2017 Investor Roundtable:General Discussion

[goinfraftw]

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?

Running my own valuations, it looks like 50-60% of the price is baked in without any margins on the cars (much akin to the current auto industry). They're not valuing what these gross margin numbers are going to do to the stock price to fuel further development in my estimations.

Beyond silly given what margins they're seeing on the Model S and X. They just need more data to feed their models. Q4 2017 and Q1 2018 are going to get really interesting.

 

[racer26]

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?

I strongly doubt its baked in. Most of the analysts are still calling for 0-20k Model 3 in very late 2017 and ~100k in 2018. Elon says ~60-100k starting in July 2017, 500k in 2018.

Who do you believe? My money is on Elon this time - I suspect he's a little optimistic, but I very much believe deliveries starting in (mid-late) July and more than 50k deliveries in 2017.

 

[EinSV]

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?

One easy data point to keep in mind is that one of WS's biggest TSLA bulls -- Adam Jonas -- said earlier this year that TSLA's valuation would exceed $700/share based on its vehicle production forecasts. And that includes zero dollars for TE and Tesla Solar.

 

[ValueAnalyst]

One easy data point to keep in mind is that one of WS's biggest TSLA bulls -- Adam Jonas -- said earlier this year that TSLA's valuation would exceed $700/share based on its production forecasts. And that includes zero dollars for TE and Tesla Solar.

If the market starts believing Elon that the stationary storage business will grow "super-exponentially" with "similar long-term profitability" then the valuation would exceed $1,000/share.

 

[Gerasimental]

Who do you believe? My money is on Elon this time - I suspect he's a little optimistic, but I very much believe deliveries starting in (mid-late) July and more than 50k deliveries in 2017.

How are you getting to 50k deliveries in 2017? I've had a quick guess at weekly production rates based on Elon's ambition to readh 5000/wk by the end of this year and am only getting less than 25000 cumulative production. I've allowed for some minor slow-downs for re-tooling or things going wrong, but mainly assumed pretty good execution and exponential ramp.

Things would have to ramp very quickly and then level off for 50k to be reached with a run rate of only 5k/wk by the end of the year.

edit: sorry for quick and dirty excel work - orange is cumulative, blue is weekly.

 

[Drax7]

Anybody have access to Sacconaghi's report on Tesla out
Today that Cramer refers to

 

[farzyness]

How are you getting to 50k deliveries in 2017? I've had a quick guess at weekly production rates based on Elon's ambition to readh 5000/wk by the end of this year and am only getting less than 25000 cumulative production. I've allowed for some minor slow-downs for re-tooling or things going wrong, but mainly assumed pretty good execution and exponential ramp.

Things would have to ramp very quickly and then level off for 50k to be reached with a run rate of only 5k/wk by the end of the year.

edit: sorry for quick and dirty excel work - orange is cumulative, blue is weekly.

View attachment 226194

Great chart - thanks.

Below I've done the same thing with a more generalized approach. Essentially the target is 5k per week in 2017, and I created a realistic and optimistic chart. Realistic assumes a start of product of 7/30 (last Sunday in July) and walks it thru hitting 5k run-rate by year's end (literally the last day). Optimistic assumes production start on 7/2 (first Sunday in July) with them hitting 5k a week by the first week in December and holding steady thru there. You can see by putting these two side-by-side the guidance could literally double on production. The truth is probably somewhere in-between if Tesla outperforms.

 

[MP3Mike]

How are you getting to 50k deliveries in 2017?

@Gerasimental What numbers are you using?

Here is my simple table based on the parts orders that Elon provided a while back:

Weekly Monthly
July 1000 4000
August 2000 8000
September 4000 16000
October 4000 16000
November 4000 16000
December 5000 20000
Grand Total: 80000

 

[DurandalAI]

From an earlier ER call:
Later on the call, Musk revealed that suppliers are being told Model 3 targeted production run rates of 1000/wk in July, 2000/wk in August, and 4000/wk in September. And, he noted that Model 3 production should be up to 5000/wk towards the end of the year.

Edit: Looks like mp3 beat me to it.

 

[Gerasimental]

@Gerasimental What numbers are you using?

Here is my simple table based on the parts orders that Elon provided a while back:

Weekly Monthly
July 1000 4000
August 2000 8000
September 4000 16000
October 4000 16000
November 4000 16000
December 5000 20000
Grand Total: 80000

I confess that my numbers are pulled out of thin air - with the only boundary conditions being that 1 car is built in the last week of july and 5000 in the last week of December. We know that these rumps start in fits and bursts rather than on a smooth curve, which is why I thought making up numbers was likely to be just as wrong as predicting a smooth exponential (which is still a useful thing to look at, and farzyness has provided).

My personal view is that your numbers are wildly optimistic. When elon says 'exit 2017 at 5000/wk', I don't think he means 'enter decemeber at 5000/wk and stay there for the whole month'. I also don't think that 'production start in July' means that they will immediately start pumping out 200 cars a day on the first day of the month and maintain that all month. You start with a very steep ramp and then level off, which goes against what we have seen for previous ramps, which start painfully slowly and then explode after a number of months.

 

[Gerasimental]

From an earlier ER call:
Later on the call, Musk revealed that suppliers are being told Model 3 targeted production run rates of 1000/wk in July, 2000/wk in August, and 4000/wk in September. And, he noted that Model 3 production should be up to 5000/wk towards the end of the year.

Edit: Looks like mp3 beat me to it.

Fair enough, I had forgotten about that quote about part orders. Still, that just tells me that those are the absolute maximum numbers they are hoping to build, plus probably 20%-30% contingency.

 

[racer26]

How are you getting to 50k deliveries in 2017? I've had a quick guess at weekly production rates based on Elon's ambition to readh 5000/wk by the end of this year and am only getting less than 25000 cumulative production. I've allowed for some minor slow-downs for re-tooling or things going wrong, but mainly assumed pretty good execution and exponential ramp.

Things would have to ramp very quickly and then level off for 50k to be reached with a run rate of only 5k/wk by the end of the year.

edit: sorry for quick and dirty excel work - orange is cumulative, blue is weekly.

View attachment 226194

I think you're way too pessimistic on the early part of the ramp. You're showing less than 500/wk until November.

I believe the line will start up (by which I mean once the earliest stop-the-line class issues are solved, and I expect that to happen by mid-august at the latest) at approximately 500 units per week. Remember, this is a line designed to operate at speeds in excess of 10,000 cars per week. 500/wk is just 5% of design capacity. The Model 3 line has an initial design capacity 25x greater than what Model S's line was originally designed for.

By comparison, the Model S line reached 50% of design capacity (which was initially 20,000 units/yr) in the first 6 months. I have to assume that Tesla knows more now than they did when building their first production line, so I would expect the time-to-50% capacity to drop significantly. I expect Tesla will reach 5k units/week sometime around late September or early October, and I expect the 10k/wk metric will be surpassed sometime in 1Q18.

 

[moe.salih]

From an earlier ER call:
Later on the call, Musk revealed that suppliers are being told Model 3 targeted production run rates of 1000/wk in July, 2000/wk in August, and 4000/wk in September. And, he noted that Model 3 production should be up to 5000/wk towards the end of the year.

Edit: Looks like mp3 beat me to it.

Here's what he actually said:

"So, when we place parts orders with our suppliers, we've told them 1,000 a week in July, 2,000 a week in August, and 4,000 a week in September. These are parts orders. Then the parts need to arrive. They need to be turned into a car. And the car needs to be delivered to customers."

So there's at least a month lag between part orders and deliveries.

 

[ValueAnalyst]

@Gerasimental What numbers are you using?

Here is my simple table based on the parts orders that Elon provided a while back:

Weekly Monthly
July 1000 4000
August 2000 8000
September 4000 16000
October 4000 16000
November 4000 16000
December 5000 20000
Grand Total: 80000

But why dramatically slow down the ramp up in 4Q?

100% per month growth for three months, then 25% in the next three months?

 

[ValueAnalyst]

Here's what he actually said:

"So, when we place parts orders with our suppliers, we've told them 1,000 a week in July, 2,000 a week in August, and 4,000 a week in September. These are parts orders. Then the parts need to arrive. They need to be turned into a car. And the car needs to be delivered to customers."

So there's at least a month lag between part orders and deliveries.

Electrek assumed 10 days between parts delivery to assembly.

 

[ValueAnalyst]

Tesla's story could be very similar to that of Amazon, Google and Facebook, says Social Capital CEO Palihapitiya

This guy gets it.

 

[vgrinshpun]

Advanced Energy Storage Caucus Launched in Congress to Bipartisan Support

One Republican and one Democrat. One from the state of NY, another from the state of CA. Wow! We *can* come together after all. Kudos to the Representatives!

Washington, D.C. (May 8, 2017) – U.S. Representatives Chris Collins (R-NY) and Mark Takano (D-CA) launched the Advanced Energy Storage Caucus in Congress last week, joined by executives from leading utilities, developers, and manufacturers of storage technologies. The focus of the Caucus is to educate Members of Congress regarding the benefits of storage to the U.S. electric system and investigate ways to accelerate job growth and investment in U.S. advanced energy storage industries. Cost-effective, safe energy storage systems are creating a more resilient and efficient electric grid today, with thousands of systems already in operation throughout the United States. In recognition of the critical role energy storage plays in making the U.S. electric system reliable, affordable, and sustainable, the Caucus will periodically brief Members of Congress on how energy storage is reshaping the way electricity is generated, distributed, and consumed, and how policy can remove impediments to greater use of battery storage.

“I am proud to co-chair the Energy Storage Caucus with Congressman Takano." said Congressman Chris Collins. "We need bipartisan solutions to help address our aging energy infrastructure. Energy storage technology will grow our economy and make sure American businesses can compete around the globe."

"Energy storage is transformative technology that can lead to a cleaner, safer, more reliable, and more affordable energy grid,” said Rep. Takano. “I am pleased to restart this bipartisan initiative to educate my colleagues about the potential of energy storage and explore opportunities for us to support this technology in the future. The security and sustainability of our energy infrastructure affects every community across America. I look forward to working with Democrats and Republicans to create a policy environment where the promise of this technology can be fully realized.”

Advanced Energy Storage Caucus – Mission Statement
The bipartisan Congressional Advanced Energy Storage Caucus is dedicated to advancing understanding of how energy storage systems are enabling American businesses and homeowners to better access reliable, affordable, and sustainable electric power. The members of this Caucus will work together and with stakeholders toward innovative and effective policy solutions that address challenges in our energy infrastructure and drive the adoption of storage technology.

 

[erha]

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.

 

[erthquake]

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.

Honestly, my "hope" for a smooth and successful Model 3 ramp is clouding my ability to objectively calculate the odds of that possibility. I hope that this time they've learned their lesson from the Model X. Everything they've said about ease of manufacture and production line milestones is encouraging, but I don't know enough to accurately determine whether the ramp will be smooth or not.

What I am quite certain of, however, is that like the Model S and X, everything will eventually work itself out and production will be a fine-tuned machine. Since I'm long, a delay of one or two quarters in the Model 3 ramp is no big deal. If I have extra cash, I'll just buy any dips that occur. Five years from now, any troublesome Model 3 ramp would be a footnote in history.

 

[farzyness]

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.

I completely understand this thought process and respect it, but I'm not quite sure I agree with it. The Tesla euphoria began roughly 3 months after entering production of Model S. Most every analyst had Tesla pegged at units that were significantly under what they were able to ship (I believe Tesla shipped 20k units in 2013, most analyst had them at like 5k max).

I see a similar trend happening with Model 3. Right now most analyst (most being basically all) do not believe Tesla will be able to ramp to 100k Model 3s until sometime in 2020, let alone 500k cars in 2018. The guidance from Tesla is that they should be able to start production in July and hit a 5k weekly run-rate sometime in 2017. This probably means at the end of 2017.

If we take the Model S, Tesla was able to ramp up their production significantly in a very short period of time. They did this with their first true car without optimizing for ease of manufacturing. The Model 3 is Tesla's latest effort with ~4 years of manufacturing experience and the priority of making it an easy car to manufacture.

Following this line of logic, it makes sense to assume that Tesla will be able to meet its own guidance of 5k cars a week sometime in 2017 and 10k in 2018, which at the lower end of the spectrum means that they will be able to ship somewhere above 300k Model 3s in 2018, in addition to roughly 100k Model S and X.

As you can see, these production numbers are significantly higher than the street's assumptions. The only question to ask here is if this likely ramp is already baked into the price.

EDIT: And to build on this - Tesla was valued at ~$290 in the middle of 2014 with the Model 3 not being part of the conversation. The price dipped and rose since then with the botch roll-out of Model X and the company's ability to get back on track with development of the 3. The question here becomes - what kind of company is Tesla, 3 years after they initially hit $290, that could potentially warrant a higher price?

Keeping a short list, since 2014, Tesla 1) will be entering production of Model 3 in two months 2) is making energy storage solutions with Powerwall/pack 3) is entering the solar energy generation industry 4) is entering the logistics industry with a semi 5) is further increasing their mass-market capabilities with the Model Y.