Short-Term TSLA Price Movements - 2015

[jhm]

Last night Congress cut a deal: an extension of ITC for solar and PTC for wind in exchange for ending a ban on exporting US crude. Solar investors couldn't be happier.

However, I am seeing no joy among oil investors today. They are finally getting a lift of a 40 year old ban on oil export, and yet the market says "meh" to oil E&P. XOP is flat, and TAN is up 7.3%. I think the market knows who got the better deal last night.

Moreover, I am hopeful that the market may continue to decouple solar and oil. No doubt solar shorts thought that low oil prices were bad solar, but they will pay dearly for that mistake. Natural gas has fallen to $1.81/MMBTU from about $2.08 a week ago and from $3.00 three months ago. Solar will continue to squeeze natural gas, and gas will continue to squeeze oil. There is no joy in Mudville tonight.

This decoupling of solar and oil would likely coincide with a further decoupling of Tesla and oil. Batteries will win longterm over oil. Nearterm, Tesla Energy benefits directly from the extension of both ITC and PTC.

Welcome to the Solar Age.

"Mine is the sunlight, mine is the morning, born of the one light Eden saw play."

 

[doctoxics]

For example. Following the Model 3 unveil, in my opinion it is highly likely that Tesla will receive a tsunami of reservations indicative of near term demand significantly in excess of 500,000 vehicles per year by 2020 and more indicative of demand for 500,000 Model 3 vehicles like right now. Assuming this occurs, this will have a number of cascading effects. For one, removing significant numbers of customers from the traditional auto market will put the hurt traditional auto makers in a way that traditional automotive management culture is simply not equipped to comprehend. It will promote TSLA stock price significantly, it will unlock significant Panasonic Gigafactory investment early and it will most likely give opportunity to a giant capital raise with minimal dilution as well as attract global investments in additional Tesla factories - and depending just how much defection from dealer lots occurs, if it is truly significant (for example the majority of the world's Prius customers simply defect from Toyota overnight - which is well within the realm of the possible), Tesla may well be able to purchase additional abandoned facilities around the globe in the same way that it bought NUMMI and/or name its terms when it comes to dealing with the likes of Toyota as an OEM licensee.

Thinking about the cost of a Model 3 in California: $35,000 minus $7,500 federal tax credit minus $4,000 (lower tax brackets) California rebate to give a cost of $23,500 for a 200 mile plus range electric car of Tesla quality with gas savings. For all of the corolla, civic, etc. buyers, how could you not want to buy the Model 3?

 

[ev-enthusiast]

In case the market domino is falling on the right side after the rate hike decision later today, we could see some more domino stones triggered and the SuperCharger switched on.
Personally I still have a tiny little bit of cash to deploy as I want to be careful about the rate hike decision later today.

 

[Drax7]

It is interesting isn't it. There was a 7% vehicle demand shortfall between 2008 vs 2007. That is all it took to kill GM and Chrysler almost kill Ford and cause Toyota to abandon NUMMI.

2014 total US sales 16.52 million units. 7% of that is 1,156,400 units (1.16 million). That is all it would take (just Model 3 reservations without any production capacity to back it up) for a total re-run of the 2008 auto recession and there will be no repeat of government bailouts. That ship has sailed.

Average new car selling price in the USA is approximately $35K - and that is for those budgeting for gasoline and routine ICE vehicle maintenance on top of the purchase price. There is a very good chance in my opinion that the base Model 3 will perform in many respects consistently if not favorably with a $40-$50K ICE vehicle in terms of acceleration, handling, safety and cabin sophistication bringing those premium features within reach of the mid market for the first time ever. Of course AWD performance options will be available on up from there extending the appeal above the mid market too. I think there is a very high chance of the majority and not a minority of Prius owners defecting to the Model 3 (at least those that have not already defected to Model S and X on account of affordability) and Model 3 will also cut straight across everything from Lincoln to Lexus and BMW to Porsche as well.

I don't think it is impossible for Tesla to amass that 7% market share in Model 3 reservations during the course of 2016 and the ramifications if it does will be spectacular. The reason for that is that big auto is typically doing production planning for projected demand at least 180 days in advance and their 2016 projections will be bullish coming out of 2015 while considering Tesla demand to be irrelevant until 2018 at the earliest and probably somewhat irrelevant even at that juncture. To have Tesla evacuate dealer lots by redirecting significant percentages of 2016 consumer demand from dealer lots to a Tesla web server will totally and completely blind-side that business process. Should Tesla absorb anything like 7% of 2016 demand as Model 3 reservation holders there will be abject chaos in the auto industry accompanied by a TSLA bonanza of both capital inflow as well as opportunity to pick up stranded production capacity at fire sale prices. This is not a guarantee but the chance of that happening IMO is deep into double digit percentages and cannot be dismissed from analysis. Put it this way, I would not want to own F, GM or TM going into 2016 and if I did TSLA would be the appropriate hedge.

BTW it is a delight to come out swinging for TSLA and to watch the market go vertical by way of coincidence.

thanks, huge insight.

 

[sub]

Last night Congress cut a deal: an extension of ITC for solar and PTC for wind in exchange for ending a ban on exporting US crude. Solar investors couldn't be happier.

However, I am seeing no joy among oil investors today. They are finally getting a lift of a 40 year old ban on oil export, and yet the market says "meh" to oil E&P. XOP is flat, and TAN is up 7.3%. I think the market knows who got the better deal last night.

Moreover, I am hopeful that the market may continue to decouple solar and oil. No doubt solar shorts thought that low oil prices were bad solar, but they will pay dearly for that mistake. Natural gas has fallen to $1.81/MMBTU from about $2.08 a week ago and from $3.00 three months ago. Solar will continue to squeeze natural gas, and gas will continue to squeeze oil. There is no joy in Mudville tonight.

This decoupling of solar and oil would likely coincide with a further decoupling of Tesla and oil. Batteries will win longterm over oil. Nearterm, Tesla Energy benefits directly from the extension of both ITC and PTC.

Welcome to the Solar Age.

"Mine is the sunlight, mine is the morning, born of the one light Eden saw play."

Do you think people are making the connection from this decision on ITC and it's affect on Tesla energy which may be part of the TSLA run today? Good to see those with SCTY doing well today, I don't have any but my underwater CSIQ has been making a nice comeback.

 

[Hogfighter]

As a side note, I'm reading 'Clean Disruption' by Tony Seba. Good read on how solar / EVs is poised to kill oil/gas/ICE vehicles. I bought SCTY 2 weeks ago because of this book. Needless to say, I got my money back from the purchase, and then some! :smile:

Oh, and go TSLA short term.

 

[jhm]

Julian, thank you for your beautiful catastrophe scenario. Just to elaborate a bit. Suppose Tesla runs up 1 million reservations for Model 3 in March. This would indicate massive willingness to delay purchase of a car for several years in order to obtain a Model 3. I suspect there would be a multiplier effect. For every person who reserves a Model 3, another 4 or 5 may simply wait for comparable products to come on the market. This creates a massive Osborne effect for conventional automakers. Most consumers who buy new cars can defer buying their next car for a few years. If enough of that happens next year, the traditional automakers are toast. They very well could see a 5% decline in sales next year.

I believe this is what you had in mind, so I just wanted to spell out the mechanism so we could kick it around. Will Model 3 reservations create a massive Osborne effect for traditional automakers?

 

[ev-enthusiast]

I like this video (04:40 min), an Elon Musk interview back in September 2012. Might be reused soon. Enjoy.

 

[Gerardf]

To add to Julian's post on the impact of a few percent for the car industry.

The whole stress in the oil market is about 'only' 1 to 2 mb/d overproduction on a total of 100. So only about a single percent of production.
The combined growth in EV's sold, solar installed and storage added will soon have a comparable impact in generation an equivalent 1 mb/d thus further hurting the fossile fuel shares and investements (not to mention the value of the proven reserves on the balance sheets of 'big oil'. And that competing green energy production will only take more away from them every year.

 

[jhm]

Do you think people are making the connection from this decision on ITC and it's affect on Tesla energy which may be part of the TSLA run today? Good to see those with SCTY doing well today, I don't have any but my underwater CSIQ has been making a nice comeback.

The connection is there to be made. ITC will now remain at 30% thru 2019 and stepdown gently thru 2021. Battery storage included in solar installations qualify for this tax credit. Thus, Powerwalls and Powerpacks will get a 30% subsidy on installed price thru 2019. Thus is good news for US uptake. Tesla Energy will face the challenge of keeping up with global demand. With the policy support this extension provides, Tesla may be emboldened to accelerate plans for a second Gigafactory.

So there's the connection. It may take the market a while to sort this out.

 

[EarlyAdopter]

The extension of the solar production credit (ITC) is a boon for Tesla Energy as well, so this is more direct than just correlated short covering.

 

[FredTMC]

The connection is there to be made. ITC will now remain at 30% thru 2019 and stepdown gently thru 2021. Battery storage included in solar installations qualify for this tax credit. Thus, Powerwalls and Powerpacks will get a 30% subsidy on installed price thru 2019. Thus is good news for US uptake. Tesla Energy will face the challenge of keeping up with global demand. With the policy support this extension provides, Tesla may be emboldened to accelerate plans for a second Gigafactory.

So there's the connection. It may take the market a while to sort this out.

Ah.... Thx

 

[ev-enthusiast]

About 1 hr 50 mins till the FOMC meeting?

 

[jesselivenomore]

So there's the connection. It may take the market a while to sort this out.

Thanks for clarifying, I did not make that connection. I have been waiting for a big volume+big %up day for confirmation of a new uptrend. The volume is there today, but price still has to get above 240. If it was all short covering I would have dismissed it as far as forming a new up trend, but material news does change things.

 

[Julian Cox]

Apart from the shorts who have really no idea what they're doing, what are the seemingly smart shorts banking on? No X production ramp in the immediate future? Q4 delivery #'s not being reached? I'm not concerned about either one of those.

The seeming to themselves smart shorts are banking on linear projections of negative cash flows and rising inventories oblivious to the step change in business circumstances from MX and TE being a net drain of MS business to the Q1 2016 situation in which MS, MX and TE are generating cash flows in concert.

Believe it or not they really seem to believe this - and there is a reason for it seated in received wisdom within the automotive industry at large. Mindblowingly, automotive industry 'experts' actually view R&D as an ongoing expense of keeping the lights on - a distress purchase. The reason for that comes down to decades of entrenched competition whereby the same 1% or 2% gain in some performance metric of an ICE engine is generally launched simultaneously in the same model year by every mass market player after each of them has spent $billions on it. None of them obtain a competitive edge as a result. It is literally a cost of staying in business in that environment - and because Tesla makes products with 4 road wheels they assume that Tesla's R&D can also be classified as equally meaningless cash burn.

What those 'experts' have gotten lost in translation is that $1.7 billion of CapEx, a whole bunch of R&D plus SG&A readying headcount for new sales production in the context of Tesla is not meaningless cash burn, instead it equals a whole new vehicle that makes the Cayenne Turbo S look ridiculous and an entire energy storage business amounting to a doubling in revenue earning potential year on year and an additional year or two of R&D lead on top of the seven or eight year technology lead already in the bag.

BTW - I came across an interview with Fardaday Future's chief engineer. They actually seem to imagine that they have caught Tesla napping with an auto business as usual business model when it comes to the notion of developing autonomous EV fleet services - which is another funny story for another time considering Tesla is building out the entire software and hardware architecture globally for exactly that while SpaceX is quietly going about its plans to launch a 4000 satellite global go-anywhere OTA / Internet / private GPS network and FF does not have a single service center or charging point let alone a car at this juncture.

 

[jhm]

To add to Julian's post on the impact of a few percent for the car industry.

The whole stress in the oil market is about 'only' 1 to 2 mb/d overproduction on a total of 100. So only about a single percent of production.
The combined growth in EV's sold, solar installed and storage added will soon have a comparable impact in generation an equivalent 1 mb/d thus further hurting the fossile fuel shares and investements (not to mention the value of the proven reserves on the balance sheets of 'big oil'. And that competing green energy production will only take more away from them every year.

My own calculation is that it take about 25 million plug-in vehicles to destroy permanently 1 mb/d in demand for oil. Autonomous EV sharing can reduce this ratio. It will be quite awhile before EVs are produced at such scale. However, the anticipation of EVs should temper investment in new oil wells. By the time 25 million EVs are being produced annually oil consumption will be falling 1 to 2 mb/d and the decline will accelerate each year. So no matter what the oil capacity is at that time it will not be able to decline fast enough naturally to avoid a glut. So essentially the price of oil goes to $0/bbl. So if you are drilling a well today, you need to think about whether that well can breakeven before the perpetual glut. My view is that this happens some time between 2024 and 2030.

Now if the response to Model 3 is big enough to trigger an industry wide Osborne effect, then we may well get to 25 million EV annual production by 2025. Tesla will do 5 to 10 million, but the rest of the auto industry will be scrambling to build EVs for basic survival. So another 20 million EVs from other automakers. This is the kind of scenario where oil enters perpetual glut as early as 2024. A slow scenario would have Tesla hit 10 million EVs annually as late as 2030, and the rest of the industry is roughly matching that volume. Either way, a new oil well has only 9 to 15 years to turn a profit.

So the Model 3 really has the potential to drive a stake in the heart of oil and hasten the end.

 

[Papafox]

Thinking about the cost of a Model 3 in California: $35,000 minus $7,500 federal tax credit minus $4,000 (lower tax brackets) California rebate to give a cost of $23,500 for a 200 mile plus range electric car of Tesla quality with gas savings. For all of the corolla, civic, etc. buyers, how could you not want to buy the Model 3?

If you consider that Tesla has already sold 100,000 vehicles and that it sells 80,000 vehicles in 2016, that is only about 20,000 vehicles in 2017 before the phasing out of the Fed EV tax credit begins. I think for this reason Elon did not speak of Model 3 price after tax credit. Chevrolet, on the other hand, still has tax credits available, and they've been quoting $30,000 for the Bolt AFTER federal credit. Not everyone buying a Bolt or a Model 3 for that matter has enough income to take advantage of a $7,500 tax credit in a single year, as the credit needs to be taken.

Even if the Bolt costs less than the Model 3 once credits are factored in, picture the Model 3 as a competitor to the BMW 300 series while the Chevy is an electrified economy subcompact, and you will realize that these two products are miles apart in value.

 

[30seconds]

If you consider that Tesla has already sold 100,000 vehicles and that it sells 80,000 vehicles in 2016, that is only about 20,000 vehicles in 2017 before the phasing out of the Fed EV tax credit begins. I think for this reason Elon did not speak of Model 3 price after tax credit. Chevrolet, on the other hand, still has tax credits available, and they've been quoting $30,000 for the Bolt AFTER federal credit. Not everyone buying a Bolt or a Model 3 for that matter has enough income to take advantage of a $7,500 tax credit in a single year, as the credit needs to be taken.

Even if the Bolt costs less than the Model 3 once credits are factored in, picture the Model 3 as a competitor to the BMW 300 series while the Chevy is an electrified economy subcompact, and you will realize that these two products are miles apart in value.

Calculation only applies to cars sold in the US, not ones sold outside of the US

 

[Papafox]

Calculation only applies to cars sold in the US, not ones sold outside of the US

Good point. Anyone want to take a stab at estimating when 200,000 U.S. vehicles will be sold by Tesla?

This date is important because I suspect we'll see a nice bump in sales as those sitting on the fence buy a Tesla to avoid missing the tax credit. We likely would see a bit of a dip in S and X sales sometime after that bump up in sales, as federal credits disappear. Model 3 should be selling like hotcakes, either way. If buying a Signature Model 3 allows someone to still capture the full $7500 credit, and if those buying non-signature Model 3s are likely to lose the credit, we could see signature Model 3 reservations sell out in an amazingly short period of time.

 

[Gerasimental]

Good point. Anyone want to take a stab at estimating when 200,000 U.S. vehicles will be sold by Tesla?

Taking insideEVs estimates for 2014 and 2015 (assuming 4k US deliveries in Dec, compares to 3.2k in Nov), as well as assuming 15k US sales in 2013 (can't find insideEVs number) and 50% YoY growth within the US from 2015 onwards, 156.2k would be reached by the end of 2017. So from Model 3 reveal, Tesla may be able to sell another 50k vehicles with a credit, although they may prioritise pushing out S and X at that point, which could be selling at a combined rate of 8-10k a month by then. Plus we don't know how quick M3 ramp will be, it's possible that it will take a while to reach several thousand a month, by which point almost all of the tax credits may have been used up.

I think it's certainly the right approach to assume no tax credits for Model 3.

Edit: just rememberd insideEVs numbers are for NA, not just USA, so maybe that gives us another month or two.