Short-Term TSLA Price Movements - 2015

[RobStark]

From profits of vehicle sales, energy storage sales, and powertrain sales to other OEMs.

Vehicle capacity will double soon and production will rise quickly.

They could also monetize self financed leases by bundling them and selling them to investors as securities.

 

[bh1783]

From profits of vehicle sales, energy storage sales, and powertrain sales to other OEMs.

Vehicle capacity will double soon and production will rise quickly.

They could also monetize self financed leases by bundling them and selling them to investors as securities.

That won't cover cash flow expenditures. Right now, Tesla has negative cash flows of $1.2 billion this year. That's $6.5 million every single day. To cover $6.5 million per day, Tesla would have to sell an additional 260 cars per day (at 100k and 25% gross margin) to be cash flow break even. Right now they are selling around 142 cars per day. Even if they double production they won't be cash flow positive. Even if Tesla can become cash flow positive, they won't have enough funds to cover the rest of the gigafactory and global expansion.

 

[Matias]

I never quite understood that logic. It is suggesting Tesla was making all that money and now, due to bad business decisions or issues with their master plan, they are living it up. That could not be further from the truth.

They never had any cash (not in this volume for user) until they raised over 2 billion dollars with the very specific target to spend it all on Model X, Model 3, Gigagfactory and building out their global presence (stores, service centers and the Supercharger network). They are doing exactly that, so I do not get why that`s a problem.

Imagine you have a wallet. More money is going out from your wallet than coming in. Sooner or later your valet is empty.

 

[Yggdrasill]

It's not that they are living it up, it's just that they are spending a lot more cash than is coming in. My point is that the 2 billion they raised will be all spent by the 2nd quarter of 2016. To put it into perspective, so far in 2015, their cash flow has decreased by almost $1.2 billion. They will probably be cash flow negative again in the 3rd quarter (so another $600 million down) and according to the conference call they don't think they will be cash flow positive in Q4 but instead in Q1 of 2016. That leaves them with almost nothing of the current $1.2 billion they have in cash. They will have to dip into the $750 million credit line (of which they have already used $50 million).

If they spend $600 million in Q3, $200 million i Q4 and are cash flow positive in Q1 2016, that mens they'll have $315 million in cash as well as a $700 milion credit line. That's not very alarming.

 

[bh1783]

Imagine you have a wallet. More money is going out from your wallet than coming in. Sooner or later your valet is empty.

Exactly! Even if they are making money it won't matter. More money out than in. They are spending $6.5 million more per day than is coming in.

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If they spend $600 million in Q3, $200 million i Q4 and are cash flow positive in Q1 2016, that mens they'll have $315 million in cash as well as a $700 milion credit line. That's not very alarming.

$315 million? That's barely enough to cover the materials used in making the model S. $315 million would be enough cash for the materials of less than 5,000 cars.

 

[mrdoubleb]

Ok, so here is my 2 cents to this ER/CC.

- Guidance changed to 50-55k for 2015 and 1600-1800 cars per week for 2016 is not a concern in itself. They were just clarifying how realities may effect the numbers. Yes, they may make the 55k cars if all goes to plan and could in fact produce 2k cars per week next year if there were no issues, but these ranges are more realistic, factoring in possible issues with suppliers, etc. That is fine. What is not fine is their complete disregard for shareholders/share price when they announce their best case scenarios as the target, only to adjust them down as reality sets in. Seems to be a trend now.

- They should be much more careful and clear with the language used as bears will have a filed day with this. E.g. they should have said (written in the ER) things like: "We do not see any demand issues for 2016, but we do not feel like assuming we can run the factory at the peek rate of 2k cars per week, every single day for 52 weeks, is prudent."

- The falcon wing doors are no longer an issue. I was glad for that line as bears usually keep repeating that one statement Elon made several months ago as if it was still somehow under development and holding up the launch. However I still don`t see why they pushed the design studio launch by a month. What would be the harm in people starting to configure if they still plan on the September launch like before? I think revealing the X (via a Founder delivery event or a design studio launch event) would go a long way of easing people`s mind. (And would take some pressure of TSLA).

- Having said that, there were a bunch of good news in the ER and the call, like the battery business and how confidently JB has repeated cell production to start at the GF in Q1 - way earlier than anyone has ever expected or realistically believed until recently. Also, confirming Model 3 design reveal and lack of any showstoppers for X was great to hear. For X it`s now really just a matter of how quickly suppliers can scale production while keeping quality.

 

[bh1783]

Ok, so here is my 2 cents to this ER/CC.

- Guidance changed to 50-55k for 2015 and 1600-1800 cars per week for 2016 is not a concern in itself. They were just clarifying how realities may effect the numbers. Yes, they may make the 55k cars if all goes to plan and could in fact produce 2k cars per week next year if there were no issues, but these ranges are more realistic, factoring in possible issues with suppliers, etc. That is fine. What is not fine is their complete disregard for shareholders/share price when they announce their best case scenarios as the target, only to adjust them down as reality sets in. Seems to be a trend now.

- They should be much more careful and clear with the language used as bears will have a filed day with this. E.g. they should have said (written in the ER) things like: "We do not see any demand issues for 2016, but we do not feel like assuming we can run the factory at the peek rate of 2k cars per week, every single day for 52 weeks, is prudent."

- The falcon wing doors are no longer an issue. I was glad for that line as bears usually keep repeating that one statement Elon made several months ago as if it was still somehow under development and holding up the launch. However I still don`t see why they pushed the design studio launch by a month. What would be the harm in people starting to configure if they still plan on the September launch like before? I think revealing the X (via a Founder delivery event or a design studio launch event) would go a long way of easing people`s mind. (And would take some pressure of TSLA).

- Having said that, there were a bunch of good news in the ER and the call, like the battery business and how confidently JB has repeated cell production to start at the GF in Q1 - way earlier than anyone has ever expected or realistically believed until recently. Also, confirming Model 3 design reveal and lack of any showstoppers for X was great to hear. For X it`s now really just a matter of how quickly suppliers can scale production while keeping quality.

Basically, unless they execute perfectly, they will run out of cash by early 2016 unless they raise more capital. Looking over their financial statements, they are burning through almost $600 million/quarter and have $1.7 billion in cash left over.

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My prediction is that they will show the Model 3 prototype in Q1 of 2016 and then make a big capital raise (probably at least another 2 billion, so 5-10% dilution in stock)

 

[mrdoubleb]

Imagine you have a wallet. More money is going out from your wallet than coming in. Sooner or later your valet is empty.

I`m sorry, but I think you still don`t get the point. There was no money in that wallet. It was empty. You asked for lots of money to spend it on this investment in your future within 2-3 years. Now, 2 years in, you are raising the alarm when you see money is going out of this wallet for that very investment. But that`s the only reason this money is there in the first place! Tesla was never going to finance the GF, Model X, Model 3 or their growth of their geographic footprint from the profit's of Model S. That was never the plan, that`s why they raised these funds and we all bought the shares knowing that.

If this was a steady state, mature company who was spending more on running their business than their income, your view would be accurate. But this is a growing company who filled that wallet with the specific goal to spend it all on their growth. This is not even news worthy.

 

[Yggdrasill]

Basically, unless they execute perfectly, they will run out of cash by early 2016 unless they raise more capital. Looking over their financial statements, they are burning through almost $600 million/quarter and have $1.7 billion in cash left over.

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My prediction is that they will show the Model 3 prototype in Q1 of 2016 and then make a big capital raise (probably at least another 2 billion, so 5-10% dilution in stock)

If they execute perfectly they are cash flow positive in Q4, if they execute fairly well they are cash flow positive in Q1. Either way, they will be cash flow positive by the time the Model 3 is revealed. It makes little sense to do a capital raise when they are cash flow positive. From there, the situation will only improve by itself.

 

[anon]

If they execute perfectly they are cash flow positive in Q4, if they execute fairly well they are cash flow positive in Q1. Either way, they will be cash flow positive by the time the Model 3 is revealed. It makes little sense to do a capital raise when they are cash flow positive. From there, the situation will only improve by itself.

But does one quarter of being cash flow positive mean that every later quarter will also be cash flow positive? Expenses for the Model 3 could ramp up over time, as could the gigafactory when they move beyond the pilot plant; well, perhaps they will continue to build at the same pace, but they might want to go faster to meet demand.

 

[mrdoubleb]

Basically, unless they execute perfectly, they will run out of cash by early 2016 unless they raise more capital. Looking over their financial statements, they are burning through almost $600 million/quarter and have $1.7 billion in cash left over.

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My prediction is that they will show the Model 3 prototype in Q1 of 2016 and then make a big capital raise (probably at least another 2 billion, so 5-10% dilution in stock)

Once again, the point you are missing is that they are burning through that cash only because they raised it to burn through it. If they had not raised it they would have come up with a much less ambitious plan, like remaining a niche player with only 1 car, developing X in 5-6 years, growing the SC network only by 5-10 stations a year and only in their most popular markets, no GF, etc. That`s not the business plan we signed up for, we (shareholders) agreed the company should raise 2Bn and burn through it to make all this happen in 5 years. (Whoever didn't agree, sold all their shares saying " I am not buying this plan, it`s too risky" and so on).

 

[vgrinshpun]

Baird's Ben Kallo is quick with the note confirming his rating and PT of $335.

Streetinsider.com digest:

Baird analyst Ben Kallo reiterated an Outperform rating and $335 price target on Tesla Motors (NASDAQ: TSLA) following Q2 results and conference call. Kallo notes the ramp is slower than expected, but said the Model X is worth the wait.

Kallo commented, "Q2 results beat analyst estimates. On the negative, TSLA guided down in deliveries, conveyed cautiousness on the production ramp for 2016, and alluded it could raise capital. On the positive side, Q4 production ramp risk is reduced, and management confirmed initial Model X deliveries are on track. Long-term growth is intact, and we would be buyers ahead of the Model X configuration/reveal this month."

The firm lowered FY 2015 EPS from $0.55 to ($0.79) and FY 2016 EPS from $3.50 to $3.00.
For an analyst ratings summary and ratings history on Tesla Motors click here. For more ratings news on Tesla Motors click here.
Shares of Tesla Motors closed at $270.13 yesterday.

 

[bh1783]

Once again, the point you are missing is that they are burning through that cash only because they raised it to burn through it. If they had not raised it they would have come up with a much less ambitious plan, like remaining a niche player with only 1 car, developing X in 5-6 years, growing the SC network only by 5-10 stations a year and only in their most popular markets, no GF, etc. That`s not the business plan we signed up for, we (shareholders) agreed the company should raise 2Bn and burn through it to make all this happen in 5 years. (Whoever didn't agree, sold all their shares saying " I am not buying this plan, it`s too risky" and so on).

No you can't just magically lower cash flow 600 million in one quarter, my point is unless they raise capital they will runout of cash next year

 

[Yggdrasill]

But does one quarter of being cash flow positive mean that every later quarter will also be cash flow positive? Expenses for the Model 3 could ramp up over time, as could the gigafactory when they move beyond the pilot plant; well, perhaps they will continue to build at the same pace, but they might want to go faster to meet demand.

They'll be cash flow positive because they'll be selling 80k+ Model S/X and Tesla Energy will start to contribute. I would expect this revenue to be able to sustain most of Tesla's needs for capital, but a capital raise certainly isn't beyond the realm of possibility. Tesla will likely do a capital raise if they have something worthwhile to spend it on. Like factories in Asia/Europe, Gigafactory 2, etc.

 

[bh1783]

They'll be cash flow positive because they'll be selling 80k+ Model S/X and Tesla Energy will start to contribute. I would expect this revenue to be able to sustain most of Tesla's needs for capital, but a capital raise certainly isn't beyond the realm of possibility. Tesla will likely do a capital raise if they have something worthwhile to spend it on. Like factories in Asia/Europe, Gigafactory 2, etc.

Tesla needs billions for capex; cash flows from 80k cars even at 30% gross margin won't cover that.

 

[Drax7]

I`m sorry, but I think you still don`t get the point. There was no money in that wallet. It was empty. You asked for lots of money to spend it on this investment in your future within 2-3 years. Now, 2 years in, you are raising the alarm when you see money is going out of this wallet for that very investment. But that`s the only reason this money is there in the first place! Tesla was never going to finance the GF, Model X, Model 3 or their growth of their geographic footprint from the profit's of Model S. That was never the plan, that`s why they raised these funds and we all bought the shares knowing that.

If this was a steady state, mature company who was spending more on running their business than their income, your view would be accurate. But this is a growing company who filled that wallet with the specific goal to spend it all on their growth. This is not even news worthy.

Cash flow doesn't look so good.
2015 1st quarter -$557 million
2015 2nd quarter -$564 million
Cash on hand: $1,1150 million

Even with the credit line (I think it was like $500 million, of which they mentioned only using $50 million so far) Tesla will probably need to raise more money early next year. At their current cash flow rates, they will use up most of their cash early next year unless they ramp up production rapidly or raise more cash.

"At their current cash flow rate", that is a bad assumption, the model x investment is already made , requiring
Substantially less capital expenditures. Though if you repeated enough times you will convince yourself.

 

[atang]

Hold on Ms Debbi Downers, there is a great future for Tesla and TSLA, Be ashored! It will all shake out in the end, Be Calm, Buy TESLA!:smile:

Edit: Buying opportunity! Hello?

 

[bh1783]

Yeah their spending is going to increase with model 3 development and tooling. Their expenditures will continue to rise and their current cash flow cannot sustainably cover current expenditures without further capital raises. Them saying no comment to capital raises in the conference call = they need to raise capital

 

[pGo]

From the language they used in the call it seems the capital raise is going to happen. Whether they do it by showering all the good news at once, or are required to do it is not known.

This was a known item and was delayed due to a line of credit of $750M.

With lowered guidance (which I forecasted a possibility) I have more questions about current Model S demand. Tesla guided q3 at same as q2 that too after pulling two demand levers in matter of weeks. That was a bit weak IMO. For q4, if you assume the same Model S sales as q3 (Osborne effect in full swing ), they are left with 5500 Model X delivery in q4 to reach 50K (lowest of the new guidance) mark. I THINK THAT IS A TALL ORDER if you even slightly don't take Tesla by its words.

It looks like Tesla MUST beat handily q3 to achieve new lowered guidance.

 

[Drax7]

Once cash flow positive and in steady state, the stock should be at a peak, and then they will issue stock and raise capital to build model 3 , a good 3 billion dollar raise ...... Might be necessary.

they plan model 3 to be ready in late 2017, so they will raise capital about a year before.