2017 Investor Roundtable:General Discussion

[zdriver]

I would not be surprised at all if WI is making moves to get Tesla to build a GF in WI. From what I’m hearing with the Foxconn deal is WI is looking to develop a Silicon Valley like “tech park” in SE WI. Everyone is fighting for these mega factories and it should break down plenty of existing “walls.” I get lots of info/insights on the Foxconn development lately and it’s lots of excitement for us in the Midwest.

Didn't similar argument show up prior to GF#1, regarding Texas? IMO Tesla should ask for a heck a lot more than just WI allowing them to open stores. Being banned from opening stores is BS to start with. Accepting that would basically equal to Tesla being blackmailed into opening a factory in WI.

I'm wondering if Project TIM is Tesla, but since it would all hinge on Michigan allowing Tesla to sell and service cars in the state, if Michigan is dragging their feet, they could casually ask if WI wanted the plant instead. Michigan already lost out on the Foxconn plant to WI, so it could be a decent tactic to get Michigan to wake up, even if they have no intention to go with WI in the end.

Regardless, someone is putting considerable time, effort, and expense into Project TIM and acquiring options on that much land. If it's Tesla, they're going to use all the leverage they can to use it to push a direct sales bill through in Michigan. Bonus points if it gets WI to allow direct sales in the process.

 

[kenliles]

WI just cleaned up a huge area of old closed down plants in the Kenosha area right on the Lake Michigan dock area. Replaced with condo and housing. But there's much more that could be utilized from abandoned AMC plants etc. - excellent access to Chicago and all points East-West-South and shipping. Not a bad consideration from my limited knowledge of the area

 

[mongo]

I'm wondering if Project TIM is Tesla, but since it would all hinge on Michigan allowing Tesla to sell and service cars in the state, if Michigan is dragging their feet, they could casually ask if WI wanted the plant instead.

I don't see Elon passing on the best site for GF3 due to current dealership laws which will likely be struck down in the future. I feel he can treat them as orthogonal issues. (But don't tell them that )

 

[erthquake]

Reuters - this morning: U.S. trade panel recommends solar panel import restrictions

Trump, and Pruitt by proxy, don't give a red shiite about domestic panel producers. It's just an end-around to prop up the competitiveness of fossil fuels with solar.

Edit: posted before I read everyone else's (well-done) replies.

 

[zdriver]

I don't see Elon passing on the best site for GF3 due to current dealership laws which will likely be struck down in the future. I feel he can treat them as orthogonal issues. (But don't tell them that )

I absolutely could see him passing up the best site when the state in question has been as scummy as Michigan... Have to take into account relative "best-ness" of a site. Some site in WI or another state isn't likely to be so much worse than Durand, MI that they'd consider sinking billions into a state that still won't let them sell a car...

 

[Intl Professor]

A two factor equation, like balancing import trade without consideration of exports, is the hob-goblin of those with primitive brains. And we won't even consider interdependence, consequences, etc., which might require normal brain function. @jbcarioca is much more diplomatic and authoritative.

 

[brian45011]

Specifically Tesla has explained the reason for a.

That explanation may have made a modicum of sense in 2013 when Tesla was trying to deliver 5,000 cars per quarter, worldwide. It rings somewhat hollow in 2017 since Tesla has been delivering 20 to 25 k cars/quarter for about two years. It borders on the nonsensical for 2018, since Tesla has ambitions of delivering 500,000 cars. Well-planned logistics and relatively steady state deliveries in all markets are far more efficient than quarter-ending fire drills.

As for c, besides guiding gross margin for M3 into 2018, I don't know what people are expecting.

Gross margin projections do not provide sufficient information about Tesla's ability to repay its maturing debt while funding its previously announced capital expansion plans for Superchargers, Service Centers, GFs 3 through X, and new products like Semi-trucks, model Y, solar roofs, etc. I submit the investment community expects guidance about more meaningful metrics like net income and cash generated from operations. You might consider listening to (or reading the transcript of) the SolarCity May 2016 conference call in which the investment community lost faith in the Rive cousins ability to ever make a profit. IMO, it was after this CC that Elon recognized he had to bailout SCTY with TSLA's shareholders' money.

As for b, you can call Elon's style Bob and weave, I interpret that as Elon always thinking in terms of a range of possibilities, and adjustments on the fly, to me that's a strength, not a weakness or fault.

You may be indifferent to the Q&A on CCs but I suggest you watch the share price action between the filing of the SH letter and the end of the CC. (The share price will also react to the filing of the 10Q about a week later when more details will be disclosed.)

Tesla has a tough enough time fighting the traditional automakers, oil money paying off biased media, and naysayers on the wallstreet. If you're an investor, the main reason you're investing in Tesla should be because of Elon. If you don't trust Elon you should get out of TSLA, if you do, then get off his back and let him do his job.

Please spare the "Elon is a victim" sop. I do not purport to be a TSLA investor. I trade shares for entertainment because it is volatile security that generates "pin action." Like Elon and battery chemistry/formats, I'm totally agnostic about this site's dogma. (Although I was initially attracted to the shares as a way of playing the EV alternative to personal transportation.) I'm in and out of positions frequently, and have been whipsawed in both directions more often than someone with incontinence visits a toilet.

Whether I trust Elon is immaterial. What I, and everyone who trades this company, are trying to figure out is how long will the investment community continue to trust Elon by funding the growing operating losses? Will it be long enough for operating leverage to finally make a difference?? In this quarter Tesla delivered the most vehicles ever in history, and it's also likely to report the greatest bottom line loss ever. The "market" is sending mixed signals about its trust of Elon. In August 2016, SCTY tried to float $124 MM of 18 month 6.5% coupon notes; the market passed so, Elon and the Rive cousins bought $100 MM of the offering. However, in August 2017, TSLA sold $1.8 billion of 5.3% coupon 8-year B-/b3 junk notes, after raising $350 million in equity and $850 million in convertible notes in March 2017.

My expectation is that the "market" will balk at additional capital infusions until Tesla demonstrates it can produce and sell the M3 profitably (SMP part deux is meaningless unless the M3 is a financial success.) Consequently, I prefer more true transparency and candid information to help me set positions in either direction rather than meanderings about "the range of possibilities." I recognize YMMV but as Rodney King asked "Can't we all just git along."

 

[zdriver]

I do not purport to be a TSLA investor. I trade shares for entertainment because it is volatile security that generates "pin action."
[...]
I'm in and out of positions frequently, and have been whipsawed in both directions more often than someone with incontinence visits a toilet.

Whether I trust Elon is immaterial. What I, and everyone who trades this company, are trying to figure out is how long will the investment community continue to trust Elon by funding the growing operating losses?

You claim to be a trader, then you dive into fundamentals again. Which is it? If you're a trader, you should be focusing on price action, don't let news have an effect on your emotions. To a trader, specifically one that trades pin action, it's totally irrelevant if or when in the remote future cash flow will be an issue. When it becomes an issue, price action will tell you.

This is also a fair argument for the bull side too. Too many times have my emotions from news or developments clouded my decisions trading or understanding price action. The only news a trader should pay attention to is news or events that might unexpectedly effect near term volatility, such as ER, unveils, etc.

 

[kenliles]

Whether I trust Elon is immaterial. What I, and everyone who trades this company, are trying to figure out is how long will the investment community continue to trust Elon by funding the growing operating losses? Will it be long enough for operating leverage to finally make a difference??

Agree as a trader, your trust in Elon is immaterial. The investment community has already given you that answer. They did and they will...

My expectation is that the "market" will balk at additional capital infusions until Tesla demonstrates it can produce and sell the M3 profitably

The market cost of capital will be effected, but there’s no indication it will balk— I don’t believe the scenario you paint is imminent (as demonstrations are already underway), but to the extent it is for discussion, no capital limitation will exist for the demonstration you propose. Further, here is another scenario not presented for discussion, once proven (imminent), the capital availability to expand on M3 success to other models may in fact dwarf this entire line of thought (at least an equal possible scenario)

Consequently, I prefer more true transparency and candid information to help me set positions in either direction rather than meanderings about "the range of possibilities."

Yes, I can understand, as a trader, your need for that level of transparency. As an investor, I would urge the opposite of Tesla. I’ll perform better financially if traders don’t know what’s going on, and must resort to trust in Elon, which is immaterial to their decisions, but completely material to mine...

 

[Intl Professor]

Whether I trust Elon is immaterial. What I, and everyone who trades this company, are trying to figure out is how long will the investment community continue to trust Elon by funding the growing operating losses?

As a long, I think Tesla will have no problem raising money for future investments in the company for a long time, say, at least five years. Then if following the course contemplated for expansion of production, of new models and more Tesla Energy, pricing of the borrowing may be more but it might be less depending on general interest rate level. It may be considered an "investment" grade company in five years. In terms of the appropriate ratios, Tesla certainly has a lot better debt situation than Ford, for example. Although that might not last as you suggest.

If the stock price cost goes much higher, stock issuance may have a less diluting effect. It is highly probable Tesla will have no competition until that time on the auto side, but Tesla Energy already has some competition, apparently not on price and the roof idea is a different ball game. I don't trust banks and I'm with those it would be a mistake to raise interest rates by much, soon, which is always a possibility. But even if the Fed drives us into a recession the need for energy change and the demand for Tesla products will remain.

Unfortunately, due to methane release in particular, I think we have already "bought the farm," or more properly, our progenies graves. I suspect people now alive will have to figure out how to get beyond Canada's wall. But I'm confident the "Boring" company will come up with some ideas for a generation of immigrants. And then there's always SpaceX for a lucky and well off few, like the Koch brothers.

Just some Halloween thoughts. We buried my mother three years ago today and then cavorted, for a bit, with her gravediggers. It was her time at 99+ years so not as sad as it might have been. When she was 93 she called up and wanted to know what our phone number was.

 

[myusername]

There would not be any credits sold by Tesla if OEMs would put serious effort into building compelling electric cars instead of trying to change the rules. BTW, if GM would have done it, their stock would compare much more favorably to Tesla's.

Ten Million Cars Per Year. Billions in profits. please.

 

[brian45011]

Tesla certainly has a lot better debt situation than Ford, for example. Although that might not last as you suggest.

You might want to back out Ford Credit's debt and then reassess which company's balance sheet is stronger. Ford Credit finances car purchases, earning arbitrage profits between its borrowing rate and the rate they charge the car purchasers. Tesla has no equivalent financing profit center. Tesla Finance only leases vehicles and guarantees the residual values to the Warehouse Lenders who are assigned the security interest in the vehicles. The problem is Tesla has to title the car initially, and adds the Federal Income Tax credit back on top of the projected market (residual) value of the car at the end of the lease term in order to make the monthly lease payments attractive/comparable to "banking affiliate" and/or true 3rd party leases. The banking affiliates and 3rd party lessors can use the credits because they are profitable and pay income tax. Tesla gets no benefit from the tax credit since it has billions of tax losses to carry forward (for the next several decades). This practice (along with the rate of obsolescence in EV auto technology) virtually assures the lessees will not retain the vehicle by buying the car for the lease's termination value at the end of the lease term because it will be about $7,500 over the true market value. The Warehouse Lenders are not in the used car business so they dump the returned vehicles back to Tesla. Check the quantitative data in the MD&A section of the 10Q's to see how much Tesla is losing at the gross profit level on "pre-owned" cars.

Similarly, Tesla has no capability to extract profits from non-Tesla vehicle trade-ins. It might not have been that big of a value leak when selling $100k+ vehicles to wealthy individuals with garages full of cars, but IMO buyers of the M3 will not be that cavalier about how much they get for trading-in (or wholesaling) their prior ride.

With all due respect (don't you just hate that phony, condescending expression?) your expectation that the capital funding spigot is open for the next five years regardless of whether Tesla can deliver the M3 in volume, profitably, amounts to hopium. In any event, I will adjust my positions dynamically tomorrow based on the information disclosed; I suspect many here won't but that's what makes a market

PS. If there is indeed a recession, owners of over-valued, profitless enterprises will be take to the woodshed.

 

[brian45011]

You claim to be a trader, then you dive into fundamentals again. Which is it?

All of the above

If you're a trader, you should be focusing on price action, don't let news have an effect on your emotions. To a trader, specifically one that trades pin action, it's totally irrelevant if or when in the remote future cash flow will be an issue. When it becomes an issue, price action will tell you.

Ok, sorry!

 

[geneclean55]

When ER looms, true sentiment is revealed.
Wish the stock price was as predictable.

 

[anticitizen13.7]

When ER looms, true sentiment is revealed.
Wish the stock price was as predictable.

There are big egos all around and one side is going to be humiliated. Which side will eat crow, I have no idea.

This is why I think the forum sometimes gets so nasty just before an ER. Nobody knows what will happen and people are scared. It is especially ironic given that today is Halloween.

As awful as Wallstreetbets - "It's like 4chan found a bloomberg terminal" • r/wallstreetbets can be, the one thing I admire about the bastards there is that they take their losses in stride (usually) and even joke about losing their yacht money and seeing their Robin Hood brokerage balance crash and burn.

 

[D-egg-O]

Happy Halloween TMC!

 

[JRP3]

Nobody knows what will happen and people are scared.

Can't say I've ever been scared. Curious, excited, even confused at times, but not scared.

 

[Papafox]

TSLA closed at 333 in after-hours trading today, an increase of $1.47 since market close. That's a respectable gain in after-hours trading and suggests that the enthusiasm for buying may well extend into tomorrow.

 

[dc_h]

Very good comment but I'm not sure if I understand this:

"Even at 30% gross margin they can only grow about 30-50% without going back for a cap raise in bonds or stock."

If Tesla makes 30% GM on existing revenue, and invest this 30% back into manufacturing facility, does that translate to only 30% revenue growth? (I assume you meant revenue growth). I mean so far Tesla probably has invested <$5B into GF1 and Fremont M3 line, but they can get >>$5B revenue in 2018 from M3 already.

How do you reconcile all this professed transparency to:
a. Refusing to report monthly car deliveries;
b. Bobbing and weaving to avoid answering germane questions on conference calls; and
c. NEVER giving forward guidance about the bottom line since the IPO nearly 7.5 years ago?

I disagree that refusing to disclose relevant metrics to inform share buying and selling decisions is in "the best interests" of investors (and traders). YMMV.

stay away from Amazon and Apple as well. Both are notoriously opaque. You want clarity buy GE.

 

[vgrinshpun]

One just can't make this stuff up:

Despite concern that electrification will render obsolete the gasoline-fueled internal combustion engine, the world’s biggest crude explorer says the 158 year-old oil industry won’t go gentle into that good night.

The electric-vehicle, or EV, fleet won’t grow fast enough to displace much in the way of fuel demand, according to Exxon Vice President Jeff Woodbury. Plus, heavy-duty trucks and petrochemicals are where the real action is anyway, he said during a conference call with analysts on Friday.

“By 2040, the fleet is about 6 percent EV,” Woodbury said, referring to a company forecast on the growth of electric cars. Even if you boosted that number by 50 percent, it would only remove about a half-million barrels a day in demand, he said, “not substantial when you think about overall oil demand of over 100 million barrels per day, at that point.”

Should gasoline demand dry up some day, that’s OK with Exxon too. The company would rather “upgrade” those molecules into higher-profit fuels such as diesel anyway, he said.