General Discussion: 2018 Investor Roundtable

[Subhuman]

Business Insider news article: "Tesla isn't spending enough money — and investors should be worried"

"Tesla's newfound capital consciousness is perplexing."

This is the exact reason Elon told the analyst to stuff it. No matter what Tesla does or says the FUD just keeps coming. I know how angry the FUD makes me some times so I can only imaging how Elon feels about it. I would be fed up as well.

 

[JRP3]

The real issue with Cobalt is that there was only one way to use less of it and that was NMC 811,

No, NCA is inherently lower in cobalt than NMC and Tesla has lowered it even further. They think they can lower it close to zero but I don't think he said eliminate it completely. NCA cycle life is already good enough for 200+ mile range battery packs.

 

[Off Shore]

I am going to be phasing out my Mod: activities.

Thanks for your service!

 

[jhm]

I think this was glossed over after the debacle with the call. This is bigger then people understand. The real issue with Cobalt is that there was only one way to use less of it and that was NMC 811, which if I understand is a ratio, 8:1:1 with Cobalt content being the least. As we all know Tesla used nca chemistry in cars and nmc in storage. The major difference is energy density vs charge cycles. It appears that Tesla will have a battery more like NMC in terms of less Cobalt but higher density like nca. They also said it was lighter, which topically means less expensive when you are working on the scale of a gigafactory.

Competitors will be forced to use heavy, low energy dense cells to avoid the issues with Cobalt when compared to Tesla. This compounds the issues they will have with supply in general.

Nmc does have an advantage of having less degradation over many more cycles, but maybe Tesla has a solution to that if the data holds for Tesla's current nca packs and they can make some minor improvements. Even if they can't, they can pad the size of the pack with some spare range that is saved for degradation and dynamically unlocks over time. A million miles for the pack at 80% should be the goal.

I think the tradeoff between density and cycle life has to do with heavy duty versus light duty. In a private passenger car, you want the battery to last 15 to 20 years at about 12k miles per year, so 180k to 240k life miles matches the lifecycle of the rest of the car. But you also want range per charge. So if you have a battery with 250 mile range and 1000 lifecycles, the battery is good for some 250k life miles.

But for heavy duty like a semi, you want 120k mikes per year for 15 to 20 year, so 1.8M to 2.4M life miles. At say 500 miles of range, you need a battery with 5000 cycle life, for up to 2.5M life miles.

If you put a 5000 cycle life battery in a light duty vehicle, you either frequently charge a very small range battery or you never utilize the the cycle life of the battery. Given the evolution in battery technology that will take place over the next two decades, it's really hard to rationalize a battery that must be used much longer than 20 years. Even if the battery still works that long, it will be painfully obselete. (The mineral salvage value of the battery could actually exceed the cost of new replacement within about 12 years.)

So cycle life needs to be matched with the intensity of the duty cycle.

 

[bambam4171]

Uhhh, yes? Musk has promised profitability and cash flow positive multiple times in the past. He's sworn off capital multiple times in the past.

Read the shareholder lawsuit. He promised 10k Model 3s in December despite being told by his team that it wasn't possible. That tweet from last July was either a lie or very uninformed.

I don't know why you would take Musk's statement at face value. Or why you would trust his word over experienced capital investment professionals.

2 Questions:

If you say you likely reach 10% interest on invested money but you only manage 9% because of market economics. Did you lie?

How would "experienced capital investment professionals" know more about Tesla accounting than Tesla themselves?

 

[Time]

Congratulations!

If you are reading this, you are a resilient Tesla shareholder.

Or...

You are a short seller who has no clue what you've gotten yourself into.

This is a cult. What the hell are you doing selling shares to cult members?

 

[Thumper]

Now might be a good time for me to mention that I am going to be phasing out my Mod: activities. My semi-retirement has been interrupted by a full-time too-good-to-miss opportunity as CTO of a (different, stealth) startup. Lord Vetinari @AudubonB continues to be Tyrant of All, but he and @doug and @Doug_G would appreciate hearing from people who are riveted to the screen anyway.

For those of you whose posts are being moderated (not all put there by me, either), I will be as quick as I can in approving (or not)postings, but we don't seem to have a way to take you off moderation until the time expires. That's just how it goes, sorry. Expect delays in responding to reports as well.

For all of you, especially those who appreciate good back-and-forth between bulls and bears, this can be a profitable and pleasing forum when everyone is civil. Liberal use of the ignore button, when tempted not to be civil, is recommended. Don't make me come back!

. Thanks for all your contributions to this forum and good luck in your new endeavors.

 

[trils0n]

So where will Tesla get the capital for the China Gigafactory? Could it be that Musk has been chasing out the squeamish to make a solid price entry point for Tencent or other Chinese institutional investors?

I suspect that something is in play for China.

Something is indeed in play for China.

I thought for sure someone on the call was going to ask about China. But Elon brought it up unprompted: "o btw China GF" after suffering through boring questions the whole call. He wanted to talk about this huge, important part of Tesla's future expansion (basically the most important nearish term thing for Tesla).

China was the obvious big, interesting thing to ask about this quarter, and no one brought it up. Tesla has wanted a wholly-owned factory in China for a long time now, and Elon (and Trump even) tweeted about the subject. Then China announced they were opening up to that. How no analyst thought to ask about this huge development is beyond me, but I think it pissed off Elon so he didn't really divulge any info.

 

[MikeC]

2 Questions:

If you say you likely reach 10% interest on invested money but you only manage 9% because of market economics. Did you lie?

How would "experienced capital investment professionals" know more about Tesla accounting than Tesla themselves?

What I have noticed is that to shorts, Elon doesn’t make “predictions” or “estimates” - he makes “promises” and “vows”.

 

[ls7corvete]

Honestly, the short thesis is stronger than ever. I'd love someone to actually engage on some of these topics rather than dismiss it. I am considering shorting more.

• Tesla's cash position continues to deteriorate:
  • -2.2B in working capital
  • 2.4B CapEx planned this year
  • 2.7B in cash
  • It sure looks like Tesla is facing a 1.9B budget shortfall
  • In line with Moody's and Wall Street's guidance that they need to raise 2B this year.
  • Musk reaffirmed that they will not raise capital.

• No new Tesla products until 2020 at earliest
  • Semi pushed out to 2020
  • Model Y CapEx won't start until 2019, implying launch in 2020
  • Roadster was never even mentioned.
  • Musk tried to avoid YouTuber's request for Full Self Driving timeline but said it wouldn't be finished until late 2019, implying 2020 launch.

• Model 3 production is still unstable and "ramping"
  • Major shifts to manufacturing strategy, including 24/7, less automation
  • Teardown video demonstrated high component costs
  • Tax benefits presumably to begin fading this year.
  • Still no week above 2500 output.
  • Lots of references to renegotiating with suppliers.
  • Earnings call mentioned an upcoming company restructure.

Great points, I would not dismiss any of these points. After reading this I expect a full 4 consecutive quarters of profitability before new product CapEx ramps up again. I am not sure where your 'short thesis' conclusion came from.

 

[bambam4171]

Cramer thanks Tesla CEO Elon Musk 'for telling the truth' after boorish conference call

 

[zmarty]

Fantastic takedown of analysts by Tesla Daily: 05.03.18 - Q1 2018 Earnings Report (Part 2: "Musk's Tantrum") - TechCast Daily

 

[Mike Smith]

Pierre Ferragu, ranked 623 of 7,447 on Tipranks, just initiated Tesla at $530

New Tesla Bull Sees Case for Sixfold Surge to $300 Billion Value

Veteran Tech Analyst Aims to Change the Research Game in Tesla and Others

 

[Waiting4M3]

Pierre Ferragu, ranked 623 of 7,447 on Tipranks, just initiated Tesla at $530

New Tesla Bull Sees Case for Sixfold Surge to $300 Billion Value

Veteran Tech Analyst Aims to Change the Research Game in Tesla and Others

In his Barron's interview, when he discussed why he left Bernstein:

"Last year, trading volumes were down because volatility was low in the market. That meant pressure on revenues at my former employer. It helped me realize there was something wrong with our model. I didn’t want my commercial success to be tied to volatility or trading volumes...."​

This reinforces my view that sell-side analysts are incentivized to "encourage" volatility and trading, leading to for example, Jonas's call of "up to $400 then down to $200". This could also explain why seemingly bad analysts like Tamberrino can get a job at Godman, they would make more for their banks if they give bad guidance, because then the company will likely significantly beat or miss their target, surprise the market, causing more trading and volatility. When I heard Kallo's complaint about volatility in yesterday call, my first reaction was disgust because of the hypocrisy.

Unfortunately there is not much anyone can do. Elon and Tesla did the best that they could this quarter, by creating a growth plan that can be completely self-funded, and disconnecting Tesla's future from Wall Street analysts' influences. As an investor, the only way you can get out from under the analysts is if you buy and hold long term. If you trade, they've got you.

 

[Waiting4M3]

In his Barron's interview, when he discussed why he left Bernstein:

"Last year, trading volumes were down because volatility was low in the market. That meant pressure on revenues at my former employer. It helped me realize there was something wrong with our model. I didn’t want my commercial success to be tied to volatility or trading volumes...."​

This reinforces my view that sell-side analysts are incentivized to "encourage" volatility and trading, leading to for example, Jonas's call of "up to $400 then down to $200". This could also explain why seemingly bad analysts like Tamberrino can get a job at Godman, they would make more for their banks if they give bad guidance, because then the company will likely significantly beat or miss their target, surprise the market, causing more trading and volatility. When I heard Kallo's complaint about volatility in yesterday call, my first reaction was disgust because of the hypocrisy.

Unfortunately there is not much anyone can do. Elon and Tesla did the best that they could this quarter, by creating a growth plan that can be completely self-funded, and disconnecting Tesla's future from Wall Street analysts' influences. As an investor, the only way you can get out from under the analysts is if you buy and hold long term. If you trade, they've got you.

2nd part of my reaction to his Barron's interview:

"If you look at places that attract the best talent, they’re all partnerships — the old Goldman Sachs, or consulting firms like BCG and McKinsey, or law firms. You don’t want any other shareholders than those bringing in the intellectual capital. I believe ultimately the leading research houses will all be partnerships and nothing else."​

Again one of my fundamental view about analysts, if their research is actually good, they'd keep it to themselves and make money themselves, instead of broadcasting to everyone. The sell-side analysts, if their opinions are any good, they'd be working on the buy-side of their banks and actually manage funds. Further more, if there is any coordination at all between the sell-side analysts and buy-side fund managers within the same bank, they'd be coordinating opposite messaging vs action, so the buy-side can buy when the sell-side tells everyone else to dump, again making sense why Tamberrino could be so bad at his calls yet keep a job at Goldman.

 

[neroden]

So where will Tesla get the capital for the China Gigafactory? Could it be that Musk has been chasing out the squeamish to make a solid price entry point for Tencent or other Chinese institutional investors?

I suspect that something is in play for China.

My girlfriend points out that it's not really Musk's style to manipulate things by deliberately creating an entry point for Tencent. Which isn't to say that Tencent wouldn't take advantage of the situation.

 

[neroden]

Finally read the transcript (I'm not up to actually listening to the recordings these days). Highly informative call, thanks to Galileo and thanks to Musk answering his questions. I still think Musk doesn't understand how hard autonomous driving actually *is*, and I am disappointed that nobody asked about the internal communications issues in the company (which I still believe is their *real* weak point), but apart from that, great call. I would have cut off the idiots asking about capital needs (when he's already said "no capital raise") as well.

 

[neroden]

Again from Shareholder letter

" Due to higher upfront cash sales, lower emphasis on less profitable commercial projects and consolidation of our sales channels, our solar business had slightly positive cash flow throughout 2017. We are expecting cash flow from our solar business to remain at this level in the first half of 2018 and then improve significantly thereafter."

This rather oddly phrased statement hides a claim of large positive cash flow from solar in Q3. My previous estimates showed positive profit in Q3 (assuming 5000 Model 3 / week, of course) but I didn't see how they'd get to positive cash flow; this is how.

 

[neroden]

Elon did say that the tech for Tesla Network will be ready by the end of next year, then it is up to the regulators.

Superbattery is always 5 years away.

It seems Full Self Drive is always 12-18 months away.

It's simply much harder than Musk thinks it is.

Once he really gets a handle on the scope of the problem, which he hasn't yet, *then* we'll get a realistic timeline.

At least he already understands that it has to be 10 times better than human drivers, possibly 100 times better, before anyone will even consider using it; this is something I knew from the history of fully automated railroads (which have been working since the 1970s and perfected in the 1990s). But most advocates don't realize this piece of psychology.

 

[ValueAnalyst]

I was a buy-side analyst for 16 years. I've been on thousands of earnings calls. The analysts questions were lame and I'm glad Elon moved on when he did. If there is any question about the wisdom of him moving to the youtuber, it was answered when he went back to the sell side and Ben from Baird asked the lame question about ST term updates on model 3. Elon's answer was just right: "If you are worried about volatility, sell the stock." Ben had extra time to think of a substantive question, but that's all he could come up with? Good grief. My one recommendation is that Tesla take more buy-side analyst questions -- e.g. where's Fidelity, T Rowe Price, etc? . It's not clear to me why they are not hearing from those analysts more often during the quarterly calls.

I’m not sure if long-term investors like T. Rowe get much out of earnings calls. Did you learn anything new and earth-shattering on Wednesday’s call? Analysts asked dumb questions, per usual, and Gali asked great questions, answers to which long-term investors already knew.