General Discussion: 2018 Investor Roundtable

[neroden]

The overall beauty of a high automation factory and supply chain is that the elements are in synchronization and delivery goes just in time.

Why just in time? The material flow needs to be like a river going into another river without interruption.

If you have disruptions and buffer because parts are missing you end up with a large mess and complexity that is almost impossible to handle and manage in a high units environment. Cost explode and you need to store and pick once the engine starts again and than phase out from store and in from ordinary supply.

All automakers have managed in the last decades to build and establish JIT production even with an entire Tier 1 and Tier 2 network supplying. If one cannot deliver and you don't have a working backup you better stop the entire machine and restart later. Even storing almost finished products and adding missing parts at the very assembly end has been tried and created more issues in QC and costs than most people can imagine.

The costs and production benefits of this seamless production flows are superior above all the attempts to organize serial production.

If we believe that the produce a certain amount today in GA say 6k or more a week than we should assume that all other previous parts are on the same tact rate. Some small buffers may exist but they are more a part of a problem than a part of a solution.

Musk has specifically rejected JIT in favor of keeping sufficient buffers to avoid production disruption due to supply chain risk. This is the older way and a good idea. It's not as capital-effective but it's more risk-resistant. Seamless flow is still a good idea, but buffers are good too.

 

[mongo]

Musk has specifically rejected JIT in favor of keeping sufficient buffers to avoid production disruption due to supply chain risk. This is the older way and a good idea. It's not as capital-effective but it's more risk-resistant. Seamless flow is still a good idea, but buffers are good too.

As long as the payment terms are longer than the buffer + build/delivery time, isn't capital unaffected? In other words, a rolling (30 day?) inventory of material on (60 day terms?) they don't have to pay for.

 

[neroden]

As long as the payment terms are longer than the buffer + build/delivery time, isn't capital unaffected? In other words, a rolling (30 day?) inventory of material on (60 day terms?) they don't have to pay for.

It should basically be considered a one-time capital cost to build up the buffer, if you see what I mean. After that, maintaining the buffer has no cost.

Edit: Oh, I see what you mean. If you ran pure JIT you would have material on 90 day terms used immediately, if you ran a 10 day buffer you would have material on 90 day terms used 10 days later so you effectively get 80 day terms instead. So slightly less float, which is equivalent to using some capital.

 

[mongo]

It should basically be considered a one-time capital cost to build up the buffer, if you see what I mean. After that, maintaining the buffer has no cost.

Edit: Oh, I see what you mean. If you ran pure JIT you would have material on 90 day terms used immediately, if you ran a 10 day buffer you would have material on 90 day terms used 10 days later so you effectively get 80 day terms instead. So slightly less float, which is equivalent to using some capital.

Your inventory balance and accounts payable both go up, but as long as the parts convert to revenue before the bill is due, there isn't a cash/ capital spend. Maybe? Or does the carrying have some impact on capital?

 

[Sparky]

IMO a few factors will contribute to the a slower push to 10k/wk M3 target:

• shifting focus from break-neck debt-funded growth to slower but organic growth, starting in Elon's "no-capital-raise" statement in April and clarified in May conf call's update of lower CapEx for remaining 2018
• China GF looks like a go, which will lock up some CapEx, leaving a lower available CapEx for other projects
• MY unveil in March 2019 and production ramp, targeting to start in late 2019, I think bringing up My production will be a higher priority than ramping M3 to 10k, because
  • MY will likely address an even larger market than M3
  • SUVs are more popular in China so Tesla may target the synergy between China GF build-out and simultaneous MY ramp in China
    
  • spread out eggs in more basket (models) so Tesla can adjust more easily if demand landscape shift, for example, Tesla can maintain a M3 backlog and steer more buyers towards higher ASP M3

I agree. I think there's too much focus on 10k/week and not enough on E.M.'s statements about profitability. IMHO Tesla has always been pretty cash efficient and I'm hoping the Q3 surprise is that 4k/week was breakeven and 7500/week is where they'll keep it for awhile while they rake in cash to slam the door on the Wall Street sharks with agendas. GA4 is running a night shift now. Seems like 5k/week must be damn close if not in rear view mirror. If they exit 2018 with a 450k annual run rate (includes S/X) that is damn impressive from where they were a year ago.

 

[Todd Burch]

As long as the payment terms are longer than the buffer + build/delivery time, isn't capital unaffected? In other words, a rolling (30 day?) inventory of material on (60 day terms?) they don't have to pay for.

Correct. As I understand it, due to payment terms discussed a few quarterly calls ago and flying largely under the radar (intellect?) of the analysts, the cash situation works like this:

As they are ramping up, the more cars they make per week the better their cash situation is as a result of building and selling those cars. The payment to suppliers for the M3 is 30 (or 60? Or 90? Too lazy to look it up) days.

Suppose terms are 60 days and it takes 20 days to build and deliver a car. They can be delivering and taking in cash for cars at a rate from 20 days ago, but only paying suppliers at a rate from 60 days ago. This differential is extra cash.

Simplified due to typing on iPhone, but you get the idea.

 

[neroden]

Your inventory balance and accounts payable both go up, but as long as the parts convert to revenue before the bill is due, there isn't a cash/ capital spend. Maybe? Or does the carrying have some impact on capital?

Basically, consider the time gap from the first materials order to the first revenue received. You've added 10 days to create a 10 day buffer. You have to finance that 10 days. *Once.* It has an impact on capital. Not a large impact though.

 

[ggr]

Seems to be a uptick in VIN assignments and 'Edit Buttons' disappearing this afternoon. The floodgates may be opening...

Thanks for mentioning this. I just configured and put the non-refundable deposit on our Performance Model 3. I didn't get mail from Tesla, just logged in and did it. It says between August and October delivery.

 

[SlicedBr3ad]

I just signed in again and now I'm able to select the performance version, but my "late '18" for SR version is gone and now it says "6-9 months"......are you ****ing kidding me!?!

Technically I could still be in the 'late 18' group as the '6th month', but man, they are really pushing it by changing it with that much wiggle room.....I'm starting to become depressed and disillusioned......we shall see.....

Hind sight 20/20. We probably should have seen that they will be setting up production to take advantage of $7500 tax credit for first production and performance to get things started. I would have bought$35k version without tax credit given the choice vs FP. But, is not like all of the tax credit money will be completely gone in q1,Q2. Those buying$35k will still be able to cash in on $3650 and $1800 tax credits in q1,Q2.

 

[mongo]

Correct. As I understand it, due to payment terms discussed a few quarterly calls ago and flying largely under the radar (intellect?) of the analysts, the cash situation works like this:

As they are ramping up, the more cars they make per week the better their cash situation is as a result of building and selling those cars. The payment to suppliers for the M3 is 30 (or 60? Or 90? Too lazy to look it up) days.

Suppose terms are 60 days and it takes 20 days to build and deliver a car. They can be delivering and taking in cash for cars at a rate from 20 days ago, but only paying suppliers at a rate from 60 days ago. This differential is extra cash.

Simplified due to typing on iPhone, but you get the idea.

Basically, consider the time gap from the first materials order to the first revenue received. You've added 10 days to create a 10 day buffer. You have to finance that 10 days. *Once.* It has an impact on capital. Not a large impact though.

If the terms are net 60 days, then delivering the car at any point in that period is the same on the payables side, Tesla gets the money cash before they pay.
The earlier Tesla sells the cars, the more cash they have on hand (based on build rate and revenueayment time differential).
However, if Tesla is production constrained such that they are not delaying any builds (no delayed receivables) , isn't it the case that they can carry inventory up to the full 60 day (or whatever) without impacting cash on hand (no change in payments)?
In other words, as long as they have less that 60 day minus (build plus delivery) time parts in the shelf they always recieve before they pay.
Only if inventory is on hand (raw or processed) for more than 60 days is there a reduction in cash on hand.
No financing on Tesla's side till 60 days past, up till then it is effectively financed by the supplier...
Or am I in the weeds?

 

[MXWing]

Tesla will be building my Performance Model 3, and will be making the shorts pay for it!

 

[MXWing]

I just signed in again and now I'm able to select the performance version, but my "late '18" for SR version is gone and now it says "6-9 months"......are you ****ing kidding me!?!

Technically I could still be in the 'late 18' group as the '6th month', but man, they are really pushing it by changing it with that much wiggle room.....I'm starting to become depressed and disillusioned......we shall see.....

You should be happy for TSLA. It means the demand for higher margin cars is eating up all the available supply.

 

[MXWing]

I didn't take FSD with the Model X in Dec 2016.

The $2,000 upfront discount right now forced me to take it when ordering the P Model 3.

Winners:
Model 3 margins

Losers:
My credit score
My bank account
My kids summer camps
Short Sellers

 

[ggies07]

You should be happy for TSLA. It means the demand for higher margin cars is eating up all the available supply.

Does everyone understand that the price for a performance M3 is the same as a 2012 Model S 40? Where is the cheaper version? After 6 years it's still not here....and I'm the strongest of longs....just ****ing mix in SR with LR after hitting 5k a week, which is now.

 

[sundaymorning]

If investors are buying up Faraday Future, they’ll likely buy Tesla stocks when it’s issued.

Beleaguered electric vehicle firm Faraday Future gets $2B investment boost

Hong Kong invested $2 billion for 45% stake in FF. I’m betting it’s Tencent with Tesla.

 

[MXWing]

Does everyone understand that the price for a performance M3 is the same as a 2012 Model S 40? Where is the cheaper version? After 6 years is still not here....and I'm the strongest of longs....just ****ing mix in SR with LR after hitting 5k a week, which is now.

"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." -Warren Buffet

The Performance Model 3 is the best value super car in the world today.

It doesn't make any sense at all for Tesla to sell $35K cars when they can sell $80K cars. It's not personal, it just good business.

Introducing new frame and new battery carries risk for lesser or even negative margins.

Next 6 months productions for $7,500 tax credit needs to go to the highest margin 3's - Model S and Model X.

 

[ggies07]

It doesn't make any sense at all for Tesla to sell $35K cars when they can sell $80K cars. It's not personal, it just good business.

Really, then Tesla becomes like all the other automakers out there with their Vaporware statements. Nissan said they'd have a 200 mile EV by 2016....that came and went. Tesla announced the 35k version in 2016 and let people put down deposits...I was really early in the line, and will hopefully have it by the end of the year, but most people it says 2019, so three years...maybe.

Next 6 months productions for $7,500 tax credit needs to go to the highest margin 3's - Model S and Model X.

oh yes, the people spending 64k on a car need the $7500. hahahaha.

They just keep moving the goal post for the SR version, even for people who are early in the line.....whatever that means now.....

I'm a laughing stock at work (esp. from the CFO who is a ultra conservative and big oil guy....good job with the perception Tesla) and with family and friends....."when ya gonna get your car" and then they laugh. Man I'm so mad.

 

[Crowded Mind]

If investors are buying up Faraday Future, they’ll likely buy Tesla stocks when it’s issued.

Beleaguered electric vehicle firm Faraday Future gets $2B investment boost

Hong Kong invested $2 billion for 45% stake in FF. I’m betting it’s Tencent with Tesla.

Yuck. Keep Tesla as far away from that mess as possible.

 

[Boomer19]

Really, then Tesla becomes like all the other automakers out there with their Vaporware statements. Nissan said they'd have a 200 mile EV by 2016....that came and went. Tesla announced the 35k version in 2016 and let people put down deposits...I was really early in the line, and will hopefully have it by the end of the year, but most people it says 2019, so three years...maybe.


oh yes, the people spending 64k on a car need the $7500. hahahaha.

They just keep moving the goal post for the SR version, even for people who are early in the line.....whatever that means now.....

I'm a laughing stock at work (esp. from the CFO who is a ultra conservative and big oil guy....good job with the perception Tesla) and with family and friends....."when ya gonna get your car" and then they laugh. Man I'm so mad.

totally understood. have faith. they’re going to bust their butts to get it to you by year end.

 

[MXWing]

Really, then Tesla becomes like all the other automakers out there with their Vaporware statements. Nissan said they'd have a 200 mile EV by 2016....that came and went. Tesla announced the 35k version in 2016 and let people put down deposits...I was really early in the line, and will hopefully have it by the end of the year, but most people it says 2019, so three years...maybe.



oh yes, the people spending 64k on a car need the $7500. hahahaha.

They just keep moving the goal post for the SR version, even for people who are early in the line.....whatever that means now.....

I'm a laughing stock at work (esp. from the CFO who is a ultra conservative and big oil guy....good job with the perception Tesla) and with family and friends....."when ya gonna get your car" and then they laugh. Man I'm so mad.

No plan survives contact with the enemy. When you are burning $9,000/minute and shorts trying to cut off your access to capital - you do what you have to do. Opinions of your CFO, family/friends take a back seat to survival.

You just need to figure out if you would rather go with $49,000 - $7,500 or $35,000 - $1,750.

I assure you the LR RWD PUP Model 3 is an excellent deal, even if its not $35,000. That $35,000 - $7,500 was a fantasy (always was) and I got 100+ disagrees over that point when I said Tesla would lose its shirt trying to make them this year.

If Tesla follows what I think to be the Pareto efficient solution -
200,000th car gets delivered on July 1st.
Tesla gets 24 weeks of Model 3 production at 5,000 cars = 120,000.

Best outcome is 120,000 P Model 3s if the demand is there, but it will be some kind of mix with minimum ASP of $60,000.

I got $60,000 as its unlikely people going in at $54,000K (LR AWD+PUP) are not picking up EAP at the minimum.