2017 Investor Roundtable: TSLA Market Action

[22522]

As I understand it, the problem section of the pack line was outsourced. Tesla likely could have done it in house better, (since they redid the SW in 4 weeks, and have a 4th line that is 3 times as fast). Supplier dropped the ball or misled them or something, and it was not discovered until production ramp. It could be that because it was deemed easy/ low risk they outsourced it and didn't expect any problems.

Lame analogy warning:
Do you fault OEMs for using Takata airbags? Or drivers for buying VW diesels?

It is hard to get a balanced combination of software and hardware talent at any company.

 

[Starno]

I agree, with bear sentimebts. TSLA dropped the ball on model 3 manufacturing like they did on X. My guess is because of doing too many things at once.

If the rumoured high speed welding of the battery pack is the cause, then the fault is purely on them again. it is a releatively easy thing to do and there should be lots of people who are extremely knowledgeable on this in the USA. So I am scratching my head and wondering if this is actually the cause.

My guess is that leaked middle manager complaint was true. Too much hubris on the upper management who are too proud to seek outside help, esprcially from traditional tech ppl.

I don't think that's the cause.
The real cause is that the level of automation is incredibly high, and for any other cars when there was an automation issue they could send people to replace the machines, the time it get " re programmed ".
With the M3 they can't do that, because it's too automated. They can't just send people to replace non working machines. The only way to really advance is to get the machines working again. So as long as the machine isn't working, the M3 production doesn't really advance, period.

As for the supplier issue, well, they have so many things to do they can't do everything so they delegated, unfortunately the suppliers didn't deliver right.
But Elon takes full on responsibility (see earning call), he's the one who chose this supplier, his fault.

 

[techmaven]

Even if you back out all R&D, the company would still post an operating loss.

Looking at cash flow from operations versus R&D:
Q3 '17: -$300 million versus $331 million
Q2 '17: -$200 million versus $370 million
Q1 '17: -70 million versus $322 million
Q4 '16: -$448 million versus $246 million
Q3 '16: $424 million versus $214 million

so in the past 5 quarters, that's $594 million in negative cash flow from operations and $1.483 billion used in R&D.

The cost of having the Model 3 production sitting there and not producing in quantity is probably somewhere around $80-$125 million dollars. That's a significant portion of that increase from Q2 to Q3.

 

[anticitizen13.7]

I agree, with bear sentimebts. TSLA dropped the ball on model 3 manufacturing like they did on X. My guess is because of doing too many things at once.

The Model X situation as I remember it was much worse.

The Model 3’s I’ve seen photos of and read reviews about have had decent build quality. Cars are being delivered.

Model X deliveries were much slower, and delivered units often had many defects. Doors and sensors were chronic problems for a very long time. Sometimes components like rear trunk lining parts weren’t delivered to customers until months later.

 

[TrendTrader007]

I was scared as hell this morning with SP dropping after black candle
Not scared anymore
Day turned out much better I expected
7 more trading days and month is over
It could have been a lot worse today
Portfolio only down 1.5 roadsters
Something to celebrate

 

[MitchJi]

I think we'll have to wait for the end of the year updates about M3 to see significant TSLA upward movement....

I agree on the movement. The question is upward or downward movement (buy calls or puts)?

 

[TrendTrader007]

Oh by the way all the bearish commentary here shall dissipate soon as SP jumps up 3 to 4%

 

[techmaven]

The Model X situation as I remember it was much worse.

The Model 3’s I’ve seen photos of and read reviews about have had decent build quality. Cars are being delivered.

Model X deliveries were much slower, and delivered units often had many defects. Doors and sensors were chronic problems for a very long time. Sometimes components like rear trunk lining parts weren’t delivered to customers until months later.

Absolutely true.

However, the capex and opex to get to high volume operations for the Model 3 was substantially different than the Model X. The general assembly lines of the X are shared with the S. They built a new BiW line that was only for the X, but basically everything else in terms of production was shared with the S, including the battery packs. So they built more S while the X was having problems. The financial commitment and the amount of resources sitting around is vastly different from the 3. But the ramp for the 3 should be solved much faster. And the financial situation should also turn much faster. It just looks much worse as long as high volume production is still delayed.

 

[Starno]

Or downward movement.

Yup.
Under 500/ week would probably cause a downward trend.

 

[anticitizen13.7]

Given that people have come to expect less than perfect performance, I think if they are 3k per week by the end of Q1, people will start to settle down. If it is that rate or higher at the end of Q2, things will still be OK if the GM goes positive. That's just my two cents. I don't really know.

I tend to share this view. My short term price projection is $365/share in 2017/18, which is based on anticipation of good chance of reaching 500k total production for S/X/3 and some Tesla Energy deployments in 2019.

I don’t foresee share price going into the $600 range until 1M vehicles/year and 5B in Tesla Energy are within reasonable reach.

 

[30seconds]

The problem is that this isn't necessarily true. Even if you back out all R&D, the company would still post an operating loss. Given the current (much improved but still relatively high) average waits for service, the service network is certainly not oversized for the S and X fleet, so there really isn't much proof that the S and X are profitable on their own. We aren't talking about cash burn here, we are talking about operating profits. The operation of the company, not including any investments into the future, does not turn a profit most quarters.

That being said, I do think it could be a profitable company making S and X only, but with some more drastic changes to the business model. The reason it is still all about the 3, even if Tesla is making some profit on S and X, is that the stock price is based on an assumption of 3 success. A 50+ billion USD market cap is not earned on the back of two models selling 100k total per year. It is based on the 3 selling 500k per year, and growing from there. That is why it is all about the 3. If the 3 doesn't get going, the stock price can't hang on forever.

please show your numbers

 

[mongo]

It is hard to get a balanced combination of software and hardware talent at any company.

We are: 4 guys who do SW (2 BSCE)(android python C assembly PLC), 3 who do electronics, 3 BSME, 3 digital controls: 5 people total. I guess I'm spoiled

 

[myusername]

Looking at cash flow from operations versus R&D:
Q3 '17: -$300 million versus $331 million
Q2 '17: -$200 million versus $370 million
Q1 '17: -70 million versus $322 million
Q4 '16: -$448 million versus $246 million
Q3 '16: $424 million versus $214 million

so in the past 5 quarters, that's $594 million in negative cash flow from operations and $1.483 billion used in R&D.

The cost of having the Model 3 production sitting there and not producing in quantity is probably somewhere around $80-$125 million dollars. That's a significant portion of that increase from Q2 to Q3.

well, it's a good thing Tesla invented a new accounting concept called "Cash Flow From Operations"... isn't it... now you can answer his question with confidence.

 

[Krugerrand]

well, it's a good thing Tesla invented a new accounting concept called "Cash Flow From Operations"... isn't it... now you can answer his question with confidence.

Guess the SP didn’t pin, eh? Or is it now going to pin on lucky 8s?

 

[myusername]

Guess the SP didn’t pin, eh? Or is it now going to pin on lucky 8s?

guess you missed that the stock abruptly declined to $306 and then floored there for 4 hours... but I don't think that's the case... I think you intentionally don't see it... and then just post trolling comments.

 

[ValueAnalyst]

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.

Tesla, in no way, “must keep raising capital.” It has the option to dial down its growth rate just a bit from its upcoming triple-digit rate, still successfully disrupt “long-established, capital-intensive industries,” and fund it using its industry leading gross margins.

In fact, Tesla’s share count has grown marginally in the last year, excluding the SolarCity acquisition. This is a fact that is not often talked about. Model 3’s negative cash cycle will open everyone’s eyes once the production rate is at 3k-4k per week, hopefully some time in February/March.

Tesla *chooses* to grow at max speed, at the pace of innovation, and historically at the cost of share dilution. This is Tesla’s choice; not a requirement, as your post implied. Tesla is *not* at the mercy of capital markets.

Also, there’s no such thing as a “buy-side investment banker.” All investment bankers are sell-side, by definition.

 

[viKtor slamet]

The problem is Solarcity. After the merger, all of Solarcity’s Opex and headcount added, never quite reduced, while we have yet to see the cost saving and revenue boost from their so called “synergies”.

Roughy, $300M of Opex is from Solarcity.

Tesla need to either quickly gain their so called “synergies”, or start laying off those underutilized Solarcity worker.

Looking at cash flow from operations versus R&D:
Q3 '17: -$300 million versus $331 million
Q2 '17: -$200 million versus $370 million
Q1 '17: -70 million versus $322 million
Q4 '16: -$448 million versus $246 million
Q3 '16: $424 million versus $214 million

so in the past 5 quarters, that's $594 million in negative cash flow from operations and $1.483 billion used in R&D.

The cost of having the Model 3 production sitting there and not producing in quantity is probably somewhere around $80-$125 million dollars. That's a significant portion of that increase from Q2 to Q3.

 

[BornToFly]

We are out of positive events now until Q4 deliveries are released in the beginning of January. It seems like yesterday we were over 350 and I was not seeing any possibility of dropping below it. I have a lot of options expiring in the middle of December that I will probably have to roll. It is hard to argue now that the SP isn't all about Model 3 ramp. (Semi reveal was incredible and the SP went nowhere). Unfortunately, I don't think anything short of a tweet from Elon saying that production issues are fixed can get the SP back over 320 before January.

P.S. - I saw Model 3s on a transport truck heading up 80 toward Park City, UT on Sunday.

 

[TNEVol]

An Advice to VA re Curt. Dont tug on Superman's cape.

 

[BioSehnsucht]

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]

You can swap the pack, but only to one that fits the same dimensions. Fitting 2170 cells in the space for a 18650 pack probably means arranging them differently from how they're arranged in every other application, which means expensive new tooling, designs, etc.

And if a "X mark two" or whatever comes along that has newer tech with much greater range, it's pack isn't going to just fit the old X, they'll take the opportunity to redesign nearly everything on the vehicle based on what they've learned since.

That's not to say they couldn't build a pack that fit the 18650 dimensions but used 2170 cells, just that it would be expensive to do so (limited production, new design, etc). Just like the Roadster upgrades. Plus the cost of a whole new pack isn't exactly cheap to begin with. Being generous, let's assume 150kwh at $100/kwh price (could be a thing in a few years) - that's $15k, and that's assuming mass produced parts. Throw in the monkey wrench of limited production runs or hand building because this frankenstein pack isn't going to be used in 50,000 cars, and the price goes way up.

Of course, they might opt to build new 18650 packs using improved chemistry, but a good portion of the 2170 improvements are just from being larger cells, and thus less "wasted" (packaging) mass per unit of energy. I don't think they'll do that, because the market for these pack upgrades even at break even ($100/kwh) is just not going to be that big. They'll probably just use the new hotness to leverage people into buying new cars, then resell the old ones on the used market.

TL;DR: It's not that they can't do MS/MX upgrades, but I don't think they will, because the number of owners willing to shell out for a new battery will cause the battery to be way more expensive than you might assume from mass production $/kWh costs. And because the low volume increases costs, that decreases volume further, ... until they're in balance. And I just don't think it's worth anyone's time or money at that point.