Short-Term TSLA Price Movements - 2015

[vgrinshpun]

I just bought about 30% of my basic trading share allowance here at $242.

I'm a long-term investor, but when I see the stock 25-30% below what I consider fair value I buy trading shares on top of my core holding.

Wednesday we found out a modest potential negative (share dilution with a secondary within the next year) is more likely than we thought. We also found out that a massive positive event is possible, but it's really hard to say how probable. I think the opportunity is so compelling that I think it's at least 50% likely, but we have very little to go on directly, and I'm sure some may estimate the chance Tesla pursue this opportunity at under 10%.

I'm talking about Tesla having their own Uber like service. This has the potential to add roughly $200 billion to Tesla's market cap by 2025. This may well be the third head of a Tesla Profit Monster, and it if they nail self-driving, the actual operational scale up is vastly easier than vehicle sales or energy storage. Nailing self-driving is quite a task, but, of course, we already know they are moving in that direction. I started a thread on why this maybe such a massive profit generator here in the investor forum.

Perhaps by Monday this gets attention via analyst reports, perhaps this stays stealth for years as energy storage did. I wanted to pick up some shares at these prices today in case this gets some attention before Monday's trading. I plan to add another 20% of my basic trading share allotment later today. As I said this could be years before it enters into Tesla's valuation, or they may not pursue this... clearly, this is not a quick trade move catalyst.

fwiw, Tesla has good reason to keep any such plans stealth... if other manufacturers with the capacity to competitively reaching self-driving capability on a timeline as good or better than Tesla focus on the extraordinary profitability of a self-driving Uber-like service, they will be highly incentivized to move more swiftly. I estimate that a self-driving vehicle built for such a service is at least 100X more profitable to a vehicle maker than selling the car to a consumer. Yup, instead of making $5K on the sale of a Model 3, Tesla may make over $500,000 over the course of a decade by placing it into such service. Sounds nutty, but check out the numbers yourself, or look at the new thread. Perhaps some analysts are currently modeling such a business and arriving at similar numbers.

This could pay for quite a few new auto and battery factories...

 

[Papafox]

I consider the 2QER to be the "these are all the things that could potentially go wrong, let's be realistic about our expectations" call. Elon realized that by releasing the 2000 cars/week production rate number last year, expectations may have grown too high. Pinning the number at 1600-1800 per week was a good move, and, if you multiply this rate times number of weeks in the year, you arrive at a number above the 50% annual growth target.

When Ben Kallo asked about a Model x configuration site on the web, Elon basically said he expects it to be out before the end of August. This step will help shore up concerns about Model X release date. Both the 2QER letter and statements confirm Tesla's plans that first deliveries will begin before the end of September. Even if bulk production of Model X is constrained initially by vendor issues with the 2nd row of seats, enough of these seats should be available that Tesla can begin deliveries on a small scale in late September.

Once Model X is revealed to the world a little over a month from now when first copies are delivered to customers, the positive reviews will start to pour in and we will likely see a nice reaction in stock price. I see the support at 240 being a result of the knowledge by many shareholders that Model X reveal is within weeks of happening and few wish to be without shares when the reveal takes place.

Production ramp speed is still a question mark, but the reveal timing looks to be on track.

 

[SteveG3]

Very interesting insights and makes a lot of sense (and dollars). When Elon said he doesn't want to answer the question about opening an Uber-like service of their own, I thought it was because there isn't any current or future plans but wants to leave the option open without pre-maturely implying they were, instead of keeping confidential a plan already in place. We can't confirm either way though but similiar to how cell carriers make way more revenue off monthly subscriptions (reoccurring fees) than selling devices (once in a few years per customer), a service-oriented business model could be a potentially huge revenue stream.

Often two people make a living from two shifts of a single dedicated cab... and profit flows to the owner of the cab business. All of this at a substantially higher cost of fuel for ICE vehicles in stop and go urban traffic vs. an EV. From this basic common sense perspective, 2 salaries plus profits to the business owner, you can see where 1 such automated service vehicle can earn Tesla over $50,000 per year. There's more detailed analysis on the dedicated thread... but this is the underlying dynamic, by achieving automated driving, Tesla can produce a car for $30K and derive the profits of a couple of people's salaries each year for a decade. Again, I think the profits could be over 100X the profits of selling the vehicle... it's not an automakers profit, it's an automation innovator eliminating the labor of two jobs profit. The $200 billion market cap estimate I made was based on a fleet of 100,000 such vehicles in dense urban centers.

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This could pay for quite a few new auto and battery factories...

Exactly. Reaching a 100,000 vehicle fleet in dense urban areas could pump $5 to $10 billion a year into Tesla's profits available for growth. So in addition to being extraordinarily compelling from a profit perspective, it's extraordinarily compelling from a use all that money to accelerate the adoption of sustainable transportation perspective.

IIRC Elon giggled when Jonas mentioned the Uber CEO wanting to buy 500,000 vehicles. Perhaps the insane potential of Tesla going alone on this explains Elon's giggle. It also explains why Elon has been so intent on being first to have an automated vehicle, and it is consistent with recent talk from Tesla about a million mile drivetrain... that would be about 10-12 years of urban cab mileage.

I just sketched these numbers... maybe there's hole(s) in my reasoning... but this is looking so compelling for both profits and mission, it's hard to see how Tesla wouldn't do it.

 

[ev-enthusiast]

I will say that I get nervous when people encourage buying on every downward tick given less experienced investors abound in this forum. Obviously if your horizon is very long-term then fine, but if you are hoping for short-term gains and/or need access to your cash, I would strongly suggest not risking more than you can afford to lose.

Personally, I think many here have underestimated the negative fallout from this ER, which could easily persist for a while as the dust settles. I certainly hope to be wrong, but I don't expect to revisit ATH in the next week or two.

As always, trade responsibly, do not follow my advice alone, and do your own research before investing, yadda yadda.

Ok, thanks everybody for chiming in.
A lot of valid points!
Awesome place here.

I have the impression that the reaction after this ER is exceptional in the way that the SP reaction is overblown.
The 15% drop after the f***s provides a good context (again thanks for reminding me of these incidents and the corresponding SP movements).
TBH some years ago I was kind of waiting/fearing a catastrophic event like the f***s.
My thoughts were that at such an early stage of Tesla Motors company and only one single new product on the market, a catastrophic event could have easily destroyed Tesla Motors and the stock TSLA.
And even worse such a catastrophic event could have destroyed the EV idea for years to come.
Right after the incidents I did not fully trust Tesla Motors judging these accidents as freak events.
But statistically, a lot of Model S should have simply blown up every month later if Tesla Motors really had a systemic/conceptual/architectural/general issue with the car.
Then I did some research and I got the impression these accidents have been strange incidents (with each one of em having it's own and a different history, so not the same issue).
Some time later Tesla Motors engineered the titanium underwear for Model S together with SpaceX.
It turned out everything is fine since then and these accidents have in deed been freak events.
This was stressful times (does anybody remember?).
During these days I think that some of the SP downward movement was justified cause of severity of the incidents and some uncertainity of Tesla Motors to be able to find a potential solution.

So, are we in a similar situation today right after the news communicated during Q2 ER?
I do not think so.
While there are positive news from last ER (I do not want to repeat these here), there is a bit a more careful approach to the ramp of the Gen II vehicles Model S and X.
Thus no more a single figure target (55.000 vehicles in 2015) is given, but a range is given (50.000 to 55.000 vehicles in 2015).
BTW as a SW engineer I like these ranges a lot more than single digit numbers (worst case - best case scenarios).
So Tesla Motors is still aiming for 55.000 vehicles in 2015 best case.
But Tesla Motors carefully communicating that should issues arise during Model X ramp this could translate into about 9% vehicles less than originally guided in the worst case.
TBH this reduces the short term growth story of Tesla Motors by 9% or 4.5% if you take the average.
But as the long term target remain in place (500.000 vehicle-target) the over all growth story stays intact!
And this figure is more important to me.
I strongly get the impression that, as we get closer to Model X launch, the more detailed the planning for the next weeks and days gets (for quality, testing, supply chain, automation, workforce, ...).
On the one hand this makes you see this staggering amount of small issues that could all potentially stop your production.
But this is just normal in the automotive industry or comparable business.
On the other hand you have to work through all these issues to get to mass production via a ramp up process.
And everybody sweats and is able to finally deal with this.

BTW I see some factors like adding capacity to the paint shop (for about 500.000 annual vehicle production) already today as reconfirmation of the 500.000 vehicle target.

My subjective conclusion:
Dip (maybe several days) but no downwards momentum.

Action:
Carefull approach (thanks to input of other members):
Added 10% of money to deploy for short term calls to cover Model X configurator reveal and "buy the rumour"-time for Model X first deliveries.
Added 10% of money to deploy for looong term shares at about $240.80.
80% of money to deploy waiting for a drop lower than $236 during the next days, new decision making process needed in that case.

Happy investing!

BTW sorry for my bad English as I am german and not a native speaker.
Best thing is: my pronounciation is even worse than my writing skills are

 

[Noble Ninja]

Once Model X is revealed to the world a little over a month from now when first copies are delivered to customers, the positive reviews will start to pour in and we will likely see a nice reaction in stock price. I see the support at 240 being a result of the knowledge by many shareholders that Model X reveal is within weeks of happening and few wish to be without shares when the reveal takes place.

I agree, we will likely see support here at $240-ish until Model X reveal with a rally up back to ATH shortly afterwards.

IIRC Elon giggled when Jonas mentioned the Uber CEO wanting to buy 500,000 vehicles. Perhaps the insane potential of Tesla going alone on this explains Elon's giggle. It also explains why Elon has been so intent on being first to have an automated vehicle, and it is consistent with recent talk from Tesla about a million mile drivetrain... that would be about 10-12 years of urban cab mileage.

Good point about the million mile drivetrain. Forgot about that but it makes perfect sense.

 

[ibcs]

S & P Capital IQ Sees Losses and at Tesla Before Profit - Source Ameritrade

"Is the latest to cut its forecast on Tesla Motors (TSLA) and to recommend selling shares. We are lowering our 12-month target $10 to $225, says analyst Efraim Levy."

 

[austinEV]

I think this was a "bad" ER in the sense that there was very little, if any, good news and some actual bad news and other bad news hinted. What I am starting to sense is that every 3rd (I will need to check this) is a "bad" ER. This one sets up Q4 or Q1 as a blowout, since all they have to do is hit 55k, release model X on time-ish and go cash flow positive. All of these events have been previously promised and were priced in. A "bad" ER walks some of that back, adds risk etc. Now when they actually do it it will feel like a win and the stock will go up as fast as it went down. That is what Elon is thinking, and he even suggested that this is his overt intent when asked why 2000/wk was now 1600-1800. He walked back a previous promise, so that when they do get to 2000/week it will feel like a win. Otherwise, his team is just slogging it out for 2 years to make a promise and the market yawns. This seems strongly to me that they are deliberately bunching up bad news in certain "bad" quarters to leave room for the other quarters to feel good. And, since they are planning (apparantly) to do a capital raise, bunching up bad news here allows them to bunch up good new in (I think) Q1 and jump to $330/share and do a capital raise, something they have done before.

The trick is an investor is to sniff out the deliberately tanked quarters when they happen. I should really do a better analysis of this theory.

 

[AlMc]

I will say that I get nervous when people encourage buying on every downward tick given less experienced investors abound in this forum. Obviously if your horizon is very long-term then fine, but if you are hoping for short-term gains and/or need access to your cash, I would strongly suggest not risking more than you can afford to lose.

Personally, I think many here have underestimated the negative fallout from this ER, which could easily persist for a while as the dust settles. I certainly hope to be wrong, but I don't expect to revisit ATH in the next week or two.

As always, trade responsibly, do not follow my advice alone, and do your own research before investing, yadda yadda.

I also agree with Flux, kenliles and TSLAdopt.......We should not be touting 'best time to buy as the price will never go lower' and be careful out there. I would say IF you are a LONG TERM investor (years, not weeks or months) then buying at $180, 220, 240 or 275 will make little difference when you look at your portfolio in 5-10 years. IF you are a trader and looking to make a quick buck it will be hard to judge the short term ups and downs.

Personally (opinion) I think we trade in the 225-245 (yeah left myself lots of wiggle room) until we get some positive news about the X AND TM'sability to ramp. Since we have a good number of X reservation holders on this site we should get a pretty good sense of that over the next few weeks, couple of months.

 

[mmd]

Thank you, now I (sort of) understand it.
..
So offering new stock at current share price does not dilute (short term). Medium and long term it depends how efficiently the cash is put to work.

Well, the very definition of dilution says that it is the issuance of new shares. So, saying dilution won't happen strikes odd to me May be you mean share price here.

Definition From Investopedia:
A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur when holders of stock options (such as company employees) or holders of other optionable securities exercise their options. When the number of shares outstanding increases, each existing stockholder will own a smaller, or diluted, percentage of the company, making each share less valuable. Dilution also reduces the value of existing shares by reducing the stock's earnings per share.

Read more: http://www.investopedia.com/terms/d/dilution.asp#ixzz3i9NosYdh
--

But I agree that if new cash would generate new earnings that were not factored in earlier, so as to not decrease future EPS due to more shares, then fundamentally EPS remains unchanged and share price shouldn't go down. In Tesla's case, it seems the future profits from Gigafactory and Energy business are already baked into the price targets from some analysts. Unless the new cash would generate additional earnings in future, future EPS will drop. And so, any P/E based target would put the target price lower.
​

 

[dalalsid]

Tesla needs to take a page from Steve jobs for the next few years, at least until 2020. Provide comically low guidance like Apple did in his time instead of Elon optimism guidance. He basically needs to take growth rate in his mind and drop it by 1/3 - 1/2 before he speaks. That way we don't have these events. But then how will be buy on dips?

 

[CALGARYARSENAL]

Tesla needs to take a page from Steve jobs for the next few years, at least until 2020. Provide comically low guidance like Apple did in his time instead of Elon optimism guidance. He basically needs to take growth rate in his mind and drop it by 1/3 - 1/2 before he speaks. That way we don't have these events. But then how will be buy on dips?

I thought Tesla may have cut back a little on spending in order to get a nice pop on the earnings. Most disagreed with me which turned out to be correct. Elon seems like an honest fellow who wants to run it like a business, not a casino.

 

[everman]

Wonder why Elon decided to go for gulf wing doors and complex seats,
What is the utility of these.

It has added so much complexity and hence delay.
The most difficult car in the world to build, is not a good thing.

I believe the origin for the complex (swiveling) second row seats can be traced to the moment on stage during the prototype MX reveal. Elon demonstrates getting into and out of the third row, can barely fit, struggles a little, then says, "...a little unwieldy".

Therefore, must fix. period.

 

[hockeythug]

Tesla needs to take a page from Steve jobs for the next few years, at least until 2020. Provide comically low guidance like Apple did in his time instead of Elon optimism guidance. He basically needs to take growth rate in his mind and drop it by 1/3 - 1/2 before he speaks. That way we don't have these events. But then how will be buy on dips?

These events happen eventually even with that stragety of sand bagging earnings. The analysts start catching on to that and set very high estimates. Apple just got burned on that on their latest earnings.

 

[FANGO]

Same here. I made a deal with myself if TSLA broke $300, I'd buy a Model S... even though I do not have home charging

You really need access to reliable charging to have an EV. Unless you have a clear plan, work charging or something like that, you'll just be annoyed by this. Get home charging somehow, it's really the whole point of having an EV.

 

[ev-enthusiast]

You really need access to reliable charging to have an EV. Unless you have a clear plan, work charging or something like that, you'll just be annoyed by this. Get home charging somehow, it's really the whole point of having an EV.

Yes.
Will not make you happy.
Maybe rent a garage nearby and install a charger there?

- - - Updated - - -

Trip Chowdhry: Tesla Motors Revenue Dynamic Set To Change In FY16
(link)

 

[austinEV]

Tesla needs to take a page from Steve jobs for the next few years, at least until 2020. Provide comically low guidance like Apple did in his time instead of Elon optimism guidance. He basically needs to take growth rate in his mind and drop it by 1/3 - 1/2 before he speaks. That way we don't have these events. But then how will be buy on dips?

Yeah, it is becoming clear How Elon is doing things:

24-18 months out: We think we will exit 2015 at a 2k/wk runrate
manufacturing team throws up their hands and says well I guess that is our goal now. Months pass with Elon getting updates on how well that will be met. Work is done risk rears its head.
12 months out: Risk is apparant but to soon too admit there is risk when there is a solid chance it will happen. Team continues to work to meet goal.
6 months out: Elon walks back goal. Maybe 1600 to 1800. Team heaves a sign of releif. Elon yells at them and says the goal is 2k. Stock goes down.
0 months out: goal not met, silence
-2 months out: WE ARE AT 2K!!! stock goes crazy.

 

[dalalsid]

These events happen eventually even with that stragety of sand bagging earnings. The analysts start catching on to that and set very high estimates. Apple just got burned on that on their latest earnings.

Tim Cook ended the Steve Jobs sandbagging. This is how bad that was - Q2 2012 Predictions Based On Apple Guidance History And Actual Growth - Apple Inc. (NASDAQ:AAPL) | Seeking Alpha

As of now analysts are just being unreal about their apple expectations. While in Tesla's case the expectation has been set that companies at least meet their own guidance.

 

[Noble Ninja]

TSLA has been on an upward rally for four months since the start of April this year, up from $200. If you look back at the multiple year chart, TSLA seems to get into a 3-4 month uptrend followed by a 1-2 month downtrend. I had a small feeling there would be a potential for a downtrend to occur at the 4 month mark (which since the start of April, just so happens to coincide with start of August with Q2 ER).

Funny how it appears (so far) to be starting a downtrend (although the failed attempts to break $280 recently probably indicated it was more likely, especially with the impeccably timed UBS report on July 21st downgrading TSLA to sell from hold, $220 to $210 which caused TSLA to fall from $282 to $266 prev. close).

 

[SteveG3]

Not sure what to make of this, but it is suggestive that Reuters is planning to have a story out at 4:00 that reports Elon comments responding to concern of cap raise dilution. From the linked Reuter's piece:

Tesla's Musk assures skeptics on cash needed to expand
Elon Musk, chief executive of electric carmaker Tesla Motors Inc, assures Wall Street that within nine months the company will be filling its coffers with cash from selling battery powered sedans and SUVs, as investors and analysts weigh the risks that Musk's ambitious plans for expanding Tesla's auto and energy storage businesses will require much more capital than the company has on hand. (TESLAMOTORS-CASH/, by Paul Lienert and Joseph White, expect by 2000 GMT/4 PM ET, 600 words)

REUTERS BUSINESS NEWS SCHEDULE AT 1830 GMT/2:30 PM ET - Yahoo Finance

 

[vgrinshpun]

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Exactly. Reaching a 100,000 vehicle fleet in dense urban areas could pump $5 to $10 billion a year into Tesla's profits available for growth. So in addition to being extraordinarily compelling from a profit perspective, it's extraordinarily compelling from a use all that money to accelerate the adoption of sustainable transportation perspective.

IIRC Elon giggled when Jonas mentioned the Uber CEO wanting to buy 500,000 vehicles. Perhaps the insane potential of Tesla going alone on this explains Elon's giggle. It also explains why Elon has been so intent on being first to have an automated vehicle, and it is consistent with recent talk from Tesla about a million mile drivetrain... that would be about 10-12 years of urban cab mileage.

I just sketched these numbers... maybe there's hole(s) in my reasoning... but this is looking so compelling for both profits and mission, it's hard to see how Tesla wouldn't do it.

Excellent point about the million mile drivetrain. How about snakebot? Seem to fit the bill quite good as well. I think that you are onto something really big here. It just fits s pattern of leveraging accomplishments in one area to make s leap into the new business.

Take #1 - the energy storage. Once Tesla spent R&D on the batteries for cars, they leveraged that know-how and added another business for a very low incremental expense.

Take #2 - the Uber-like service. All of the components are already there: EV (million mile) power train - check, fast charging network - check, self driving technology - check, self plugging technology - check, an app controlled car - check... And for incremental additional development cost all of the components could be put together with huge profit potential.

I am wondering if we will see new note from Adam Jonas over the weekend...