Short-Term TSLA Price Movements - 2016

[Ichabod]

@Ichabod While you make a valid conclusion re Tesla that "this one is unique", you, and others, keep applying the usual analysis, and wondering why it doesn't apply. This is a good investment for longs, ie 5 years out. Its fluctuations are good for shorts, if they can predict the fluctuations, which seems to be very difficult.

Tesla *is* making product with a fantastic growth rate -- ie it is real, anf if it was not investing into the 3, it would be profitable. In fact, it would have been profitable even with that investment *except* for the advancement of the ramp due to the unexpected exuberant demand.

Also, I do not understand why investing in real estate and production equipment is considered 'burning cash'.

A couple of points:

First, the "usual analysis" is just simple business accounting and investment analysis that applies to any company. The market will not forever pour money into an enterprise that doesn't produce a profit.

Second, some people call it "burning cash" because they don't see those investments as providing a profitable return on the investment. If I could get a loan to build a 3,000 foot phallic monument to myself out of concrete, I could claim it as an "investment." You know, people will come from all around to see it. Never mind that you can see it from a mile away, so noone will come to my observation deck to look at it up close, preventing me from making any money on it. In that case, I "burned cash," even though it was technically an investment. Investments lose money all the time when they don't end up throwing off enough cash to be profitable. I'm in no way suggesting that Tesla's capital expenditures are such a waste of cash. However, an unbiased observer looking at Tesla's disclosed financials and their lack of free cash flow would almost certainly conclude that Tesla's investments to date have not been profitable. They would be likely to not want to give Tesla more money because of the lack of performance on earlier investments. Now I realize there are no unbiased observer. It seems that everyone, long and short alike is wedded to their view with far more conviction that a brand typically draws. There is more to the story, and that more is wrapped up in the future. The problem I see is that the future keeps moving away. Eventually, the success must be defined as "today."

 

[AudubonB]

"Why would longs blink"?

That is a good and reasonable question. Here are two possible answers:

1. Redemptions & portfolio re-balancing. If a Fidelity, etc., needs to cover for redemptions, it must sell something. Sometimes, their portfolio managers will shake out dogs to cover; sometimes big profitmakers. Also, portfolio mandates oft-times necessitate getting rid of at least some of a core holding: this fund can hold only X% in technology, Y% in automotive, Z% in US stocks, and so on.

2. As attractive as any particular name, let's call it "Tesla Motors" is, for a short-, medium-, or long-term perspective, there can come a time when something else seems to be particularly appealing. For example, exactly two years ago (1 August), for me Nvidia at $17.81 appeared to be fantastic. So I bought a bunch of it. IN RETROSPECT, I would have done far better - from the 5 August 2016 vantage point, mind you - had I then sold TSLA and bought 5Xabunch of it. So who knows what might pop up on the radar...or lidar...screen tomorrow that suggests it could share some TSLA shares from a hard-core long-term holder?

Anyway, there are two quasi-possible answers to your question.

 

[esk8mw]

Pretty good napkin math, and I'm not going to argue over whether or not what you are proposing will come true. It very well might. The point is that such napkin math was done at least as early as 2014, and certainly was done in 2015. There has always been light at the end of the tunnel, it's just that we can't seem to get there. It seems that the consensus that we find out whether the light is the end or the oncoming train with the M3 selling at volume. Are the big funds going to be that patient? They have been so far, but as the saying goes, past performance cannot be expected to predict future results.

As a long-term investor, here's what I see:

- Clear market leader in a growing segment with younger generations firmly on board the train.
- A clear lead over established automakers which face the innovator's dilemma. The lead widens as Tesla pushes to the brink to grow the lead even faster.
- established automakers now trying to bring competition to market whereas before they simply laughed at Tesla or ignored them. The "competitive" vehicles are pathetic and/or years away.
- The key component for the segment faces a key constraint and only Tesla is addressing it (batteries and GGF).
- One company has the charging infrastructure. Hint: company name begins with a T.
- Tesla has a clear tech lead over rivals in autonomous driving/data and it is believed to be growing. Again, other automakers are playing catch-up but are woefully behind.
- One company isn't burdened by the dealer network.
- Production increasing rapidly and pretty credible evidence that future increases are coming.
- Healthy demand and plenty of tricks remaining to increase demand as needed to meet increases in production.
- No problem whatsoever tapping capital markets to get as much funding as needed to pay for the foregoing.
- Opportunities all over the place to deploy capital and enter/create new market segments - ride sharing, solar, inverters, public transit, energy storage, utility solutions etc etc etc.

Yeah, I'm going to go ahead and stay long for a very very long time.

 

[Ichabod]

It really surprises me that so many people fail to understand the extremely simple idea that Tesla is sacrificing current earnings in order to bring the 375k model 3 pre-orders to market faster. Jim Cramer wrote an unbelievably stupid article this morning in which he suggests Tesla must me a cult because earnings expectations for this year have fallen substantially without the stock price following suit. Is the concept of a company investing in its own future more complicated than I think it is?

While I agree with you in concept, in truth, Tesla isn't sacrificing current earnings for growth. That's what happens when a company with positive free cash flow chooses to reinvest that money into growth rather than give it to investors as EPS/dividends. You can have free cash flow and still have negative EPS.

I'm no fan of Cramer, and I don't see the need to use name calling like "cult." However, his point is basically similar to mine. No normal stock massively misses already bad projections and goes through without a hiccup, just as it doesn't make sense for an analyst to lower projected future earnings but not lower the corresponding price. The current share price is supposed to represent a flow of cash discounted over time. If the flow of cash gets pushed out to a later date, the model will generate a lower price. That's just the way the formulas work.

 

[Ichabod]

Come on, the distance between current reality and what I outlined on the napkin above is immensely different from similar math and what was reality in 2014 and 2015.

We are currently at about 96K MS and MX yearly run rate, with improving margins and company demonstrating fiscal discipline for two quarters now (in Q1 Opex came lower than the guidance).

Most of MX ramp is done, tuning of production lines for MX and combined MS and MX completed.

I can go on and on. Your reasoning in abstract and in generall is prudent, but IMO really not consistent with the situation on the ground.

Fair enough. I think that the tone and expectations before, especially about this time in 2015 WRT to the X launch were every bit as high and confident as they are today. Read the posts on this forum in the lead up to the X launch. Optimists, of which there were many, expected Tesla profitability in 4Q 2015 based on massive X deliveries with huge profit. I know, the M3 is different. Again, I'm not arguing that because we've been disappointed before, we are sure to be again. I'm just saying that if I try to step back and look at this as an outsider who is just looking at the numbers, the projections, and the expectations, we've been here before, and it didn't work out as expected.

 

[esk8mw]

A couple of points:

First, the "usual analysis" is just simple business accounting and investment analysis that applies to any company. The market will not forever pour money into an enterprise that doesn't produce a profit.

Second, some people call it "burning cash" because they don't see those investments as providing a profitable return on the investment. If I could get a loan to build a 3,000 foot phallic monument to myself out of concrete, I could claim it as an "investment." You know, people will come from all around to see it. Never mind that you can see it from a mile away, so noone will come to my observation deck to look at it up close, preventing me from making any money on it. In that case, I "burned cash," even though it was technically an investment. Investments lose money all the time when they don't end up throwing off enough cash to be profitable. I'm in no way suggesting that Tesla's capital expenditures are such a waste of cash. However, an unbiased observer looking at Tesla's disclosed financials and their lack of free cash flow would almost certainly conclude that Tesla's investments to date have not been profitable. They would be likely to not want to give Tesla more money because of the lack of performance on earlier investments. Now I realize there are no unbiased observer. It seems that everyone, long and short alike is wedded to their view with far more conviction that a brand typically draws. There is more to the story, and that more is wrapped up in the future. The problem I see is that the future keeps moving away. Eventually, the success must be defined as "today."

See, you keep speaking in hypotheticals when there is observable data on the ground. You say an unbiased observer would conclude Tesla's investments aren't profitable and yet....they have absolutely no issues accessing capital markets, raising cash and every share offering is oversubscribed. You can't get more unbiased than a bank making a lending decision and they choose to throw billions at the company. They aren't doing it out of blind faith; they expect the money will be put to good use based on Tesla's track record of deploying cash.

 

[vgrinshpun]

I am doubtful of 120k S+X in 2017. I also think GM 50% for TE is way too high. Just for the hardware probably, but you also need to account for the human labor and transportation. OpEx growing 20% is way too low. All that $2.25B CapEx is going to ramp up depreciation in OpeEx, plus the additional stores they are going to open.

GM for TE accounts for COGS. Tesla on record indicated that their current all-in battery cost is less than $190/kWh. Assume that greater cost of the pack for stationary storage and cost reduction at the GF is a wash, the GM based on the list price of stationary storage ($470/kWh) is 60%. I assumed that on average stationary storage will be sold at 10% discount, which yields 50% GM. It is high, and that is the whole allure of TE. Revenue of $500M/year is just the beginning.

I doubt that stores will be growing more than 20% from the current base. Majority of CapEx is actually in the COGS, not the OpEx.

 

[dha]

The current share price is supposed to represent a flow of cash discounted over time. If the flow of cash gets pushed out to a later date, the model will generate a lower price. That's just the way the formulas work.

But that's...precisely what's been happening. The stock has been range-bound and undergoing a rolling correction for the past 2 years.

In the Q3 2014 report, Tesla said they planned to exit 2015 at a 2K per year run rate. That obviously didn't pan out, but we're there now, about a year and a half late. And unsurprisingly, the current valuation is more-or-less where it was when that guidance was given.

 

[vgrinshpun]

Fair enough. I think that the tone and expectations before, especially about this time in 2015 WRT to the X launch were every bit as high and confident as they are today. Read the posts on this forum in the lead up to the X launch. Optimists, of which there were many, expected Tesla profitability in 4Q 2015 based on massive X deliveries with huge profit. I know, the M3 is different. Again, I'm not arguing that because we've been disappointed before, we are sure to be again. I'm just saying that if I try to step back and look at this as an outsider who is just looking at the numbers, the projections, and the expectations, we've been here before, and it didn't work out as expected.

Well, once again, as an abstract construct everything makes sense, but it falls apart, IMO, once details are actually examined. You are absolutely right, back in 2015 expectations were based on future production and ramp of MX, with none of it actually being real. The MX is being printed right now at a 1000 units/week in fairly routine manner, quality is up, margins are up and will continue to improve. The analogy with 2015 just does not ring true for me.

 

[ev-enthusiast]

Unbelievable, shorts are in full control of SP.
We need a significant move higher.

 

[Causalien]

Yeah, but it won't be available soon enough for Elon... (Current range is only 2 meters, with them hoping for 10 meters in another year.) And their currently plans only go to 100 meters, which doesn't seem far enough for automobile uses.

Miniaturization and cost reduction is significant enough. 100 meters will solve city driving problems. Something else for highway. Maybe a focused beam LIDAR. Future will solve it.

In any case, different use cases can be opened up now. Such as several LIDAR sensors on one car and the sensor having no effect on the aerodynamic/looks of the car.

 

[TMSE]

"Why would longs blink"?

That is a good and reasonable question. Here are two possible answers:

1. Redemptions & portfolio re-balancing. If a Fidelity, etc., needs to cover for redemptions, it must sell something. Sometimes, their portfolio managers will shake out dogs to cover; sometimes big profitmakers. Also, portfolio mandates oft-times necessitate getting rid of at least some of a core holding: this fund can hold only X% in technology, Y% in automotive, Z% in US stocks, and so on.

2. As attractive as any particular name, let's call it "Tesla Motors" is, for a short-, medium-, or long-term perspective, there can come a time when something else seems to be particularly appealing. For example, exactly two years ago (1 August), for me Nvidia at $17.81 appeared to be fantastic. So I bought a bunch of it. IN RETROSPECT, I would have done far better - from the 5 August 2016 vantage point, mind you - had I then sold TSLA and bought 5Xabunch of it. So who knows what might pop up on the radar...or lidar...screen tomorrow that suggests it could share some TSLA shares from a hard-core long-term holder?

Anyway, there are two quasi-possible answers to your question.

I think Tesla has had three major issues which held back share price in the 200s for the last two years:
1) Extraordinary difficulty in development and production ramp of model X.
2) Need for GF, for TE to take off.
3) High volume mass market car that could become cash cow.

First problem is solved now and second one is almost done. We have seen how good the demand for model 3, and as days go by, model 3 execution seems more certain. Given this, and if we see significant production/delivery ramp up in Q3, about ~24000, we should see significant TSLA price appreciation.

Congrats on your NVDA success. Do you have anything in sight that look as attractive as NVDA 2 yrs ago?

 

[Runarbt]

Unbelievable, shorts are in full control of SP.
We need a significant move higher.

Huh? Steady rise, almost green een the shorts attacked hard.

Negative ER, larger loss and SP rises. I'd say the shots are loosing

 

[3Victoria]

@Ichabod. The difference between your phallus statue investment and one for M3 is the expectation for return. Not many would expect a return from your phallus admirers, but many do expect a teturn from the M3 admirers, given that 373,000 have made reservations.

One cannot judge an investment without analysis of the reward.

 

[srini]

As a long-term investor, here's what I see:

- Clear market leader in a growing segment with younger generations firmly on board the train.
- A clear lead over established automakers which face the innovator's dilemma. The lead widens as Tesla pushes to the brink to grow the lead even faster.
- established automakers now trying to bring competition to market whereas before they simply laughed at Tesla or ignored them. The "competitive" vehicles are pathetic and/or years away.
- The key component for the segment faces a key constraint and only Tesla is addressing it (batteries and GGF).
- One company has the charging infrastructure. Hint: company name begins with a T.
- Tesla has a clear tech lead over rivals in autonomous driving/data and it is believed to be growing. Again, other automakers are playing catch-up but are woefully behind.
- One company isn't burdened by the dealer network.
- Production increasing rapidly and pretty credible evidence that future increases are coming.
- Healthy demand and plenty of tricks remaining to increase demand as needed to meet increases in production.
- No problem whatsoever tapping capital markets to get as much funding as needed to pay for the foregoing.
- Opportunities all over the place to deploy capital and enter/create new market segments - ride sharing, solar, inverters, public transit, energy storage, utility solutions etc etc etc.

Yeah, I'm going to go ahead and stay long for a very very long time.

Someone needs a new pair of glasses!!
Nah, that won't help. Wake up and smell the coffee !! To Mars and beyond!!

 

[mejojo]

Yes, longs are not paying interest to hold our position.

Well, yes we are....it's called Opportunity Cost. And it can be appreciable if you have other investment ideas.

 

[vgrinshpun]

Someone needs a new pair of glasses!!
Nah, that won't help. Wake up and smell the coffee !! To Mars and beyond!!

This is the most detailed and convincing argument I've seen in a while.

Things must be not looking bright, and no pair of glasses can fix it.

"UNWISE"

 

[ggr]

In the Q3 2014 report, Tesla said they planned to exit 2015 at a 2K per year run rate. That obviously didn't pan out, but we're there now, about a year and a half late.

Ummm... 7 months late? From end of 2015 to now. And I assume you mean 2K per week.

 

[glhs272]

I like to frequent Slate.com just to get the latest trump bashing (Washington post is good for this too) ;-). Ran across an interesting article defending Tesla's Autopilot.

Tesla’s Autopilot Is Flawed. But Is It Also a Lifesaver?

 

[srini]

Doug Kass gets it!! Do you?
Why i'm not bullish on tesla -- doug kass