Short-Term TSLA Price Movements - 2016

[CALGARYARSENAL]

This shows that you've missed some key concepts that many who are fundamental longs (as opposed to technical traders like you) assign some, often high, probablity:
- Demand for TSLA has enormous space to run, competition is lacking on the horizon, don't worry Tesla won't run out of customer base anytime before Priceline
- Elon is lazer focused on manufacturing right now. Did you hear him describing his vision of the future Tesla factory; an "alien Juggernaut" that spits out perfect cars at astonishing production rates. He's going to make major improvements to the manucaturing and so even as Tesla scales 10 or 100-fold he'll keep dropping cost as fast, or faster, than price has to drop in order to gradually incoroprate a larger and larger part of the entire available customer base (think of it as a pyramid where you start at the narrow top and then the pyramid (=market) widens as you go down in to the customer base.

Welcome back Johan. You were missed.

 

[sdtslafan]

Priceline (PCLN):

Total Revenue -- 9,223,987
Cost of Revenue -- 632,180
Gross Profit -- 8,591,807

Look at that margin! that's 93%!!!

I've commented before regarding the comparison of TSLA to "tech" companies and assuming the possibility of enormous ramps in PPS from here... but there's two things:

1) $7500 + ~$4000 (10% or more!) of Tesla's GM is tax incentives to their customers
2) Tesla will NEVER do what Priceline has done... because it is NOT a "tech" company

"The low stock price indicating lack of confidence"

there are a very large number of people that do not consider today's stock price as "low"... but instead incredibly high.

"If the path to tremendous growth was free of obstacles and confidence in management was high, it would already be reflected in a very high stock price and there would be little room for stock price appreciation"

again... what are you comparing "high" and "low" to?

I wasn't meaning to imply that Tesla will appreciate 250x like the example with Priceline. I would be very satisfied with a 5-10x gain over the next 10 years.

Stock price is low if you believe that Tesla is more than a car company. If you believe Tesla Energy and Tesla Solar will provide revenue streams on the same order of magnitude as the car business, then Tesla is undervalued as I see it. I don't think you believe this and that may be a large difference between us.

If you followed Tesla just before they introduced the Roadster, would you have imaged they would be selling 100,000 cars a year at 23% margins, essentially pickpocketing Mercedes, BMW, and Audi for their affluent customers?

What if Tesla Energy today is in a similar stage to Tesla Motors from 2009? Same for Tesla Solar? Then there is tremendous opportunity which has not been priced in..

I understand the points you make and, in the short term, you may very well be right about an impending drop in stock price. I don't worry so much about that because I own my shares outright and can wait it out. But in the next 5 years, the picture may look very different than it does today. Much of that depends on Tesla Energy and Tesla Solar, not Tesla the car company. That's why it will be very interesting to see the guidance given for Tesla Energy in the next few quarters. If there is a surpise to the upside here, the stock could appreciate significantly. Projects in California and Hawaii will provide very useful data which, if beneficial to the consumer, could serve as an example to spur additional demand.

 

[Papafox]

"there's a strong software component to the business that adds value"

it looks like this contradicts @Yggdrasill... each of the large auto companies have significant software components. the thing that is different about Tesla is their introduction of over the air updates and rapid deployments of software into their vehicles. This is my opinion... but I think this should be banned by the NTSB.

"Please tell me what your exit strategy from your TSLA short holdings will be this month"

I do not short stock... I only trade options... and thus price change/time... TSLA normally maintains high volatility... and honestly, the periods over this last summer where TSLA snapped to prices and traded flat were the most difficult.

"Do you actually plan to hold your short position through the 3Q ER? If so, you risk having your investment annihilated."

I trade short and medium term options on TSLA (1wk to 3mo)... I see TSLA as being highly priced right now... and see the potential for further declines even with a good ER as greater than the upside potential. there's a large pocket between $187 and $140... I'm currently trading the possibility of a large drop into that zone.

I definitely have a short sentiment in TSLA right now... but under nearly all circumstances I hold a small hedge with calls since when TSLA does move up... it tends to move up very quickly as you described. typically... i'd be very happy to see a very large share price increase as I will most likely come out with gains.

"I suggest turning a deaf ear on the Chanos-like shorts who claim TSLA is going to zero"

All of the opinions I express are my own... and these are primarily based on my own technical research. I'm not a professional trader... it's a "hobby"... i have a day job. The targets Chanos makes are to the extreme... but I see these to be just as extreme as the high targets that have been bantered by Andrea James, Adam Jonas and the like.

But... I also agree with much of the reasoning that Chanos makes for his arguments. what I don't agree with is the target. I am looking for a large downside move... I do not have a strategy for TSLA under $120 but see this as a reasonable near term target.

"but all the recent entries from last week onward are going to get sacrificed in the name of the cause"

I am not in agreement with you on this. I see TSLA's valuation as very high and further dilution, SCTY merger and potential debt conversions in the next 2 years only adding to this.

I understand the methodologies being used for assessing TSLA's value today... but I think they are completely misleading as they are not accurately accounting for the enormous risks going forward.

so my question back to you is:

if TSLA were to start closing under $187 and continue down... do you have an exit strategy?

So, with you're hedging, you're really betting on volatility, which might not be a bad bet at the present time.

Your valuations are far below what the market sees TSLA as worth and I don't think that any of the evidence that I could present would sway you. You're valuing Tesla as a legacy automotive stock, which is a much worse valuation than the market is using, and I see this assumption is the biggest handicap of your methodology.

With a high growth (50%+ growth per year) stock, valuation can indeed be tricky. A much more usable technique would be to gauge how the market has historically priced TSLA and then apply adjustments for the positives and the negatives. Positives include the likelihood that in 3Q ER we will learn that TSLA is profitable and expected to remain so for the foreseeable future. Another positive is the rather-staggering potential that TE adds to the equation over the next year. The biggest negative is that the market has indeed expressed concern about the SCTY merger. How much concern remains at the end of this month depends upon how well Elon explains the effects upon cash flow of changes taking place in SCTY right now (new business focus on solar roofs, etc.), plans for refinancing the PPA contracts, etc. With the kind of storage battery improvements I think Musk will share with us on Oct 28, the synergies between SolarCity and Tesla may be significant enough to offset much of the negative emotion felt by some towards the merger. We'll see.

As far as my strategy for dealing with a 187ish dip of TSLA, my response depends upon the cause of the dip. If the cause is a newfound fundamental weakness in Tesla's business plan I would reduce my exposure, but I think that situation is very unlikely. If the dip is caused by the same factors which caused the dip this past week (FUD from a Goldman analyst with an exceedingly poor track record and millions of short positions established as shares became available again), then my answer is simple:

I would ride out the storm. This too shall pass.

 

[Phil Seastrand]

I wonder if some factory down-time is required to re-set the MX line for right-hand drive models. I don't believe any MX have been delivered to the UK yet but apparently they have 1000 MX reservations that need to be delivered by end of year.

There is no down-time required for RHD cars. When I toured the factory in April, there were LHD and RHD cars intermixed on the assembly line.

 

[geneclean55]

There is no down-time required for RHD cars. When I toured the factory in April, there were LHD and RHD cars intermixed on the assembly line.

You saw RHD model X in April?

 

[Ulmo]

There is no down-time required for RHD cars. When I toured the factory in April, there were LHD and RHD cars intermixed on the assembly line.

I do believe this is correct.

 

[Subhuman]

I'm not going into a lengthy response here... I have two points:

1) GMs are artificially inflated by tax incentives from $7500 to $13500 (CO)
2) GMs are not likely to hold at 20% to 30% on lower priced vehicles after incentives go away

I'm sticking to that.

"Sure some count[r]y also have incentives but not all"

Government incentives for plug-in electric vehicles - Wikipedia, the free encyclopedia

Classy....thanks for spelling correction .

In regards to GMs, I think it is safe to say that the largest battery factory in the world will offset any potential decrease in GMs due to the elimination of tax incentives.

I don't see the Volt currently making 20-30% margins. This tells you how far ahead Tesla really is compared to competition. I think we all understand how incentives work, as the technology matures the incentives will no longer be needed.

Tesla is using the incentive program exactly as it should be used which is to mature the technology and reduce long term technology cost. The other automakers are just using the incentives to help reduce their per vehicle loss and not to grow the technology.

 

[Johan]

Tesla is using the incentive program exactly as it should be used which is to mature the technology and reduce long term technology cost. The other automakers are just using the incentives to help reduce their per vehicle loss and not to grow the technology.

This is a brilliant observation, and the reason why Tesla aren't dependent on incentives to make good gross margin/profits, but the incetives sure do help grow the business faster.

 

[racer26]

@myusername:

I already answered why you're wrong about the tax incentives. They simply aren't inflating GM because in a production constrained product, where you sell every one you produce, price is not the thing limiting how many you sell.

 

[Chris Fox]

Just ask the millions of Americans along the east coast who are without power how useful a charged tesla powerwall would be right about now. And if they had solar... Well then they would never lose power

 

[TMSE]

About the next round of capital raise: Why does it have to be one of public equity or debt issue? Why not a private placement for a sufficiently large amount that is sufficient enough until Tesla is fully self funded?

There has been endless debates on how Apple or Google can/should make investment in Tesla. None have been materialized so far.

 

[FredTMC]

About the next round of capital raise: Why does it have to be one of public equity or debt issue? Why not a private placement for a sufficiently large amount that is sufficient enough until Tesla is fully self funded?

There has been endless debates on how Apple or Google can/should make investment in Tesla. None have been materialized so far.

I'd greatly prefer private. They'd pay a premium to the current price...instantly setting the stock higher. Tesla gets the cash they need to scale out the accelerated Model 3 rollout The whole narrative changes to very positive and zero cash burn arguments remain.

And really, what's a billion or two really? Chump change... get 'er done...

 

[3Victoria]

Debt or private would be nice.

 

[anticitizen13.7]

hardware companies are limited to nearly linear cost of scale... that's the primary reason. the other problem with hardware is the constant need to create the next product.

breaking it down further to the Apple/Samsung comparisons... Apple actually has high margins on their products ranging from mid 30% to 50% depending on the year you look at. they manufacture over seas and are capable of shipping millions of units at relatively low cost compared to auto.

on top of this... Tesla's current business is 99% auto... which is an industry that is low margin at large scale... as Tesla scales and competition increases... Tesla's GMs will decline significantly.

there have been many concerns about Apple's ability to maintain its share price... and this is because it's in hardware. Auto is that but an even more difficult industry.

All things being "normal", I would agree with you. Manufacturing automobiles is generally a low margin process and difficult to scale. Even established, legendary companies like Honda Motor Co. have problems. When Honda ran out of capacity to build subcompact platform cars a few years ago, they built a new plant in Celeya, Mexico, which used much of the latest technology. Despite this, the plant was initially plagued with issues and quality problems, which caused severe shortages of Honda Fit hatchbacks and substantial delays in the North American launch of the HR-V mini crossover.

The bet (and I am under no illusion that this is anything other than a bet) is that Tesla will be able to revolutionize manufacturing and simultaneously gain large market share in automobiles, stationary energy storage, and solar. They don't have to win everything, or even close to everything -- just the high margin segment, much like Apple does with phones. Apple iOS devices have less than 15% worldwide market share, but take in something like 90% of the worldwide profits.

Johan's summary is worthwhile IMO:

- Demand for TSLA has enormous space to run, competition is lacking on the horizon, don't worry Tesla won't run out of customer base anytime before Priceline
- Elon is lazer focused on manufacturing right now. Did you hear him describing his vision of the future Tesla factory; an "alien Juggernaut" that spits out perfect cars at astonishing production rates. He's going to make major improvements to the manucaturing and so even as Tesla scales 10 or 100-fold he'll keep dropping cost as fast, or faster, than price has to drop in order to gradually incoroprate a larger and larger part of the entire available customer base (think of it as a pyramid where you start at the narrow top and then the pyramid (=market) widens as you go down in to the customer base.

I highlighted what I believe are the most important points.

The competition for Tesla is not other EVs right now, it is other petrol cars. The worldwide market for new cars is tens of Millions of units/year, the overwhelming majority of which are gasoline and diesel powered. Some big players like Toyota are still 100% committed to hybrids and hydrogen. Even if a major shift gets underway, it may be many years before Tesla comes under major price pressure.

Car manufacturing techniques may change. Elon has said that he thinks he can alter the way cars are made and increase factory output by an order of magnitude or more. It sounds crazy, but if he can do things differently and somehow "out-Toyota" Toyota, it would shake up the industry considerably.

So in the end it is a bet: if one believes in the possibility of Elon Musk's vision, bet for the long haul.

The reason I chose to bet on Elon is that he has shown willingness to bet it all on a vision, and somehow make things work. Many people thought Tesla was a joke back in 2006. I know, because I was one of them. The company should have died at any number of points in its history, but somehow it hasn't. That's why people who bet against Elon Musk over the long haul should be afraid.

 

[Phil Seastrand]

You saw RHD model X in April?

No, it was a Model S.

 

[MartinAustin]

Tesla releases new ‘master plan’ to double the size of the Fremont factory to support Model 3 production

Remarkable expansion planned for the factory. I dearly hope they are talking about a second factory location somewhere in the world by the time all this is finished. And... I looked reasonably hard for mention of a multi-story parking lot... didn't see it. Strange, since they have such a parking crush today - even before expanding headcount.

And I'm happy that the earnings got moved up about a week. Obviously they are not worried about the figures... the goal is to have it before the solar roof reveal. Their thinking is thus:

1) if the ER is after the reveal, then when the media go to cover the solar roof reveal they will not have all the info at their disposal about how strong Tesla is. There could be uncertainty in the media coverage. Uncertainly always leaves room for disaster. (as far as bears are concerned)

2) Now that the ER is before the reveal, when media are covering the solar roof reveal they can incorporate the latest news of Tesla's stronger financial position into their reports. Will be harder to find a believable bearish position.

 

[geneclean55]

There is no down-time required for RHD cars. When I toured the factory in April, there were LHD and RHD cars intermixed on the assembly line.

Could well be a coincidence but over on the model X threads looks like production of the first RHD model X cars is imminent.

 

[GoTslaGo]

Somewhat off topic:

Tesla Model 3 is the latest recruiting lure at local tech company

Using Model 3 to help recruit new hires, and reward employees for recruiting.

 

[NOLA_Mike]

Strange, since they have such a parking crush today - even before expanding headcount.

The new robots running the dreadnaught will not need parking...

 

[TrendTrader007]

myusername,
I will answer one of your questions with the expectation you will reciprocate and answer my question.
The reason why many on this board see a technology company component in Tesla is because there's a strong software component to the business that adds value. One of the first believers in Tesla was Steve Jurvetson of Draper Fisher and Jurvetson. These days he's basically looking for mundane products whose value is being enhanced through software. Tesla's vehicles are anything but mundane, but they fit under the umbrella of what Jurvetson thinks is going to make lots of money because software is greatly enhancing these products and making them far more profitable than they would be otherwise.

OK now your turn...
Please tell me what your exit strategy from your TSLA short holdings will be this month. Do you actually plan to hold your short position through the 3Q ER? If so, you risk having your investment annihilated. If not, are you planning to exit once you see a turnaround in TSLA's momentum? I would caution your using that quick-exit approach because shorts and longs are all watching TSLA closely and once the run up to 3Q ER begins, it could run up at a surprisingly quick rate. No longs really want to sell prior to the ER if the news continues to be as positive as it has been lately and the stock price starts heading up.

For your own sake, I suggest turning a deaf ear on the Chanos-like shorts who claim TSLA is going to zero. No company with a profitable core business goes to zero and with automotive profitable from Q3 on and Energy very profitable from Q4 on, you're on the wrong side of this bet now. The smart money that's shorting TSLA right now will be exiting most of their positions prior to the 3Q ER. They're using the "Tesla is going to zero" argument to get other shorts to enter and cover their exits. You're going to get burned badly if you hold through the ER. Don't you see that the "Tesla is going to zero" racket is like a pyramid scheme? The shorts who already had positions prior to this last week have been doing okay, but they're ready to exit with profits now and the poor SOBs who entered under 202 are going to be underwater in the blink of an eye. As longs as the Chanos-types can lure more shorts into the battle, they profit, but all the recent entries from last week onward are going to get sacrificed in the name of the cause. Don't you see this?

i'm sorry Papafox, i really try very hard to only like your posts but i end up clicking Love instead. please keep up the great work of providing your super lucid explanations! Thx!