2017 Investor Roundtable:General Discussion

[AudubonB]

One word: DANG!

Amazon
Netflix
and
Google

but what's the "D"?

Time to reveal it, I think.

 

[neroden]

Another nice illustration of the difference is by the "distance of explosions from my crotch graph" by The Oatmeal (What it's like to own a Tesla Model S - A cartoonist's review of his magical space car - The Oatmeal):

Well, that just distracted me for several hours.

 

[sahanim]

While I strongly opposed the merger with SCTY and my stance on it was quite clear, it is against my interest to bash the deal.

I will only say that Elon should use this euphoric time to unwind some of the *sugar* floating in it so that certified accountants are not afraid to touch it.

At least remove the part where each entity can owner each other, which is where I believe all the *sugar* are buried. Imagine if the profit generating solar panel owns the derivative of the contract for electricity generation of your neighbor's roof. That's what floated to my mind when I looked into it.

My projection is for recession to hit in 3 years. When recession hit, it's *sugar* like this that will come to front and center.

BUt if tesla the car company manages to grow so much bigger than SCTY's asset, of course all these worries will just be moot.

And just like that, I need to get back to meeting my Wedbesday deadline.

North Korea issues warning on US aircraft carrier - CNNPolitics.com
what does it do if the us goes to war... with everyone...

 

[neroden]

thank you for correcting my error @DaveT and @brian45011. and my sincere apologies for dragging you through combining financials.

i have to say i'm very surprised by the reply you got, mostly because the interest expense line would be only 4.4m for all of q4, after it ran at 26-69m the rest of the year. maybe something else is pushing interest expense down? that would be another question to ask ir - why was solarcity interest expense only 4.4m in q4?

OK. The most obvious thing from the Tesla 10-K which I haven't mentioned here is that they've been aggressively paying down higher-interest-rate SolarCity debt.

From what Brian's said, the mark-to-market on the interest rate swaps is dominating over that, though.

But anyway, SolarCity's recourse revolving loan had a higher interest rate than Tesla's, and it appears that it's being wound down in favor of Tesla's (with the better interest rate). Likewise with some oddities like "vehicle loans" (how did they get into those high interest rates?!?). This is all pretty obvious stuff so I didn't mention it, but I think refinancing with Tesla's better credit rating will account for a substantial amount of interest reduction going forward.

 

[vgrinshpun]

California Public Utility Commission approves doubling of the Self Generation Incentive Program, reserves 85% the funds for storage (85% of $249M over three years). Rates start at about $500/kWh for small storage and large storage without ITC, or $360/kWh for large storage with the ITC.

 

[Mike Smith]

Michigan and Texas are going to have a hard time explaining why they've banned America's top auto maker from selling cars. German companies are fine. Japan and Korea? Welcome! But not America's most valuable, highest job creating, fastest growing, and most innovative car maker. It's downright anti-American. Lawmakers opposed to Tesla need to be exposed and held to account for their America-damaging positions.

 

[EinSV]

California Public Utility Commission approves doubling of the Self Generation Incentive Program, reserves 85% the funds for storage (85% of $249M over three years). Rates start at about $500/kWh for small storage and large storage without ITC, or $360/kWh for large storage with the ITC.

Just to point out that $500/kWh x 14 kWh is $7000. In layman's terms, if you qualify, you get a Powerwall (including installation) free, or close to it (although this level won't last long.)

In typical government fashion the program is as complicated and confusing as possible so will discourage many homeowners, but this is an incredible deal for CA Powerwall buyers who have solar and can take advantage of the program.

 

[austinEV]

Ok. This is becoming like old home week with 'lov' and CAlien posting.

If Sleephead and CapOpressor start posting I may actually have to go 'all in'

Some of us never left

Amazon
Netflix
and
Google

but what's the "D"?

Time to reveal it, I think.

Keep your D to yourself

 

[vgrinshpun]

Just to point out that $500/kWh x 14 kWh is $7000. In layman's terms, if you qualify, you get a Powerwall (including installation) free, or close to it (although this level won't last long.)

In typical government fashion the program is as complicated and confusing as possible so will discourage many homeowners, but this is an incredible deal for CA Powerwall buyers who have solar and can take advantage of the program.

SGIP has a percentage limit on the total installed cost, so under the program one can never get more than 60% of the approved project cost reimbursed via SGIP. Here is relevant snap shot from the 2016 SGIP Handbook:

 

[EinSV]

SGIP has a percentage limit on the total installed cost, so under the program one can never get more than 60% of the approved project cost reimbursed via SGIP. Here is relevant snap shot from the 2016 SGIP Handbook:

View attachment 222197

Thanks -- had not seen that. It still means a Powerwall for as little as $2800 installed, assuming $7000 all in. Unfortunately, the program is opaque and confusing enough that I'm not sure how successful it will be at driving demand, at least for residential.

 

[vgrinshpun]

News flash from a crowded field with a lot of competitors and solutions: Lyon Group of Brisbane, Australia has proposed $767 million solar-plus storage facility in South Australia.

The project includes 330MW solar farm coupled with 100MW, 400MWh Li-Ion battery storage. Assuming solar installed pricing of $1.40 per Watt, solar portion of the project would cost $462M, which would leave $305M for the BES, at an installed cost $762.5/kWh. Even conservatively assuming that half of that cost accounts for batteries (it will actually be more than that for a large BES system co-located with solar farm), would yield battery cost of $381/kWh.

This is clearly an ominous development for Tesla with their advertised battery price of $250/kWh

 

[Yggdrasill]

News flash from a crowded field with a lot of competitors and solutions: Lyon Group of Brisbane, Australia has proposed $767 million solar-plus storage facility in South Australia.

The project includes 330MW solar farm coupled with 100MW, 400MWh Li-Ion battery storage. Assuming solar installed pricing of $1.40 per Watt, solar portion of the project would cost $462M, which would leave $305M for the BES, at an installed cost $762.5/kWh. Even conservatively assuming that half of that cost accounts for batteries (it will actually be more than that for a large BES system co-located with solar farm), would yield battery cost of $381/kWh.

This is clearly an ominous development for Tesla with their advertised battery price of $250/kWh

Are we sure those aren't Tesla Energy batteries?

100 MW/400 MWh (or 0.25C) fits with the powerpack specs, at least. Also fairly short commisioning time - by the end of the year.

 

[Yggdrasill]

Are we sure those aren't Tesla Energy batteries?

100 MW/400 MWh (or 0.25C) fits with the powerpack specs, at least. Also fairly short commisioning time - by the end of the year.

Found a better source: Lyon Group to build world’s largest solar-plus-storage project in South Australia

Those aren't Tesla Energy batteries, by the "1.1 million" batteries and 400 MWh. That works out to 364 Wh/cell, which is completely incompatible with Tesla Energy. I assume these are large format cells.

The battery installation is supposed to cost 375-562 USD/kWh. I agree that also seems high for Tesla.

 

[schonelucht]

This is clearly an ominous development for Tesla with their advertised battery price of $250/kWh

You're mocking our assertion that there are competitive competitors by linking to a competing project that is actually fully funded, with work already in progress and commission set for date end of this year? I fail to see your point, this project is an actual counterexample of your position : that despite the apparent cost advantage on batteries, Tesla is not the de facto sole competitive player in the field.

Also, you can't use US utility scale PV costs and assume they are the same for Australia. The battery component of the project is projected to cost between $200 and $300 AUD ($150 to $225 USD) Lyon Group to build world’s largest solar-plus-storage project in South Australia

To recap : the proposal is actually this company's third utility scale PV+BES project (of which one is already fully commissioned). So yes, the field is crowded and the solutions of competitors are actually competitive.

 

[vgrinshpun]

Are we sure those aren't Tesla Energy batteries?

100 MW/400 MWh (or 0.25C) fits with the powerpack specs, at least. Also fairly short commisioning time - by the end of the year.

Yes: Local companies say they're ahead of Tesla in SA power fix

 

[aubreymcfato]

Tesla might be more valuable than big three but definitely not as well known. It will be interesting to watch google trends as the 3 expands out of its wealthier enclaves into drive over territory.

Google Trends

I'd wager for Tesla to actually follow through and sell the kinds of car volumes that their valuation requires, they will start to curve exponentially towards Ford on this graph at some point over the next 2-3 years.

About the spike in the chart: do you remember what happened from 26 to 3 apr 2016?

 

[DaveT]

2. tesla has no restructuring expenses in its 10k related to solarcity. it would be odd for restructuring expenses to just stop and then restart 6 weeks later if there was still restructuring ongoing. also, a lot of companies front load expenses into restructuring, and then report higher gross margins or lower opex later. ibm seems to be particularly adept at this if you want an example.

That's a decent argument but would be clearer if Tesla/Solarcity gave guidance on this restructuring expense and when they expected it to end.

3. pre-production expenses are expenses incurred at facilities prior to production. i hypothesize these are related to stuff going on at the gigafactory in buffalo before production starts. also solarcity shifted some r&d into preproduciton "Research and development expense decreased by $10.0 million, or 15%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decrease was primarily due to the decreased level of research and development activities undertaken by Silevo as such expenses are now recorded in pre-production." the way solarcity was shifting expenses across line items makes quarter to quarter comparison of narrow categories challenging. tesla by contrast keeps the expense lines very simple, so i'm pretty sure that preproduction expense has been merged into either sg&a or r&d for tesla reports.

So, it looks like we need to plan for continued pre-production expenses in Q1.

i think you mean headwinds.

Haha, yes definitely meant headwinds.

on the last call they mentioned that g&a should grow "sub-linearly" with revenue. i don't see dramatic increases in r&d. sales, yes - ok. but from the q4 commentary i don't expect tesla's opex rate in automotive / batteries to increase by more than 10% quarter-over-quarter.

Rod Lache - Deutsche Bank Securities, Inc.
Could you comment on the run rate of OpEx for 2017, for the Motors company or for the whole company?
Jason S. Wheeler - Tesla, Inc.
Sure, I think the way to think about it is we're going to continue to drive efficiencies in G&A. We have to do that.
Elon Reeve Musk - Tesla, Inc.
In part, because we can't send people in the (67:19)...
It seems like a silly concern, but like it's really quite difficult....
It's like you can't fit everyone. So we have to make our OpEx better because there's nowhere for people to go.
Jason S. Wheeler - Tesla, Inc.
So, we're at that stage now where G&A will continue to scale sub-linearly with revenue, and we'll continue to always push productivity. Productivity, productivity, productivity. And then we'll obviously need to continue to make investments on the sales side, and even in my new ventures, I'll be calling Jon and harassing him about his numbers​

​

Thanks for the quote from the conference call. It's somewhat concerning that Wheeler is gone, since I viewed him as one of the major reasons Tesla was able to get costs under control under his reign. Now, we've got Deepak back and under him costs were out of control. I would definitely be more confident about Wheeler's "G&A will continue to scale sub-linearly with revenue" statement if Wheeler was still in charge. Nevertheless, hopefully Deepak can continue in Wheeler's footsteps with some fiscal discipline.

i think you said it right the way you had it though, that there are tailwinds to profitability. here are what i see as tailwinds:
1. guided gross margin back up near 30% on a gaap basis
2. one-time bump from recognition of autopilot revenue.
3. recognition of ongoing autopilot revenue, once it starts will be awesome. because you earn software gross margins on that feature (90%+ gross margin is my guess).
4. another chunk of zev's coming up for sale.
5. once battery production shifts to gigafactory for automotive that will also expand margins meaningfully.
6. tesla energy ramping sales volume and production.

and then of course the biggest which can make up for a lot of opex increase is solarcity!

I like your list of tailwinds to profitability. I do have some skepticism that they can reach 30% gross margins on the S/X this quarter. Perhaps a lot of it will be determined on how much AP revenue they're able to recognize. And hopefully recognizing some AP revenue for cars built in Q4 will help Q1 numbers as well. And of course ZEV credits if they're able to sell them this quarter.

The biggest headwind though, is that as of Q3 last year I don't think Elon/Tesla even thought it would be possible to be profitable prior 2018. Also, I think ramping Model 3 production is a higher priority than profitability in 2017. Thus, I'd imagine Elon/Tesla to prioritize spending over profits this year. Perhaps SolarCity's business can contribute to profits earlier than expected... like in Q4 2017 or maybe Q3 2017. But I'm highly skeptical it can be one prior to that. But I haven't dug deep into Q4 2016 numbers to model Q1 2017 at all, so I'm just rambling at this point.

 

[DaveT]

@luvb2b I emailed IR this morning asking for clarification and they replied saying that Solarcity's 10-k financials were for the entire year, ending Dec 31, 2016.

Revised:

Last 4 quarters of Solarcity:
Q1 - $122M revenue, $92.5M cost of revenue, $29.5M gross profit, $242.5M Opex, $213M loss from operations
Q2 - $186M revenue, $114.5M cost of revenue, $71M gross profit, $265M Opex, $194M loss from operations
Q3 - $200M revenue, $129M cost of revenue, $72M gross profit, $258M Opex, $186M loss from operations
Q4 - $222M revenue, $143M cost of revenue, $79M gross profit, $136.5M Opex (offset by $84M silevo), $57M loss from operations
(*calculated 2016 partial numbers of 730M revenue, $479M cost of revenue, $251 gross profit, $902M Opex, $650M loss from operations.)

Solarcity Operating Expenses 2016
Q1 - $126M sales/marketing, $87M g&a, $16.5M pre-production, $14M R&D
Q2 - $118M sales/marketing, $86M g&a, $19M pre-production, $29M restructuring, $14M R&D
Q3 - $103M sales/marketing, $87M g&a, $19M pre-production, $34M restructuring, $14M R&D
Q4 - $95.5M sales/marketing, $53M g&a (offset by $84M Silevo one-time), $31M pre-production, $43M restructuring, $13M R&D
2016 - $442.5M sales/marketing, $229M Gen/Admin (includes $84M Silevo offset), $69M pre-production, $106M restructuring, R&D $55M

Rough guesstimate:
Q1 2016 - $250M revenue, $170M cost of revenue, $80M gross profit. $250M Opex. $170M loss from operations. $50M interest expense. $250-$300M net loss to noncontrolling interests (offsets loss). $30-70M GAAP profit.

 

[mrdoubleb]

Rough guesstimate:
Q1 2016 - $250M revenue, $170M cost of revenue, $80M gross profit. $250M Opex. $170M loss from operations. $50M interest expense. $250-$300M net loss to noncontrolling interests (offsets loss). $30-70M GAAP profit.

Dave, you meant 2017, right?

 

[JBRR]

SEC.gov | SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors

"
FOR IMMEDIATE RELEASE
2017-79

Washington D.C., April 10, 2017—

The Securities and Exchange Commission today announced enforcement actions against 27 individuals and entities behind various alleged stock promotion schemes that left investors with the impression they were reading independent, unbiased analyses on investing websites while writers were being secretly compensated for touting company stocks.
"

I'm gonna venture a guess that we will be seeing fewer TSLA fud stories going forward. I assume this SEC attention includes Bear articles as well as bull.

edit: reddit thread with mentions of which companies are directly affected. SEC: Payments for Bullish Articles on Stocks Must Be Disclosed to Investors • r/investing