Short-Term TSLA Price Movements - 2016

[lango]

I hate to break up this debate on battery peaker plants, but the US Supreme Court has just upheld FERC Order 745. This pretty much renders the capital cost of any peaker facility irrelevant. So gas versus battery peaker is pretty much just an academic exercise.

Order 745 allows retail customers to be compensated for participation in DR (demand response) programs with with compensation equivalent to wholesale prices. Thus whenspot prices exceed retail rates, customers with their own means to cut consumption of grid supplied power (whether through reducing total consumption or consumption net of behind-the-meter assets such as generators, solar, or batteries) may earn spot price level compensation. Keep in mind that commercial and industrial retail customers pay rates lower than residential. Particularly industrial rates are just a few cents higher than wholesale. Thus, tapping the ability of ratepayers to self-consume at times of peak demand for power will directly compete with utility scale peak capacity.

Why does this render capital costs moot? Retail customers invest in their own behind-the-meter energy resources for multiple purposes. If you are a data center that needs extremely high backup reliability, you have justified critical investment in batteries and generators for that purpose. You welcome the opportunity to participate in DR not so that it justifies your capital investment, but merely because it generates incremental revenue to offset a portion of that cost. So the level at which you participate depends on your marginal cost of curtailing grid consumption.Thus, you care about the consumption of cycle life on your battery and the cost of recharging the battery, but you do not care about all the other capital costs of installation.

So through these programs, energy storage will offered to the grid at pretty close to the marginal cost of batteries. Utilities will find that the simply need far less stand by capacity, so standby fees to peaker plants will plummet, and the least efficient peaker plants will be retired. So at this point I see little call for new peaker capacity whether natural gas or batteries. The good news for batteries is that Order 745 provides myriad behind-the-meter opportunities for batteries. I believe this will lead to a much more dynamic market for Tesla Energy.

Very interesting... but a little hard to follow. I take the gist of it is that you are entitled to get money at the wholesale rate if you produce electricity yourself? Or if you can offset consumption with your own stored energy?

Is wholesale price the same as spot price? And what is retail rate?

What do you mean with "capital cost of any peaker facility irrelevant"? Irrelevant in what way?

"Thus, tapping the ability of ratepayers to self-consume at times of peak demand for power will directly compete with utility scale peak capacity." Care to explain this . I assume it means that you can use your batteries storage instead of buying electricity from the grid, and in doing so you have the rights to a certain level of compensation... unclear to me how much, though.

"Why does this render capital costs moot?"
Capital costs are never moot, they can only be moot in regards to a certain context.

"So through these programs, energy storage will offered to the grid at pretty close to the marginal cost of battries." The marginal cost of batteries is what the battery manufacturers charge for them, which is what will be offered to the grid, so I don't really understand what you are saying here.

 

[SBenson]

Is this the reason for the slip in the sp?

Green Car Congress: Report: Musk trims Telsa’s China EV expectations to 5,000 units this year

 

[CatB]

Love the idea of partnering with Costco - a company with its own rich history of disintermediation

In terms of scaling quickly - I also hope that Tesla doesn't partner with ICE dealers, but instead provides a strategic defection plan. If a proprietor would like to sell their dealer facilities to Tesla, they can retire (or take on management position at Tesla). If their service record was good, Tesla could take that into consideration when hiring/retraining former employees. Iow, they can recycle their investment now and cut their losses, be part of the solution, or fizzle into bankruptcy. I think this would appeal more to the kinds of family-owned dealerships that have tended to provide better service anyway. And it could be done selectively, and would totally divide/disrupt NADA politics and their claim that they defend the pillars of the community (when they defect and sell-out).

Anybody see evidence of their assembling a crack M&A team?

P.S. Also they can pick prime real estate locations that are already permitted and have basic building/parking infrastructure in place. They can maintain community ties. My concern is that growing fast is REALLY hard, if they're going to "reform" an existing org and absorb it, they need really strong change agents who can go in and say "yeah, this is why and how we make up our own rules, you'll get in trouble for doing it the old way." I'm sad to see that some service centers have either gotten lazy, jaded or too overworked (based on a few very isolated complaints on these boards) to deliver the kind of service (like what I get from Rockville in MD) that causes me to RAVE about how wonderful they are to everyone who makes the mistake of asking me about service. So, if they're going to do this, they need to start now, and start figuring out their OCM reform approach by testing it on any service center that has a complaint trend.

 

[aznt1217]

Is this the reason for the slip in the sp?

Green Car Congress: Report: Musk trims Telsa’s China EV expectations to 5,000 units this year

I thought it was just late absorption on the JP Morgan note. Price action doesn't make sense.

 

[SBenson]

Here is the original

Electric vehicles: Tesla cant catch a break in China- Nikkei Asian Review

Looks pretty bearish in China until Tesla figures it out (local manufacturing and such).

 

[erha]

I don't think the lack of service centers is a big problem as some people seem to think here. Remember that GM for example has to do service on cars sold almost 20 years ago. Even though Tesla in a couple of years will be selling a lot of cars, there will be 20 years from steady state production until steady state service needs.

 

[Gerardf]

5.000 ?? with 2.200 just in Hong Kong last year ??

China customers might prefer waiting for the Model-X.

 

[Buddyroe]

What makes you so sure something special is going on with the SuperChargers ?

Supercharge.info shows 9 new SuperChargers this year, as well as new permits.. Maybe a slower than other month but could be many reasons for that (winter / slower permitting in December / maybe indeed a bit slower to improve the quarter). But nothing dramatic IMHO.

I am shocked that people here (not just your comment, but others) don't follow the supercharger network build-out with great intensity. I have been able to predict so many things going on with Tesla just from the Supercharger build-out. It also gives an indication of just where Tesla thinks they will be selling cars (and not). Also, I had a feeling that one of the major reasons the X was delayed was to allow for more superchargers to be finished (note the strong surge Oct-Dec of last year). Being that a great concentration of Tesla's sales are in California, it would be devastating to the company's reputation for customer service to start producing a car that there simply is not enough infrastructure to support. People were already complaining about waiting in lines to charge (in California).

But, if you are not intensely following the build-out, then you for sure couldn't tell that things have slowed (basically stopped) in the last month in the U.S. I have NEVER seen, in the last 2 years, Tesla have less than 10 superchargers under construction at any given time in the U.S. As we are right now, there are 6 under construction, but 4 of those have no work being done (2 are completed and waiting final inspection). Only 2 are actually being constructed - Buttonwillow and Slidell, La. That means that 8-12 contracting crews that were steady working for Tesla the last 18-24 months have had to find other work. How many will be readily available when Tesla is ready to ramp back up, IF this is just a short slow-down to cut expenses for a while. That thought (about the contractors) and the fact that the supercharger build-out is such a small part of the CAPEX spending leads me to believe that this is not just a money-saving move, but rather an indication that something BIG is on the horizon.

Again, if you aren't paying attention to the build-out, then this slow down is nothing you will notice. However, if you have intensely followed the build-out over the last 2+ years, you will know that this is 100% out of the ordinary. WHY IN GOD's EARTH WOULD TESLA SLOW DOWN THE SUPERCHARGER BUILD-OUT WHEN THEY PLAN TO DOUBLE THE NUMBER OF CARS ON THE ROAD IN THE U.S. THIS YEAR? But, to ask that question, you first have to realize that there actually IS a slow-down.

 

[erha]

And I really don't hope Tesla teams up with an ICE. If Tesla is able to provide good service with a much smaller service network, that is a huge cost advantage ultimately reflected in car prices or margins.

On another note: What is the consensus here for Q4 results? Do we have an edge over the market this quarter?

 

[Drax7]

5.000 ?? with 2.200 just in Hong Kong last year ??

China customers might prefer waiting for the Model-X.

Wonder if 5,000 was the 2015 number, and not the 2016 .

 

[aznt1217]

I am shocked that people here (not just your comment, but others) don't follow the supercharger network build-out with great intensity. I have been able to predict so many things going on with Tesla just from the Supercharger build-out. It also gives an indication of just where Tesla thinks they will be selling cars (and not). Also, I had a feeling that one of the major reasons the X was delayed was to allow for more superchargers to be finished (note the strong surge Oct-Dec of last year). Being that a great concentration of Tesla's sales are in California, it would be devastating to the company's reputation for customer service to start producing a car that there simply is not enough infrastructure to support. People were already complaining about waiting in lines to charge (in California).

But, if you are not intensely following the build-out, then you for sure couldn't tell that things have slowed (basically stopped) in the last month in the U.S. I have NEVER seen, in the last 2 years, Tesla have less than 10 superchargers under construction at any given time in the U.S. As we are right now, there are 6 under construction, but 4 of those have no work being done (2 are completed and waiting final inspection). Only 2 are actually being constructed - Buttonwillow and Slidell, La. That means that 8-12 contracting crews that were steady working for Tesla the last 18-24 months have had to find other work. How many will be readily available when Tesla is ready to ramp back up, IF this is just a short slow-down to cut expenses for a while. That thought (about the contractors) and the fact that the supercharger build-out is such a small part of the CAPEX spending leads me to believe that this is not just a money-saving move, but rather an indication that something BIG is on the horizon.

Again, if you aren't paying attention to the build-out, then this slow down is nothing you will notice. However, if you have intensely followed the build-out over the last 2+ years, you will know that this is 100% out of the ordinary. WHY IN GOD's EARTH WOULD TESLA SLOW DOWN THE SUPERCHARGER BUILD-OUT WHEN THEY PLAN TO DOUBLE THE NUMBER OF CARS ON THE ROAD IN THE U.S. THIS YEAR? But, to ask that question, you first have to realize that there actually IS a slow-down.

Hey this is great, but where are you getting the information on the "slow down"? I could've sworn I got some e-mails telling me about new stations being opened on the east coast.

 

[Causalien]

I am shocked that people here (not just your comment, but others) don't follow the supercharger network build-out with great intensity. I have been able to predict so many things going on with Tesla just from the Supercharger build-out. It also gives an indication of just where Tesla thinks they will be selling cars (and not). Also, I had a feeling that one of the major reasons the X was delayed was to allow for more superchargers to be finished (note the strong surge Oct-Dec of last year). Being that a great concentration of Tesla's sales are in California, it would be devastating to the company's reputation for customer service to start producing a car that there simply is not enough infrastructure to support. People were already complaining about waiting in lines to charge (in California).

But, if you are not intensely following the build-out, then you for sure couldn't tell that things have slowed (basically stopped) in the last month in the U.S. I have NEVER seen, in the last 2 years, Tesla have less than 10 superchargers under construction at any given time in the U.S. As we are right now, there are 6 under construction, but 4 of those have no work being done (2 are completed and waiting final inspection). Only 2 are actually being constructed - Buttonwillow and Slidell, La. That means that 8-12 contracting crews that were steady working for Tesla the last 18-24 months have had to find other work. How many will be readily available when Tesla is ready to ramp back up, IF this is just a short slow-down to cut expenses for a while. That thought (about the contractors) and the fact that the supercharger build-out is such a small part of the CAPEX spending leads me to believe that this is not just a money-saving move, but rather an indication that something BIG is on the horizon.

Again, if you aren't paying attention to the build-out, then this slow down is nothing you will notice. However, if you have intensely followed the build-out over the last 2+ years, you will know that this is 100% out of the ordinary. WHY IN GOD's EARTH WOULD TESLA SLOW DOWN THE SUPERCHARGER BUILD-OUT WHEN THEY PLAN TO DOUBLE THE NUMBER OF CARS ON THE ROAD IN THE U.S. THIS YEAR? But, to ask that question, you first have to realize that there actually IS a slow-down.

Model X delay was caused by suppliers and botched ramp.
Supercharger freeze could also be due to cash crunch.

 

[Yuri_G]

I am shocked that people here (not just your comment, but others) don't follow the supercharger network build-out with great intensity. I have been able to predict so many things going on with Tesla just from the Supercharger build-out. It also gives an indication of just where Tesla thinks they will be selling cars (and not). Also, I had a feeling that one of the major reasons the X was delayed was to allow for more superchargers to be finished (note the strong surge Oct-Dec of last year). Being that a great concentration of Tesla's sales are in California, it would be devastating to the company's reputation for customer service to start producing a car that there simply is not enough infrastructure to support. People were already complaining about waiting in lines to charge (in California).

But, if you are not intensely following the build-out, then you for sure couldn't tell that things have slowed (basically stopped) in the last month in the U.S. I have NEVER seen, in the last 2 years, Tesla have less than 10 superchargers under construction at any given time in the U.S. As we are right now, there are 6 under construction, but 4 of those have no work being done (2 are completed and waiting final inspection). Only 2 are actually being constructed - Buttonwillow and Slidell, La. That means that 8-12 contracting crews that were steady working for Tesla the last 18-24 months have had to find other work. How many will be readily available when Tesla is ready to ramp back up, IF this is just a short slow-down to cut expenses for a while. That thought (about the contractors) and the fact that the supercharger build-out is such a small part of the CAPEX spending leads me to believe that this is not just a money-saving move, but rather an indication that something BIG is on the horizon.

Again, if you aren't paying attention to the build-out, then this slow down is nothing you will notice. However, if you have intensely followed the build-out over the last 2+ years, you will know that this is 100% out of the ordinary. WHY IN GOD's EARTH WOULD TESLA SLOW DOWN THE SUPERCHARGER BUILD-OUT WHEN THEY PLAN TO DOUBLE THE NUMBER OF CARS ON THE ROAD IN THE U.S. THIS YEAR? But, to ask that question, you first have to realize that there actually IS a slow-down.

The simple explanation would be that there are already 250 superchargers in the US and expansion doesn't need to be happening at a break neck pace at all times. Seems like you are reading too much into it.

 

[austinEV]

I am shocked that people here (not just your comment, but others) don't follow the supercharger network build-out with great intensity. I have been able to predict so many things going on with Tesla just from the Supercharger build-out. It also gives an indication of just where Tesla thinks they will be selling cars (and not). Also, I had a feeling that one of the major reasons the X was delayed was to allow for more superchargers to be finished (note the strong surge Oct-Dec of last year). Being that a great concentration of Tesla's sales are in California, it would be devastating to the company's reputation for customer service to start producing a car that there simply is not enough infrastructure to support. People were already complaining about waiting in lines to charge (in California).

But, if you are not intensely following the build-out, then you for sure couldn't tell that things have slowed (basically stopped) in the last month in the U.S. I have NEVER seen, in the last 2 years, Tesla have less than 10 superchargers under construction at any given time in the U.S. As we are right now, there are 6 under construction, but 4 of those have no work being done (2 are completed and waiting final inspection). Only 2 are actually being constructed - Buttonwillow and Slidell, La. That means that 8-12 contracting crews that were steady working for Tesla the last 18-24 months have had to find other work. How many will be readily available when Tesla is ready to ramp back up, IF this is just a short slow-down to cut expenses for a while. That thought (about the contractors) and the fact that the supercharger build-out is such a small part of the CAPEX spending leads me to believe that this is not just a money-saving move, but rather an indication that something BIG is on the horizon.

Again, if you aren't paying attention to the build-out, then this slow down is nothing you will notice. However, if you have intensely followed the build-out over the last 2+ years, you will know that this is 100% out of the ordinary. WHY IN GOD's EARTH WOULD TESLA SLOW DOWN THE SUPERCHARGER BUILD-OUT WHEN THEY PLAN TO DOUBLE THE NUMBER OF CARS ON THE ROAD IN THE U.S. THIS YEAR? But, to ask that question, you first have to realize that there actually IS a slow-down.

TM is tailoring their expenses. They might well be (should be) freezing/delaying any expenses they can to produce profits in Q1 and/or Q2 to remind the market they are fundamentally profitable. I welcome this pause in SC buildout, if indeed that is happening.

 

[FredTMC]

Hey this is great, but where are you getting the information on the "slow down"? I could've sworn I got some e-mails telling me about new stations being opened on the east coast.

Yeah, and Mammoth Lakes just opened last week.

Regardless, Supercharger locations cost Tesla ~$150k to build. Tesla can literally build 9 locations for $1M.
They aren't terribly expensive to build.

is there any news behind TSLA sell-off right from the open?

 

[emupilot]

I hate to break up this debate on battery peaker plants, but the US Supreme Court has just upheld FERC Order 745. This pretty much renders the capital cost of any peaker facility irrelevant. So gas versus battery peaker is pretty much just an academic exercise.

Order 745 allows retail customers to be compensated for participation in DR (demand response) programs with with compensation equivalent to wholesale prices. Thus whenspot prices exceed retail rates, customers with their own means to cut consumption of grid supplied power (whether through reducing total consumption or consumption net of behind-the-meter assets such as generators, solar, or batteries) may earn spot price level compensation. Keep in mind that commercial and industrial retail customers pay rates lower than residential. Particularly industrial rates are just a few cents higher than wholesale. Thus, tapping the ability of ratepayers to self-consume at times of peak demand for power will directly compete with utility scale peak capacity.

Why does this render capital costs moot? Retail customers invest in their own behind-the-meter energy resources for multiple purposes. If you are a data center that needs extremely high backup reliability, you have justified critical investment in batteries and generators for that purpose. You welcome the opportunity to participate in DR not so that it justifies your capital investment, but merely because it generates incremental revenue to offset a portion of that cost. So the level at which you participate depends on your marginal cost of curtailing grid consumption.Thus, you care about the consumption of cycle life on your battery and the cost of recharging the battery, but you do not care about all the other capital costs of installation.

So through these programs, energy storage will offered to the grid at pretty close to the marginal cost of battries. Utilities will find that the simply need far less stand by capacity, so standby fees to peaker plants will plummet, and the least efficient peaker plants will be retired. So at this point I see little call for new peaker capacity whether natural gas or batteries. The good news for batteries is that Order 745 provides myriad behind-the-meter opportunities for batteries. I believe this will lead to a much more dynamic market for Tesla Energy.

So if I understand you correctly, the Supreme Court decision is if anything positive for Tesla so it is not (or at least should not be) the cause of this morning's crash?

 

[Fallenone]

No they are not expensive, but still cost money. As we discussed in the other thread (Q4 2015 Earnings prediction), getting FCF in Q1 is super hard, a few 150k could be the difference.

Yeah, and Mammoth Lakes just opened last week.

Regardless, Supercharger locations cost Tesla ~$150k to build. Tesla can literally build 9 locations for $1M.
They aren't terribly expensive to build.

is there any news behind TSLA sell-off right from the open?

 

[flankspeed8]

I think this speaks to an almost universal fallacy. The answer to this question and anything like it is to look at how anything came into being rather than create what is essentially a straw man that x exists making it hard to imagine a time when it didn't and y does not exist making it hard to imagine that it ever will.

This is a doozie when it comes to the oil and gas industry and the ICE auto industry. The truth is that there was a huge flurry of activity that brought these things into existence over very short periods of time, it's just that this time is concentrated somewhere between 120 and 80 years ago and has looked virtually unchanged in nature - until now.

The most remarkable thing about Tesla is not that there is a gap in the market for service centers and charging stations (analogues of dealers and fueling stations) but that it has had the foresight to bring the development of these things into its own capital structure to avoid the mistakes of the past: Setting up a total conflict of interest between the auto maker and profit-motivated third party cost-centers. The gate-keepers to market service and fuel its products.

When Ford started out, it was obvious that there was big bucks to be made off the back of it in Oil mining and refining, in retail sales, in service centers and in taxi services. That's where the capital went and that is where the bulk of the profits were made. As well as Ford did financially since inception, Big Oil and dealers in aggregate and taxi services in aggregate did ridiculously better. In fact it was so obvious was where the big bucks were at that Ford was able to fund its early expansion not by selling shares but by selling sales and service franchises and allegedly by an infusion of capital from Rockefeller. Ford's failed attempts to extricate itself from dealers is why they (and the whole ICE auto industry in the USA) is in an enduring franchised dealer law trap that will kill them now that the world is turning once again to one in which the big money is in selling highly efficient cars with relatively low servicing needs and even more efficient autonomous taxi services.

As a result of bringing manufacturing, sales, service and energy under one capital structure Tesla is positioned to capture the entire value chain related to mobility formerly occupied by all of the above and to do so without a third party seeking to concentrate profits in service or in energy but with the freedom to concentrate profits in the actual provision of value to customers and to drive down costs in sales and marketing processes, service and energy all of which hurt the customer value proposition the more they cost. This is why smart money is interested in concentrating capital in TSLA and frankly why even smarter money right now is interested in the lowest possible entry point because this stuff is going to get rather real before the end of this year.

Julian, then please speak to the question asked. Who is going to be servicing a Model 3(or S or X) for that matter in Duluth MN? How about Winona or Rochester MN? Danbury WI? This is a valid concern of the masses of people who are willing to take the leap of going with a more unconventional car in their mind. We know that Tesla is not immune to break down and qc problems. Seems like some of the existing SC are getting bogged down with X rework. This is a legitimate question and by you dismissing it as a fallacy with a lot of philosophical speak isn't answering the questions. The paradigm shift of ordering a car online is something that IMO will not be a huge barrier, but if there is no reasonable brick and mortar repair facility, this will cause people a lot of angst. Look at the map - this is a large country and people in flyover country are going to want to be able to get their cars fixed too without having to drive 300 miles. Although this certainly is more of a long term price effect factor, but since the question was asked (and answered by some) I would like to know the rationale of being dismissive.

After re-reading your post again is your answer essentially: nothing to see here, they will build them when they need them because somehow their business structure will make it easier, or are you saying that lack of Service Centers is really not important because somehow Tesla has the vision and the magical ability to make them unnecessary?

 

[FredTMC]

No they are not expensive, but still cost money. As we discussed in the other thread (Q4 2015 Earnings prediction), getting FCF in Q1 is super hard, a few 150k could be the difference.

I haven't decided for myself if FCF is hard or easy.
I simply don't understand the FCF calculation yet as it relates to Tesla.

I certainly agree that Capex is the real variable to achieving FCF.

 

[30seconds]

Julian, then please speak to the question asked. Who is going to be servicing a Model 3(or S or X) for that matter in Duluth MN? How about Winona or Rochester MN? Danbury WI? This is a valid concern of the masses of people who are willing to take the leap of going with a more unconventional car in their mind. We know that Tesla is not immune to break down and qc problems. Seems like some of the existing SC are getting bogged down with X rework. This is a legitimate question and by you dismissing it as a fallacy with a lot of philosophical speak isn't answering the questions. The paradigm shift of ordering a car online is something that IMO will not be a huge barrier, but if there is no reasonable brick and mortar repair facility, this will cause people a lot of angst. Look at the map - this is a large country and people in flyover country are going to want to be able to get their cars fixed too without having to drive 300 miles. Although this certainly is more of a long term price effect factor, but since the question was asked (and answered by some) I would like to know the rationale of being dismissive.

They won't be selling 500,000 in 2017 or 2018. It will take awhile for production to ramp which gives them time to expand the service centers. Right now I suspect tesla wants to show it can operate at cash flow break even if they need to, and then they can get back to investing in growth.

hopefully we are also looking at a Model 3 that isn't breaking new ground on components and with many of the existing components already having many issues worked out (12V, motor whine for example). I don't see any reason to think that the 3 will be as complex as either the S or X, however volume may quickly double so of course service center expansion is needed or some sort of partnership model to expand repair options.

I I don't ever expect to get the same footprint as traditional automakers. There really isn't a need to have 3 dealers in a 25 Nie radius anyways.