2017 Investor Roundtable: TSLA Market Action

[Krugerrand]

Investors are waiting for execution. In their eye, Tesla will never be able to produce more than 500/week Model 3's and Tesla will never be profitable. Repeated misses on timelines don't help build credibility... so investors are ever more heavily discounting Semi/Roadster promises.

What decent investor believes that? Tesla clearly knows how to produce more than 500 cars/week because they're doing it with the S and X. An investor may be waiting to see if Tesla can do 5000 cars/week.

 

[electracity]

Absolutely. But production starts at the earliest 2019, but more likely 2020. So I didn't expect that concern to dominate investors thinking right now since capital for the semi is not needed for at least 12 months if not 18.

But execution risk and capital need is why investors may not give credit to Tesla for the Semi now. That was my point. If you add the capital needs of a megacharger network the capital requirements are perhaps doubled.

Tesla will want to do an equity raise before they need the capital. One possibility is that the semi and new roadster set the stage to issue more stock. The other possibility is that the psychology is wrong to go back to the equity market, even with the high SP and two great new products.

Very interesting times. I don't think I would be shocked by any outcome.

 

[ValueAnalyst]

What decent investor believes that? Tesla clearly knows how to produce more than 500 cars/week because they're doing it with the S and X. An investor may be waiting to see if Tesla can do 5000 cars/week.

I agree with you, but if there's one thing I realized in my investing career is that the vast majority of investors are risk-averse and want to see tangible evidence before putting their monies on the line, instead of taking management guidance at face value. This is true for all companies.

What has been surprising to me is the level at which investors are discounting EM's projections. The discount rate is extremely high. Not a single sell-side analyst expects Tesla to achieve its stated goal of 500,000 deliveries in 2018. Not a single one.

I think investors' skepticism has "super-exponentially" grown with respect to Tesla, because of repeated over-promises and under-deliveries. I wish this was not the case, but this is my best educated guess of why TSLA is still at $300. Investors will just need to sit on their hands.

 

[Runarbt]

But execution risk and capital need is why investors may not give credit to Tesla for the Semi now. That was my point. If you add the capital needs of a megacharger network the capital requirements are perhaps doubled.

No way megacharger network cost that much more.. and dont need to be as huge as current network. Fewer chargers strategically placed, no need to 40/50? Same hardware as existing, but more of them wired differently/combined. Smal money in the large scheme..

Tesla will want to do an equity raise before they need the capital.

Yes, if they need.. do it before they run out of money. Who'd do it the other way around and wait until they run out? Do they need to? Maybe not, if Model 3 production ramp as they hope.. even though it will be delayed.

One possibility is that the semi and new roadster set the stage to issue more stock. The other possibility is that the psychology is wrong to go back to the equity market, even with the high SP and two great new products.

Just for them to wait until 5000/week model 3. SP soars.. and they can get what money they need cheap.

Very interesting times. I don't think I would be shocked by any outcome.

I'd be shocked if they dont have model3 production soaring in a few months, and show Free cash flow and perhaps a Q with profit. Perhaps to put a HARDCORE SMACKDOWN on the shorts/skeptics/bears.

Edit: fixed spelling

 

[DragonWatch]

That’s interesting, it’s exactly the opposite. The MS-MX packs are designed to support swapping.

They tried to make an affordable option available for the Roadster but the pack technology was so ancient that the best that they could do was to hand build packs. The MS-MX can easily take advantage of the latest cells and it’s extremely easy to replace the packs.

When Tesla has advanced cells you can pretty much count on them providing MS-MX pack upgrades at a reasonable price.[/B]

Thank you, I forgot about this from early information. My wife raised the question about the YouTube video of a MS driving into a battery swap point and out before someone could fill their ICE vehicle. Not sure how accurate that video was, but would be interesting and allow me to keep new bucket of fewer bolts than an ICE car going

 

[TradingInvest]

TrendTrader, I think you're putting too much weight on TA at this point in time.

Just as in real estate, it's LOCATION LOCATION LOCATION
and just as in the 2000 elections it was FLORIDA FLORIDA FLORIDA

at this point in time
TSLA is all about MODEL 3 MODEL 3 MODEL 3.

And yes, I'm a long bull.

Several bearish analysts said it's all about Model 3. My view is different.

Great products (like Semi and Roadster) change the expectation of future cashflow, which changes today's valuation. As a long term investor, I care a lot about the valuation before I decide when to add more shares. Also, great products show the quality of the company, and affect what percentage I allocate to the stock.

Model 3 ramp indeed is important because it impacts cash position by a great deal. Bears say it's the only thing that matters because Tesla could run out of cash and bankrupt. That's the part I completely disagree.

Even I can tell Tesla is going to become a trillion dollar company based on future cashflow. I'm sure Elon knows that very well. Also consider the following: Tesla's mission; Elon's stock holding; Elon's view to debt that "debt should always be paid."; Tesla's capability to raise cash, etc,...... the view that Elon will let Tesla run out of cash and bankrupt is just ludicrous. Shorts spread this FUD so that longs will sell the shares, or at least stop buying. Elon will not let this company fail. Lots of shareholders will also not let this company fail.

That's why my approach is holding a lot, and add more if there is a big pullback. I don't care about the Model 3 ramp.

 

[Krugerrand]

I agree with you, but if there's one thing I realized in my investing career is that the vast majority of investors are risk-averse and want to see tangible evidence before putting their monies on the line, instead of taking management guidance at face value. This is true for all companies.

I’m not sure what other tangible evidence is required than Tesla is already and has been for 4 years building cars at or above the rate of 500 cars/wk. ????? Those peoples aren’t investors or looking for investments. They’re looking for a bank.

What has been surprising to me is the level at which investors are discounting EM's projections. The discount rate is extremely high. Not a single sell-side analyst expects Tesla to achieve its stated goal of 500,000 deliveries in 2018. Not a single one.

I don’t expect 500k in 2018 either, so I can’t fault them for that belief.

I think investors' skepticism has "super-exponentially" grown with respect to Tesla, because of repeated over-promises and under-deliveries. I wish this was not the case, but this is my best educated guess of why TSLA is still at $300. Investors will just need to sit on their hands.

Well, there’s no accounting for people’s stupidity/gullibility/inability to learn/call it whatever. First, Elon promises nothing. Second, he always delivers eventually. Invest accordingly or don’t. Regardless, some sort of historical event is happening and not everyone gets to benefit from it.

 

[Krugerrand]

I just want to address a question that some people keep repeating and putting way too much emphasis on. Where is the money coming from? Wrong question for Tesla investors.

Where will Tesla get the money to produce the Model S?
Where will Tesla get the money to produce the Supercharger Network?
Where will Tesla get the money to build the Gigafactory?
Where will Tesla get the money when they have the first recall?
Where will Tesla get the money to build their own dealership network?
Where will Tesla get the money to sort out Solar City?
Where will Tesla get the money to ramp the Model 3?
Where wil Tesla get the money to build a Megacharging Network and only charge truckers 7c?
Where will Tesla get the money to fill in the blank?

Wrong question!

The question that should be asked by Tesla investors is: How long will it take Tesla to...? The answer to that tells you when and how to invest in Tesla. Every other question is either fluff, a distraction, nice to have if you’re OCD, or irrelevant.

 

[supratachophobia]

1- The only increase in capacity due to the form factor is due to the additional length.

2- Batteries tend to improve by approximately five percent per year as an average.

That 5% number used to be 7%, and I suspect it's even slower than 5 now anyway. Back when that claim was made, LiIon was doing 7% increase in density or 7% decrease in cost per year (or combo of the two). We are fastly approaching the limits of density regardless of what anyone wants to believe (and Tesla knows this internally, trust me), so it all comes down to reduced cost now.

 

[uniqueusername]

I'm 37 years old and I've never owned a share in anything (other than my own business)... until today when I bought a few shares in Tesla to go with my factory Model S that's being delivered on Thursday (needless to say I'm super excited!)

Until Friday I didn't even understand what short selling was... so maybe I can offer a simple and fresh point of view:

The question of whether Tesla will become a trillion dollar company is simply - can they deliver on their promises before they 'run out of money? That's it. You either believe that they will get there, or you don't.

To date, Tesla have delivered on almost all of their promises, admittedly rarely on time, but they have always delivered the goods.

And the idea that they might 'run out of money' seems insane to me. The most famous businessman on the planet with so many world changing products will surely not run out of money...

 

[techmaven]

And the idea that they might 'run out of money' seems insane to me. The most famous businessman on the planet with so many world changing products will surely not run out of money...

Oh, no... they definitely run out of money. The issue is how long will investors continue to give Tesla money to fund expansion. Tesla has not had an issue raising money at thus far since spring 2013. As long as the story is intact and the path to massive growth stays clear, then I don't think Tesla will have a problem raising money.

 

[Curt Renz]

I just want to address a question that some people keep repeating and putting way too much emphasis on. Where is the money coming from? Wrong question for Tesla investors.

Where will Tesla get the money to produce the Model S?
Where will Tesla get the money to produce the Supercharger Network?
Where will Tesla get the money to build the Gigafactory?
Where will Tesla get the money when they have the first recall?
Where will Tesla get the money to build their own dealership network?
Where will Tesla get the money to sort out Solar City?
Where will Tesla get the money to ramp the Model 3?
Where wil Tesla get the money to build a Megacharging Network and only charge truckers 7c?
Where will Tesla get the money to fill in the blank?

Wrong question!

The question that should be asked by Tesla investors is: How long will it take Tesla to...? The answer to that tells you when and how to invest in Tesla. Every other question is either fluff, a distraction, nice to have if you’re OCD, or irrelevant.

Oh, no... they definitely run out of money. The issue is how long will investors continue to give Tesla money to fund expansion. Tesla has not had an issue raising money at thus far since spring 2013. As long as the story is intact and the path to massive growth stays clear, then I don't think Tesla will have a problem raising money.

Indeed. Of course what funds Tesla cannot raise in the short run through revenues will be raised through debt or equity offerings. As an innovative young company seeking to rather quickly disrupt long established capital intensive industries, it must keep raising capital. They don't have the decades to grow in the manner of their competitors. Wall Street buy-side investment bankers understand this and are more than willing to keep supplying Tesla with the necessary money.

Some value oriented sell-side analysts and short sellers still don't get it. They keep referring to Tesla's investments in rapid growth as "cash burning" as though the money were being wasted. Unfortunately, some in the financial media repeat that misleading term, just as the FUDsters want them to do. Eventually the success of the revolution will become apparent, and the questioning will wither away.

 

[gene]

@Curt Renz ,

Curt, I just want to thank you for all your input over the years. You always post informative and well thought out comments.

 

[electracity]

Oh, no... they definitely run out of money.

LOL That is so true, and it makes the shorts so mad when Musk just goes and gets more.

The issue is how long will investors continue to give Tesla money to fund expansion. Tesla has not had an issue raising money at thus far since spring 2013. As long as the story is intact and the path to massive growth stays clear, then I don't think Tesla will have a problem raising money.

I think Musk can fairly painlessly get more equity by claiming it is for the semi. (Which is the "aspirational" use of the funds, of course). But I think Tesla is concerned about the possibility of one equity raise too many.

Oliver had to make this calculation too.

The best scenario would be an investor buying a large minority share in the company. A condition of which would be Tesla firming up operational and financial controls. Hellooooo Tim Cook.

 

[bdy0627]

I used some cash on this dip to add a few more calls. I would use all of my cash to add based upon my long term confidence in Tesla. However, short term, I am definitely not confident that we won't dip further. Given human nature, I would be quite frustrated to use all my cash now to add, only to find that we dip down into the $280s and I can't take advantage. That's the only reason at this point that I'm still holding cash available to add more TSLA. We will get delivery numbers in 6 weeks. It doesn't appear that we will have much more certainty about the Model 3 ramp before then. If the numbers are weaker than the market expects, and they easily could be, we may well drop a bit further from wherever we are at that point. More than likely, volatility without a clear underlying direction, will be the order of the day for several weeks, possibly even a few months.

 

[ZsoZso]

Yep, the R&D on the Semi and Roadster darn near killed Tesla. And the fact Tesla is collecting reservation money for them should finish them off. But if not, the fact those two vehicles don't go into production in the short or medium term - ACK! Next stop definitely $270, eh?

*This post is only funny if one enjoys sarcasm*

Oh, come on, get with the times already. $270 is so not cool anymore.
The buzz is now about $266.66
Just get with the program!

 

[WarpedOne]

. Given human nature, I would be quite frustrated to use all my cash now to add, only to find that we dip down into the $280s and I can't take advantage.

I used all my cash to add at last rise to 355.
And now I am watching the dip, empty pocketed.
Frustrated? Yes.
So be it? Yes.

 

[techmaven]

Some value oriented sell-side analysts and short sellers still don't get it. They keep referring to Tesla's investments in rapid growth as "cash burning" as though the money were being wasted. Unfortunately, some in the financial media repeat that misleading term, just as the FUDsters want them to do. Eventually the success of the revolution will become apparent, and the questioning will wither away.

Yup... a lot of these commentators don't differentiate using cash for Caribbean junkets for the executive staff and buying robots for the assembly lines. Could be very different results down the road. Also, they have a hard time separating out the R&D for semi, solar roof, Roadster, and other endeavors versus the current revenue generating businesses. Repeat for the SG&A... and therefore, have a hard time measuring the health of the current business.

The best scenario would be an investor buying a large minority share in the company. A condition of which would be Tesla firming up operational and financial controls. Hellooooo Tim Cook.

Nope. Don't need it. Won't help and Musk can't trust their deep, deep, heart wrenching, absolute commitment to the effort. I suspect that is what prevented something from working out earlier when the Apple + Tesla stuff was circulating. I don't see that they are having operational or financial controls that are less firm that other companies, especially given how hard the tasks are at hand.

Here's the thing... they will run out of cash whether they do well or they do poorly.

If they do well, then they will want more cash to be able to grow even more aggressively. GF3 isn't going to be cheap. There's the rest of GF1 to build too as well as the build out to 10k/week. If they do poorly, well, they'll need cash. It is only if they are doing middling that they won't raise cash. Now, obviously, there's the timing... raising cash on the back of a cash flow from operations positive quarter due to Model 3 initial ramp almost complete has a very different set of financial terms than needing to raise case due to continued ramp problems.

As a long investor, you have to understand that cash raises are part of the story. There's nothing wrong with it inherently, it depends on the terms and the reasons. Of course, if Musk had $10 billion dollars to start, we wouldn't even be investors... Tesla would have been private and probably remained private.

 

[Waiting4M3]

LOL That is so true, and it makes the shorts so mad when Musk just goes and gets more.

I think Musk can fairly painlessly get more equity by claiming it is for the semi. (Which is the "aspirational" use of the funds, of course). But I think Tesla is concerned about the possibility of one equity raise too many.

Oliver had to make this calculation too.

The best scenario would be an investor buying a large minority share in the company. A condition of which would be Tesla firming up operational and financial controls. Hellooooo Tim Cook.

Best scenario for who? Tesla has lots of good ideas waiting for money. Apple has lots of money with nothing cool to spend on. Tesla can get money from many sources besides Apple. Apple, OTOH, can't seem to land on something really new and cool no matter how much money they throw at it.

BTW I think you linked the wrong image of Tesla's situation, correct one is:

 

[DurandalAI]

That 5% number used to be 7%, and I suspect it's even slower than 5 now anyway. Back when that claim was made, LiIon was doing 7% increase in density or 7% decrease in cost per year (or combo of the two). We are fastly approaching the limits of density regardless of what anyone wants to believe (and Tesla knows this internally, trust me), so it all comes down to reduced cost now.

Source?
It seems that I recall some videos by a guy who’s receiving money from Tesla to substantially increase the reliability of battery packs seems to think they’re making great progress.

Personally I think that with the specs revealed for the Roadster and Semi point to Tesla expecting a pretty substantial jump in capacity between now and late 2019. Fitting 200kWh into the roadster cant be a small feat without a decent improvement in battery energy density.