General Discussion: 2018 Investor Roundtable

[theschnell]

Wow. As nauseating as it was to sit through that interview, I think everyone should view it because of its potential influence on the market. That is some scathing criticism of Elon from a couple of interviewees besides Lopez. It wasn't just Lopez, but the respected author Bethany McLean of the Enron book as well as Jeffrey Sonnenfeld, the associate Dean of the Yale School of Management. Enron and Theranos were brought up in the discussion, as analogs to what is going on with Elon and Tesla. They brought up the comparison with John Carreyrou, the author of Bad Blood, the book about the journey of exposing Elizabeth Holmes and Theranos of fraud. He was ruthlessly attacked by Holmes while investigating Theranos. Bethany directly compared Elon to the angry belligerent behavior of the Enron crooks when they were being investigated. Sonnenfeld agreed with their characterization of Elon. He cites examples of CEOs under attack who came out and just corrected the facts without personally attacking others. He was extremely critical of Elon while being very supportive of Lopez.

They characterize Lopez as a reporter under attack for just trying to get the facts out, which obviously seems to ignore the tone of her articles. Many watching the interview wouldn't know what the tone of her articles is like though. Bethany says Elon's behavior is indication that Lopez is right and that she is on the right track. She commends Lopez for her courage.

Sonnenfeld then talks about "poor Jim Chanos" bering in the middle of Enron and now Tesla. He says it's unfortunate that Elon so fundamentally misunderstands Jim Chanos, who is "a very honest smart guy." "For Musk to somehow say there is some trading taking place from Chanos on this information is ludicrious." (love that choice of word!) They all then agreed with how honest and open Jim Chanos is, and that he speaks openly with all of them frequently. Sonnenfeld indicates that he agrees with Lopez that investors should be worried, and that Elon is holding Tesla's board of directors hostage, while making $2.5 billion this year. Sonnenfeld referred to Lopez as a "brilliant" reporter.

I have to say, if you don't know a lot about Tesla and Elon, this kind of stuff could easily create a lot of concern for investors. This SEC whistleblower situation is making me a little concerned about the shorter term. I sure hope that Elon is squeaky clean and hasn't knowingly exaggerated some things that could be interpreted as an intent to influence investors. I imagine that wouldn't go over well. It's one thing to be eternally optimistic about ramps and future timelines, but it's another thing to knowingly indicate something different than what is occurring in an effort to bring an embattled company through a really tough stretch. I wish I could say that I am 100% confident he has not exaggerated some numbers over this tough model 3 ramp.

The bolded part is the most frustrating part of it all for me. While Musk's wealth on paper may go up or down in value, money he has / will actually be paid this year is $0.00.

 

[bdy0627]

The price action today does not match the new data, could be an analyst
Downgrading the stock and leaking it to hedge funds .

Hmm, that's something to consider here.

 

[tander]

Electrek - 28 minutes ago: Elon Musk says Tesla will be out of ‘production hell’ in a month as they start ramping up to 10,000 Model 3s per week

"rate of 7,000 per week by the end of the year and 10,000 per week by mid-2019."

Not sure what to make of that. Why would the slow the ramp so much? Was there more context to that quote? Thought the goal was 10,000 a week by the end of 2018.

 

[Rarity]

The past half year or so, Musk has not confirmed 10k in 2018.

 

[Buddyroe]

Just something he needs to avoid in the future.

LOL. He's done that since day 1. You might as well get used to it. I think it was about 2 years ago that EM said that he realizes his timelines and projections are too optimistic, and that he would try to do better. He hasn't. You just have to make your own personal adjustment for Elon time. Some call it Tesla time.

 

[Todd Burch]

"rate of 7,000 per week by the end of the year and 10,000 per week by mid-2019."

Not sure what to make of that. Why would the slow the ramp so much? Was there more context to that quote? Thought the goal was 10,000 a week by the end of 2018.

Here's my thought:

You can get to 10K quickly by duplicating your 5K process. But that could be costly in terms of capital requirements.

Other option is to squeeze out as much as you can to get the highest gross margins and least capital outlay.

Tesla seems to be taking the latter course. While it delays higher short-term revenue by 6 months, it does have benefits:

1. Ultimately, margins on the car are higher because you've spent less capital.
2. Tesla gets more time to devote to improving quality (although based on latest accounts it's certainly at an acceptable standard now).
3. Tesla gets more time to optimize their processes, increasing margin even further and stepping along that learning curve toward an eventual alien dreadnought.

 

[Bobfitz1]

"rate of 7,000 per week by the end of the year and 10,000 per week by mid-2019."

Not sure what to make of that. Why would the slow the ramp so much? Was there more context to that quote? Thought the goal was 10,000 a week by the end of 2018.

A long shot.... Maybe this is the first instance of Tesla occasionally beating a target date? Even beating mid 2019 by one or two months would be good PR and be very positive for SP.

 

[Esme Es Mejor]

LOL. He's done that since day 1. You might as well get used to it. I think it was about 2 years ago that EM said that he realizes his timelines and projections are too optimistic, and that he would try to do better. He hasn't. You just have to make your own personal adjustment for Elon time. Some call it Tesla time.

I still hope he learns to avoid this mistake. For Model Y, I’d like him to say: “Here’s when we plan to start. Here’s the steady state we’re planning to achieve. We’re going to get there as soon as possible.” No public timelines, no public projections, just updates once milestones are achieved.

Of course, I invest with the assumption that he’ll keep laying out timelines.

 

[kbM3]

I totally cringed how he said that. I've never felt like the bears had much to hang their hat on generally speaking when they say he makes promises he doesn't keep, because most of the time there is a caveat of just things may change when predicting the future, but in this case he specifically guaranteed 10K per week by the end of 2018. That was really dumb on his part. Not sure why he did that. Oh well. Not the end of the world. Just something he needs to avoid in the future.

I too thought the guarantee meant we could bank on this. My optimistic take is that they could have made it, but decided that really optimizing every process and truly deciding what needed duplication vs. what could be sped up led to the slower pace.

 

[FirebirdAlpha]

The main problem with the mid-2019 10k/week target is just the CapEx spends on other projects.

We have to assume that most of the Q3/Q4 profits, should they happen, will be going to the 1.2B in debt payments due before March 2019 and scaling the Model 3 to 10k/week.

This comes at the expense of other projects. Customers are complaining that their powerwalls are getting delayed. There are still only a handful of solar roof customers. The Semi, Model Y are both projects with significant capital requirements (they weren't even mentioned in the Q1 letter). They also need to figure out how to expand spare parts and services, which will also have some CapEx.

It's weird that Tesla isn't raising. They're setting back several of their ambitious projects by not doing so.

 

[goinfraftw]

This is certainly getting interesting as a trend in 2018.
Mod: search term was "Elon Musk". --ggr

 

[tander]

Here's my thought:

You can get to 10K quickly by duplicating your 5K process. But that could be costly in terms of capital requirements.

Other option is to squeeze out as much as you can to get the highest gross margins and least capital outlay.

Tesla seems to be taking the latter course. While it delays higher short-term revenue by 6 months, it does have benefits:

1. Ultimately, margins on the car are higher because you've spent less capital.
2. Tesla gets more time to devote to improving quality (although based on latest accounts it's certainly at an acceptable standard now).
3. Tesla gets more time to optimize their processes, increasing margin even further and stepping along that learning curve toward an eventual alien dreadnought.

Yeah that all sounds like the smart way to go, I just thought six months would be enough time to do it considering going from 5k to 10k in 6 months is a halving of the ramp rate from last quarter iirc. But going from 5-7k in 6 months seems like a huge slow down even though they are still growing, thought they were pretty firm on that 10k by the end of 2018, but maybe that was s+x+3? Hopefully they are planning to underpromise and overdeliver or there was more context to that projection. I suppose one possibility for the slowdown is amid all the cash crunch/bankruptcy talk some of their suppliers are limiting how much Tesla can buy from them until that is not a concern, or the suppliers themselves are having problems ramping too.

 

[Foghat]

It is clear there is an active opposition to Tesla’s growth and advancing market share capture. It shouldn’t be a surprise to anyone.

With that, we all should approach all financial media with the expressed understanding of their interest in undermining that progress. It doesn’t really matter what expert they roll out, or how it is well presented on tv or in print, the intention is to delay, disrupt, dismantle Tesla’s progress. The objectivity of the press does not exist. Let’s be real. Have to operative from this truth.

It is the “noise” to interfere with the “signal.”

And the signal is clear: Tesla’s demand for its products is extremely high. A lot of people around the world want whatever they are producing. Tesla is developing a unique vehicle, with a unique production process that no other manufacturer has replicated (as all else can do with legacy ICE tech). It’s only limit by its production capacity to meet accelerating demand.

This is the reality. It is a significant threat to the competition’s bottomline. They know this. As such, they will do whatever it takes to disrupt this company from impeding on their multigenerational control over the market place at the accelerating pace. There is a reason there hasn’t been a new car company success in over half century.

In approx. five years, Tesla has gone from a few thousand cars sold, to over 200,000 and only limited by the rate of increasing capacity. (currently moving at a startling pace regardless of whatever Elon or anyone else predicted).

This consumer desire to want more of their products is undeniable and at a massive level. This is the fundamental baseline for a company’s future health . If no one likes the product, then it doesn’t matter how great the accounting looks, the company will never be an investment value.

Real analysis starts here. Real media starts here in looking at Tesla as a company. From here, they evaluate the health of Tesla moving forward and assessing investor value. All else is noise.

Tesla’s response to all this noise is to take advantage of the oppositional coverage to sell their products, take over the narrative with what consumers could benefit from. The media’s audience is its sponsors, Tesla’s audience is the people/consumer. Don’t let them suck you into appeasing their audience. Take their set up and speak to the consumer directly which will always keep the signal clear.

 

[tander]

The past half year or so, Musk has not confirmed 10k in 2018.

Did not realize that, I thought I remembered him confirming 10k recently. That's a big goal post change if that is the case. I would think it would be easier to go from 5k-10k than from 0-5k but maybe not. Hopefully Elektrek can elaborate on that source/quote.

 

[Off Shore]

The media’s audience is its sponsors

Just thought that phrase should be repeated, for emphasis, as a baseline rule for evaluating media.

 

[kbM3]

Did not realize that, I thought I remembered him confirming 10k recently. That's a big goal post change if that is the case. I would think it would be easier to go from 5k-10k than from 0-5k but maybe not. Hopefully Elektrek can elaborate on that source/quote.

It would be simple to go from 5k to 10k if you just doubled all of your manufacturing lines. Tesla is trying to determine which lines can be sped up and optimized first and which have to be duplicated in order to minimize CapEx. My recollection is that they think the 2nd 5k may only need 60% of the CapEx it took for the first 5k.

 

[Duffer]

It is clear there is an active opposition to Tesla’s growth and advancing market share capture. It shouldn’t be a surprise to anyone.

With that, we all should approach all financial media with the expressed understanding of their interest in undermining that progress. It doesn’t really matter what expert they roll out, or how it is well presented on tv or in print, the intention is to delay, disrupt, dismantle Tesla’s progress. The objectivity of the press does not exist. Let’s be real. Have to operative from this truth.

It is the “noise” to interfere with the “signal.”

And the signal is clear: Tesla’s demand for its products is extremely high. A lot of people around the world want whatever they are producing. Tesla is developing a unique vehicle, with a unique production process that no other manufacturer has replicated (as all else can do with legacy ICE tech). It’s only limit by its production capacity to meet accelerating demand.

This is the reality. It is a significant threat to the competition’s bottomline. They know this. As such, they will do whatever it takes to disrupt this company from impeding on their multigenerational control over the market place at the accelerating pace. There is a reason there hasn’t been a new car company success in over half century.

In approx. five years, Tesla has gone from a few thousand cars sold, to over 200,000 and only limited by the rate of increasing capacity. (currently moving at a startling pace regardless of whatever Elon or anyone else predicted).

This consumer desire to want more of their products is undeniable and at a massive level. This is the fundamental baseline for a company’s future health . If no one likes the product, then it doesn’t matter how great the accounting looks, the company will never be an investment value.

Real analysis starts here. Real media starts here in looking at Tesla as a company. From here, they evaluate the health of Tesla moving forward and assessing investor value. All else is noise.

Tesla’s response to all this noise is to take advantage of the oppositional coverage to sell their products, take over the narrative with what consumers could benefit from. The media’s audience is its sponsors, Tesla’s audience is the people/consumer. Don’t let them suck you into appeasing their audience. Take their set up and speak to the consumer directly which will always keep the signal clear.

Well written. We (TMC members) understand the that there is "noise" and the reasons behind it in regards to Tesla/Elon because most of us are literally invested. The alarming thing is that this has become the new "normal" in today's media as is evident with the coverage of any hot button issue/candidate. Unfortunately, the general population/algorithms do not realize that they are being manipulated.

 

[tander]

It would be simple to go from 5k to 10k if you just doubled all of your manufacturing lines. Tesla is trying to determine which lines can be sped up and optimized first and which have to be duplicated in order to minimize CapEx. My recollection is that they think the 2nd 5k may only need 60% of the CapEx it took for the first 5k.

Yeah I kind of assumed they were almost all optimization at this point but that's a total assumption. It seems like a 100% increase (5-10K) in efficiency over three or six months isn't impossible for a new product. Still just really surprised about the going from 10k to 7k, do they still have to cap production to get the most out of the tax credit? Thought that was done with after last quarter.

 

[gluu]

The main problem with the mid-2019 10k/week target is just the CapEx spends on other projects.

We have to assume that most of the Q3/Q4 profits, should they happen, will be going to the 1.2B in debt payments due before March 2019 and scaling the Model 3 to 10k/week.

This comes at the expense of other projects. Customers are complaining that their powerwalls are getting delayed. There are still only a handful of solar roof customers. The Semi, Model Y are both projects with significant capital requirements (they weren't even mentioned in the Q1 letter). They also need to figure out how to expand spare parts and services, which will also have some CapEx.

It's weird that Tesla isn't raising. They're setting back several of their ambitious projects by not doing so.

I don't see why everyone keeps bringing up the debt payments. Either they'll convert, and if they don't and the company is profitable in Q3/Q4 then they will likely be able to refinance all their debt at lower rates.

 

[NateB]

My take on the lowered 7000/week end of year of year target is this: Tesla has decided not to do another capital raise this year, I think in part at least to show the debt and equity markets that Tesla is sustainable and not a risky investment. They went from 0 to 5000/week in 12 months but spent a ton of money, some of it quite wastefully on lines and equipment that didn't work. Based on what they have learned, they don't think they can get to 10000/week this year without another capital raise. 7000 they think they can self-fund, so that's their target now.

Edit: fixed typo