General Discussion: 2018 Investor Roundtable

[Toolsmack]

Either popcorn or aspirin:

Upon conversion of the notes, you may receive less valuable consideration than expected because the value of our common stock may decline after you exercise your conversion right but before we settle our conversion obligation.

Under the notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders notes for conversion until the date we settle our conversion obligation.

Upon conversion of the 2019 notes, we have the option to pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock to satisfy our conversion obligation. If we elect to satisfy our conversion obligation in cash or a combination of cash and shares of our common stock, the amount of consideration that you will receive upon conversion of your notes will be determined by reference to the volume weighted average prices of our common stock for each VWAP trading day in a 20 VWAP trading day observation period. We will deliver the consideration due in respect of conversion on the third business day immediately following the relevant conversion date if we elect to deliver solely shares of our common stock or the third business day immediately following the end of the applicable observation period if we elect to pay solely cash or pay and deliver a combination of cash and shares of our common stock. Accordingly, if the price of our common stock decreases during this period, the amount and/or value of consideration you receive will be adversely affected...​

All conversions of 2019 notes occurring on or after December 1, 2018 (the applicable Free Conversion Date for the 2019 notes) will be settled using the same relative proportion of cash and/or shares of our common stock as all other conversions occurring on or after December 1, 2018. We will inform holders of the settlement method we elect for any conversions occurring on or after December 1, 2018 no later than December 1, 2018. If we do not timely elect a settlement method, we will no longer have the right to elect cash settlement or physical settlement and we will be deemed to have elected combination settlement in respect of our conversion obligation, as described below, and the specified dollar amount (as defined below) per $1,000 principal amount of notes will be equal to $1,000. If we elect combination settlement but we do not timely notify converting holders of the specified dollar amount per $1,000 principal amount of 2019 notes, such specified dollar amount will be deemed to be $1,000...

if we elect (or are deemed to have elected) combination settlement, we will pay or deliver, as the case may be, to the converting holder in respect of each $1,000 principal amount of notes being converted a “settlement amount” equal to the sum of the daily settlement amounts for each of the 20 consecutive VWAP trading days during the relevant observation period (plus cash in lieu of any fractional share of our common stock issuable upon conversion)...

With respect to the 2019 notes, the “daily settlement amount”, for each of the 20 consecutive VWAP trading days during the applicable observation period, shall consist of:

-cash equal to the lesser of (i) the maximum cash amount per $1,000 principal amount of 2019 notes to be received upon conversion as specified (or deemed specified) in the notice specifying our chosen settlement method (the “specified dollar amount”), divided by 20 (such quotient, the “daily measurement value”) and (ii) the daily conversion value; and
-if the daily conversion value exceeds the daily measurement value, a number of shares of our common stock equal to (i) the difference between the daily conversion value and the daily measurement value, divided by (ii) the daily VWAP (as defined below under “—Definitions”) for such VWAP trading day...
​

The “daily VWAP” means, for each of the 20 consecutive trading days during the applicable observation period, the per share volume—weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page “TSLA.Q <EQUITY> AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such VWAP trading day (or if such volume—weighted average price is unavailable, the market value of one share of our common stock on such VWAP trading day reasonably determined, using a volume—weighted average method, by a nationally recognized independent investment banking firm retained for this purpose by us). The “daily VWAP” will be determined without regard to after hours trading or any other trading outside of the regular trading session trading hours...

-if the relevant conversion date occurs on or after the applicable Free Conversion Date, the 20 consecutive VWAP trading day period beginning on, and including, the 22nd scheduled trading day immediately preceding the applicable maturity date (if such scheduled trading day is not a VWAP trading day, the immediately following VWAP trading day).
​

IF, I parsed all that legalese correctly (and Tesla issues no affirmative notice by 12/1/2018), it appears the 2019 note holders will get a minimum of $1,000/note but the actual [possibly higher] amount per note will not be known until end of the Observation Period on 2/28/2019. This could set up a battle during February 2019 between the hedge writers and the note holders regarding the VWAP.

It also appears the BoD decided not to invoke the "Best Interests" provision to conserve cash balances;

We are permitted to increase the applicable conversion rate of either or both series of notes by any amount for a period of at least 20 business days if our board of directors or a committee thereof determines that such increase would be in our best interest.

​

Great post. I’m still a little lost though. If Tesla informs the holders that they pay only in cash, does any of the bolded parts matter? Would they be exposed to any market fluctuations in February in that case?

Also I assume we’ll have to find out this decision from a leaked notification to debtholders and not a formal announcement from Tesla. Is that correct?

 

[JRP3]

Arcimoto makes a pretty compelling argument about the madness of going out to fetch milk wrapped in two tonnes of metal.

They aren't the first or even unique in that argument. Those types of vehicles have never been successful regardless of their power source.

The three wheeler may be weird to some.

Pretty much to all considering the failure of three wheeled vehicles to ever catch on outside of impoverished areas who can't support anything else.

I look at things from an engineering perspective - with two front wheels it's not unstable like a tricycle formation. It's an order of magnitude more efficient than an ICEV - not even a model 3 can claim that. And it's affordable for a lot of people who would otherwise be forced to burn fossils - especially in developing nations.

As I've said before the Tuk Tuk market is unlikely to be lucrative, especially when used 4 wheeled EV's will cost less with more utility. Extreme efficiency can also be had with 4 wheels, if people are willing to buy extremely small vehicles, when surrounded by large ones.

I think weird is what we think when we see something different. Pretty soon we get used to it - like cars with no grille.

Again the vehicle is not new nor unique, 3 wheels never caught on. You may or may not remember the Corbin Sparrow EV

Or the ICE Peel 50

Or any of the various other 3 wheeled freak shows which even in times of expensive fuel never caught on. With low cost electricity there is even less motivation to adopt such vehicles.

My portfolio is 98.5% TSLA, 1.5% FUV. Please trust I'm rooting for Tesla too, big time. I don't see these two as competitors. Indeed I'm hoping Elon will sell them Tesla branded battery packs. EDIT: He can use them on Mars perhaps.

Cheers

Of course they are not competition. I doubt Elon/Tesla will ever bother with such irrelevant niche market products. Elon could design a better Mars vehicle while falling out of bed, as could I, and it would have 4 wheels and 4 wheel drive. No paved roads on Mars.

 

[brian45011]

Great post. I’m still a little lost though. If Tesla informs the holders that they pay only in cash, does any of the bolded parts matter? Would they be exposed to any market fluctuations in February in that case?

Also I assume we’ll have to find out this decision from a leaked notification to debtholders and not a formal announcement from Tesla. Is that correct?

This stuff is truly convoluted, which precipitated my aspirin reference. Much of the problem is that the settlement language applies to various scenarios--not just during the Free Conversion Period over the next three months. Nonetheless, IMO this topic is relevant to how shares will trade during the next three months since $920 million ain't chump change. While there are numerous factors that influence the trading price for shares, I suspect redemptions of 2019 notes will tend to operate as a ceiling at $360. My rationale is that note holders are largely institutional convertible note mutual funds that are largely indifferent to Tesla's corporate mission.

My best guesses are:

-If Tesla tells note holders before 12/1/18 that conversions will be redeemed only with cash then that eliminates the fluctuation issue. It would also be consistent with what both the SEC filings and Elon have been stating regarding settlement in cash. (I personally think that cash can be far better deployed in R&D and CapEx for new products development and/or filling the M3 delivery pipelines to international markets and settlement in shares only {even at a higher conversion ratio} while somewhat dilutive is preferable.)

-IMO, a conservative in-house securities attorney would recommend filing an 8k to announce the redemption method as corporate CYA. However, Tesla Securities Lawyer Heads to Sonder as GC | Corporate Counsel Regardless, I doubt the decision on how the 2019 Notes will be settled during the Early Conversion Period can be kept secret for long

 

[Artful Dodger]

assume a "pay in cash" announcement is the preferred outcome?

Indeed, a 'pay in cash' announcement is the intended outcome: (from the 2018Q3 Earnings Call)

Elon R. Musk -- Co-Founder, Chairman, Chief Executive Officer & Product Architect

"Moreover, we expect to again have a positive net income and cash flow in Q4 and I believe our aspirations certainly will be for all quarters going forward. I think we can actually be positive cash flow and profitable for all quarters going forward, leaving aside quarters where we may need to do a significant repayment, for example in Q1 next year, but I think even in Q1, I think we can be approximately flat in cash flow by end of quarter."​

So to me this means Elon thinks that Tesla can both make its 2019Q1 bond payment in cash and STILL have close to the same free cash flow as 2018Q3. That's my interpretation anyway, open to other ideas as well.

What do you think?

Cheers!

 

[Carl Raymond]

They aren't the first or even unique in that argument. Those types of vehicles have never been successful regardless of their power source.

Pretty much to all considering the failure of three wheeled vehicles to ever catch on outside of impoverished areas who can't support anything else.

As I've said before the Tuk Tuk market is unlikely to be lucrative, especially when used 4 wheeled EV's will cost less with more utility. Extreme efficiency can also be had with 4 wheels, if people are willing to buy extremely small vehicles, when surrounded by large ones.


Again the vehicle is not new nor unique, 3 wheels never caught on. You may or may not remember the Corbin Sparrow EV

Or the ICE Peel 50

Or any of the various other 3 wheeled freak shows which even in times of expensive fuel never caught on. With low cost electricity there is even less motivation to adopt such vehicles.



Of course they are not competition. I doubt Elon/Tesla will ever bother with such irrelevant niche market products. Elon could design a better Mars vehicle while falling out of bed, as could I, and it would have 4 wheels and 4 wheel drive. No paved roads on Mars.

Agreed, those are weird mobiles.

 

[EinSV]

Indeed, a 'pay in cash' announcement is the intended outcome:

Elon R. Musk -- Co-Founder, Chairman, Chief Executive Officer & Product Architect

"Moreover, we expect to again have a positive net income and cash flow in Q4 and I believe our aspirations certainly will be for all quarters going forward. I think we can actually be positive cash flow and profitable for all quarters going forward, leaving aside quarters where we may need to do a significant repayment, for example in Q1 next year, but I think even in Q1, I think we can be approximately flat in cash flow by end of quarter."​

So to me this means Elon thinks that Tesla can both make its 2019Q1 bond payment in cash and STILL have close to the same free cash flow as 2018Q3. That's my interpretation anyway, open to other ideas as well.

What do you think?

Cheers!

I interpret Elon's comment as estimating they can pay the convertible out of Q1 free cash flow (operating cash flow-CapEx). In other words estimating they can handle CapEx plus the convertible out of Q1 operating cash flow. Seems doable since they had $1.4B in operating cash flow in Q3 so just a repeat of Q3 would allow them to pay off the $920M convertible and have ~$500M for CapEx. With deliveries to Europe beginning and M3 production continuing to ramp up they could easily beat Q3 in Q1.

 

[Opus BC fan]

In my usual commute today I ended up behind three different ICE vehicles with temporary tags. Most of the temporary tags I see around here are on Model 3s - but not today. My observation was that each of these new ICE vehicles was designed to hide the tailpipe. It was cold, so the emissions were clearly visible but the exhaust pipe was hidden from view. I think the design folks have figured out what makes for a sexy vehicle detail. More evidence we are at the tipping point.

 

[Artful Dodger]

The U.S. military will also love military versions of the Tesla Pickup Truck:

• no engine exhaust to give away your position/movements,
• no engine noise to give away your position/movements,
• insane acceleration to get out of trouble, if need to be, both forward and backward direction,
  
• very good mass distribution that makes both for crazy off road capabilities, and also allows it to double as a boat,
  
• much lower chance of mechanical malfunction in sandy/dusty environments.
• much easier troubleshooting due to low mechanical complexity and low drive train mass: you can literally carry a full set of spare motors and gearboxes with you - as long as the chassis is not bent out of whack the car can recover in the field from just about any failure.
• the car brings electric outlets, hundreds of kWhs of electricity and low-noise compressed air with itself, if the car is used for troubleshooting in dangerous engagement areas.
• unlimited recharging capabilities in the field even in isolated locations, with a (very large!) set of foldable solar panels:
• 
• 
• Interestingly, land miles and smaller scale IEDs are probably more survivable in a Tesla Pickup Truck than in ICE pickup trucks: 1-2 tons of battery pack mass on the bottom offers better kinetic protection than even some light tank's bottom plating. (!) Of course the car would have to be egress-ed rather rapidly after such an event due to battery pack puncture, so some extra ruggedness of partial voltage battery module handling would be helpful to allow up to a minute for the car to get into cover even when heavily damaged.

It's gonna be a big source of revenue I think, once militaries around the world discover the numerous advantages of EVs.

Yes, and naturally any other military.

Most military vehicles occasionally need to remain stationary in the enemy's (potential) line of fire.
Their crews like to be able to immediately back out of their position when they need to.
This leaves them with the dilemma of keeping the engine running, creating an increased heat signature (and some times/in some countries against orders due to the increased fuel consumption).
The crews of such vehicles will love that the driver can just put the foot down and they will move with zero latency without the cost of the heat signature + fuel consumption.

Also, very importantly, most military conflicts, even short term ones, are won through logistics and most vehicles are used for logistics

So from an economics POV sales of a couple of thousand units of a light vehicle that is reasonably protected against casual attacks and which platform can also double for special ops use is IMHO a lot more valuable economically than any of the more specialized vehicles intended for open conflict - simply because a lot more of them are required and actually used as well. Bullets flying is basically just 0.01% of the time.

Environmentally friendly warfare. The ability to kill people without leaving a trail of pollution that might be dangerous to health.

Certainly a topic worthy of GENERAL Discussion (get it?) MAJOR Debate on Military trucks? CAPTAIN Obvious front'n'center? lol

Cheers!

 

[JRP3]

Agreed, those are weird mobiles.

At least they are protected from the elements with doors and a rear window, unlike the Arcimoto, so more practical.
Arcimoto | The Everyday Electric

 

[Carl Raymond]

At least they are protected from the elements with doors and a rear window, unlike the Arcimoto, so more practical.
Arcimoto | The Everyday Electric

The appeal of doors and windows varies with latitude. The people who complain about off topic posts should spare a thought for all the readers living in warm climates. I've read hundreds of posts about snow - none 'on topic' for me. It's not that arduous to scroll, especially with a wheely mouse. And democrats v republicans - sheesh, it's endless and so unproductive. Neither is offering to solve the CO2 problem. Gone full circle there. Arcimoto are trying to solve it.

 

[Artful Dodger]

The appeal of doors and windows varies with latitude. The people who complain about off topic posts should spare a thought for all the readers living in warm climates. I've read hundreds of posts about snow - none 'on topic' for me. It's not that arduous to scroll, especially with a wheely mouse. And democrats v republicans - sheesh, it's endless and so unproductive. Neither is offering to solve the CO2 problem. Gone full circle there. Arcimoto are trying to solve it.

General topics, such as the ones you list above, belong here in General Discussion. The problem with the high volume of off-topic posts over in "Market Action" is that when *sugar* hits the fan (ie: WSJ FUD articles hits, and SP goes down $20 in 2 minutes) then you're faced with the question "wot da faq happened?"

Then you go to "Market Action" but you have to wad through 8 pages of *sugar* to get to the 1st even remotely helpful reply. Time is the enemy. You have minutes to decide to either duck and cover, or back up the dump truck and buy. But you can't get the info you need because people are back-n-forthing endlessly during Market Hours about Hillary Clinton or Climate Change or Fiat Currency or or or...

Fun topics sure, but keep it in General Discussion. Market Action needs to be on-topic to keep the signal-to-noise ratio high.

If we don't, then as others have already noted today, good commenters simply abandon this site and we are all left poorer as a result, both intellectually and financially.

That's what I'm on about.

Cheers!

 

[WarpedOne]

Every time I read three-wheeled are weirdmobils it pains me... yes, most were weird-mobiles, but not because of having 3 wheels, it was becase of simply awful design.

This is may still-un-fulfilled dream-mobile:

Peugeot LiIon 2007 design competition winner

Impossible to make with ICE; very much possible with electric drive.

 

[BioSehnsucht]

They aren't the first or even unique in that argument. Those types of vehicles have never been successful regardless of their power source.

Pretty much to all considering the failure of three wheeled vehicles to ever catch on outside of impoverished areas who can't support anything else.

As I've said before the Tuk Tuk market is unlikely to be lucrative, especially when used 4 wheeled EV's will cost less with more utility. Extreme efficiency can also be had with 4 wheels, if people are willing to buy extremely small vehicles, when surrounded by large ones.


Again the vehicle is not new nor unique, 3 wheels never caught on. You may or may not remember the Corbin Sparrow EV

Or the ICE Peel 50

Or any of the various other 3 wheeled freak shows which even in times of expensive fuel never caught on. With low cost electricity there is even less motivation to adopt such vehicles.



Of course they are not competition. I doubt Elon/Tesla will ever bother with such irrelevant niche market products. Elon could design a better Mars vehicle while falling out of bed, as could I, and it would have 4 wheels and 4 wheel drive. No paved roads on Mars.

Maybe they never caught on in your neck of the woods, but I see at least one Polaris Slingshot almost every week here in North Texas. They're kinda like a slower, less trackable but more streetable, more affordable, greater creature comfort (relatively speaking) Ariel Atom - just with one wheel in the back instead of two.

The Arcimoto though looks like someone's idea of a futuristic golf cart, not a fun three wheeler. It's hardly the worst looking three wheeler I've seen, but ... they cleared didn't get the post-Tesla EV design memo.

 

[shlokavica22]

Just quotes:

• we see a competition who can spit the cherry core furthest. Forget that range competition
• Range does not matter as EV user are more for the urban and suburban areas
• In average only 1.1 person drive per EV. Thats energetic nonsense
• Range is not a criteria of quality
• does not believe that costs for EVs will go down significantly
• cell producers already today want to get higher prices
• BMW will get cells from CATL in 2021 worth €1.5 bn
• Diesel Hybrids can solve the Diesel ban in German cities

I can see where he is coming from though. They can't compete with TSLA in TSLA's game. Therefore they have to adapt in a way they will take a lesser hit.
Many people indeed travel short distances to work. With a charge port at home/work, meaning a Plug in Hybrid will travel exclusively as EV most of the days. After all, the demand for clean vehicles will far outpace the available EV supply.
In reality, they will compete with Lexus' Hybrids, because Toyota are much closer to BMW's plan than BMW themselves.
They also won't need to care for Charger network.
They will be able to squeeze a little bit more juice from their existing production lines before they become obsolete.

Essentially they try to survive for longer and hope that the following will happen:
- EU creates a Charging network in the near future
- Battery production becomes more competitive, becoming a buyer's market
- TSLA doesn't expand fast enough

Bottom line- they don't have a winning strategy at their disposal (the time for that passed). They just try to choose the best losing strategy.

 

[JRP3]

The appeal of doors and windows varies with latitude. The people who complain about off topic posts should spare a thought for all the readers living in warm climates. I've read hundreds of posts about snow - none 'on topic' for me. It's not that arduous to scroll, especially with a wheely mouse. And democrats v republicans - sheesh, it's endless and so unproductive. Neither is offering to solve the CO2 problem. Gone full circle there. Arcimoto are trying to solve it.

Warm climates also have rain, and would benefit from airconditioning. Arcimoto selling small volume niche products isn't even trying to solve anything.

 

[JRP3]

Maybe they never caught on in your neck of the woods, but I see at least one Polaris Slingshot almost every week here in North Texas.

That's hardly what I'd call catching on. You're probably seeing the same ones repeatedly, there are a few around here as well, in the summer.

 

[RobStark]

There is one guy in my neighborhood that I see driving his slingshot on the weekends during the Summer.

 

[Cobbler]

A wild idea:
Can Tsla and Rivian work together (or Tesla buys Rivian?)
Rivian needs the production knowledge and enough battery capacity that Tesla could supply in 2-3 years.
Rivian could use the supercharger network and have immediately acces to the Autopilot suite.

 

[mongo]

A wild idea:
Can Tsla and Rivian work together (or Tesla buys Rivian?)
Rivian needs the production knowledge and enough battery capacity that Tesla could supply in 2-3 years.
Rivian could use the supercharger network and have immediately acces to the Autopilot suite.

Tesla is already battery constrained. Once T gets past that problem (many, many years of build out down the road), they could source packs to other OEMs. R could source cells from Panasonic instead.

Supporting other OEMs with electronics would be a resource drain and require resource capacity T doesn't have. Also links their development paths.

T already has a car and heavy duty truck platform, what does Rivian bring to the table?

 

[shlokavica22]

A wild idea:
Can Tsla and Rivian work together (or Tesla buys Rivian?)
Rivian needs the production knowledge and enough battery capacity that Tesla could supply in 2-3 years.
Rivian could use the supercharger network and have immediately acces to the Autopilot suite.

I highly doubt it. TSLA is battery constrained (as the rest of the industry).
Every battery sold to external customer will mean less output of TSLA products. When considering TSLA's plan to make money from the products long after they are sold, such a step is obviously not financially beneficial.
Acquiring Rivian is also not going to happen because TSLA has enough winner products in the pipeline (and again- battery constrain). It makes much more sense if Rivian is bought by some of the Legacy automakers.

The Supercharger network will probably be made available for partners in the near future. In fact I expect it to become a serious moneymaker sooner than later.


Edit: mongo beat me to it