2017 Investor Roundtable: TSLA Market Action

[StapleGun]

Record S/X high margin deliveries.

No Model 3 production issues.

Stock's initial reaction is to tank.

S & X deliveries are great which was more of a concern for me. However it's disingenuous to say that there are no Model 3 production issues. They obviously have issues, as everyone expected.

I anticipate a down day tomorrow on the Model 3 news, probably 2-3% . But I still won't understand it. Sure they were overly optimistic for the hundredth time, but do people think Tesla will just never be able to solve the Model 3 production issues? Like they'll give up and scrap Model 3 because it took them a month longer than planned to ramp up. The "uh-oh, production issues!" line of reasoning by shorts is just crazy. Tesla has already been through this exact same thing with their 3 previous models and they have always come out the other side stronger than ever.

 

[esk8mw]

Makes perfect esk8mw sense.

TSLA has swung between $336 and $348 in the 12 minutes since the close, and currently sits down $3 at $338.

I would hardly call that tanking.

I have weekly calls, so just a bit frustrated to see the stock move the opposite way it "should" move based on positive news.

In any event, I agree this could turn around in short order tomorrow. It's an unpredictable beast, which was my point all along.

 

[Intl Professor]

They're clearly an economic success story and have the reputation of being a really well run place, but as far as the 'macro' in macroeconomics, it's worth pointing out that the population of Singapore (5.6 million) is comparable to cities like Atlanta, Philadelphia or Miami. Greater NYC is almost 5 times as large, at 23.6 million. Size matters.

Absolutely, as I tried to remind Stark. It also is helpful to have an administration over the years that has paid attention to both racial equality and equal access to the economy. The downside is corporeal punishment for trivial offenses, like keying a number of cars, about which the US press went bat excrement over a few years ago. When are we going to cane big business, like banks and oil, or the NRA leaders for lobbying against efforts to keep guns out of the hands of the deranged? Of course the instant case is different, but then there's the children in a Connecticut school.

My neighbor tells a story about how Singapore treated the Russian Mafia when they broke into a jewelry store for the first time. Somehow the culprits were trapped inside the men's room and were found dead by the police. No more incidents. Incidentally, my friend, the distinguished economist, had an 18 year old bleed to death in his arms during the Korean War. Actually, he's not the violent type, though a proud marine.

 

[ValueAnalyst]

Production status of Model 3 looks pretty bad actually. Way worse than anyone of us thought.

This language is BS:

"It is important to emphasize that there are no fundamental issues with the Model 3 production or supply chain. We understand what needs to be fixed and we are confident of addressing the manufacturing bottleneck issues in the near-term."

They said very similar things during X. Ramp is not stable until it is stable. I expect a substantial drop in SP.

This is not the same situation as Model X debacle. SP had already incorporated high Model X expectations at the time, whereas today SP has already priced in large Model 3 delays. Also, Model X was one of two products with Model S not as mature as it is today; whereas today both Model S and Model X as well as Tesla Energy are doing well. SP reaction is showing this difference as well: When 4Q16 deliveries were announced, SP tanked 4-5%. SP is now basically where it was in the morning. As I said in the 3Q deliveries event, this will likely be a one-day drop.

 

[Fallenone]

26k deliveries of the S/X puts a pin in the whole S/X demand is dropping meme by the bears.

I'm not convinced, at least not yet. What we saw may be the effect of a batch of people waiting for Model 3 in 2018 found out not likely till 2019 so bought an S. It's not a sustainable batch that can be counted on in the future.

 

[Lessmog]

I'm not convinced, at least not yet. What we saw may be the effect of a batch of people waiting for Model 3 in 2018 found out not likely till 2019 so bought an S. It's not a sustainable batch that can be counted on in the future.

But it may not need to be a sustainable patch, once the 3 starts rolling off the line the cadence of S/X can be allowed to relax a little. (Better not mention bullets today ... ) ):

 

[smak]

Any corporation paying anywhere close to 39.1% would fire every tax accountant within a 10 mile radius.

 

[esk8mw]

The report is terrible.

They "claim" there are no issues. There were lots of claims like that during X for quarters in a row. The only thing that sticks is the real numbers. With only 260 produced, they are all on the pilot line. No one knows what the deal is with the real line.

S/X numbers are good and guidance revised up. But keep in mind the gross-margin is guided down. So they are finding more demand with lower prices (at the expense of gross profits). That is not necessarily a good thing. Unless a refresh is imminent.

I disagree that the report is terrible. Record quarter is never a bad thing, especially since it's well above the previous record where they pulled out ALL the stops to move product (selling all showroom cars at locations, etc.).

I thought the GM downward guidance was due to initial horribly negative margin Model 3s? If so, the crappy M3 deliveries should actually help margins beat guidance. Maybe it was even intentional to not deliver a lot of these produced M3s and they are held in QA pending final touches.

Model 3 numbers do indeed suck, but it's likely a couple week issue. We have a pic of the non-pilot line, looks to be labeled 9/26. It's quite possible that was a pic of the first car on the real line and none are yet delivered. Meaning that there should be a flood coming, as guided (just a few weeks late).

 

[bonaire]

Consider that Model 3 reservation list of 400,000 or so makes a great list of names to sell inventory Model S and X 75 to. Reverse Osborne effect may be partially in play.

 

[SBenson]

The "no fundamental issues" part really rang bad bells in my head.

Here is why:

Q3 2015

<A - Elon Reeve Musk>: Yeah, I mean, we're - as we talked about before, really, the main thing with the X is just scaling up production. We're making steady progress with each passing week. Actually, seven days a week, every day, I get an update on manufacturing progress and what the issues are. And we see no fundamental issues on the production ramp. It's just a question of how quickly we can solve each issue. I mean they are really down to like the little things, like the placement of the seal on the door and whether that results in the bright trim alignment being correct, this is quite nuanced. So we feel very confident of being able to get to several hundred vehicles per week by the end of the year.

Q4 2015

<A - Elon Reeve Musk>: Or seals, yeah. The seals. Yeah, the seals have been a huge pain. I mean, essentially the seals had to be redesigned, and then the seals that we did have had to be reworked by hand in order to sort of fit correctly. Yeah. Seals are a bane. We had a lot of issues with the second door seats, we have now in-sourced that capability. Yeah, we really don't see any fundamental issues.

Q2 2016

<A - Elon Reeve Musk>: Well, I think the Model 3 is overwhelmingly our focus. Yeah. Things feel really quite stable with Model S and Model X. We're kind of in the mode of continuous improvement, but no fundamental issues. So, I feel like the machine that's making Model X and Model S is actually functioning quite well right now. And I definitely burn out of few neurons and a lot of other people did solving the production ramp earlier this year. I feel we're in a good place at this point. So, the focus really is on Model 3 and followed by full autonomy as - well it's our two priorities.

"No fundamental issues" is really no fundamental issues only at the tail end of Q2. We got decent volume production only Q3 2016 onwards.

 

[Mich]

I'm happy with the report - I didn't expect something else.

What confuses me: "...and we are confident of addressing the manufacturing bottleneck issues in the near-term...." I'm not a native English speaker at all, but does this mean they did not address the bottleneck issues yet? so they are not working on these issues now (so working on other non-bottleneck issues right now?)

to address some issues means to start thinking on how to solve it. not to solve them?

 

[RobStark]

Any corporation paying anywhere close to 39.1% would fire every tax accountant within a 10 mile radius.

All OECD countries have tax accountants.

 

[Dagger]

I guess 1134 did after all refer to...

 

[Lessmog]

Alright, I know I promised to stay away from tax debate, but just a quick comment before going under the covers (it's a dark and rainy night here)

A few years back I was talking to an American whose parent was involved in local politics, where the town council had discussed a (serious) proposal that the fire brigade would not comeand save a house whose owners had neglected to pay for it first. I asked if there was a similar plan for the police, such that they wouldn't arrest someone who hadn't paid up. Never got a clear answer to that ...

With that, good friends, I bid you all a good night.

 

[theschnell]

Not really true, you will know if 10-15k model 3s get delivered this quarter.

I expect it to be relatively opaque. Same way this quarter was. We all knew number was going to be low, but almost no one expected it to be this low. So for the coming quarter we will see evidence of increased ramp, but it will be difficult to see exactly how many cars are moving in my opinion.

 

[FredTMC]

1). Record deliveries

2). Raised Q4 guidance thousands of units guiding to 100k for CY17

3). MX is nearly as popular as MS

Model 3 had some bottlenecks. Likely get resolve within weeks

 

[Turing]

Agree, TSLA should go up from here. Why worry a few weeks M3 delay?

I'm sure bears will try to craft a Musk lied narrative. But he has been a broken record for many quarters that predicting the s-curve of the ramp is really hard, he even said "impossible".

2017 Q2 Earnings call:

Elon Reeve Musk - Tesla, Inc.

What we have ahead of us, of course, is an incredibly difficult production ramp. Nonetheless, I think we've got a great team, and I'm very confident that we will be able to reach a production rate of 10,000 vehicles per week towards the end of next year. And we remain – we believe on track to achieve a 5,000 unit week by the end of this year.


So, I would simply urge people to not get too caught up in what exactly falls within the exact calendar boundaries of a quarter, one quarter or the next, because when you have an exponentially growing production ramp, slight changes of a few weeks here or there can appear to have dramatic changes, but that is simply because of the arbitrary nature of when a quarter ends.


But what people should absolutely have zero concern about is that Tesla will achieve a 10,000 unit production week by the end of next year.

So, if you can sort of see where we came from, the Roadster – we were making only 600 units a week where the non-powertrain portion of the car was made by Lotus. And we did the powertrain and final assembly of the car, and then we went from that to 20,000 units a year of the Model S, a far more complex car, where we did the whole thing. And then with Model 3, we are more vertically integrated. I think people should really not have any concerns that we will reach that outcome from a production rate.
...
So this is a very good sign. It should also be noted that one of our big concerns was that Model S, particularly, and Model X demand would suffer with the introduction of the Model 3. In fact, this has turned out to be the opposite situation. Model S and Model X demand increased with the release of Model 3.
...
Certainly. I mean, I do want to emphasize like but a lot of us is actually very hard for us to know. When we make mistakes is because we're stupid, not because we're trying to mislead anyone. I just want to emphasize – I – we aspire to be less dumb over time. So if I knew it, I would tell you. It's sort of like I've got this, like secret hand of cards that I'm holding close to my vest and I'm not telling you. It's just fundamentally impossible to predict the exponential part of the manufacturing S-curve. It's crazy hard. And S-curve is a simplification because it's really running through a series of constraints that, if you – it's like a really jagged sort of upward growth and it'll plateau and then it'll grow rapidly, and it'll plateau again. And then sometimes it'll go backwards because something broke.

Yes. When I said manufacturing hell and supply-chain hell on Friday. I meant it. I mean, we know this. Signed up for it. Not blaming hell because when we bought the ticket.

 

[avoigt]

The key important message is that S and X are continue to grow and its also proof of claim that there is no issue with demand and production is still ramping up which are VERY good news. So #1 takeaway is that the high margin models are growing which is something that has been in question before and that will have a nice & positive effect on numbers. We all remember the large discussion about plateauing, right? So, that should be off the table now and we can expect growing numbers into 2018 given that there is no sign of slow down. Secondly it confirms what management has said in the Q2 earnings call and should add to credibility.

On M3, Elon underlined more than one time that the S curve can be influences by many factors and unfortunately it did. So obviously they are at the lower tail of the curve today but seriously why should that be a big deal ? A miss by 1250 is in December a miss of assumed 1 day of production (assuming 5k/week run rate as planned) and thats nothing to worry about at all and thats true even if they are not able to catch up with the delay and cumulated units will be higher. If fixing the issues goes well they may even be able to beat the market expectations end of the year. So thats really no issue I believe... healthy M3 demand are way more important and production issues to be solved is a minor issue....

With the Semi event in mind, Earnings Call right after there is nice row of good news to come..... thats all what I need to know with regards to the SP - in other words if investors decide to sell tomorrow based on the ramp up curve that is delayed but all the rest is just positive than that is what I call a good buy opportunity.

.... After now 32 years investing today reminds me to the Amazon and Apple discussions many years ago.....

 

[schonelucht]

I thought the GM downward guidance was due to initial horribly negative margin Model 3s? If so, the crappy M3 deliveries should actually help margins beat guidance. Maybe it was even intentional to not deliver a lot of these produced M3s and they are held in QA pending final touches.

No, they won't. Crappy margins are not because of low units, because of fixed costs.

 

[Waiting4M3]

I'm just going to wait and see, there is the quarterly, the Tesla website delivery estimate, VIN # sighting. MS/X sales/delivery is strong so financially Tesla should be fine.