accumulated wealth in fossil fuels (and to a lesser extent, the rest of the ICE ecosystem). If you were the Koch brothers, and were looking for players in a position to take actions that could have a meaningful impact on market and consumer perception, and have a track record of acting with little to no regard for intellectual honesty, I think, members of the media would be #1, and after that who? How about hedge funds? Tapping a guy like Bob Lutz doesn't hurt, but there are many more hedge funds available for this work than Bob Lutzs. (i.e., massive Chinese tech firms looking to make money (like TenCent), don't really fit this profile like hedge funds, The Wall Street Journal, LA Times,... and Jim Cramer, Cory Johnson, and Matthew DeBord... do).

 

[SteveG3]

Has anyone seen anything recently on Chanos' TSLA short? He must have massive losses by now. My Google search did not come up with anything recent. Maybe I missed something but wondering whether he is trying to avoid attention for making what so far has been a very bad bet.

The last time I saw him interviewed a few months ago, he said something noticeably cryptic as to his current position. Cryptic enough that the reporter asked him something like whether he had covered or was covering. He smiled and gave a non-answer.

 

[SteveG3]

It appears that the 25% GM on Model 3 is becoming a huge focus as we shift into July being a (relatively) done deal for the launch. Based on Elon's guidance we shouldn't expect these types of margins until the product line(s) are fully operational. My question to the forum: will this cause some near-term pain until Tesla can prove this? Is the launch of Model 3 in July and 500k cars by 2018 already baked into the price?

If Tesla gets even close to 500K vehicles in 2018 it brings the target of 1 million plus greater credibility and more mindshare of market participants. I don't know how all this will play out re the 500K goal, but, one thing I'm very confident of, if Tesla gets to that goal or close, the bulk of the financial media will find a way of saying Tesla came up short, and will completely ignore that they blew out virtually all the analysts expectations, and their original goal of 500,000 vehicles per year in 2020. That's not to mention, that we will not see any media coverage pointing out that when Tesla moved up the 500K goal from 2020 to 2018 the stock went down sharply amid a flood of media and bear analyst commentary that this desperate nonsense.

 

[aubreymcfato]

I happen to know the partner of an international hedge fund, and I talked with him briefly about Tesla. Today, he made me chat with the analyst that follow TSLA for them: I discovered they have a small (don't know how much) short position.

The following are his bear points that I remember.
It's important to know that both of us were on the street, so it was a noisy conversation without the help of a computer for checking figures or remembering exact infos.

But here we go:

• Tesla is losing a lot of money, even without counting CapEx. They spend ~75k$ per car.
  
• The don't have any advantage over incumbents: they don't know manufacturing, they didn't invent anything, Panasonic owns the battery design, Silevo technology proven to be meaningless. Fremont is not a great factory, this is why GM & Toyota left it.
  
• Tesla now has the market cap ~ Volswagen. But Volswagen sells millions of cars, and invested 60billions for their whole infrastructure (factories, service centers, shops, etc.). Tesla is building a Gigafactory just for batteries, and it won't be enough. They will need to ask a lot more money.
  
• They don't have any advantage even with Autopilot: industry journals show others are close to them (eg. Daimler).
• They don't have and advantage on battery storage: it's a crowded market with a lot of products.
• When the other auto makers will arrive, Tesla won't have anything over them. Making EVs it's easier than making ICEs, so the others will reach them soon, because they have more experience.

I tried to reply as I could and with the arguments/numbers I know by heart, and we'll probably will have another conversation. I'm trying to convince them:

• at least to offer me dinner for my time ;-)
• to understand they got it wrong. I don't have a special need for them to make even more money than they do, but I figure more money on Tesla the better.

Hope you find this helpful.

 

[farzyness]

If Tesla gets even close to 500K vehicles in 2018 it brings the target of 1 million plus greater credibility and more mindshare of market participants. I don't know how all this will play out re the 500K goal, but, one thing I'm very confident of, if Tesla gets to that goal or close, the bulk of the financial media will find a way of saying Tesla came up short, and will completely ignore that they blew out virtually all the analysts expectations, and their original goal of 500,000 vehicles per year in 2020. That's not to mention, that we will not see any media coverage pointing out that when Tesla moved up the 500K goal from 2020 to 2018 the stock went down sharply amid a flood of media and bear analyst commentary that this desperate nonsense.

I think it did this because analysts were overly concerned with the capex risk of ramping up so quickly.

 

[farzyness]

I happen to know the partner of an international hedge fund, and I talked with him briefly about Tesla. Today, he made me chat with the analyst that follow TSLA for them: I discovered they have a small (don't know how much) short position.

The following are his bear points that I remember.
It's important to know that both of us were on the street, so it was a noisy conversation without the help of a computer for checking figures or remembering exact infos.

But here we go:

• Tesla is losing a lot of money, even without counting CapEx. They spend ~75k$ per car.
  
• The don't have any advantage over incumbents: they don't know manufacturing, they didn't invent anything, Panasonic owns the battery design, Silevo technology proven to be meaningless. Fremont is not a great factory, this is why GM & Toyota left it.
  
• Tesla now has the market cap ~ Volswagen. But Volswagen sells millions of cars, and invested 60billions for their whole infrastructure (factories, service centers, shops, etc.). Tesla is building a Gigafactory just for batteries, and it won't be enough. They will need to ask a lot more money.
  
• They don't have any advantage even with Autopilot: industry journals show others are close to them (eg. Daimler).
• They don't have and advantage on battery storage: it's a crowded market with a lot of products.
• When the other auto makers will arrive, Tesla won't have anything over them. Making EVs it's easier than making ICEs, so the others will reach them soon, because they have more experience.

I tried to reply as I could and with the arguments/numbers I know by heart, and we'll probably will have another conversation. I'm trying to convince them:

• at least to offer me dinner for my time ;-)
• to understand they got it wrong. I don't have a special need for them to make even more money than they do, but I figure more money on Tesla the better.

Hope you find this helpful.

Thanks for sharing that information! It's clear to me, in this specific instance, that the person hasn't done any due diligence on Tesla. If most other funds that are short Tesla are following the same thesis, then I'm going to be a very happy man!