Short-Term TSLA Price Movements - 2016

[mrdoubleb]

I am going with 18k deliveries (13k S and 5k X) and 21-22k produced. Hopefully they don't touch guidance and provide a small but measurable beat in Q3 and Q4 to end up towards the upper end of that 80-90k range.

 

[TMSE]

Backing into delivery estimates from revenue estimates, consensus analyst estimates are about 18K deliveries for Q2 and 24K deliveries for Q3.

Its hard to tell what Q2 will turn out to be. The big wildcard for me it the S deliveries, with the facelift midway through the quarter.

Q3 delivery guidance comes out at Q2 ER in early Aug. I'm very optimistic about it. With 24K deliveries, Tesla is expected to show a non-GAAP positive EPS which I think is a huge deal and a major blow to short thesis (loss/car bs).

However, we have this SCTY *sugar* now added to the mix. So that throws a curve ball into the math. Additionally, the financial reports will look quite messy and can cause either legitimate confusion or a bear attack on the numbers. Thus discrediting even positive results. Hence I'm really pissed and am having a hard time accepting this SCTY merger.

I wouldn't worry about SolarCity becoming the spoilsport in the Tesla party. As already pointed out in the earlier comments, sales expenses are huge for SolarCity and are very likely to be reduced a lot. I think their goal for SolarCity has shifted from growth to profitability. Elon commented about positive cash flow in 3 to 6 months. I believe that.

 

[Seesaw]

I wouldn't worry about SolarCity becoming the spoilsport in the Tesla party. As already pointed out in the earlier comments, sales expenses are huge for SolarCity and are very likely to be reduced a lot. I think their goal for SolarCity has shifted from growth to profitability. Elon commented about positive cash flow in 3 to 6 months. I believe that.

Why would sales costs reduce? In the end the Tesla stores will not be where these deals are made. It will still require commission sales people to visit homes and sell the systems. The recent deal with Powur the multi level marketing company was undertaken with Elon on the board of SC. In retail terms, Tesla stores are not prevalent - fine for a $100,000 car but a little different when you are competing with 8,000 local solar companies in the US.

For the record I am not against Tesla getting into solar, in fact I think its a 'no brainer'. I just have real concern with the business model and the opaque finances. I still think Tesla should cast their net wider and look at other solar firms or manufacturers to acquire.

In the end if the deal is approved, I will support it as I could probably assume the big institutional investors and people in the know probably know a lot more of the benefits than I can where I am.

 

[pGo]

For Q2, I now expect 13.5k MS + 4.5k MX delivery and 20k production. For Q3, some numbers here are too wild. I would caution against that. I'll be happy with any number above 20k delivery.

Regarding solar city, I am worried about dilution of 10% or more. This essentially lowers share appreciation in short to mid term. For example, if we'd expect $300 by EOY, now that becomes $270 with the same market value after the solar city acquisition. It is debatable why market is not valuing solar city currently highly, and I don't expect it to change once it comes under tesla. Even if there is a change, I feel tesla would end up spending money and time to right that ship before we see street valuing solar stake higher. I feel that it will be a drag on tesla shares for quite some time.

 

[TMSE]

For Q2, I now expect 13.5k MS + 4.5k MX delivery and 20k production. For Q3, some numbers here are too wild. I would caution against that. I'll be happy with any number above 20k delivery.

Regarding solar city, I am worried about dilution of 10% or more. This essentially lowers share appreciation in short to mid term. For example, if we'd expect $300 by EOY, now that becomes $270 with the same market value after the solar city acquisition. It is debatable why market is not valuing solar city currently highly, and I don't expect it to change once it comes under tesla. Even if there is a change, I feel tesla would end up spending money and time to right that ship before we see street valuing solar stake higher. I feel that it will be a drag on tesla shares for quite some time.

It will take several months before the deal closes. Meanwhile, if SolarCity becomes cash flow positive as Elon commented, wouldn't the dilution turn into accretion? I expect so. Instead of EOY target price of $270 as you think, it could as well swing to $330.

 

[MitchJi]

Well - I am speculating the deal will go through. As others have pointed out, this is a prerequisite for this trade.

If the deal goes through and we calculate an 8 to one ratio (SCTY : TSLA) effectively you are selling 200 Strike TSLA PUTs for 88$.

The market values these at ca. 50$.

I have been thinking of other SCTY plays. The basis of these is always the premium the offer pays over the current stock price. So it was cheaper to buy TSLA via SCTY (alway contingent of the deal going through). In the last days this gap has been filling.

The offer amount could change. Not a final offer yet.

There are other intangibles. Distraction from model3 both in terms of focus and cash is inestimable.

Inestimable ='s zero!

Come q2 conf call, does anyone have an estimate of possible storage sales? At scty q1 conference call, it was noted they now had 100MWhs of storage under management, I'm wondering if this could have a broader tesla balance sheet impact this quarter and in 2016! guidance moving forward...

I'm pretty confident that TE will show a substantial earnings boost by Q3 or Q4. Q2 might be optimistic.

Q3 delivery guidance comes out at Q2 ER in early Aug. I'm very optimistic about it. With 24K deliveries, Tesla is expected to show a non-GAAP positive EPS which I think is a huge deal and a major blow to short thesis (loss/car bs).

However, we have this SCTY *sugar* now added to the mix. So that throws a curve ball into the math. Additionally, the financial reports will look quite messy and can cause either legitimate confusion or a bear attack on the numbers. Thus discrediting even positive results. Hence I'm really pissed and am having a hard time accepting this SCTY merger.

Really pissed about the possibility that the next 2-3 quarters might take a hit? Be patient. It will be more than made up for when the market gets blindsided by TE income in Q3-Q4 2016 to Q1 2017.

In the end if the deal is approved, I will support it as I could probably assume the big institutional investors and people in the know probably know a lot more of the benefits than I can where I am.

Exactly!

 

[Jayjs20]

To anyone who's been through this before (so pretty much everyone besides me), how much does the SP move on a hit or miss of guidance numbers?

 

[dc_h]

all things considered, I'm glad I got interested in SpaceX several years ago. That led me to Tesla and thought encouraged me to buy TSLA around $30. I wish I bough more, but am grateful for what I have. I am also grateful for Elon and his crazy passion to make all this work. He's no slacker and holds people accountable.
I'm long TSLA and bought scty yesterday. It's been a great ride so far and I'm not going to start pointing fingers or crying over spilt electrons.
Looking forward to q2 numbers, an scty resolution, gf opening and q2 earnings.

 

[LargeHamCollider]

Exact same story here, SpaceX lead me to Tesla, first bought in the 30s.

all things considered, I'm glad I got interested in SpaceX several years ago. That led me to Tesla and thought encouraged me to buy TSLA around $30. I wish I bough more, but am grateful for what I have. I am also grateful for Elon and his crazy passion to make all this work. He's no slacker and holds people accountable.
I'm long TSLA and bought scty yesterday. It's been a great ride so far and I'm not going to start pointing fingers or crying over spilt electrons.
Looking forward to q2 numbers, an scty resolution, gf opening and q2 earnings.

 

[Causalien]

Well - I am speculating the deal will go through. As others have pointed out, this is a prerequisite for this trade.

If the deal goes through and we calculate an 8 to one ratio (SCTY : TSLA) effectively you are selling 200 Strike TSLA PUTs for 88$.

The market values these at ca. 50$.

I have been thinking of other SCTY plays. The basis of these is always the premium the offer pays over the current stock price. So it was cheaper to buy TSLA via SCTY (alway contingent of the deal going through). In the last days this gap has been filling.

Hmm, there might be some guaranteed money making opportunity here due to the outrageous premium. There's too much going on at the moment with Brexit that I didn't think of looking at it this way.

 

[Curt Renz]

"Tesla investor group wants more independent board, cites Musk ties" Reuters Article

 

[RobStark]

Tesla sells in three continents.

Four continents.

 

[neroden]

So you're saying we have 10 years.

Pretty much, yeah!

I don't think most of the old-line auto companies are gonna catch up even in 10 years -- they're too slow-moving. But the Chinese probably will.

 

[EinSV]

"Tesla investor group wants more independent board, cites Musk ties" Reuters Article

This is a fund affiliated with union activists. CtW Investment Group

I'm not familiar with them but this appears to be a political statement more than anything.

 

[pGo]

"Tesla investor group wants more independent board, cites Musk ties" Reuters Article

Solar city deal is now forcing tesla to check on governance. If the shareholders stay persistent at this, it itself will be a drag on management. I agree with the idea though to bring transparency.

 

[neroden]

What do you think of SCTY's book. I see some strange categorizations but am not experienced enough to immediately know if they are legit or not so I just discount them.

There are a lot of very complicated structured financing transactions involving a proliferation of subsidiaries. (As a side note, I wonder how much they pay in yearly fees to keep their *hundreds* of subsidiaries registered.)

Pretty much all of the subsidiaries are consolidated on the balance sheet (which is good, this is an accounting reform made after the 2008 crash). Basically any time SCTY made a PPA or lease they are accounting for it on the top line as if they retained full ownership of the system. The payments from customers are accounted for as income and cash flow. The financings (at least a dozen different schemes) are either accounted for as borrowings, or as "other equity", something similar to "minority interest" (sort of like equity holders in subsidiaries). Some were more recently sold as ABS which is a particularly clear form of borrowing, but many of the older financing schemes are very opaque.

I would say my first conclusion is that SCTY will have to either refinance, or pay off with cash flow, *every single thing listed on their debt sheet*, whether recourse or non-recourse. So the maturity dates are highly significant. With the lease and PPA payments coming in over 20 years, anything less than 15 years is suspicious and is likely to require refinancing.

Furthermore, some percentage of their reported revenue isn't theirs, it's promised to the "other equity" financers, and *it's not clear from the books how much*, which makes future cash flow hard to predict.

It would be excellent if they unwound as many of these complex financing schemes as possible so the books were more readable, but that requires refinancing (with simpler sources of finance).

 

[Cosmacelf]

Why doesn't SCTY make their finances more transparent? The reason I ask is that they and everyone else knows their finances are opaque enough such that they had a 20% yield on their unsecured corporate bonds. You would think that if they removed the doubt by showing everything, it couldn't get any worse. Either that, or it is worse that we think. Is there another alternative?

 

[Causalien]

There are a lot of very complicated structured financing transactions involving a proliferation of subsidiaries. (As a side note, I wonder how much they pay in yearly fees to keep their *hundreds* of subsidiaries registered.)

Pretty much all of the subsidiaries are consolidated on the balance sheet (which is good, this is an accounting reform made after the 2008 crash). Basically any time SCTY made a PPA or lease they are accounting for it on the top line as if they retained full ownership of the system. The payments from customers are accounted for as income and cash flow. The financings (at least a dozen different schemes) are either accounted for as borrowings, or as "other equity", something similar to "minority interest" (sort of like equity holders in subsidiaries). Some were more recently sold as ABS which is a particularly clear form of borrowing, but many of the older financing schemes are very opaque.

I would say my first conclusion is that SCTY will have to either refinance, or pay off with cash flow, *every single thing listed on their debt sheet*, whether recourse or non-recourse. So the maturity dates are highly significant. With the lease and PPA payments coming in over 20 years, anything less than 15 years is suspicious and is likely to require refinancing.

Furthermore, some percentage of their reported revenue isn't theirs, it's promised to the "other equity" financers, and *it's not clear from the books how much*, which makes future cash flow hard to predict.

It would be excellent if they unwound as many of these complex financing schemes as possible so the books were more readable, but that requires refinancing (with simpler sources of finance).

I see, so that's what minority interest line is...

I understand that every time a pass through or lease back is created, a new subsidiary is created. These are simetimes created as partnership so they don't get the full incime and ownership. But you are saying that these are kept on the book as 100% ownership? Even if they own less than 49%???

 

[Curt Renz]

This is a fund affiliated with union activists. CtW Investment Group

I'm not familiar with them but this appears to be a political statement more than anything.

You may be onto something: About CtW Investment Group

 

[neroden]

I see, so that's what minority interest line is...

I understand that every time a pass through or lease back is created, a new subsidiary is created. These are simetimes created as partnership so they don't get the full incime and ownership. But you are saying that these are kept on the book as 100% ownership? Even if they own less than 49%???

Yes. These are called "variable interest entities". They are consolidated on the books as if they are 100% owned, and then the portion of profit or loss allocated to the other investors is subtracted later (on the appropriate line, "losses allocated to others" or something like that). It's very similar to the "minority interest" accounting treatment you'd use for a subsidiary which is 80% owned by SCTY, and 20% by random other people.

The VIEs are consolidated even though SolarCity has less than majority interest in them because SolarCity has substantive control over them and the other investors are essentially passive. There's a bunch of rules about this, some of which are old and some of which date from the 2008 crisis.

Prior to 2008, VIEs -- which are typically created by banks -- were typically "off the books" of banks. But when the VIEs went bust, the passive investors demanded that the banks make them whole, and (sometimes after being sued) the banks usually did. So the banks were effectively responsible for them, and the bank stockholders sued over the fact that they'd been taken off the books... A consequence of this is that these types of structures are now deemed to belong on the books of the controlling entity.

Unfortunately, "minority interest" accounting is notoriously opaque, and always has been. It's not clear from the way it's done exactly *what* rights the minority interest has to the future income and cash flows of the business and *what* obligations they have for future losses, and it's especially unclear for SolarCity, which has hundreds of these things.

The minority-interest accounting convention works OK when it's an inconsequential part of the balance sheet, but when it dominates the balance sheet, it makes it unreadable, and requires additional reporting to explain what's *really* going on.