General Discussion: 2018 Investor Roundtable

[EinSV]

I'd be interested in your compare/contrasting of Oct/Nov 2016, following which SP doubled in six months, vs. today. My list so far:

Compare:
1. Elon's e-mail that Tesla was close to GAAP+ in 3Q16 vs. today's "sustainable operating profits"
2. SCTY accounting scare promoted by bears vs. today's "CAO/VP of Finance left"
3. Model X revenue ramp vs. today's upcoming Model 3 revenue ramp
4. Persistent SP walk-down in Oct/Nov 2016 as NASDAQ/oil was ramping vs. today same
5. Nine-month underperformance to NASDAQ of 40% vs. today's same
6. Fidelity PM's double-down in Oct/Nov 2016 vs. today's T. Rowe double-down
7. Significant short interest as a percentage of shares outstanding at both times

Contrast:
1. 2x market capitalization today vs. then
2. Significantly less reliance on equity dilution today vs. in 2016 due to ability to raise non-dilutive debt

I encourage anyone and everyone to play devil's advocate even if you agree. Don't hold back.

I think the statement below from one of the forum's shorts/bears sums up the perceived negatives from late 2016 quite well (it is from July 2016 but the same sentiments persisted through 2H 2016):

You all seem bored so I thought I’d chime in and subject myself to some ridicule as a long term bear.

As I have said in the past the extraordinary short positions give TSLA a safety net. Down will be a gradual then sharp, I think, so stop bashing the shorts they are helping you immensely the last three weeks. Being so hard to borrow has probably led to some short term bears to cover here.

As I search my soul there are only confirmations that the business does not justify the current price. Obviously slowing S demand, (see introduction of lower priced 60) and who knows what’s going on with the X. The economics are continuing to deteriorate and these two products look unlikely to carry the load until the Model 3. That vehicle has it’s own troubling financial profile. Departure of the high level executives, the SCTY craziness and the twittering CEO, look like some “soft” variables giving me confidence that 2018 puts, while selling a couple near term puts to knock off premium, will eventually work out. On the other hand I’ve certainly not seen anything in the last month that I would consider a fundamentally positive developments, but perhaps I've missed those?

Whompy wheels, Autopilot issues may turn out to be nothing but based on some experience with the NHTSA I wouldn’t count those issues as resolved just yet. But in any case it is the stock price that is out of whack with the fundamentals of the business.
​

****************

My overall impression is that SCTY merger concerns (whipped up by shorts, as you mention) together with generalized fear/uncertainty dominated sentiment for the second half of 2016 until the Model 3 launch started to come into focus in 2017.

The 2016 FUD -- Solar City merger concerns, fears that Tesla could not manage "cash burn" for Model 3, executive departures, worries about decreased demand for S and X, "whompy wheels," autopilot accidents, etc. -- did not pan out as shorts hoped, not surprisingly.

But the FUD did manage to distract investors from the single most important thing that happened in 2016 -- the 400,000+ reservations for Model 3. This was a watershed moment in Tesla's history (and automotive history) as it proved beyond a shadow of a doubt that a Tesla EV could be a mainstream success. Tesla's share price should have rocketed up after the Model 3 reveal given the unexpectedly high demand -- arguably the most successful product introduction in history. Having a lower share price six to nine months after the reveal than before with no major setbacks was just nutty IMO, but shows the power FUD can have over investor sentiment.

You could draw a loose analogy to the present situation where all eyes seem focused on short-term worries about the Model 3 ramp plus FUD of various flavors, with less attention being given to long-term potential, including Model Y and Semi launches, TE ramp, Pickup, Solar Roof, self-driving, and even long-term potential for Model 3.

In terms of comparisons that matter most, I tend to focus on products and their potential. Off the top of my head, the main developments since late 2016 are:

• Model 3 specs and overall package even better than most optimists expected -- clearly a game changer.
  • Ramp has been partially de-risked with no serious quality issues appearing thus far (typical first year model issues).
  • Model 3 capital investment and infrastructure build-out has been managed well and significantly de-risked.
• Semi specs and potential market impact much better than expected -- another game changer.
• Model S/X sales/demand continue to grow after Model 3 introduction.
• Tesla's success has expanded worldwide:
  • European S/X sales showed surprisingly strong growth in 2017 -- a positive sign for future Tesla products in Europe.
  • S/X sales increased 6X in China over the past two years, contrary to the fears of many throughout 2016 that Tesla was failing in China.
• Powerpack and Powerwall, which were unproven and largely unknown, have been very well received, performed well and are positioned to grow dramatically.
• After a rough start, AP2 is clearly the industry leader on the market today, although Tesla's position vis-a-vis Waymo and others for long-term FSD leadership remains unclear due to drastically different approaches.
• Solar Roof -- taking longer than expected but product specs appear outstanding and no meaningful competition.
• Bringing solar and storage sales into Tesla stores provides efficient, one-stop shopping for home solar/storage and transportation.
• Projection of 1M Model Y/year with production beginning late next year (or thereabouts).
• Tesla Semi specs show a clear path forward to a compelling Pickup, which was not as obvious in 2016.
• Competing electric cars and trucks continue to underwhelm, and Tesla is positioned as industry leader in storage.

 

[Reciprocity]

Some say the discrepancy you pointed out is explained by backlog in quality control. Thoughts?

I do not think the next batch of NHTSA will be near 3,000, because we'd be seeing a flurry of invites already.

There is no way they have 3000 cars in the factory. 500 would be to many to store. The place is bursting at the seams. They would have to move the cars somewhere if that's the case. Would be hard to hide.

 

[ValueAnalyst]

There is no way they have 3000 cars in the factory. 500 would be to many to store. The place is bursting at the seams. They would have to move the cars somewhere if that's the case. Would be hard to hide.

The place was bursting at the seams in June of 2017... maybe Fremont is now wearing larger pants?

 

[Reciprocity]

The place was bursting at the seams in June of 2017... maybe Fremont is now wearing larger pants?

Well the plant didn't grow by several acres and I don't think they built an underground parking structure. So that is unlikely.

 

[geneclean55]

The current rate of VIN assignments is a direct result of the huge batch of invites Feb 22nd. The curious thing is that the rate of increase in the VIN number isn't going up. It may simply be that the VIN assignments these weeks are merely catching up with VIN assignments two week prior which were weak.



Yes, that's the big question we can't answer with any certainty.



The last big invite batch was Feb 28th. It's the biggest counterpoint against the clearly larger number of VIN assignments.

Another curious trend is the widening of the band from which VINs are sourced. This may simply be the effect of delivering all over the country. But VIN assignment seems to happen before transport and not after transport. Another reason could be the effects of many model 3 (parts) needing rework/remanufacturing (I don't care enough to parse the terms here).

We are due for an NHTSA registration tomorrow. I am hoping that gives us a bit more information in terms of the ramp.

At this point I have no hope for Tesla to be at a sustainable rate that is anywhere near 2000/week, let alone 2500. The best investors can hope is that Tesla can pull up enough spin on the Model 3 production in the last days of the quarter to help sentiment (for example, mentioning that the Grohmann line is starting initial trial runs in the Gigafactory). There is maybe also a surprise possible on the S/X numbers. There has been a lot of 'bad' news out already of plumetting S/X numbers in Europe and insiderev guesses in the states. A strong March may surprise some investors. If Tesla really delivers 1600 cars in Norway in a single day event as is rumoured, that would certainly help a lot.

VIN assignment has been at a remarkably steady 30 per week for most of this quarter. Dropped to 9 during week of factory shutdown. We are up to 80 per week now for the last 2 weeks
So no, simple catch up doesnt explain recent ramp in VIN assignments.

 

[geneclean55]

Big batch of invites in Feb....Increased vin assignment in March. Wow, its almost like Tesla knew in February that a ramp would be attempted in March

 

[ValueAnalyst]

I think the statement below from one of the forum's shorts/bears sums up the perceived negatives from late 2016 quite well (it is from July 2016 but the same sentiments persisted through 2H 2016):

You all seem bored so I thought I’d chime in and subject myself to some ridicule as a long term bear.

As I have said in the past the extraordinary short positions give TSLA a safety net. Down will be a gradual then sharp, I think, so stop bashing the shorts they are helping you immensely the last three weeks. Being so hard to borrow has probably led to some short term bears to cover here.

As I search my soul there are only confirmations that the business does not justify the current price. Obviously slowing S demand, (see introduction of lower priced 60) and who knows what’s going on with the X. The economics are continuing to deteriorate and these two products look unlikely to carry the load until the Model 3. That vehicle has it’s own troubling financial profile. Departure of the high level executives, the SCTY craziness and the twittering CEO, look like some “soft” variables giving me confidence that 2018 puts, while selling a couple near term puts to knock off premium, will eventually work out. On the other hand I’ve certainly not seen anything in the last month that I would consider a fundamentally positive developments, but perhaps I've missed those?

Whompy wheels, Autopilot issues may turn out to be nothing but based on some experience with the NHTSA I wouldn’t count those issues as resolved just yet. But in any case it is the stock price that is out of whack with the fundamentals of the business.
​

****************

My overall impression is that SCTY merger concerns (whipped up by shorts, as you mention) together with generalized fear/uncertainty dominated sentiment for the second half of 2016 until the Model 3 launch started to come into focus in 2017.

The 2016 FUD -- Solar City merger concerns, fears that Tesla could not manage "cash burn" for Model 3, executive departures, worries about decreased demand for S and X, "whompy wheels," autopilot accidents, etc. -- did not pan out as shorts hoped, not surprisingly.

But the FUD did manage to distract investors from the single most important thing that happened in 2016 -- the 400,000+ reservations for Model 3. This was a watershed moment in Tesla's history (and automotive history) as it proved beyond a shadow of a doubt that a Tesla EV could be a mainstream success. Tesla's share price should have rocketed up after the Model 3 reveal given the unexpectedly high demand -- arguably the most successful product introduction in history. Having a lower share price six to nine months after the reveal than before with no major setbacks was just nutty IMO, but shows the power FUD can have over investor sentiment.

You could draw a loose analogy to the present situation where all eyes seem focused on short-term worries about the Model 3 ramp plus FUD of various flavors, with less attention being given to long-term potential, including Model Y and Semi launches, TE ramp, Pickup, Solar Roof, self-driving, and even long-term potential for Model 3.

In terms of comparisons that matter most, I tend to focus on products and their potential. Off the top of my head, the main developments since late 2016 are:

• Model 3 specs and overall package even better than most optimists expected -- clearly a game changer.
  • Ramp has been partially de-risked with no serious quality issues appearing thus far (typical first year model issues).
  • Model 3 capital investment and infrastructure build-out has been managed well and significantly de-risked.
• Semi specs and potential market impact much better than expected -- another game changer.
• Model S/X sales/demand continue to grow after Model 3 introduction.
• Tesla's success has expanded worldwide:
  • European S/X sales showed surprisingly strong growth in 2017 -- a positive sign for future Tesla products in Europe.
  • S/X sales increased 6X in China over the past two years, contrary to the fears of many throughout 2016 that Tesla was failing in China.
• Powerpack and Powerwall, which were unproven and largely unknown, have been very well received, performed well and are positioned to grow dramatically.
• After a rough start, AP2 is clearly the industry leader on the market today, although Tesla's position vis-a-vis Waymo and others for long-term FSD leadership remains unclear due to drastically different approaches.
• Solar Roof -- taking longer than expected but product specs appear outstanding and no meaningful competition.
• Bringing solar and storage sales into Tesla stores provides efficient, one-stop shopping for home solar/storage and transportation.
• Projection of 1M Model Y/year with production beginning late next year (or thereabouts).
• Tesla Semi specs show a clear path forward to a compelling Pickup, which was not as obvious in 2016.
• Competing electric cars and trucks continue to underwhelm, and Tesla is positioned as industry leader in storage.

Thank you for the extended answer. I agree with your post completely.

I also noticed that you used the word "de-risked" a couple of times, and I think this is a key concept that has not been at the forefront of investor discussions. Model 3 production going from "Zero to One," not only gives me confidence for future Model 3 production growth, but also the ramp and growth of products that leverage Model 3 (Semi for various key parts and Model Y for platform), as well as validation of the Gigafactory concept, which is key to Tesla's future.

I don't think this material "de-risking" is yet reflected in the stock price.

 

[Uptownman]

I tend to focus on products and their potential

This seems to be the prevalent sentiment here. Little attention is paid to the fact that there is a need to produce those products in an economically sound way. Here is a dose of reality.

$17 billion in two years added liabilities to get to the end of 2017 and what to show for it? $2.5 billion in additional losses. Any idea how many Powerpacks, Solar roofs and model 3's it will take to recoup that given their projected profit margins? I'm talking NET margin not gross margin. Never mind that current liabilities already exceed current assets and that is why being "patient" with this ramp ain't gonna cut it. Suppliers have their own businesses to run profitably and can't blithely wait on Elon to emerge from production hell. What do you think the balance sheet will look like if factories for the Y and the semi become reality?

Losses from prior years got kicked down the road, but we are nearing the point of no more road.

 

[ValueAnalyst]

This seems to be the prevalent sentiment here. Little attention is paid to the fact that there is a need to produce those products in an economically sound way. Here is a dose of reality.
View attachment 287226
$17 billion in two years added liabilities to get to the end of 2017 and what to show for it? $2.5 billion in additional losses. Any idea how many Powerpacks, Solar roofs and model 3's it will take to recoup that given their projected profit margins? I'm talking NET margin not gross margin. Never mind that current liabilities already exceed current assets and that is why being "patient" with this ramp ain't gonna cut it. Suppliers have their own businesses to run profitably and can't blithely wait on Elon to emerge from production hell. What do you think the balance sheet will look like if factories for the Y and the semi become reality?

Losses from prior years got kicked down the road, but we are nearing the point of no more road.

Do all of us a favor and add to your short.

 

[Esme Es Mejor]

$17 billion in two years added liabilities to get

$20 billion in additional assets. Total assets have outgrown total liabilities by more than $3 billion in the last 2 years. You didn’t draw an arrow around it, but there it is.

 

[EinSV]

This seems to be the prevalent sentiment here. Little attention is paid to the fact that there is a need to produce those products in an economically sound way. Here is a dose of reality.
View attachment 287226
$17 billion in two years added liabilities to get to the end of 2017 and what to show for it? $2.5 billion in additional losses. Any idea how many Powerpacks, Solar roofs and model 3's it will take to recoup that given their projected profit margins? I'm talking NET margin not gross margin. Never mind that current liabilities already exceed current assets and that is why being "patient" with this ramp ain't gonna cut it. Suppliers have their own businesses to run profitably and can't blithely wait on Elon to emerge from production hell. What do you think the balance sheet will look like if factories for the Y and the semi become reality?

Losses from prior years got kicked down the road, but we are nearing the point of no more road.

"Products and their potential" -- my language you quoted -- includes profitability.

VA asked for thoughts on comparisons between late 2016 and today. Elon announced expectations for 25% gross margin for Model 3 in July 2016 -- which was higher than I (and I believe other investors) expected -- and has maintained that guidance since that time. Tesla Model 3: Elon Musk sees the vehicle generating ~$20 billion in revenue with 25% gross margin (TSLA)

Since that announcement, which was a big deal, in my view the developments I mentioned are more significant to Tesla's long-term success than other factors that come to mind that might affect the bottom line, although it is possible I am overlooking something.

I do expect Model 3 and the rest of Tesla's product line to have high gross margins and for Tesla to be profitable. Like Amazon, however, for the next few years at least I expect high short-term profits to (1) take a back seat to investments in the future; and (2) not be necessary for the share price to increase significantly, since enough long-term investors understand that 50+% revenue growth per year (twice the rate of Amazon) is more valuable in the long run than artificially restricting growth of products in high demand to generate short term profits.

One similarity between today and late 2016, when the share price was ~$190-$200, is the confidence shorts had in their bets. Shorts had as much or more confidence in late 2012/early 2013, when the share price was about $30-$35. And both times the core short arguments were the same: Tesla's model is not profitable and it will get stomped by the competition.

I am really surprised more short sellers haven't learned from that experience and taken to heart Whitney Tilson's advice from early 2017, when he decided not to try shorting Tesla for a second time:

I was dumb enough to be short TSLA from ~$35 to ~$205 from early 2013 to early 2014 and, after that traumatic experience (by far my worst short ever, almost exactly cancelling out my best long ever, NFLX), haven’t had any position in it since.​

I was tempted to get back in on the short side, however, after seeing an in-depth presentation by Mark Spiegel of Stanphyl Capital at the Robin Hood Investors Conference in November (www.tilsonfunds.com/TSLA-Spiegel-RH16.pdf) (I’ve also attached his Dec. letter, in which he shares further bearish thoughts on TSLA). There are many pillars of the short thesis, but if I were to summarize it, I’d quote a friend (not Spiegel):​

The fundamental issue remains: If he can’t make money selling a car for $85,000 or more with zero direct competition, how will he be able to make money selling a car for $35,000 or even $45,000 or $55,000 with tons of competition?

<snip>

In summary, today reminds me of early 2013, when the stock was at $35: the company was/is burning a ton of cash, has missed all sorts of deadlines, and there was/is much skepticism about a major new product launch (then: Model S; now: Model 3). Back then, I figured Musk/Tesla would have to pull an inside straight to beat me – but they did. In hindsight, I don’t think it was luck. They were much better engineers than I thought and built a brilliant, innovative car. Tesla is chock full today of even more, better engineers, led by the same two guys, so why would I bet against them now? Fool me once, shame on you. Fool me twice, shame on me… Tesla - Tilson Compares To Amazon And Netflix But Won't Buy Or Short​

 

[Uptownman]

$20 billion in additional assets. Total assets have outgrown total liabilities by more than $3 billion in the last 2 years. You didn’t draw an arrow around it, but there it is.

Seriously? Unless they were to liquidate and get 100% of the dollar value of assets that is meaningless. Unless those assets can generate net income to cover the liabilities and interest on those liabilities what value do they have. In 2017 adding those assets generated $2 billion in negative retained earnings, (losses).

The reason the assets are higher is they issued equity to believers for cash, and they don't have to pay that back, ergo no matching liability.

Are numbers and accounting verboten on this forum?

 

[Compton]

Seriously? Unless they were to liquidate and get 100% of the dollar value of assets that is meaningless. Unless those assets can generate net income to cover the liabilities and interest on those liabilities what value do they have. In 2017 adding those assets generated $2 billion in negative retained earnings, (losses).

The reason the assets are higher is they issued equity to believers for cash, and they don't have to pay that back, ergo no matching liability.

Are numbers and accounting verboten on this forum?

According to your postings just ~4 weeks ago, you were first "considering" cancelling your model 3 reservation and then cancelled it. Did you place the reservation a) even though it was obvious to you that Tesla is going bankrupt b) did the dire financial situation dawn on you only during the last month (even though you're an accountant) or c) are you just trolling here? You were supposedly a reservation holder but based on your previous activity, not a single one of your posts during your entire time here have contained anything but negativity.

Furthermore, in your previous post (Feb 14) you announced that you don't want to be part of this community anymore and you would leave. So what about honoring your word? You only managed to stay away for 2 days.

 

[Esme Es Mejor]

Seriously?

Seriously. They could liquidate those assets and be $3B better off than they were 2 years. That’s a great thing, no matter how you try to spin it.

That said, they’re not liquidating those assets because they are building far more valuable income streams with them.

 

[Esme Es Mejor]

Are numbers and accounting verboten on this forum?

They’re welcome here. You should learn how to use them.

 

[Reciprocity]

Seriously? Unless they were to liquidate and get 100% of the dollar value of assets that is meaningless. Unless those assets can generate net income to cover the liabilities and interest on those liabilities what value do they have. In 2017 adding those assets generated $2 billion in negative retained earnings, (losses).

The reason the assets are higher is they issued equity to believers for cash, and they don't have to pay that back, ergo no matching liability.

Are numbers and accounting verboten on this forum?

No but the word verboten is. As soon as I can look it up and find out what it means. I'm sure I will be very upset.

 

[Reciprocity]

Seriously? Unless they were to liquidate and get 100% of the dollar value of assets that is meaningless. Unless those assets can generate net income to cover the liabilities and interest on those liabilities what value do they have. In 2017 adding those assets generated $2 billion in negative retained earnings, (losses).

The reason the assets are higher is they issued equity to believers for cash, and they don't have to pay that back, ergo no matching liability.

Are numbers and accounting verboten on this forum?

You see, building cars and solar factories and battery factories takes a lot of assets. But once you have those assets in place, then can generate income for many many years. I guess they would be worthless if they where used to build things for a dying industry, but since they are used to build things that are in very high demand, then it's what we like to call a good investment. Some might refer to it as cash burn and I can see the confusion. If someone spent billions on a new diesel motor factory or a new oil refinery or coal burning plant, then you might assume they would be better off setting the money on fire. But in this case, the money is being used to build cars that have already forced every major auto manufacturer to change their plans and invest more money on EVs. VW alone has committed upwards of $80B to coming out with 25 models by 2025. This would not have happened had people in the US stopped buying their luxury sedans and SUVs in large numbers. Germany is also one of fastest growing markets for Tesla even though it basically illegal to think about wanting to buy one. I kid.. No I'm being serious. And what will VWs reward be for this investment? They will get to lose money on EVs for a decade or so while they cannibalize sales from their previously profitable icev models. But I guess it's better then just shipping customers directly Tesla.

You might ask, why the solar factory. Well you see what happens when you get rid of your giant SUV and boxy lux sedan and replace them with EVs, you spend $700/m less on gas and maintenance and $250/m more on electricity. So you start to think about how you can save money on electricity and damned if you can't just put solar panels on your roof and cut that cost in half. It also appears that you can charge whole fleets of cars and semis with the sun and save millions in fuel and maintenance. Someone has to provide all this solar, so it might as well be Tesla. Especially considering the new tariffs on solar.

So in short.. factories are expensive. Factories that build products with massive demand are good investments and coal burning plants and oil refineries and diesel engine factories are bad investments and thus the debt incurred building them is more then likely never to be recovered.

The end.

 

[Waiting4M3]

Thanks for posting this, but there may be too many inherent assumptions in that math. For example, how did you conclude there wasn't a backlog buildup of batteries and parts that Fremont later leveraged for a temporarily high rate of production, which then later dipped back below 1,500/wk?

It'd be great if Tesla can get to (and maybe above?) 2,000/wk by end of March, which to me would indicate Tesla is still on track to 5,000/wk by June, which I believe is earlier than market expectation of Septemberish (my estimate), so SP should move up as these milestones are met.

The 2 weeks in March at 1500/wk gives you 3k cars which is higher than the total production of Feb or Jan, and assuming a baseline production of 700/wk in Jan/Feb, this requires 1500 extra battery packs. I find it unlikely that Tesla would "sandbag" that many packs just to make the 1st 2 weeks of March look good, there is no PR value in it for them, especially if production rate might drop back down again.

If you have any evidence or concrete quantitative model of how production can drop back below 1500, I'd like to see it.

 

[Uptownman]

Furthermore, in your previous post (Feb 14) you announced that you don't want to be part of this community anymore and you would leave. So what about honoring your word? You only managed to stay away for 2 days.

I can't explain why I bothered to comment, forgive me. I read all kinds of sources on topics that interest me. I watch a little FOX news for the same reason. To understand other perspectives. I apologize for disturbing the vibe here, it's all good, I forgot Elon said 20% gross margins. I got my $1,000 back so I probably no longer have standing to comment. I will however keep reading here, (and reddit,SA etc.) to see if I can learn something and am duly chastened. You guys don't trace IP addresses on dissenting voices do you?

peace

 

[dc_h]

Well the plant didn't grow by several acres and I don't think they built an underground parking structure. So that is unlikely.

The south lot is new and they just closed off an employee area doubling the space. You’re right though, 5000 cars a day is going to be a logistical challenge/nightmare. Maybe Elon can tunnel to the train yard.