Short-Term TSLA Price Movements - 2016

[Lessmog]

as a single data point, I have been going past the Rockville, Maryland, USA. service center since the John Broder memorial run back in February, 2014? (2013?) to "count cars" the facility has expanded to use more of the building and there are more cars appearing every time i swing by to "count cars". used to be 20-30, now it's 35-50+. today Sept 3rd. 2016 i counted 56 vehicles, (1 roadster), probably 3/4 of the vehicles were "shrink wrapped" (from transport) and 12-15+ Model X and 10-12 with plates (service), rest sold, not quite delivered. This is ONE data point but, increasing activity, greater space and a number hidden "inside" (including once a skateboard on a lift)(I really kinda, maybe want a Tesla skateboard with an Excalibur chassis, maybe)(or a 4 wheel Dymaxion) To me production is increasing. (i really like the "goldish" colored ones)

Thanks for the data! Let me try and reciprocate:

1. Yes, the Broder event was in winter 2013, that's when I first learned about Tesla and the fiery Elon response.
2. The color you probably refer to is called Titanium, although it looks more like some kind of bronze.

 

[MitchJi]

Be careful planning trades . around an Elon-induced short squeeze, or a monumental response to positive deliveries alone. Neither will happen. TSLA only responds monumentally if the financials are much stronger than expected. TSLA in recent history has not reacted much at all to positive, or negative, delivery news.

What if they are the same thing?

I will say that I'm not at all sure myself that Musk can actually pull out a profitable Q3! If he does, it is reassuring regarding his ability to do that sort of thing. If not, then we're where we were before.

I think this means that Tesla's finances are stronger than most of us give them credit for.

 

[brian45011]

NY State bought the land and buildings for them and gave them a long-term lease for basically nothing ($1/year or something similar). And it's a location which already has the electric power connections it needs. So, basically, it was a good deal.

Several options were explored over the last several months including a "sale of the module manufacturing business" by SCTY to a third party and to Tesla:

"Later on June 26, 2016, the Special Committee held a meeting, with representatives of Skadden and Lazard in attendance. At the meeting, the Special Committee instructed Lazard to analyze information provided to Lazard by SolarCity management in connection with its analysis of Tesla’s proposal and SolarCity’s alternatives, including remaining as a standalone company and, at management’s suggestion, a potential sale of SolarCity’s module manufacturing business. Among other things, the Special Committee instructed Lazard to discuss with Tesla whether Tesla would be willing to consider such a potential purchase given Tesla’s manufacturing expertise. The Special Committee also discussed with Lazard the inquiry that Ms. Pfund had received from Party B, and directed Lazard to contact Party B regarding next steps."

But,

"On July 9, 2016, the Special Committee held a meeting....The Special Committee also discussed with representatives of Lazard the time frame for completing a possible sale of its module manufacturing business, and concluded that such a sale would likely not be completed in a manner that would maximize value for stockholders. Subsequently, representatives of Evercore informed representatives of Lazard that Tesla was not interested in a purchase solely of SolarCity’s module manufacturing business."

 

[neroden]

Several options were explored over the last several months including a "sale of the module manufacturing business" by SCTY to a third party and to Tesla:

"Later on June 26, 2016, the Special Committee held a meeting, with representatives of Skadden and Lazard in attendance. At the meeting, the Special Committee instructed Lazard to analyze information provided to Lazard by SolarCity management in connection with its analysis of Tesla’s proposal and SolarCity’s alternatives, including remaining as a standalone company and, at management’s suggestion, a potential sale of SolarCity’s module manufacturing business. Among other things, the Special Committee instructed Lazard to discuss with Tesla whether Tesla would be willing to consider such a potential purchase given Tesla’s manufacturing expertise. The Special Committee also discussed with Lazard the inquiry that Ms. Pfund had received from Party B, and directed Lazard to contact Party B regarding next steps."

But,

"On July 9, 2016, the Special Committee held a meeting....The Special Committee also discussed with representatives of Lazard the time frame for completing a possible sale of its module manufacturing business, and concluded that such a sale would likely not be completed in a manner that would maximize value for stockholders. Subsequently, representatives of Evercore informed representatives of Lazard that Tesla was not interested in a purchase solely of SolarCity’s module manufacturing business."

Ok, that's fascinating and very useful. I think it's obvous that the Special Committee (for SolarCity) would conclude that selling the manufacturing business would be value-destroying for SolarCity. The statement from Tesla, however, was news to me. I guess Musk does want to integrate some of the other parts of the business... he did previously indicate that the network of trained electricians and solar panel installers was valuable for installing Powerwalls and car chargers, for example. (Or there's this: I think it's clear Tesla didn't want to make a cash offer of any sort, and I'm not quite sure how a stock offer for just the module manufacturing buiness would work; those can be very messy and would leave SCTY holding TSLA stock or distributing it to their stockholders, with crazy tax consequence.)

 

[brian45011]

I'm not sure how you can save on labor when increase production. You need to hire more. Tesla had a big hiring event a few months ago.

But on the second part, I agree and it's my speculation as well they can make savings on suppliers now with the increased production and model 3 leverage. My calculation is if they reduce 10% on parts, they can increase 5% on GM, and achieve the same effects regarding to cash flow as increase delivery by 20%.

My worry is with all the promotion going on, it might negate the improvement on GM.

Last quarter, depreciation and amortization was $173 million, spread over 18,400 cars built that's ~$9,500/car over 24,000 built it's $7,300/car. (I realize not all of that is in COGS and some relates to TE, but its a crude illustration of the benefit of higher volumes).

Most financially savvy analysts/institutions/traders recognize the best way to juice a given quarter's bottom line and cash flow is to sell down inventories. Finished goods inventory rose 60% in Q2, from $472 million to $754 million. (IMO, inventory sales are why there are threads about good deals on CPOs and loaner/showroom models/non-special order cars.

 

[brian45011]

Ok, that's fascinating and very useful. I think it's obvous that the Special Committee (for SolarCity) would conclude that selling the manufacturing business would be value-destroying for SolarCity. The statement from Tesla, however, was news to me. I guess Musk does want to integrate some of the other parts of the business... he did previously indicate that the network of trained electricians and solar panel installers was valuable for installing Powerwalls and car chargers, for example. (Or there's this: I think it's clear Tesla didn't want to make a cash offer of any sort, and I'm not quite sure how a stock offer for just the module manufacturing buiness would work; those can be very messy and would leave SCTY holding TSLA stock or distributing it to their stockholders, with crazy tax consequence.)

The local TV station thinks the module manufacturing business is a bit of a political tar baby.

SolarCity slashes Buffalo factory commitment

 

[schonelucht]

The third party appraiser hired by TM judged that the car was in excellent condition and TM confirmed that I would receive the stated GRV in full.

Did you try to sell the car yourself? How does the price you got compare with prices of CPOs on ev-cpo.com? Trying to assess if this will become an additional profit center.

 

[FredTMC]

A few reasons I liked the email:

(1) I thought there was essentially a zero percent chance of profitability in Q3 due to all the expenses for Model 3 and GF ramp-up. That it is within fighting distance is a positive to me.

(2) I think the (illegal) 'short and distort' campaign is getting out-of-hand and the SEC isn't doing anything about it. Especially in that context, I have to admit I liked the "pie-in-the-face" comment. : )

(3) A fired-up Elon is a very good thing IMO.

In the long run, I would love to see Tesla ignore Wall Street's quarterly earnings/deliveries obsession even more than it does. I look forward to the day when deliveries in the first month of a quarter regularly exceed the last month of the previous quarter.

Nice post.

Moving into production of Model3 next year, I'd really like Elon and team to issue "conservative guidance". The Model3 numbers per quarter will be huge after a while. There's no reason to issue aggressive guidance. Just issue guidance that's reasonably attainable and then meet/beat that guidance quarterly.

Less sizzle ,more steak. Under promise and over-deliver. The stock would go ballistic.

 

[Fallenone]

Last quarter, depreciation and amortization was $173 million, spread over 18,400 cars built that's ~$9,500/car over 24,000 built it's $7,300/car. (I realize not all of that is in COGS and some relates to TE, but its a crude illustration of the benefit of higher volumes).

Most financially savvy analysts/institutions/traders recognize the best way to juice a given quarter's bottom line and cash flow is to sell down inventories. Finished goods inventory rose 60% in Q2, from $472 million to $754 million. (IMO, inventory sales are why there are threads about good deals on CPOs and loaner/showroom models/non-special order cars.

D&A doesn't include labor. Also the big chunk of the D&A for cars is tooling, and tooling is accounted on per car basis, so it doesn't matter how much cars they make each quarter.

The big rise in inventory is largely due to the 5000 in transit, which should not be among those heavily discounted sales.

 

[AlMc]

Did you try to sell the car yourself? How does the price you got compare with prices of CPOs on ev-cpo.com? Trying to assess if this will become an additional profit center.

IMO. at least mine won't be a profit center. I don't like selling to private parties. Most would want to just 'drive a Tesla', IMO, and not buy. Realize this is an earlier production car. It is a P85+ (great car), but not AWD, no folding mirrors, no AP capability, standard seat, about 39K miles. I will Pm you with exact figures but suffice it to say the residual value I received from TM is greater than the resale..or VERY close to it IMO.

 

[Drivin]

No, this makes sense. A number of investors are basically saying "Does Musk even know how to make a company profitable?" If he can demonstrate to them that cutting down on growth can make the company profitable, it proves that he has the necessary skill set to make the company profitable when the time comes to cut down on growth. If this is the mentality among a number of the potential financiers, this would reassure them.

Sort of agree.
But for the investors who care about demonstrating fiscal prudence and profitability, the more important question is can it be done on a sustainable basis while still running the business? Just delaying spending, cutting important costs (that you just need to "uncut" later), and selling off demo units and floor models at discounts to pump up revenue in a quarter, is not enough to demonstrate that it is a sustainable business yet.

 

[EinSV]

Moving into production of Model3 next year, I'd really like Elon and team to issue "conservative guidance". The Model3 numbers per quarter will be huge after a while. There's no reason to issue aggressive guidance. Just issue guidance that's reasonably attainable and then meet/beat that guidance quarterly.

Less sizzle ,more steak. Under promise and over-deliver. The stock would go ballistic.

I agree 100%. The low expectations for Model 3 execution are a great opportunity to over-deliver. Potentially massively over-deliver.

 

[RobStark]

The local TV station thinks the module manufacturing business is a bit of a political tar baby.

SolarCity slashes Buffalo factory commitment

How is this "bad" for Tesla or Solar City shareholders?

Factory jobs cut by 2/3 because of automation. Labor cost cut by 2/3. Production and revenue is the same.

I can see some New York taxpayers upset.

But not Solar City/Tesla customers.

As far as corruption in manufacturing contracts Solar City not involved. That is between the State of New York and contractors. Is anybody surprised at construction work corruption in New York?

BTW This illustrates the point about how Chinese labor cost is becoming increasingly unimportant in solar panel manufacturing. The "we need 1000% tariffs" to compete with the Chinese solar panel manufactures is not true. ~500 workers total inside Solar City's Gigafactory. The savings with Chinese labor are almost all negated by trans Pacific shipping and then there is the countervailing duties of 25%-52%. The countervailing duties on imported European compact trucks in the USA have been in place for over 60 years and on Japanese compact trucks for over 25 years.

 

[MitchJi]

The local TV station thinks the module manufacturing business is a bit of a political tar baby.

SolarCity slashes Buffalo factory commitment

Thanks for the link., to the negative full of FUD article.

BUFFALO, NY-- SolarCity has sharply reduced its job creation commitment for the solar panel manufacturing plant under construction in Buffalo from 1,460 to 500 jobs, according to state records and filings the company has submitted to the Securities and Exchange Commission.

In addition, a previous commitment to help create 1,440 supply chain jobs around the state – many, presumably in Buffalo – is no longer listed as an obligation in the SEC filings. Instead, the company is obligated to create a total of 2,000 jobs within five years of the plant opening and 5,000 within 10 years statewide. The plant is three-quarters complete and construction is scheduled to wrap up in September.

On the video they said production scheduled to start in Q1 2017, and SCTY told a politician that they would employ about 500 in 2017.

Great news that they plan to start production in Q1 2017!

Moving into production of Model3 next year, I'd really like Elon and team to issue "conservative guidance". The Model3 numbers per quarter will be huge after a while. There's no reason to issue aggressive guidance. Just issue guidance that's reasonably attainable and then meet/beat that guidance quarterly.

Less sizzle ,more steak. Under promise and over-deliver. The stock would go ballistic.

I think that's what they are already doing. Elon said 500k total MS-MX plus M3 in 2018. But when he talked about the production line he said ultimately five to ten times plants producing a car every 27 seconds. He said that V1 for M3 in Fremont would be V0.5.

One sixth of 5x a car every 27 seconds is under six seconds per car. V0.5 has to be at least one car every 25 seconds. That's 12 per 5 minutes, 144 per hour, 1,728 per 12 hour shift. I think Fremont works 7 12 hour shifts per week, about 48 weeks per year. 7 X 48 X 1,728 = over 580k per year,of only M3!

The reason he didn't say that is probably because at this point nobody would believe it.

 

[doggusfluffy]

How is this "bad" for Tesla or Solar City shareholders?

Factory jobs cut by 2/3 because of automation. Labor cost cut by 2/3. Production and revenue is the same.

I can see some New York taxpayers upset.

But not Solar City/Tesla customers.

As far as corruption in manufacturing contracts Solar City not involved. That is between the State of New York and contractors. Is anybody surprised at construction work corruption in New York?

BTW This illustrates the point about how Chinese labor cost is becoming increasingly unimportant in solar panel manufacturing. The "we need 1000% tariffs" to compete with the Chinese solar panel manufactures is not true. ~500 workers total inside Solar City's Gigafactory. The savings with Chinese labor are almost all negated by trans Pacific shipping and then there is the countervailing duties of 25%-52%. The countervailing duties on imported European compact trucks in the USA have been in place for over 60 years and on Japanese compact trucks for over 25 years.

Not only that, the story was "corrected" the next day...for what that is worth. I had assumed at the time this was an early initiative to bring their sales costs down by shifting them into the Riverbend facility.

SolarCity recommits to 1,460 Buffalo jobs, but more will be R&D and sales - The Buffalo News

“We’ll augment those manufacturing jobs with head count in sales, project development and other functions,” said SolarCity spokeswoman Kady Cooper. “It’s better for the region as it allows us to create a wider range of jobs that will be appropriate for a broader range of potential applicants.”

 

[tanner]

Not disagreeing with you, but just curious how you arrive at $260ish. Is it partially because we've been above there multiple times over the past few years?

Yep, just using the highest price on a yearly timeframe. Not referring to the crazy $280 double-top...

 

[brian45011]

D&A doesn't include labor. Also the big chunk of the D&A for cars is tooling, and tooling is accounted on per car basis, so it doesn't matter how much cars they make each quarter.

The big rise in inventory is largely due to the 5000 in transit, which should not be among those heavily discounted sales.

Unit labor expense is reduced if the production rate (line speed) is increased. Also incremental unit labor savings is possible through overtime (saves hiring, training, support/administrative, turnover expenses). There will be premium wage expense, but that's largely off-set by savings in labor indirects (medical/retirement benefits, paid time off, stock-based compensations, etc)

The increase of cars in transit during the Q2 was 2,535 which would account for only about $200 million of the inventory increase.

 

[CALGARYARSENAL]

Stopped by Chinook Centre Mall in Calgary today and sat inside the Model X. Looking around at the awe on people's faces re-inforced why I am still invested. Pretty awesome to see so many that excited.

 

[MitchJi]

Tesla Motors, Inc. (TSLA) to Deliver at Least 23,000 Cars in Q3, We Believe

I'm mainly posting thus, not for the total. I have a question, how hard would it be to determine the number of cars assembled in Tilburg?

Apart from the improving weekly production rate, the publication attributed first major Model X shipment to Europe in late August for the boost in the deliveries. After final assembling at the Tilburg factory, the delivery numbers will significantly increase in September. In the first two quarters, most of the SUVs were delivered in North America.

Since the US contributes almost half of Tesla’s overall deliveries, TheCountryCaller expects the company to deliver at least 23,000 units globally in this quarter. It is important to note that Tesla doesn’t provide monthly data of deliveries and InsideEVs collects its own data via first-hand accounts available from the Fremont factory and other sources. While the data might not be accurate, it could give a fair idea about the sales numbers.

 

[MitchJi]

My opinion on a strictly merger related squeeze is that it probably won't be a big deal and that the number float shares will be extremely tight between now and the record date, which could exacerbate any upward pressure on the stock.

So if Tesla reports cash flow positive in either early October when they report their number of cars sold or in November on the ER-CC and if that's before the record date we could have some fireworks .