2017 Investor Roundtable: TSLA Market Action

[schonelucht]

1. the ABL is not covering a lease 'deficit'. It explicitly does cover leased vehicles, that is what it is for. There are two options for leasing growth 1. increase the ABL line. That is what lessors do every day every where. they do not pay the commitment fees for more line than they need. 2. Use 3rd parties for leases. Eitehr way, no problem. The second way shrinks the TSLA balance sheet so might be preferable for uninformed investors.

I am wholy confused now. The ABL has nothing to do with leasing. It's secured against inventory (mainly unsold finished goods). The warehouse facility is backed by leasing income.

I could go on, but I won't. Please study a little about the difference between cash flow and profit and loss accounting. Second please study a bit about covenants in financing agreements. That will help you understand why Tesla has minimal financing risk.

Not really. I think you misunderstood my point. I will try to rephrase it. Currently, Tesla has a cash loss from operations (see the reconciled cash flow statement in the latest 10-Q). It needs to turn that around if it wants to get to positive cash flow. My concern is that various evolutions on the profit&loss side will not make Tesla turn around cash loss from operations before 2018Q1.

Take the used car program. True, you can't directly take losses realized there to the cash flow statement. Don't think I ever implied that. But if Tesla keeps buying cars for more than it sells on a structural basis (3 quarters in a row as we speak, with the gap growing) then it does impact cash flow eventually. My other remarks should be read in the same light.

Also your suggestion on studying the convenants is not helpfull. I did and came to a different conclusion. I am open to more clarification on the subject.

 

[sunhelm]

MODERATOR NOTE FOR ALL:
=>Please study the immediately prior post as a case study in how to respond to a post with which you disagree:

• a summary of points with which you take issue;
• a clear and helpful-to-others demonstration of why you think you have a clearer understanding of the situation at hand;
• no belittling of the other poster.

And that is why those who have a tendency to use as their strong counterpoint "You're Stupid" are also those who tend to find themselves on forum leaves-of-absence.

Capisce?

Agree.
Except cannot capisce why this valuable discussion is in the market action forum.

 

[Papafox]

To rephrase a previous message...

The market's rejection of the mandatory morning dip this morning is a big deal. The market said "we really aren't interested in revisiting 300 right now". With that message, TSLA started running up, but I think it is being capped by shorts in an attempt to keep the SP just below the red/green transition price. Shorts need the NASDAQ to descend to make any progress today (dip on steroids or sticky dip) but so far the NASDAQ is not giving the shorts the break they need. If that opportunity doesn't happen soon, the cap may fail and TSLA run upward. For now, TSLA is in a game of bop-the-mole.

 

[jbcarioca]

Agree.
Except cannot capisce why this valuable discussion is in the market action forum.

yes. Wrong place. We ought to be in General Discussion

 

[Bet TSLA]

Total head fake as it plunged down to 302!. Was not quick enough to trade on it as it clawed its way back up.

I wrote 50 Nov 17 305 puts when it hit 304 on its way down. Got $5.05. Looked bad for a bit, but now it looks fine. Should make about $25K when the position expires worthless. Opened a similar position yesterday in 310s.

Pure short term gambling!

 

[CyberDutchie]

Does anyone know AJ's latest predictions in terms of M3 deliveries/run-rates?

From August 14 note:

Model 3 in pole position: Now that the first employee deliveries have been made, we are forecasting Model 3 volume in Q3 of 1,500 units vs. 0 units until Q4 previously. An 8,000 unit increase in our Q4 Model 3 volume estimates and smaller increases in Model X volume leaves us with a full- year unit estimate of 106,552 vs. 96,219 previously. Our outyear Model 3 estimates also increase - e.g. to 120k in 2018 vs. 90k previously. We have reduced the Model 3 ATP to $50,000 vs $60,000 previously, which slightly tempers the revenue impact but could arguably be positive for Model 3 demand in the long term.

 

[SBenson]

From August 14 note:

Model 3 in pole position: Now that the first employee deliveries have been made, we are forecasting Model 3 volume in Q3 of 1,500 units vs. 0 units until Q4 previously. An 8,000 unit increase in our Q4 Model 3 volume estimates and smaller increases in Model X volume leaves us with a full- year unit estimate of 106,552 vs. 96,219 previously. Our outyear Model 3 estimates also increase - e.g. to 120k in 2018 vs. 90k previously. We have reduced the Model 3 ATP to $50,000 vs $60,000 previously, which slightly tempers the revenue impact but could arguably be positive for Model 3 demand in the long term.

Thanks.By any chance you have the note from post Q3 ER?

 

[MitchJi]

I would therefore point out that they are probably already trying to get certain parts of the lines up to 10K (specifically, those which are already close to it), while they try to get the slow parts of the lines up to 5K.

Why don’t they get every section of the line up to 5k per week while they are fixing the battery pack production problems? Then they could instantly get to 5k per week as soon as they fix the pack production. At least partly because they don’t have the required resources.

So I believe that the odds that they are actively working on getting some portions of the line up to 10k per week now are close to zero.

 

[MitchJi]

This is kind of sad:
GM's CEO Tries To Out-Musk Tesla With 1 Million EV Sales Goal

Barra also told investors at an industry conference that GM plans a new EV platform by 2021 and a slew of new EVs, including two crossover utility vehicles inspired by the Chevrolet Bolt, a van and a shared self-driving car.

It sounds like she still doesn’t get it. If they were planning on EV’s inspired by the M3 that would at least demonstrate that she knows what the heck GM is up against.

 

[Todd Burch]

This is kind of sad:
GM's CEO Tries To Out-Musk Tesla With 1 Million EV Sales Goal

Barra also told investors at an industry conference that GM plans a new EV platform by 2021 and a slew of new EVs, including two crossover utility vehicles inspired by the Chevrolet Bolt, a van and a shared self-driving car.

It sounds like she still doesn’t get it. If they were planning on EV’s inspired by the M3 that would at least demonstrate that she knows what the heck she is up against.

Crappy journalist alert!

In the first 10 months of this year, Tesla sold an estimated 37,257, including 367 Model 3 models that went on sale midyear, according to Inside EVs.

Tesla sure as hell sold more than 37,257 vehicles Jan thru Oct. That's probably only US. (Whoopsies, left that out!)

 

[MitchJi]

This is a serious risk. That we know for sure because of the typical supplier agreements. It is probably not quite as you posit, I think. Tier 1 suppliers are normally less likely to dispute rampup questions because , by definition, they participate directly in designing products they deliver and are well positioned to understand and cope with rampup risks. The further one departs from Tier 1 the less working capital cushion and involvement in design, other things remaining equal. The smaller suppliers will be severely affected by rampup delays and/or production planning problems. They will be more severely affected by changes in delivery specifications also. Thus, the smaller and less close to Tier 1, the greater the likelihood of major negative effects.

If what I posit is correct, these conditions probably translate into one of two scenarios:
1. these suppliers demand contracts change to 'pay according to forecasts' or;
2. some of these fail so Tesla must bring their production inside or find other suppliers.

Either way this will be a negative cash flow consequence, exacerbating the income delay for sales deferred and increased operating costs from manual processes with consequent increased rework and/or warranty costs.

Isn’t the impact pretty small due to the fact that it’s happening so early in the ramp? They are pushing 1.5k-5k by probably less than three months. It would be different if they were planning to be at 5k for the entire three months.

Also any non tier 1 suppliers are probably not on the hook for more than Tesla can afford the pay them for?

 

[sundaymorning]

From August 14 note:

Model 3 in pole position: Now that the first employee deliveries have been made, we are forecasting Model 3 volume in Q3 of 1,500 units vs. 0 units until Q4 previously. An 8,000 unit increase in our Q4 Model 3 volume estimates and smaller increases in Model X volume leaves us with a full- year unit estimate of 106,552 vs. 96,219 previously. Our outyear Model 3 estimates also increase - e.g. to 120k in 2018 vs. 90k previously. We have reduced the Model 3 ATP to $50,000 vs $60,000 previously, which slightly tempers the revenue impact but could arguably be positive for Model 3 demand in the long term.

If Tesla can ramp 5,000 M3 a week for 3 quarters next year that would be above 180,000. His PT will need a higher revision.

 

[neroden]

There is an additional risk in the 3 months delay though that this may not materialize (fully). Especially tier-A suppliers may have only agreed to favourable payment terms on condition of volume commitments. Should those volume commitments hit before Tesla ramps up, that positive time delta may not exist anymore or turn negative. Private discussion on this boards learned me that some posters (which I hold in high esteem) are actually predicting a serious drag on Tesla's cash position due to this.

I think the way you describe this is unlikely to happen -- perhaps it's just a lack of clarity in the way you wrote it. Tesla is building giant automated parts warehouses, so I figure they'll meet the volume commitments. What is unfortunately likely...

Tesla said that they're getting terms of 60 or 90 days, which is to say that they receive the parts and pay for them 60 or 90 days later. If there's a sufficiently larger delay in the ramp-up, some of those parts end up sitting longer than expected waiting to become cars, and Tesla ends up paying for them before they get put into cars. And 3 months is obviously a sufficiently long delay (since 90 days is 3 months). So the "free financing" from the float evaporates.

Tesla has enough cash to handle this, but it isn't pleasant.

 

[Crowded Mind]

I think the way you describe this is unlikely to happen -- perhaps it's just a lack of clarity in the way you wrote it. Tesla is building giant automated parts warehouses, so I figure they'll meet the volume commitments. What is unfortunately likely...

Tesla said that they're getting terms of 60 or 90 days, which is to say that they receive the parts and pay for them 60 or 90 days later. If there's a sufficiently larger delay in the ramp-up, some of those parts end up sitting longer than expected waiting to become cars, and Tesla ends up paying for them before they get put into cars. And 3 months is obviously a sufficiently long delay (since 90 days is 3 months). So the "free financing" from the float evaporates.

Tesla has enough cash to handle this, but it isn't pleasant.

Probably a very basic question, but would this just show up as an increase in accounts payable and inventory until the cash outflow from payment? Where would that cost then be allocated to, since it wouldn’t be COGS yet, would it?

 

[tlo]

Instagram post by Unplugged Performance • Nov 15, 2017 at 7:22pm UTC

Tesla operated cafe. Pretty cool.

 

[neroden]

Probably a very basic question, but would this just show up as an increase in accounts payable and inventory until the cash outflow from payment? Where would that cost then be allocated to, since it wouldn’t be COGS yet, would it?

This is all correct. For P&L purposes, essentially nothing at all happens. From a balance sheet point of view, they receive assets (inventory) and a matching liability (account payable), then the liability goes away along with some cash assets when they pay it. It's... nothing on the P&L statement until the profit is booked, unless the parts hang around long enough to depreciate.

But for cash flow purposes... nothing at all happens until the cash payments are due, and then there's a cash outflow. If the cash outflow starts happening earlier than expected there's a potential cash flow issue issue.

 

[ValueAnalyst]

New poll!

Semi Deposits

 

[Crowded Mind]

This is all correct. For P&L purposes, essentially nothing at all happens. From a balance sheet point of view, they receive assets (inventory) and a matching liability (account payable), then the liability goes away along with some cash assets when they pay it. It's... nothing on the P&L statement until the profit is booked, unless the parts hang around long enough to depreciate.

But for cash flow purposes... nothing at all happens until the cash payments are due, and then there's a cash outflow. If the cash outflow starts happening earlier than expected there's a potential cash flow issue issue.

Thank you. Not sure if this is granular enough, but in the Q4 report if we see accounts payable spike, that would likely indicate a build up of parts which would mean either 1.) Tesla expects the ramp to quickly accelerate or 2.) Tesla may have a cash “problem” (solvable) in the pipeline?

I don’t have the financials in front of me so not sure of the magnitudes of the numbers at the moment.

 

[neroden]

Thank you. Not sure if this is granular enough, but in the Q4 report if we see accounts payable spike, that would likely indicate a build up of parts which would mean either 1.) Tesla expects the ramp to quickly accelerate or 2.) Tesla may have a cash “problem” (solvable) in the pipeline?

Yeah, that's more or less what I'm thinking.

 

[tlo]

Instagram post by Unplugged Performance • Nov 15, 2017 at 7:22pm UTC

Tesla operated cafe. Pretty cool.

More details in this thread - Supercharger - Kettleman City (LIVE 11-15-2017, 40 stalls)