2017 Investor Roundtable: TSLA Market Action

[MP3Mike]

I admit my bias: But they should locate it in Delaware. They can get an abandoned one for cheap. The same one Fisker was originally to use and given a nice incentive package from the State of Delaware.

Good rail service. Close to port of Wilmington and not far from Philly or Baltimore ports as well.

But is it actually big enough? Given that GF1 is currently the third biggest building in the world and it is only 1/3 done. I don't think there is anything big enough in existence for Tesla to use. Maybe there is something big enough to get them started, but it would have to have a lot of developable land around it.

 

[neroden]

Fwiw:

If I was Tesla, I'd locate the next plant in a different state than California.

Will be easy to get incentives from other states, perhaps more available resources & having a site other than in Cal. would be important from a risk standpoint.

Eliminates single-point-of-failure risk. Also improves distribution. California is not ideal from a US distribution standpoint.

(Actually, given US geography, the way the rail and road networks of the US are laid out, and taking sea level rise into account, Chicago is ideal. There's the reason many industries use it as their distribution hub. St. Louis, Kansas City, Indianapolis, and Toledo are all decent for the same reasons. Given population distributions, one might prefer Pittsburgh.)

 

[TradingInvest]

Am I the only one really confused about the timing and sizing of the bond offering?

It seems to me that we literally just had the 2Q17 report showing 3B of cash in the bank.
Management guided to 2B capex in 2H17
Management has historically stated they like at least a 1B cash cushion
Management also guided to Model 3 being accretive to cashflow starting in 4Q17.

Why borrow 1.5B for 8 years at junk bond rates when you wont run close to the comfort zone until six months from now?

By then, Model 3 ramp will be much clearer, and the credit rating agencies much more likely to give more favourable terms.

Only reason I can think of to do this is that there is other things we don't yet know about that will be pinching the cash situation at least a little bit, and my guess is that GF3 (to produce probably Semi and Y) will be announced along with the Semi unveil next month. Tesla (rightly probably) might expect the market to punish them if they ask for money explicitly for that purpose before Model 3 ramp is fully done, and so asking for it after the unveil would be risky in a way that asking now is not. That being said, I think that waiting to start on GF3 until Model 3 is proven is risky in a different (probably less acceptable to Elon) way.

TL;DR: I think something doesn't add up about the story being spun that this is for something we ostensibly already had enough cash in the bank to do, plus "general company needs".

While there are many possible reasons for issuing debt, I generally go with the guidance from the management.

However, if I were in Elon's shoes, now that we decided to go with the approach to build Model Y on Model 3 platform, this can and should go really fast. Make minimal changes for the first iteration. Make it look beautiful, forget about fancy features. Get it done quickly. In this case, I really want to get cash ready and get things moving. Same for the Semi and pickup truck.

 

[3Victoria]

The TIM development might be Tesla. Interesting comparison between GF1 and TIM on the TIM Facebook page:
Durand, MI Supporters Of Change And Jobs - Project TIM

 

[neroden]

Am I the only one really confused about the timing and sizing of the bond offering?

It seems to me that we literally just had the 2Q17 report showing 3B of cash in the bank.
Management guided to 2B capex in 2H17
Management has historically stated they like at least a 1B cash cushion
Management also guided to Model 3 being accretive to cashflow starting in 4Q17.

Why borrow 1.5B for 8 years at junk bond rates when you wont run close to the comfort zone until six months from now?

Did I mention that they have several loans which mature in late 2017 or early 2018 (up to March), many of which have interest rates *higher* than 5.25%? I think this may drive the timing. Those only add up to about half a billion dollars, but if you're borrowing half a billion, why not go ahead and borrow some more?

By then, Model 3 ramp will be much clearer, and the credit rating agencies much more likely to give more favourable terms.

Oh, you can bet they'll be issuing more bonds sometime in mid-2018. The thing is... there is a high possibility that interest rates will have gone up by then. We are at, literally, record lows for the junk bond market. (I think they might have been lower sometime in the 19th century, but not since then.) It is perhaps wise of Tesla to lock in an 8-year bond at this rate. Rates are likely to go up -- Tesla cannot guarantee that its credit rating will go up enough to offset this.

Only reason I can think of to do this is that there is other things we don't yet know about that will be pinching the cash situation at least a little bit, and my guess is that GF3 (to produce probably Semi and Y) will be announced along with the Semi unveil next month. Tesla (rightly probably) might expect the market to punish them if they ask for money explicitly for that purpose before Model 3 ramp is fully done, and so asking for it after the unveil would be risky in a way that asking now is not. That being said, I think that waiting to start on GF3 until Model 3 is proven is risky in a different (probably less acceptable to Elon) way.

This is also possible, even likely.

But my bottom line is: they can borrow for 8 years at 5.25% ! By god, do it! They have plenty of things to spend the money on which will earn more than 5.25%!

5.25% used to be an investment grade bond rate. If interest rates go up, it may well be so again!

 

[RobStark]

Also - could you please itemize/describe Tesla's "very significant lead" over Apple?

• Supercharger network? ~70% of the network Tesla will have at the end of 2018 will be built in 2018. And it won't cost more than $1B. So Apple can catch up to Tesla on this front fairly quickly.

This is my only material quibble with your list. Because Tesla can do it in a year doesn't mean Apple can too. At this point, Tesla Supercharger team is a well oiled machined and just needs the money and go ahead from Elon to move forward, with a few locales here and there being an issue with getting permits.

Where you the poster that said Superchargers were a land grab? Where Tesla is getting all the best sites, Volkswagen's Electrify American getting second best and whoever comes next getting third best.

 

[zdriver]

The TIM development might be Tesla. Interesting comparison between GF1 and TIM on the TIM Facebook page:
Durand, MI Supporters Of Change And Jobs - Project TIM

[shameless plug of my recent posts on the topic for any who missed it]

2017 Investor Roundtable:General Discussion
2017 Investor Roundtable:General Discussion
2017 Investor Roundtable:General Discussion

The more I read, and especially after the recent ER call and now the bonds, the more sure I am it's a new Gigafactory site candidate.

 

[MartinAustin]

The more I read, and especially after the recent ER call and now the bonds, the more sure I am it's a new Gigafactory site candidate.

If that is indeed a new Gigafactory site, it will be one helluva turnaround for the state governor and a big deal to strike for Tesla. I recall the presentation in Carson City with Brian Sandoval. (where Phil LeBeau asked if the stock price was too high and Elon replied "yes" - facepalm) There would be a similar presentation, probably in Lansing

Thoughts -

* Tesla would be allowed to sell and service cars directly in the state, breaking the dealer monopoly
* Tesla would drop its lawsuits
* Tesla would be revitalising poor ol' Michigan, tapping into nearby outsourcing suppliers, and an existing pool of skilled auto workers - where poaching from existing auto companies would occur (a problem for the existing auto companies)
* Michigan would re-assert itself as the leader in the U.S. auto business
* Trump would probably want to be present and claim that it was something he orchestrated, LOL
* Maybe Snyder would be doing this about-turn in order to help himself get re-elected... he is pretty unpopular after Flint water.
* Another blow for the relevancy of the term "the Detroit three"
* Tesla might agree to attend the Detroit Auto show from now on

This would certainly boost TSLA.

Losers? 1) Michigan dealer association (assuming Tesla does not agree to use them!) 2) the traditional domestic auto manufacturers

Lastly, "Project Tim" could be so-named to throw people off the scent - being as it is Tim Cook's first name. IMO there is no way this is an Apple facility. Interestingly there is an old comic character called Tiger Tim, and Gigafactory #1 started out as Project Tiger.

 

[WarpedOne]

OK, there are those incdicators that it is about Tesla.
What are contraindikators, that it is not?

 

[madodel]

If that is indeed a new Gigafactory site, it will be one helluva turnaround for the state governor and a big deal to strike for Tesla. I recall the presentation in Carson City with Brian Sandoval. (where Phil LeBeau asked if the stock price was too high and Elon replied "yes" - facepalm) There would be a similar presentation, probably in Lansing

Thoughts -

* Tesla would be allowed to sell and service cars directly in the state, breaking the dealer monopoly
* Tesla would drop its lawsuits
* Tesla would be revitalising poor ol' Michigan, tapping into nearby outsourcing suppliers, and an existing pool of skilled auto workers - where poaching from existing auto companies would occur (a problem for the existing auto companies)
* Michigan would re-assert itself as the leader in the U.S. auto business
* Trump would probably want to be present and claim that it was something he orchestrated, LOL
* Maybe Snyder would be doing this about-turn in order to help himself get re-elected... he is pretty unpopular after Flint water.
* Another blow for the relevancy of the term "the Detroit three"
* Tesla might agree to attend the Detroit Auto show from now on

This would certainly boost TSLA.

Losers? 1) Michigan dealer association (assuming Tesla does not agree to use them!) 2) the traditional domestic auto manufacturers

Lastly, "Project Tim" could be so-named to throw people off the scent - being as it is Tim Cook's first name. IMO there is no way this is an Apple facility. Interestingly there is an old comic character called Tiger Tim, and Gigafactory #1 started out as Project Tiger.

Yep. If there is to be another US factory it should be in Michigan to break the monopoly there or in WV, Kentucky, Ohio or Pennsylvania to give the finger to the coal eaters. Best put it in Flint where they can get factories cheap. Help clean up the water the state government poisoned as well. The publicity would be worth the millions spent.

 

[RobStark]

Thoughts -

* Tesla would be allowed to sell and service cars directly in the state, breaking the dealer monopoly
* Tesla would drop its lawsuits
* Tesla would be revitalising poor ol' Michigan, tapping into nearby outsourcing suppliers, and an existing pool of skilled auto workers - where poaching from existing auto companies would occur (a problem for the existing auto companies)
* Michigan would re-assert itself as the leader in the U.S. auto business
* Trump would probably want to be present and claim that it was something he orchestrated, LOL
* Maybe Snyder would be doing this about-turn in order to help himself get re-elected... he is pretty unpopular after Flint water.
* Another blow for the relevancy of the term "the Detroit three"
* Tesla might agree to attend the Detroit Auto show from now on

What about the United Auto Workers?

Building a massive site in Michigan means letting the UAW inside Tesla's house. And all the work rules that come with it.

 

[madodel]

What about the United Auto Workers?

Building a massive site in Michigan means letting the UAW inside Tesla's house. And all the work rules that come with it.

Treat workers fairly and unions can be advantageous. Breaking the dealer and big3 monopoly is far more important than screwing over employees.

 

[RobStark]

Treat workers fairly and unions can be advantageous. Breaking the dealer and big3 monopoly is far more important than screwing over employees.

There is nothing advantageous to UAW work rules. It will prevent innovation and alien dreadnought decades.

Not having the UAW inside Tesla does not mean screwing over employees.

"He (Elon Musk) went on, “There are really only disadvantages for someone to want the UAW here. I mean, the track record is worse at any other company. I don’t think this is likely to occur.”

http://jalopnik.com/elon-musk-on-how-unionizing-teslas-factory-would-impact-1792651535

Putting a Tesla Gigafactory inside Texas and breaking the dealer monopoly there is far more important and valuable.

 

[WarpedOne]

There is nothing advantageous to UAW work rules. It will prevent innovation and alien dreadnought decades.

What UAW work rules?
There will be 800 jobs, peanuts.
There will be robots, thousands of them.

 

[techmaven]

Am I the only one really confused about the timing and sizing of the bond offering?

My assumption had been that the $2 billion in capex spend through the end of year covers the Fremont expansion for Model 3 5k/wk build plan, service expansion, and ongoing Gigafactory phase 2 build out. Also assumed is that parts orders are mostly covered by incoming revenue due to increased net terms. It does not cover the tooling for Model 3 10k/wk build out at Fremont or ongoing Gigafactory 1 expansion nor increased costs at Gigafactory 2.

It is possible for Tesla to wait to raise this money, but likely they are looking to move up Model 3 10k/wk build plan from achieving that in late 2018 to earlier in the year.

 

[X Fan]

What UAW work rules?
There will be 800 jobs, peanuts.
There will be robots, thousands of them.

Tesla wide--Over 30k employees?

That's the risk.....union inroads right now would impair the stock and most likely sink the company.

 

[ValueAnalyst]

Am I the only one really confused about the timing and sizing of the bond offering?

It seems to me that we literally just had the 2Q17 report showing 3B of cash in the bank.
Management guided to 2B capex in 2H17
Management has historically stated they like at least a 1B cash cushion
Management also guided to Model 3 being accretive to cashflow starting in 4Q17.

Why borrow 1.5B for 8 years at junk bond rates when you wont run close to the comfort zone until six months from now?

By then, Model 3 ramp will be much clearer, and the credit rating agencies much more likely to give more favourable terms.

Only reason I can think of to do this is that there is other things we don't yet know about that will be pinching the cash situation at least a little bit, and my guess is that GF3 (to produce probably Semi and Y) will be announced along with the Semi unveil next month. Tesla (rightly probably) might expect the market to punish them if they ask for money explicitly for that purpose before Model 3 ramp is fully done, and so asking for it after the unveil would be risky in a way that asking now is not. That being said, I think that waiting to start on GF3 until Model 3 is proven is risky in a different (probably less acceptable to Elon) way.

TL;DR: I think something doesn't add up about the story being spun that this is for something we ostensibly already had enough cash in the bank to do, plus "general company needs".

Agreed - one thing: "general company needs" and other similar language is very common in cap raise press releases.

Tesla wide--Over 30k employees?

That's the risk.....union inroads right now would impair the stock and most likely sink the company.

Im not sure there's any chance UAW can come back from the blows they took earlier this year from Tesla (and last week Nissan?)

Unions are great on paper, but for some reason don't work in practice. They slow down innovation.

We instead need to encourage entrepreneurship and risk taking by providing safety nets if the idea doesn't work out after hard work.

 

[Bgarret]

What about the United Auto Workers?

Building a massive site in Michigan means letting the UAW inside Tesla's house. And all the work rules that come with it.

Why? Michigan is a "right to work" state since 2013.

National Right to Work Foundation » Know Your Rights: Michigan’s Right to Work Law

 

[ValueAnalyst]

Did I mention that they have several loans which mature in late 2017 or early 2018 (up to March), many of which have interest rates *higher* than 5.25%? I think this may drive the timing. Those only add up to about half a billion dollars, but if you're borrowing half a billion, why not go ahead and borrow some more?


Oh, you can bet they'll be issuing more bonds sometime in mid-2018. The thing is... there is a high possibility that interest rates will have gone up by then. We are at, literally, record lows for the junk bond market. (I think they might have been lower sometime in the 19th century, but not since then.) It is perhaps wise of Tesla to lock in an 8-year bond at this rate. Rates are likely to go up -- Tesla cannot guarantee that its credit rating will go up enough to offset this.


This is also possible, even likely.

But my bottom line is: they can borrow for 8 years at 5.25% ! By god, do it! They have plenty of things to spend the money on which will earn more than 5.25%!

5.25% used to be an investment grade bond rate. If interest rates go up, it may well be so again!

Agree with "they can borrow for 8 years at 5.25% ! By god, do it!"

Disagree with "5.25% used to be an investment grade bond rate. If interest rates go up, it may well be so again!"

Agree & Disagree with "Rates are likely to go up -- Tesla cannot guarantee that its credit rating will go up enough to offset this."

I've studied and analyzed macroeconomics very closely for nearly two decades. Today's economy cannot support 5.25% 10-year yield. I cannot support 3% 10-year yield either. Yes, the rates will go up over the next 12-18 months, but very slowly (~0.25% increase every third meeting), because there still is some slack in the employment market, especially in "part-time due to economic reasons" bucket. This, in addition to low rates in Europe, will keep US rates on its slow-rise trend. We haven't even reached 2% inflation rate!

Tesla's credit rating will in fact improve enough to offset any rate increases in the 12 months. Interest rates do not rise linearly with credit ratings; they jump once the company drops to junk category. Tesla's credit rating will move to investment grade by the end of 2018, and its interest rate will decline below 4%. This is will more than offset any increases from the Fed.

I admit my bias: But they should locate it in Delaware. They can get an abandoned one for cheap. The same one Fisker was originally to use and given a nice incentive package from the State of Delaware.

Good rail service. Close to port of Wilmington and not far from Philly or Baltimore ports as well.

This would also go a long way to servicing the massive Northeast, and may get Elon brownie points with local governments for The Boring Company DC-NY project.

[shameless plug of my recent posts on the topic for any who missed it]

2017 Investor Roundtable:General Discussion
2017 Investor Roundtable:General Discussion
2017 Investor Roundtable:General Discussion

The more I read, and especially after the recent ER call and now the bonds, the more sure I am it's a new Gigafactory site candidate.

AWESOME! I agree with a previous commenter that this may be for Tesla Semi.

 

[Wenche]

Norway's Minister of Climate and Environment replied to my question about the reported sales target of 250k, and if it was informed to him by Tesla. He replied (my translation):
"No. I was more keen to market Norway as the best host country for the world's greenest battery production"

From the only non commercial norwegian broadcaster, NRK:
Vidar Helgesen fikk se den nye Teslaen
The norwegian Minister of Climate and Environment, Vidar Helgesen, visited Tesla between 31.st july and 3.rd august. He was given a personal guided tour of the factory, and the journalist that followed, was not allowed to join. The report from the journalist says that Teslas goal of sales is 250k cars for 2017. I have sent a message to both the Minister and the journalist, to find out where this number came from.