Devils advocating...from someone who shorted TSLA

[Realist]

The best evidence against Realist's short case, to my mind, comes from Tesla's successful recruitment of senior executives. You don't leave top positions--dream positions, really--at established companies like Apple and Aston Martin without doing your homework, very carefully, about Tesla. These executives know more about the car business than any of us, and they have better access to Tesla corporate details. Undoubtedly a large part of these gentlemen's comp package is in ATM options, so if they thought these options were going to be worthless, they wouldn't have joined Tesla. But they did. QED.

Yes but they get these options for free. They don't take any risk.

3 years ago we saw Dany Bahar coming to Lotus and during that time he burned more than 50% of cash and almost ruined the Company. Former Apple Retail chief Ron Johnson went to JCP only to leave the Company a few months later.

A former Aston Martin employee doesn't mean anything. In fact AM is a niche player with a weak financial position.

Most people in these forum have absolutely no clue how to value a business. They constantly focus on the growth prospects. Still, Tesla is a Company which burns cash. There are no share buybacks, no dividends, only dilution through options and convertibles.

This is a momentum stock, any fundamental analysis is useless. If the market value goes down to 10 b$ or 90$ there is absolutely nothing that will protect you from sliding further. It can crush to 50$ in days and the market value would still be overblown in relation to book value or any other ratio.

Of course greed can drive it to 300$ or 250$ tomorrow post earnings. I really don't care about that. In the long term there is still very serious risk to this stock.

 

[Mario Kadastik]

Have you seen the german interview from last week where Elon claims they are operations and cash flow positive. He refuses to detail how much because of the upcoming earnings call, but he did say that both were positive. This means that they are able to produce cars and finance their cap ex and R&D and STILL have money reserves increase. So your cash burning excuse is pretty much over, very likely with tomorrows Q3 report.

 

[Realist]

Have you seen the german interview from last week where Elon claims they are operations and cash flow positive. He refuses to detail how much because of the upcoming earnings call, but he did say that both were positive. This means that they are able to produce cars and finance their cap ex and R&D and STILL have money reserves increase. So your cash burning excuse is pretty much over, very likely with tomorrows Q3 report.

Honestly, no.

 

[Mario Kadastik]

Honestly, no.

That no I presume was about the video and if you've seen it I guess? If so, then here it is:

Tesla-Chef Elon Musk im Interview - Frontal 21 - ZDFmediathek - ZDF Mediathek

 

[Mario Kadastik]

[Moderator: snippy quote removed]

I think that's bound to end up in snippiness I'd not make such generalizations. It's kind of similar like saying that I'm white, you are white therefore everyone is white That induction just doesn't work in most cases. It's a form of saying that I can fully understand to be used in such case without implying anything on his prior posts. I'd prefer to have a bear around so that we can occasionally poke him for facts and thoughts to gauge also the other side of the fence and such comments aren't helping. I'm 100% for educated debate on various opinions and analysis as that usually helps enhance the collective knowledge.

In Estonia we have a saying that for every two Estonians there are three opinions.

 

[Realist]

Thanks for the video.

A positive cash flow would be a surprise.

I think Tesla will have a very hard time to achieve a healthy and sustainable cash flow. A single positive number is not going to change my point on Tesla's current valuation.

Expectations are sky high.

 

[NigelM]

I think that's bound to end up in snippiness

Mod Note: It did.

 

[anticitizen13.7]

Most people in these forum have absolutely no clue how to value a business. They constantly focus on the growth prospects.

There are no share buybacks, no dividends, only dilution through options and convertibles.

Buy backs and dividends are important valuation benchmarks for mature companies that generate more cash than they need for R&D and operations. This is useful for a company like Apple or Verizon or Intel. It's pointless for a company like Tesla which must reinvest everything in order to grow to potential.

Is TSLA something of a bet? Yes. Some folks here are willing to take that risk and I don't see why you keep harping on people being "clueless" about business and automobiles.

This is a momentum stock, any fundamental analysis is useless. If the market value goes down to 10 b$ or 90$ there is absolutely nothing that will protect you from sliding further. It can crush to 50$ in days and the market value would still be overblown in relation to book value or any other ratio.

And many of us here are well aware that TSLA is a risky bet with very high volatility. I've repeated warned people not to bet everything on one stock.

 

[NigelM]

Yes but they get these options for free. They don't take any risk.

I disagree. Options aren't "free", they are a component of an individuals remuneration package. There is real risk for the employee that their annual income would be less than expected if the options are underwater. There is further risk involved for senior exec's in the potential resume impact of a business failure.

 

[lolachampcar]

Oh No..... I just bought....
I guess I am !Realist

And back out with my play money (long position remains). Thanks Realist for drawing my attention to the dip.

 

[bhuwan]

@realist probably the on;y person happy on this forum !!!!!

 

[NigelM]

@realist probably the on;y person happy on this forum !!!!!

Congrats to him. I didn't buy into his rationale but he's looking like he's in the money tonight.

 

[aznt1217]

His rationale was wrong but his bet was right for now. It was a bloody earnings beat but the market is acting irrational

They expanded, grew cash in the bank and bumped up guidance. Kind of proves there is demand, no?

 

[sub]

He needs to get out quick while he can make a small profit. Nothing wrong with playing the short term swings of TSLA, I almost bought puts today. I didn't expect this, but I thought we could see a small to medium bump then some profit taking.

 

[bonaire]

He needs to get out quick while he can make a small profit. Nothing wrong with playing the short term swings of TSLA, I almost bought puts today. I didn't expect this, but I thought we could see a small to medium bump then some profit taking.

"Cash balance nonetheless increased by $49 million to $796 million"

My finding is:

Shares used in per-share calculation (basic and diluted) grew by 3,668,000 shares
Cash flows provided by financing activities $24,216,000 (what is this?)

Of the positive $49MM, $24MM appears to be due to new financing and there was some dillution during Q3. Half of cash-flow positive was due to financing activity - but what is it from? They already had cash.

For me, I saw this coming since late summer. And once the analysts started calling for 7000+ sales in Q3, I couldn't help but short some shares. Now with the CapEx posted in the shareholder letter and now talk of a "giga factory" and all that - it seems like costs will continue to rise and fund managers will start to step back from supporting their blocks of shares they hold and sell into strength. I do see sideways and "downways" trading and eventual 140s coming. With all channels broken, stop-losses being taken out and frustration, there may be some tough days ahead.

I haven't listened to the call recording yet. But the frustrations of people listening to it made it sound like they blamed or are blaming Panasonic for battery shortages?

 

[Realist]

From what I see this earnings report was spot on with guidance. The people obviously expected magic from the company. No real surprise considering the lofty price Levels.

They guided 25% gross margin for Q4. The ASP will be the deciding factor in achieving this goal. They are already taking priority orders for P85+ models so they are trying everything to bump up current margin levels. Expectations are very high. Some Analysts like DB expect gross margin 30% and above in 2014 with deliveries at 30.000k minimum. Therefore European ASP levels have to be sky high as well. This is a highly optimistic view. I still believe Tesla will not meet expectations in Europe at neither volume and ASP.

R&D has seen only 10% increase. Less than I expected. Clearly negative.

Selling and administrative expenses are exploding. Obviously Tesla’s expansion plans play a huge role here but it also underlines my theory of rising warranty costs. I believe these costs will continue to eat into profit. Still cash flow saw an improvement which is positive.

Furthermore I don’t understand Tesla’s constant talk about the GEN III. There hasn’t been a single prototype yet, still they are already talking about a “giant battery factory”. I don’t think that it’s a good idea to be that open on future plans regarding competition.

I don’t know what the price action will be in the coming days and weeks. Analysts still seem to be in the bullish camps. I stick to my view of the current market cap being overvalued. Therefore I stay short for the time being.

 

[nikwest]

I still believe Tesla will not meet expectations in Europe at both volume and ASP.

I would have agreed to this a couple of weeks ago. However living really close to a Tesla Store in Germany I quite saw quite changes in store traffic the last couple of weeks. While it looked like there wasn't a lot of interest a couple of month ago, there seems to be a lot now. The store is always busy when I pass by. At some point this higher interest must lead to more sales. After all the Model S is a good product. And once there are more Model S driving around this will help too. Also the investment in Service Centers and Stores in Germany has been quite impressive. I'm not so negative about sales in Germany anymore as I have been before.

 

[ItsNotAboutTheMoney]

From what I see this earnings report was spot on with guidance. The people obviously expected magic from the company. No real surprise considering the lofty price Levels.

They guided 25% gross margin for Q4. The ASP will be the deciding factor in achieving this goal. They are already taking priority orders for P85+ models so they are trying everything to bump up current margin levels. Expectations are very high. Some Analysts like DB expect gross margin 30% and above in 2014 with deliveries at 30.000k minimum. Therefore European ASP levels have to be sky high as well. This is a highly optimistic view. I still believe Tesla will not meet expectations in Europe at neither volume and ASP.

R&D has seen only 10% increase. Less than I expected. Clearly negative.

Selling and administrative expenses are exploding. Obviously Tesla’s expansion plans play a huge role here but it also underlines my theory of rising warranty costs. I believe these costs will continue to eat into profit. Still cash flow saw an improvement which is positive.

Furthermore I don’t understand Tesla’s constant talk about the GEN III. There hasn’t been a single prototype yet, still they are already talking about a “giant battery factory”. I don’t think that it’s a good idea to be that open on future plans regarding competition.

I don’t know what the price action will be in the coming days and weeks. Analysts still seem to be in the bullish camps. I stick to my view of the current market cap being overvalued. Therefore I stay short for the time being.

The talk about Gen 3 and Gigafactory wasn't that great and a lot came from 1 analyst who's an ueber-bull focused on long-term prospects.

I wouldn't be as pessimistic as you on the ASP because they are production constrained and as long as they have that constraint they'll have a higher percentage of high value cars per quarter. Part of that is because test cars and loaners tend to be higher spec so the line-jumpers will always have high ASP. So, you'll have 3 to 6 months of high constraint followed by prioritization of high ASP vehicles on the wait lists, followed by increased production and a gradual lowering of ASP. So, I 'd expect ASP to be high in 2014 and fall away from there, aside from an early boost in 2015 from the ramp up of Model X.

 

[Zzzz...]

R&D has seen only 10% increase. Less than I expected. Clearly negative.

I disagree. Tesla is supply limited(li-ion cells). And would be limited for another couple years. So no point to increase R&D atm. I got a feeling that whole X model was postponed for one year because demand for Model S exceed Tesla's production constrains. And few recent price increases were direct consequence of strong demand.

Furthermore I don’t understand Tesla’s constant talk about the GEN III. There hasn’t been a single prototype yet, still they are already talking about a “giant battery factory”. I don’t think that it’s a good idea to be that open on future plans regarding competition.

Elon talks about gigafactory because it is a real threat and legitimate issue that could limit Tesla grows in few years from now. If everything would go according to plan, Tesla would need more li-ion batteries(in terms of kWh) that what was produced in the whole world in 2012... So time to take actions about that is now... But it is not clear if Tesla could convince Panasonic/BYD/LG chem/Samsung to actually do something about it. May be next year? Anyhow, the li-ion factories plus supply chain(cathode material) have a lead time of several years.

I don’t know what the price action will be in the coming days and weeks. Analysts still seem to be in the bullish camps. I stick to my view of the current market cap being overvalued. Therefore I stay short for the time being.

You seen afterhours/premarker TSLA price? You would love it!

 

[Realist]

nikwest, I agree on your point.

However, I believe lower ASPs are a big question mark. Since January 2013 Porsche has sold app. 2200 Panameras and 40% of these cars are Diesel models with an ASP well below 100.000.

If Tesla sells 1k Model S in 2014 it would be a huge success by german standards. Yet there will be far less people opting for the 85kw S or P+. To me the 60kwh clearly looks like the best value here.

Of course the Model S is a unique car but it's also very expensive by european standards.