Short-Term TSLA Price Movements - 2016

[jhm]

Oil took a big hit today, down almost 7% to $31.3/b, while Tesla gains 2.85%. So that feels pretty good.

I expect oil to take another run down and test my theory that there is a floor between $25 and $30. It just makes more sense to store cheap oil than to drill for more.

 

[ludicrousspeed]

Can you (and/or austinEV) re-iterate why you're certain Tesla will go to the markets for more money later this year? What's it going to be used for? Does the balance sheet math not add up at the moment? Panasonic's cash not going to be enough? etc. etc.

Although I'm not Julian or austinEV, I can re-iterate a vast majority's opinion that Tesla currently does not have enough money to mass produce the Model 3. That will be an extremely capital intensive production ramp and Tesla is almost certainly going to need to raise additional funds. Whether it's through debt or equity markets remains to be seen, but it makes far more sense to issue additional stock. They currently have ~$1.4B in cash on their balance sheet as of Sept. 30, 2015 (and decreasing) and that's after raising $642 Million in August. Elon has made it clear that there will be some further equity dilution in order for the company to meet its goals, which I'm completely fine with as a long-term investor.

 

[jhm]

When they are putting GF Cells into the S, it is almost a slam dunk that they will increase the pack capacity. They might reduce the price as well.

EM said that he thinks full autonomy is about two years out and that this will require HW updates. The updates will probably come before the SW is ready, so it depends on how optimistic do you think EM is?

Yeah, this is what I am thinking too. As a prelude to a new battery pack, I think they will cancel the 85 option and only offer 70s and 90s. Then about 3 months later, and after cell production at GF, they launch the new packs. So I think watching for 85 to be pulled is the key.

Sensor suite is harder to time, but it must preceed autonomy. Programmers need experience integrating new sensors before reaching autonomy.

Thanks, for your comments.

 

[dakh]

Although I'm not Julian or austinEV, I can re-iterate a vast majority's opinion that Tesla currently does not have enough money to mass produce the Model 3. That will be an extremely capital intensive production ramp and Tesla is almost certainly going to need to raise additional funds. Whether it's through debt or equity markets remains to be seen, but it makes far more sense to issue additional stock. They currently have ~$1.4B in cash on their balance sheet as of Sept. 30, 2015 (and decreasing) and that's after raising $642 Million in August. Elon has made it clear that there will be some further equity dilution in order for the company to meet its goals, which I'm completely fine with as a long-term investor.

Is there a way to track Model S and Model X production line build-up CapEx through quarterly or annual reports? Looks to me it's a bit early to raise capital for Model 3. Might be useful to compare timing, although of course Model 3 should be a bit different: more volume, more experience, some CapEx already done (paint shop).

 

[everman]

Yeah, this is what I am thinking too. As a prelude to a new battery pack, I think they will cancel the 85 option and only offer 70s and 90s. Then about 3 months later, and after cell production at GF, they launch the new packs. So I think watching for 85 to be pulled is the key.

Sensor suite is harder to time, but it must preceed autonomy. Programmers need experience integrating new sensors before reaching autonomy.

Thanks, for your comments.

I agree with this, and I was thinking about how we will be able to tell if a new MS has an upgraded sensor suite. I think the easiest thing to spot would be a rear facing camera. I'd think it would need to be high up in the rear window. I can't see how we'd miss it.

 

[Fallenone]

Read their shareholders letters and ER CCs. Also keep an eye out on the news. For the CapEx for Model 3, it's almost nothing yet (besides of GF). Only thing they have in place is the acquirement of a large paint shop. For the stamping, assembly, robots, etc., zero. Also keep in mind they will start building at least another GF before 2020 if they want to grow beyond 500k/year (personally I don't think the progress of the current GF is enough to support 500k/year), so there's that. And with more GFs, you need more factories to do other stuff - factories in China and Europe. All in all, 10 billion is not a very high number of their total CapEx in the next few years in my opinion. Operating profit even after the X ramp up and the battery business would be about 0.5 billion a year in a quite optimistic scenario before the final completion of the GF. So, they will need more capital.

Is there a way to track Model S and Model X production line build-up CapEx through quarterly or annual reports? Looks to me it's a bit early to raise capital for Model 3. Might be useful to compare timing, although of course Model 3 should be a bit different: more volume, more experience, some CapEx already done (paint shop).

 

[lango]

Read their shareholders letters and ER CCs. Also keep an eye out on the news. For the CapEx for Model 3, it's almost nothing yet (besides of GF). Only thing they have in place is the acquirement of a large paint shop. For the stamping, assembly, robots, etc., zero. Also keep in mind they will start building at least another GF before 2020 if they want to grow beyond 500k/year (personally I don't think the progress of the current GF is enough to support 500k/year), so there's that. And with more GFs, you need more factories to do other stuff - factories in China and Europe. All in all, 10 billion is not a very high number of their total CapEx in the next few years in my opinion. Operating profit even after the X ramp up and the battery business would be about 0.5 billion a year in a quite optimistic scenario before the final completion of the GF. So, they will need more capital.

It does not add up to $10B before Model 3 is ramped up, which should happen second half of 2018. They need another line or two in Fremont and they need to complete a part of GF, not the whole factory. And maybe start another vehicle factory project in Europe or Asia. They do not need another GF before 2020, as they can expand the current one. There is also the Tesla Energy industry packs that will fund a part of the GF expansion.

Also, Model S+X will generate far more than $0.5B a year if they produce 100k+ per year. My estimates are that in total for 2017 and 2018 they will get almost $5B from S+X, and in 2016 maybe $1.5B.
So we are looking at $6.5B up to and including 2018. If this sounds high then consider that they have a highly automated vertically integrated factory that sells $90k+ vehicles. Material goes in and the vehicle comes out.

Now those $6.5B should cover a lot so there will be capital raise required, but not close to $10B or I think around $8B in your scenario? This is one of the errors I think the bears make (not saying you are a bear). The most common error is that they discount with a ridiculous rate and then add like 100% share dilution.

 

[Julian Cox]

Originally Posted by MartinAustin
Can you (and/or austinEV) re-iterate why you're certain Tesla will go to the markets for more money later this year? What's it going to be used for? Does the balance sheet math not add up at the moment? Panasonic's cash not going to be enough? etc. etc.


Insane Model 3 reservations. They can pretty much bootstrap their way to 500,000 unit production by 2020. By the time this year is 2/3 of the way through, it will become very obvious that capacity for 500,000 units by 2020 is not enough. Accelerating capacity into being would be the reason IMO.

I should caveat this by saying that the safety and mission of Tesla as a business is guaranteed by never putting itself at risk of getting significantly ahead of the demand curve and never diluting Musk to the point he cannot veto committee based decision-making (including a shareholder's vote). For example if reservations indicate they need a million units of annual capacity, they raise $5-$10 billion, generate a million units of capacity, dilute Musk to 15% and on the day 500,000 customers show up and 500,000 cancel, it's a problem. Whereas 500,000 capacity with 500,000 customers waiting in line for years and while Musk holds 27% of the voting stock is the definition of security.

Dedicated Tesla-owned capacity is not the only way of meeting OTT demand. Contract manufacturing by other car makers for demand overflow is also a possibility especially considering really OTT demand will cause spare capacity to become available. It is also IMO highly likely that given a really serious reservation tally, national governments in China and Europe (probably India and elsewhere too) would throw capital at Tesla for a chance to establish a factory in their tax base, strongly alleviating the need to approach the markets for capital.

 

[The Blue Owl]

Another Tesla ad on Tesla's YouTube video channel.

 

[lango]

Originally Posted by MartinAustin
Can you (and/or austinEV) re-iterate why you're certain Tesla will go to the markets for more money later this year? What's it going to be used for? Does the balance sheet math not add up at the moment? Panasonic's cash not going to be enough? etc. etc.


Insane Model 3 reservations. They can pretty much bootstrap their way to 500,000 unit production by 2020. By the time this year is 2/3 of the way through, it will become very obvious that capacity for 500,000 units by 2020 is not enough. Accelerating capacity into being would be the reason IMO.

I should caveat this by saying that the safety and mission of Tesla as a business is guaranteed by never putting itself at risk of getting significantly ahead of the demand curve and never diluting Musk to the point he cannot veto committee based decision-making (including a shareholder's vote). For example if reservations indicate they need a million units of annual capacity, they raise $5-$10 billion, generate a million units of capacity, dilute Musk to 15% and on the day 500,000 customers show up and 500,000 cancel, it's a problem. Whereas 500,000 capacity with 500,000 customers waiting in line for years and while Musk holds 27% of the voting stock is the definition of security.

Dedicated Tesla-owned capacity is not the only way of meeting OTT demand. Contract manufacturing by other car makers for demand overflow is also a possibility especially considering really OTT demand will cause spare capacity to become available. It is also IMO highly likely that given a really serious reservation tally, national governments in China and Europe (probably India and elsewhere too) would throw capital at Tesla for a chance to establish a factory in their tax base, strongly alleviating the need to approach the markets for capital.

I don't think they will raise that much. Getting manufacturing capacity from say 500 000 to 1 000 000 is probably not a problem you can just throw money at and have it accelerate. I think they will raise more depending on reservations and projected demand, but not to that extent.

 

[chickensevil]

SolidEnergy Announces Series B Investment | VentureBeat | Business | by Business Wire

What are the chances that Tesla is the unmentioned car manufacturer? Unless I am missing something they meet the requirements of Tesla. A battery with high specific energy density. ACTUAL prototypes (not just powerpoint slides) and they were originally making these for small consumer electronics, which if you are trying to store a lot of power in a small package you are probably doing something right.

 

[anticitizen13.7]

LOL.

I tried to stay away but the level of absurdity has gone from mere comical to just flat out disingenuous.

This thread has completely jumped the shark.

I rarely agree with Julian, but I am not enjoying the hostility of the past month.

Welcome back Jesse. We need more people like you to play TSLA from trader perspective in short term thread. Long term thread would be better place for cheerlead, perma-bull and buy&hold guys. I value your opinion and especially your calls to exit your position around 220. I regret I didn't pay serious attention at that time. IMO, ER will play very short term impact to SP. Many negatives has been priced in. By saying that, I can't exclude the possibility dipping into sub-180 next week very briefly.

another hype note from "stupid" Chip?

IMO people would be much happier if they read all areas of the forum, not just the investor ones.

 

[Fallenone]

For the record, I'm calculating the numbers for 2020, not any year before. I will do an estimate for CapEx before end of 2018 at the end.

I agree they probably won't need another GF until 2020 (not so sure though, have my reservations), but they definitely can't wait until 2020 to start building another one. Therefore there will be the CapEx for GF2 before 2020. Let's also assume partnership will be wider and deeper for the next GF and Tesla won't need to commit as much as GF1. Under these ideal situations, 1 billion of CapEx is still quite a conservative number.

The scale of the current line can only support about 50k per year. Assume they increase efficiency and also due to the simpler design of Model 3 let's say in the future one line can give you 75k per year. The cost of the Model S line is about 1.3 billion (80% of their CapEx in 2011-2014, when little was spend on GF and X). We don't know how much is spent on the X line but 2015 CapEx is in the ballpark of 2 billion and majority of this is for X line and GF so I don't think the X line will be any cheaper than 1 b since GF is only phase 1 and there's still a lot to be spent on it. So roughly we get 1.3b for 75k/year production for Model 3. If we want to crunch out 350-400k of 3s in 2020, there will be about 5 more lines needed, or 6 billion of CapEx.

Then there's unknown amount of CapEx needed for factories in China and Europe. Let's be generous and say Tesla only needs 1 billion for both of them.

Then you have 8 billion of CapEx before end of 2020 under very very optimistic assumptions. Consider 75% of these will happen in 2019 and 2020 thanks to the majority of Model 3 ramp up will happen in those two years. Tesla then needs 2 billion for 2016, 2017, and 2018.

On the income side, operating profit won't be that high. At current levels, OpEx is about 20% of their total revenue and scaling very well with their delivery numbers, especially SG&A cost (jumped a bit from in Q3 2015, hope it's a one time event). In an optimistic case of GM 30% before GF, selling 100k per year with ASP 105k, you get 3.15 billion gross profit a year. Their total OpEx in 2015 has already accumulated to 1.16b so far and if we use the average ratio of OpEx/deliveries, we'll get 1.76b for 50k cars. So for 100k cars, that's 3.5b OpEx for you. In this case Tesla won't even be operating profitable. So let's assume under OpEx, only SG&A scales with deliveries, RND is kept constant at about 180m/quarter, which is 720m a year. SG&A scales with deliveries and would be 1.92b for 100k cars. That gives you 2.64b in OpEx, leaving 500m of operating profit on the table each year. Regarding to Tesla Energy, without the full force of GF to reduce its cost, I don't think the operating profit of it will be high. 3-5% would make me super happy. And even if they sell 3.75b revenue of batteries, which is the full capacity of the GF reserved for TE, under operating profit 3%, 5%, 10%, you get 0.1-0.375 b of operating profit from it. Before 2018, the operating profit from TE would be about 200m a year at best. So let's say total operating profit from TE in 2016-2018 gives a boost of 500m. The total operating profit for these three years sums up to 2 billion at best.

Therefore, under the most optimistic case of CapEx requirement, and most optimistic case of Operating profit achieved, Tesla may not need to raise capital before 2019. But have things ever turn out to be the most optimistic case for Tesla?

PS, I'm not a bear. DCA all the way whenever TSLA starts falling. Just wish to be more realistic based on the numbers we have.

It does not add up to $10B before Model 3 is ramped up, which should happen second half of 2018. They need another line or two in Fremont and they need to complete a part of GF, not the whole factory. And maybe start another vehicle factory project in Europe or Asia. They do not need another GF before 2020, as they can expand the current one. There is also the Tesla Energy industry packs that will fund a part of the GF expansion.

Also, Model S+X will generate far more than $0.5B a year if they produce 100k+ per year. My estimates are that in total for 2017 and 2018 they will get almost $5B from S+X, and in 2016 maybe $1.5B.
So we are looking at $6.5B up to and including 2018. If this sounds high then consider that they have a highly automated vertically integrated factory that sells $90k+ vehicles. Material goes in and the vehicle comes out.

Now those $6.5B should cover a lot so there will be capital raise required, but not close to $10B or I think around $8B in your scenario? This is one of the errors I think the bears make (not saying you are a bear). The most common error is that they discount with a ridiculous rate and then add like 100% share dilution.

 

[Yonki]

For what it's worth, Fidelity just lowered the rate it's paying me to loan out my TSLA shares:
01/21/16 2.00%
01/22/16 2.50%
02/01/16 2.00%

I'm guessing that means short pressure is reduced / shorts are starting to cover?

 

[Cattledog]

There are likely many pieces of news the market would like to hear. Even thought the Model 3 is the upcoming big swing of the bat, their perceived ability to hit that ball deep will be greatly conditioned by how people perceive their most recent swing, Model X. Tesla said they exited 2015 making 240ish Model Xs per week. By the 2nd week of February, I think the world would like to hear they are making at least 400/week (preferably 500) and they are going to be exiting Q1 making 600 per week, 800 per week by end of Q2. Any less and I think there will be short term disappointment. The bigger concern will be that the market will be suspicious of the ability to get into the 100s of thousands for Model 3 in 2018. Let's hear (and do) 400/600/800 please!

 

[techmaven]

It might make a lot of sense to build a battery assembly plant somewhere in Asia to take in the cell output from Panasonic. That way, some battery packs don't have to come from the U.S. I do wonder if they take some of the assembly lines offline when the Gigafactory pilot phase comes online and upgrade to to able to build the same cells as the Gigafactory.

 

[lango]

For the record, I'm calculating the numbers for 2020, not any year before. I will do an estimate for CapEx before end of 2018 at the end.

I agree they probably won't need another GF until 2020 (not so sure though, have my reservations), but they definitely can't wait until 2020 to start building another one. Therefore there will be the CapEx for GF2 before 2020. Let's also assume partnership will be wider and deeper for the next GF and Tesla won't need to commit as much as GF1. Under these ideal situations, 1 billion of CapEx is still quite a conservative number.

The scale of the current line can only support about 50k per year. Assume they increase efficiency and also due to the simpler design of Model 3 let's say in the future one line can give you 75k per year. The cost of the Model S line is about 1.3 billion (80% of their CapEx in 2011-2014, when little was spend on GF and X). We don't know how much is spent on the X line but 2015 CapEx is in the ballpark of 2 billion and majority of this is for X line and GF so I don't think the X line will be any cheaper than 1 b since GF is only phase 1 and there's still a lot to be spent on it. So roughly we get 1.3b for 75k/year production for Model 3. If we want to crunch out 350-400k of 3s in 2020, there will be about 5 more lines needed, or 6 billion of CapEx.

Then there's unknown amount of CapEx needed for factories in China and Europe. Let's be generous and say Tesla only needs 1 billion for both of them.

Then you have 8 billion of CapEx before end of 2020 under very very optimistic assumptions. Consider 75% of these will happen in 2019 and 2020 thanks to the majority of Model 3 ramp up will happen in those two years. Tesla then needs 2 billion for 2016, 2017, and 2018.

On the income side, operating profit won't be that high. At current levels, OpEx is about 20% of their total revenue and scaling very well with their delivery numbers, especially SG&A cost (jumped a bit from in Q3 2015, hope it's a one time event). In an optimistic case of GM 30% before GF, selling 100k per year with ASP 105k, you get 3.15 billion gross profit a year. Their total OpEx in 2015 has already accumulated to 1.16b so far and if we use the average ratio of OpEx/deliveries, we'll get 1.76b for 50k cars. So for 100k cars, that's 3.5b OpEx for you. In this case Tesla won't even be operating profitable. So let's assume under OpEx, only SG&A scales with deliveries, RND is kept constant at about 180m/quarter, which is 720m a year. SG&A scales with deliveries and would be 1.92b for 100k cars. That gives you 2.64b in OpEx, leaving 500m of operating profit on the table each year. Regarding to Tesla Energy, without the full force of GF to reduce its cost, I don't think the operating profit of it will be high. 3-5% would make me super happy. And even if they sell 3.75b revenue of batteries, which is the full capacity of the GF reserved for TE, under operating profit 3%, 5%, 10%, you get 0.1-0.375 b of operating profit from it. Before 2018, the operating profit from TE would be about 200m a year at best. So let's say total operating profit from TE in 2016-2018 gives a boost of 500m. The total operating profit for these three years sums up to 2 billion at best.

Therefore, under the most optimistic case of CapEx requirement, and most optimistic case of Operating profit achieved, Tesla may not need to raise capital before 2019. But have things ever turn out to be the most optimistic case for Tesla?

PS, I'm not a bear. DCA all the way whenever TSLA starts falling. Just wish to be more realistic based on the numbers we have.

Well I am doing it for the years 2016-2018. I think after that things are way harder to estimate. It is hard enough to do it for three years.

I don't think any CAPEX for GF 2 will happen before 2019, maybe in 2020. But I don't think they are going to raise capital for that until Model 3 is ramped up. A much more likely scenario is that they extend GF 1 beyond the original plans, and that incremental capacity will be cheaper than building a new one.

The current line can do 100k S+X a year, and it is unclear how and for what cost that can be increased. Maybe it would be enough to do 24 h production, maybe they can just duplicate the whole line with the same robot parameters? In any case, incremental capacity is cheaper than initial. That is why the cost to make 500k Model 3 will be much lower per unit than they had with Model S. Also the S line was not 80% of CAPEX during 2011-2014. A lot of money was spent on Super Chargers, Service Center, sales/service employee hiring and training.

I think SG&A and OpEx to support S+X will not scale linearly in 2016-2018. It has in the past, but once the growth per year becomes large enough it won't keep up. I think this will happen already this year.

 

[Fallenone]

Well I am doing it for the years 2016-2018. I think after that things are way harder to estimate. It is hard enough to do it for three years.

I don't think any CAPEX for GF 2 will happen before 2019, maybe in 2020. But I don't think they are going to raise capital for that until Model 3 is ramped up. A much more likely scenario is that they extend GF 1 beyond the original plans, and that incremental capacity will be cheaper than building a new one.

I agree, that's why I allocated 75% of my anticipated CapEx in 2019 and 2020.

The current line can do 100k S+X a year, and it is unclear how and for what cost that can be increased. Maybe it would be enough to do 24 h production, maybe they can just duplicate the whole line with the same robot parameters? In any case, incremental capacity is cheaper than initial. That is why the cost to make 500k Model 3 will be much lower per unit than they had with Model S. Also the S line was not 80% of CAPEX during 2011-2014. A lot of money was spent on Super Chargers, Service Center, sales/service employee hiring and training.

I think SG&A and OpEx to support S+X will not scale linearly in 2016-2018. It has in the past, but once the growth per year becomes large enough it won't keep up. I think this will happen already this year.

The cost for superchargers, service center, sales/service employee hiring and training are all in SG&A, not CapEx. That's the major reason that SG&A scales with deliveries. And for Q3 2015, it went up more than revenue increase, not a good sign and I hope it falls back soon.

 

[dc_h]

Building in China requires Tesla to figure out how to limit investment and protect their intellectual property. If they can partner with an assembler to build the body of the Model 3, ship batteries from Japan and have Foxconn assemble the electronics and download the encrypted software from California perhaps they can meet China's partner requirements and control the IP risks of operating in China.

It might make a lot of sense to build a battery assembly plant somewhere in Asia to take in the cell output from Panasonic. That way, some battery packs don't have to come from the U.S. I do wonder if they take some of the assembly lines offline when the Gigafactory pilot phase comes online and upgrade to to able to build the same cells as the Gigafactory.

 

[Chickenlittle]

Building in China requires Tesla to figure out how to limit investment and protect their intellectual property. If they can partner with an assembler to build the body of the Model 3, ship batteries from Japan and have Foxconn assemble the electronics and download the encrypted software from California perhaps they can meet China's partner requirements and control the IP risks of operating in China.

Protect intellectual property? They have released all patents. Nothing left to protect