2017 Investor Roundtable:General Discussion

[jbcarioca]

Moved this comment over here:



And in reply:

That's why, hopefully, Jerome et al. are busy working on a Pick-up on the S skateboard...

Not to mention Model Y, busses/large vans, next generation S/X platform (mostly to adopt the manufacturing integration for Model 3 processes rather than dramatic styling or performance changes. Also they're working on autonomy, more range and all that non-automotive stuff.
BTW, has anybody notices how many Tesla are seen around Toulouse?
Sometime soon when cell density quadruples, aircraft will begin to be hybrid and pure electric. Airbus is spending a lot, even staid Boeing is playing with the subject. Gigafactory 3 and others will feed many applications we are not considering today.

That is why, if we think Tesla can keep innovating, we probably see a price target about $1000. How they'll innovate we really cannot forecast accurately. Our stock purchases are bets on vision. Thus, key man insurance on Elon and JB, inter alia.

 

[Yuri_G]

We knew Model 3 would come in under 60kWh.

Elon also implied a couple weeks ago when someone alluded to it on twitter that it would beat the Bolt in base config. I'm guessing this reference to 215mi is simply to keep the cards close.

Jalopnik article here: http://jalopnik.com/this-is-the-full-tesla-model-3-way-before-youre-suppose-1794073497
Seems to have a picture of what appears to be a blue Model 3 RC.
In addition to the (one? two? n?) black ones that have been seen.

Also has a shot (blurry, though) of the display. Looks to me like the left 1/3 or so of the display has a classic-S style speedometer.

Anyone else notice there is no obvious camouflage on the 3 release candidates? Makes sense since Tesla pretty much skipped the betas, but still makes me think they are about ready to push them out asap.

 

[neroden]

Come on, don't build a strawman. TFTF has their arguments, I have mine.

My point with that sentence is simple : many of the models have Tesla moving in the mass market (good) while at the same time expanding their luxury segment (even better). That combo is the basis for the sky high price targets maintained for this stock. And the fact that the stock is moving up shows confidence in that combo. The blog as posted however is a counter signal to that confidence.

FWIW my models have always called for 100K S/X cars per year and full stop there, with all further expansion in the mass market.

 

[drinkerofkoolaid]

They are. Your comment is, unfortunately, a self-indictment that you're not casting a wide enough net in your readings.

Please, show me. I did a search on Google, Bing, DuckDuckGo, and Twitter almost every day for the past few weeks, and could only find a handful of articles about it that contained insight, that isn't obvious. This compares to the thousands that were being written the last time the US approached the debt ceiling. The WSJ, NYTimes, and a few others published a few articles, but they are basically just saying it's an issue that will be worked out because it's always gets worked out.

Some of the articles I've been able to find basically acknowledge the debt ceiling deadline passed, and there is no current answer about what will happen.

A handful say there is no way it will be raised under the current administration, and Trump is gambling that he will be able to renegotiate the debt.

The media is hyper focused on Trump's schenanigans, Bannon, or Trump's visit with Xi, and events in Syria. There have been very few articles written that mention the debt figure has been basically frozen for months.

A few publications erroneously mentioned Trump magically reduced the debt by $100 billion, which is complete nonsense.

I'm also a bit surprised by the scarce media coverage about the situation in North Korea.

Yes, there are news sources that are discussing the debt ceiling. But the amount of coverage is minuscule, compared to the last time the debt ceiling was a major issue.

 

[jdw]

Followup article from Ken Kam on Forbes regarding Tesla/Ford market cap with feedback from owners.

 

[RobStark]

I don't think there will be Gen II growth in mature markets.

But Tesla is opening new markets Russia, South Korea, and hopefully Utah,Arizona, and Michigan among other US States at some point.

 

[Reciprocity]

FWIW my models have always called for 100K S/X cars per year and full stop there, with all further expansion in the mass market.

That's great and all, but the market for S/X is much lager then what they are addressing currently with 100k cars per year. One thing that is holding them back is acceptance of EV/range anxiety and another is the interior is not up to par with other vehicles in that price range. Those of us who have an a long range EV have learned there is nothing to fear with range because you can charge at home. I think they will do an interior refresh by years end to help further differentiate from the higher end configured Model 3. I think once the Model 3 penetrates the market more, it will actually lead to better awareness and lead to more demand for S/X. Just concerned about that initial group of current owners that could be trading down.

 

[schonelucht]

1) you write of "sky high price targets" as if that were a fact. you may view them as "sky high", I consider them grossly undervalued... the average analyst estimate is ~$230/share, well below my valuation last fall at $350. we can disagree about assumptions, and so valuations, but how do you justify presenting your view as if it is a fact?

I was talking to a board of believers, it's not unreasonable to believe the average poster here is looking for Tesla to make good on its potential of being a trillion dollar company. For that to happen though, the company will have to outperform in every single segment it sells in. Luxury and mid size.

 

[neroden]

<apologizing profusely for quoting a paulo santos article>

I hate to quote Paulo about this, but is he right? Please ask your consultant.

Accounting-wise, when new assets are sold into those VIEs, they're then re-valued lower as if liquidated right away for accounting purposes. This produces an accounting loss for third parties, which was removed from SCTY's own results, providing for much more positive GAAP results.

I suspected there was something like this going on. What is going on with this accounting? Please ask your consultant! If he's right, the accounting loss is essentially phony: it's equivalent to expensing the panels instead of depreciating them, and is understating the balance sheet.

SolarCity, though, thought it well to remove these accounting effects from its actual non-GAAP earnings - thus making them actually look worse than its GAAP earnings.

Showing a high level of honest intent on the part of SolarCity. (Who else makes their non-GAAP earnings look worse than GAAP?) Despite which they got a lot of criticism for showing non-GAAP numbers. Anyway, I'm not sure what SolarCity was actually doing but I think they were using real depreciation rather than mark-to-market revaluation...?

Anyway, the whole situation is making me want to see the new accounting rules adopted ASAP.

Santos is incapable of doing competent research, by the way; he should have realized that there was a SCTY annual report for the short reporting year, and used that.

That 10-K makes it clear exactly how much the minority interest accounting changes things. There's a net loss -- (820,347) thousand, and then a LARGER net loss attributable to minority interests -- (1,059,121), and so there's a net PROFIT attributable to SolarCity shareholders of $238,774 for the year.

The problem is that the wacky minority interest accounting means that we can't really simply predict that that will repeat in 2017. It totally could. It could be four times as large. Or it might not. It could be negative.

----

Now, reviewing this 2016 10-K balance sheet for Solarcity again in yet *another* attempt to figure it out (sigh), there is already a lot of deferred revenue in the balance sheet. So the balance sheet is sort of reflecting things under accrual rules. Here's the problem: the deferred revenue is acting as if SolarCity has to do something to earn it. It's supposed to be a liability because it isn't "earned" yet.

What does SolarCity actually have to do to earn the revenue? Sit around, wait, and mail bills. Occasionally there will be a warranty issue but there's a separate account for that! There will be a few defaults, but apparently 0.6% so far.

In short, the correct way to look at SolarCity books is to consider the deferred revenue to be a fake liability -- one which will just vanish. Add it (or 99.4% of it, to account for defaults) to equity. Every time it increases, treat it as real earnings.

Unfortunately, we don't khow which portion of that deferred revenue is pledged to the minority interests and which part isn't. Yeeeeargh! So we don't know whether to add it to *stockholders* equity or to *noncontrolling interests* equity. This made valuation of SolarCity stock totally impossible, because you couldn't tell what percentage of the *$1 billion dollars* in deferred revenue was attributable to shareholders.

It's like saying "Yeah, my partnership has a billion dollars in solid accounts receivable in it. What percentage of that do I own? Not telling you. Want to buy my share?"

I HATE minority interest accounting.

I suspect, however, that Musk knows exactly how much of that billion dollars in deferred revenue is going to the noncontrolling interests. Which means he knew how much Tesla was getting by buying SolarCity.

 

[neroden]

The other key accounting tidbits from the 2016 SolarCity 10-K:

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to replace the existing revenue recognition criteria for contracts with customers and to establish the disclosure requirements for revenue from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Deferral of the Effective Date, to defer the effective date of ASU No. 2014-09 to interim and annual periods beginning after December 15, 2017, with early adoption permitted. Subsequently, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, ASU No. 2016-10, Identifying Performance Obligations and Licensing, ASU No. 2016-11, Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting, ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, and ASU No. 2016-20, Technical Corrections and Improvements, to clarify and amend the guidance in ASU No. 2014-09. Adoption of the ASUs is either retrospective to each prior period presented or retrospective with a cumulative adjustment to retained earnings or accumulated deficit as of the adoption date. The Company is currently obtaining an understanding of the ASUs but plans to adopt them on January 1, 2018 retrospectively to each prior period presented, which will have a currently undetermined impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, to require lessees to recognize most leases on the balance sheet, while recognition on the statement of operations will remain similar to current lease accounting. The ASU also eliminates real estate-specific provisions and modifies certain aspects of lessor accounting. The ASU is effective for interim and annual periods beginning after December 15, 2018. Adoption of the ASU is modified retrospective. The Company is currently obtaining an understanding of the ASU but plans to adopt the ASU modified retrospectively on January 1, 2019, which will have a currently undetermined impact on its consolidated financial statements.

 

[kenliles]

FWIW my models have always called for 100K S/X cars per year and full stop there, with all further expansion in the mass market.

Similar here, with a slow rise from there over years to 120K

...[ ] i am thinking, which is that solarcity has the potential provide a solid kick up to gaap and non-gaap eps for tesla.

i think he misses the fact that it could boost tesla's gaap earnings by quite a bit too. the non-gaap is boosted by changing the way non-gaap is calculated (as he describes), but the gaap numbers are boosted by keeping the accounting the same.

i'm estimating the effect, if similar to q4 2016, would be on the order of 100-180 million, or maybe 60 cents to 1.15 per share in bottom line..

That's consistent with a number of us on this board who have posited the SCTY merger as a strong net positive IF PPA and future cash flow is brought back to PV, reducing risk and augmenting capital raise requirements. In my view, the future price of power underwriting those is headed for zero over the life of the PPA, so the sooner this happens the better. So far they seem to be doing exactly that, albeit nearly impossible to definitely prove due to the lack of transparency- in turn consistent with the warnings of @jhm regarding any attempt to fully get a handle on it

 

[SteveG3]

I was talking to a board of believers, it's not unreasonable to believe the average poster here is looking for Tesla to make good on its potential of being a trillion dollar company. For that to happen though, the company will have to outperform in every single segment it sells in. Luxury and mid size.

1) you described this as a "board of believers". again you wrote this as if it were fact rather than opinion. I've been following this board for almost 5 years, and I have a different opinion. with time, I think you'll find taking your opinions as if they were facts is detrimental to investment returns.

2) your first comment on this was

"not very confidence inspiring from an investor point of view."

do you think the only case for Tesla is if one thinks it will be a trillion dollar company?

if so, I have got a great investment opportunity for you! I see a base case of Tesla circa 2025/26 getting to a market cap of less than half of that, and the share price being 5X today, and that assumes shareholder dilution of adding 40% more shares to pay for employee grants and future cap raises. The kicker, that assumes only very modest contribution from Tesla Energy, and nada from Tesla Network, which actually could be very profitable, but it's not nearly as clear a path as the vehicle business itself.

I could see why if you were under the impression that Tesla had to be a trillion dollar company you'd not be interested... I encourage you to dig deeper. there is lots of misinformation on Tesla trying to paint it as irrationally overvalued, impossible to value, sugar, sugar, sugar. again, I think you'll find a tremendously compelling investing opportunity if you actually dig deep and think for yourself. good luck!

 

[neroden]

As has been said here multiple times - nobody is reporting on it because its a non-issue. The debt ceiling is an arbitrary limit imposed on the fed by itself. It can simply increase the ceiling if it needs to, and since the same party holds majority control in all three levels of government, they can hammer it through with little fanfare or opportunity for the Democrats to stop them.

This comment contains the mistaken assumption that the Republicans are a single political party. They are in fact several squabbling factions who are fighting each other over every little thing. Particularly the "Freedom Caucus", who are voting no on *everything*.

 

[FredTMC]

I was talking to a board of believers, it's not unreasonable to believe the average poster here is looking for Tesla to make good on its potential of being a trillion dollar company. For that to happen though, the company will have to outperform in every single segment it sells in. Luxury and mid size.

Zero doubt tesla will outsell in the luxury mid-size class with Model 3 and Model Y.

Model 3 will put a serious dent in market share of the German cars (328, A4, etc)

And, even if GM and Ford make a compelling luxury midsize EV, people largely won't buy it. They want the Tesla brand. Brand goes a looooong way

I loved German cars. Owned plenty of them. Porsche, BMW, Audi.
My son's S4 will get dumped for Model 3 when the time comes.

I'll never buy another ICE car and Tesla will have my business unless something better comes along

 

[neroden]

A handful say there is no way it will be raised under the current administration, and Trump is gambling that he will be able to renegotiate the debt.

Well, look, he could always mint the trillion dollar platnium coin. Problem solved. I think Trump would do it.

I'm also a bit surprised by the scarce media coverage about the situation in North Korea.

I think nobody knows what to say. Everyone know the dictator there is losing his mind and nobody, including the Chinese government, can figure out what to do about it.

 

[Hogfighter]

I'm still not convinced that we've seen the final interior product of the 3.

 

[FredTMC]

I'm still not convinced that we've seen the final interior product of the 3.

I think the RC car has the final interior. But, we haven't seen pictures yet.

 

[Starno]

I'm still not convinced that we've seen the final interior product of the 3.

I think that'll basically be it, but it will probably a little more elaborated in terms of design that what we saw : different color, maybe different material, a few added features. And that's all

 

[neroden]

I think that'll basically be it, but it will probably a little more elaborated in terms of design that what we saw : different color, maybe different material, a few added features. And that's all

Maybe real cupholders instead of pencil outline circles. Dream big!

 

[luvb2b]

patience iago. patience. mmmuuuaahahahahaa.

the noncontrolling interest loss in solarcity financials comes from the accounting method. if you want to read some stuff on it, try these.
Deloitte slideshow
article on hlbv method

from solarcity's q3 16 investor letter:
" Income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests is calculated based generally on the hypothetical liquidation at book value, or HLBV method, which assumes that the joint venture funds are liquidated at the reporting date, even though liquidation may or may not ever occur. "

paulo is mostly right, but as usual there is a forest there in the trees.

i've pushed these consultants to the fringes on this esoteric accounting. let's remember also lazard got scty's valuation wrong for the merger and they were paid probably 1000 times more than this group will bill me.

i'm awaiting a second report but i think have a handle on how to estimate these effects for next quarter's earnings, although admittedly it's far from a sure thing this kind of estimation. more to come.

I hate to quote Paulo about this, but is he right? Please ask your consultant.

I suspected there was something like this going on. What is going on with this accounting? Please ask your consultant! If he's right, the accounting loss is essentially phony: it's equivalent to expensing the panels instead of depreciating them, and is understating the balance sheet.


Showing a high level of honest intent on the part of SolarCity. (Who else makes their non-GAAP earnings look worse than GAAP?) Despite which they got a lot of criticism for showing non-GAAP numbers. Anyway, I'm not sure what SolarCity was actually doing but I think they were using real depreciation rather than mark-to-market revaluation...?

Anyway, the whole situation is making me want to see the new accounting rules adopted ASAP.

Santos is incapable of doing competent research, by the way; he should have realized that there was a SCTY annual report for the short reporting year, and used that.

That 10-K makes it clear exactly how much the minority interest accounting changes things. There's a net loss -- (820,347) thousand, and then a LARGER net loss attributable to minority interests -- (1,059,121), and so there's a net PROFIT attributable to SolarCity shareholders of $238,774 for the year.

The problem is that the wacky minority interest accounting means that we can't really simply predict that that will repeat in 2017. It totally could. It could be four times as large. Or it might not. It could be negative.

----

Now, reviewing this 2016 10-K balance sheet for Solarcity again in yet *another* attempt to figure it out (sigh), there is already a lot of deferred revenue in the balance sheet. So the balance sheet is sort of reflecting things under accrual rules. Here's the problem: the deferred revenue is acting as if SolarCity has to do something to earn it. It's supposed to be a liability because it isn't "earned" yet.

What does SolarCity actually have to do to earn the revenue? Sit around, wait, and mail bills. Occasionally there will be a warranty issue but there's a separate account for that! There will be a few defaults, but apparently 0.6% so far.

In short, the correct way to look at SolarCity books is to consider the deferred revenue to be a fake liability -- one which will just vanish. Add it (or 99.4% of it, to account for defaults) to equity. Every time it increases, treat it as real earnings.

Unfortunately, we don't khow which portion of that deferred revenue is pledged to the minority interests and which part isn't. Yeeeeargh! So we don't know whether to add it to *stockholders* equity or to *noncontrolling interests* equity. This made valuation of SolarCity stock totally impossible, because you couldn't tell what percentage of the *$1 billion dollars* in deferred revenue was attributable to shareholders.

It's like saying "Yeah, my partnership has a billion dollars in solid accounts receivable in it. What percentage of that do I own? Not telling you. Want to buy my share?"

I HATE minority interest accounting.

I suspect, however, that Musk knows exactly how much of that billion dollars in deferred revenue is going to the noncontrolling interests. Which means he knew how much Tesla was getting by buying SolarCity.