Short-Term TSLA Price Movements - 2016

[Yggdrasill]

1. You can be sure that also other companies are able to deliver these as sub-suppliers. The common sense tells that TSLA will not be the only one capable of doing this, even in this vast amount. Even if other car companies should need to build own factories, which I don't believe will be necessary, then they could do it minimum in the same speed than TSLA.
2. Check out the Drive Pilot by Mercedes.
3. Yes, time will tell.

1. Other car companies certainly should start building factories. But Tesla has already entered a close cooperation with the biggest battery cell company, Panasonic, and it's taken them 3-4 years to get the first phase operative. If the competitors start now they're lucky if they can produce batteries in significant volume in 2020.
2. Sure, it's almost as good as the Autopilot. The operative word being *almost*.

 

[MitchJi]

I'm looking at depreciation a bit differently. We can't be sure how Tesla will depreciate the Gigafactory (unless I've missed them telling us), but a pretty obvious method for the Gigafactory would be on a per unit basis. See this example:

Cost: $5,000,000,000
Annual Production (GWh) 35
Annual Production (kWh) 35,000,000
Life of Factory 10
Total kWh Production 350,000,000

(Obviously, estimates of profitability of TE can matter a whole lot in the short term, so I'm glad we're keeping this conversation going).

They announced that they are going to be producing 3x the originally planned amount of cells (105 gwh).

 

[RobStark]

c

No, an internal memo is internal only. I think it is pretty safe to assume that whomever leaked the memo has been fired.

I think it pretty safe to assume said leaker has not been fired since Tesla does not have a secret police the size of the Gestapo to find the 1 in ~6000 employee who leaked the memo, assuming he/she is not a monumental moron that left on obvious digital trail.

I think it is pretty safe to assume a memo shared with ~6000 people will not remain secret.

 

[Fallenone]

I want to believe this is true, it sounds like it would make sense on the face of it. Do you have any examples / evidence by chance?

Not in the case with TSLA. But saw this happening here and there with other names and they were all beats. But OTOH those were more like they scheduled on say Oct 14 after market, but just a few days before changed it to Oct 14 before market. So still a bit different

 

[MitchJi]

Forget Toyota competing:

Toyota’s view: So what. “The idea of a 300-mile-range, big, heavy-battery vehicle, we don’t think that’s the place for an EV,” Jim Lentz, CEO of Toyota North America, tells Yahoo Finance in the video above. The reasons: “Cost, convenience, length of charge time.”

Toyota believes hydrogen-powered fuel-cell vehicles are a better bet than pure electrics charged from the grid. Fuel cells have been an automotive holy grail for some time, since hydrogen is cheap and plentiful and the only emission is water. A hydrogen-powered car can be refueled nearly as quickly as one that runs on gasoline, so it’s fit for both short and long trips. That means a single hydrogen car would be suitable for a driver who makes all types of trips, whereas most people who own an electric have a second car for hitting the highway.

 

[RobStark]

2. Sure, it's almost as good as the Autopilot. The operative word being *almost*.

In 2014 I almost bought an S Class.

"Almost" does wonders for Mercedes bottom line.

 

[Fallenone]

I'm looking at depreciation a bit differently. We can't be sure how Tesla will depreciate the Gigafactory (unless I've missed them telling us), but a pretty obvious method for the Gigafactory would be on a per unit basis. See this example:

Cost: $5,000,000,000
Annual Production (GWh) 35
Annual Production (kWh) 35,000,000
Life of Factory 10
Total kWh Production 350,000,000
Per unit depreciation $14.29

You can tinker with the formula all you want, but even assuming a life of the factory of only 5 years and reducing annual production to 20 GWh (pretty low assumptions), it only raises the per unit cost to $50 kWh. Of course, annual production could be much higher and that would lower costs further.

Tesla alternatively could depreciate simply on the basis of time (as you've assumed). In fact, that is how Tesla depreciates its existing property and equipment (30 years for the property and 3-12 years for the equipment). I think here's how that would work (using your example) -- I think you may have an error in your calculation, but I admit that I might too.

Cost: $1.2 billion
Per Half Depreciation (10 years at $30 million/quarter): $60 million
2017 1H Production: 1,250,000 kWh
Depreciation per unit: $48

Either way, depreciation is not that big of a deal and completely manageable. If they choose straight line, you can see they are keeping prices so high for the time being. As they ramp, they automatically cut depreciation/unit and then they can lower prices by the same amount of decreased depreciation and even raise their profit margin.

The above per unit example is still helpful, as it helps show how depreciation works on a per unit basis and therefore the outer limits of how much extra pricing power they can find. If Tesla decides to do straight-line depreciation, the good news is that later years will have hardly any depreciation on per unit basis and as a result profitability would be much higher.

(Obviously, estimates of profitability of TE can matter a whole lot in the short term, so I'm glad we're keeping this conversation going).

Yes I think the depreciation related cost to TE will be a mix of over time and per unit just like the cars. But to what extent I don't know. My purpose of throwing out those numbers is more inviting people to think about this issue and caution against using the current cost for car packs for current TE cost.

 

[Crowded Mind]

So I sold a 10/7 put with a strike $197.50. I have never had a put that I let expire in the money before. It is still showing up in my account, would this mean that it was not exercised, or should I expect to see the 100 shares come into my account during after hours here? This is with Fidelity.

 

[Fallenone]

So I sold a 10/7 put with a strike $197.50. I have never had a put that I let expire in the money before. It is still showing up in my account, would this mean that it was not exercised, or should I expect to see the 100 shares come into my account during after hours here? This is with Fidelity.

Fidelity do these settles over the weekend. You'll see the 100 shares Monday

 

[Crowded Mind]

Fidelity to these settles over the weekend. You'll see 100 shares less Monday

Thanks! Presuming you meant 100 shares more, which I am definitely ok with

 

[Yggdrasill]

They announced that they are going to be producing 3x the originally planned amount of cells (105 gwh).

All the information I've seen has just stated 150 GWh total, with no breakdown between cells and packs. I think this is a strong indicator Tesla is planning on producing 150 GWh of both cells and packs at the Gigafacory.

But even if they still want to get 15 GWh from Panasonics factories in Japan, that doesn't mean they would want to triple production capacity in Japan, which suggest the worst case is 135 GWh cell production and 150 GWh pack production at the Gigafactory.

 

[Curt Renz]

Why could that not be equally someone who bought "insurance" last week before the 3Q16 deliveries were announced?

Those two sets of 1000 puts were bought simultaneously at the asked price+ at a late minute in a trading day, while hugely increasing the open interest and that day's trading volume. That implies it was the put buyer who was most insistent, and that the vast majority of the option writers were almost certainly market makers and not traders seeking insurance.

Perhaps the puts were bought in hopes or fear of a decline on Monday this week due to possibly poor delivery numbers. If the puts were then sold early in the week, the put buyer lost. If the buyer retained them until today, he won.

 

[vgrinshpun]

I think this is Elon's response to the reports on Autopilot from Germany

 

[esk8mw]

New S-4 just dropped. Not much of interest in there, but I did find footnote 3 on page 155 interesting:

"In 2014, Panasonic agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufacture and supply us with battery cells. As of December 31, 2015, the parties had agreed to one such investment to be made by Panasonic, with additional investments to be made from time to time if and as agreed to by the parties. As of December 31, 2015, the quantities, cost and timing of potential purchases we may make under this arrangement were subject to a number of factors such as vehicle demand that could not be determined as of such date and which have changed significantly since such date. Additionally, as of December 31, 2015, any obligation to make payments to Panasonic pursuant to this arrangement was subject to the achievement of certain technological and engineering milestones and other contingent events. Based solely on certain preliminary assumptions made at the time the arrangement was entered into in 2014 for purposes of reference and further ongoing discussion, the potential battery cell purchases that we may have to make from Panasonic pursuant to and during the term of the one investment agreement existing at December 31, 2015 would equal approximately $1.7 billion in the aggregate. Additionally, as the timing of our purchases were unknown as of December 31, 2015, we have included the amount only in the total column."

EDIT: Also, there's 3 more BS lawsuits added to the pile, for a total of 7. All individuals, not institutions.

 

[Fallenone]

Thanks! Presuming you meant 100 shares more, which I am definitely ok with

Yes I typoed and edited my post

 

[FluxCap]

New S-4 just dropped. Not much of interest in there, but I did find footnote 3 on page 155 interesting:

"In 2014, Panasonic agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufacture and supply us with battery cells. As of December 31, 2015, the parties had agreed to one such investment to be made by Panasonic, with additional investments to be made from time to time if and as agreed to by the parties. As of December 31, 2015, the quantities, cost and timing of potential purchases we may make under this arrangement were subject to a number of factors such as vehicle demand that could not be determined as of such date and which have changed significantly since such date. Additionally, as of December 31, 2015, any obligation to make payments to Panasonic pursuant to this arrangement was subject to the achievement of certain technological and engineering milestones and other contingent events. Based solely on certain preliminary assumptions made at the time the arrangement was entered into in 2014 for purposes of reference and further ongoing discussion, the potential battery cell purchases that we may have to make from Panasonic pursuant to and during the term of the one investment agreement existing at December 31, 2015 would equal approximately $1.7 billion in the aggregate. Additionally, as the timing of our purchases were unknown as of December 31, 2015, we have included the amount only in the total column."

EDIT: Also, there's 3 more BS lawsuits added to the pile, for a total of 7. All individuals, not institutions.

Thanks for the quick scan and report.

 

[brian45011]

Those two sets of 1000 puts were bought simultaneously at the asked price+ at a late minute in a trading day, while hugely increasing the open interest and that day's trading volume. That implies it was the put buyer who was most insistent, and that the vast majority of the option writers were almost certainly market makers and not traders seeking insurance.[???]

Perhaps the puts were bought in hopes or fear of a decline on Monday this week due to possibly poor delivery numbers. If the puts were then sold early in the week, the put buyer lost. If the buyer retained them until today, he won.

If the premium was more than $1 for the lower strike, it was a loser. Regardless, if the buyer for the higher strike was a "short" speculating, he probably did OK.

However, if the buyer (albeit at the ask) held a relatively long position and didn't mind paying for protection against a falling share price just before an announcement about an uncertain result , he also fared well, but his hedge has to be renewed if he is concerned about this week's share price whipsaw.

Without seeing the buyer's "book" it's all speculation.

 

[TMSE]

New S-4 just dropped. Not much of interest in there, but I did find footnote 3 on page 155 interesting:

"......
Based solely on certain preliminary assumptions made at the time the arrangement was entered into in 2014 for purposes of reference and further ongoing discussion, the potential battery cell purchases that we may have to make from Panasonic pursuant to and during the term of the one investment agreement existing at December 31, 2015 would equal approximately $1.7 billion in the aggregate. Additionally, as the timing of our purchases were unknown as of December 31, 2015, we have included the amount only in the total column."

Thanks for the quick review! what is the 'term of the one investment agreement'? Is it one year? Does it mean Tesla has to buy at least $1.7 billion worth of cells by Dec 31, 2016 from Panasonic?

 

[ZenMan]

New S-4 just dropped. Not much of interest in there, but I did find footnote 3 on page 155 interesting:

"In 2014, Panasonic agreed to partner with us on the Gigafactory with investments in production equipment that it will use to manufacture and supply us with battery cells. As of December 31, 2015, the parties had agreed to one such investment to be made by Panasonic, with additional investments to be made from time to time if and as agreed to by the parties. As of December 31, 2015, the quantities, cost and timing of potential purchases we may make under this arrangement were subject to a number of factors such as vehicle demand that could not be determined as of such date and which have changed significantly since such date. Additionally, as of December 31, 2015, any obligation to make payments to Panasonic pursuant to this arrangement was subject to the achievement of certain technological and engineering milestones and other contingent events. Based solely on certain preliminary assumptions made at the time the arrangement was entered into in 2014 for purposes of reference and further ongoing discussion, the potential battery cell purchases that we may have to make from Panasonic pursuant to and during the term of the one investment agreement existing at December 31, 2015 would equal approximately $1.7 billion in the aggregate. Additionally, as the timing of our purchases were unknown as of December 31, 2015, we have included the amount only in the total column."

So, if we assume,

80,000 cars produced in 2016
times
80kWh average pack size
times
$150/kWh
equals
$960million, so about halfway through the purchase commitment?

 

[esk8mw]

Thanks for the quick review! what is the 'term of the one investment agreement'? Is it one year? Does it mean Tesla has to buy at least $1.7 billion worth of cells by Dec 31, 2016 from Panasonic?

Good question, and I wish I knew the answer! IIRC, Tesla has agreed to buy 100% of auto cells from Panasonic.

Here's some interesting math (caution, lawyer with numbers. red alert!): $1.7b / $190/kwh pack cost / 80kwh average pack size = 111,842 cars. If Tesla buys at the cell level or the average pack size is lower, the number is greater.