Short-Term TSLA Price Movements - 2016

[EinSV]

<snip> The problem with that explanation is that I haven't seen one single estimate of their financials that even comes close to make that realistically possible. @vgrinshpun made a play on a single one contract worth of $4B in prepaid Tesla Energy products. But that's absolutely far out left field, the single utility name he mentioned in that context was quickly dismissed. And that's really the only one that actually tried to find some way to make the self-financing idea work. <snip>

BTW. Should, despite all of the above,Tesla manage to self-fund the model 3, the tsunami of hurt will be big time for the shorts. And I personally will feel that everyone who holds their shares into that prediction has absolutely earned every single penny they make from that transaction. It's a bold gamble that deserves a bold pay out. Just not one that I am willing to make.

There is a relatively straightforward scenario that fits with all the known evidence and could eliminate the need for a cap raise in Q4 2016 and Q1 of 2017 to fund the Model 3. Applying Occam's razor, this seems to be the most likely explanation.

• Elon said in August that 2016 TE production volumes would be heavily concentrated in November/December and is "really going to go ballistic" after that. Tesla to unveil new ‘Tesla Energy’ products by the end of the year, pushes volume deliveries in Q4
• We now have confirmation of several large TE projects, including one that must be completed by 12/31/2016.
  • This confirms that Tesla is on track for volume production to begin very soon, as Elon predicted in August.
• Reasonable (conservative) estimates of Phase I GF production made by others on this forum are 14-15 GWh/year.
• Little or none of that volume is needed in Q1 for Model 3 and assuming an October ("late") 2017 Model 3 launch, little will be needed in Q2 either.
• 15 GWh x $400/kWh for TE products from GF Phase I equals $6B/year or $1.5B per quarter (assumes some discounting for large projects).
• Tesla can sell a combination of Powerpack plus the Powerwall 2.0 (possibly with integrated inverter/charger that could provide additional margins.)
• Elon has made it clear on multiple occasions that demand is not an issue for TE.

Assuming 40 percent GMs on TE sales results in $1.2B in additional margins in the first half of 2017, or a little less if the full ramp is not achieved by January. SG&A for TE products -- especially Powerpack -- should be relatively low.

On top of the margins from a quicker than expected TE ramp, higher GMs on Model S/X are also highly likely given new Model X pricing and continual improvements to Model X and S production.

So the simplest explanation that fits with all the evidence is that the ramp of TE products from GF Phase I will be significantly faster than the conservative predictions on this forum and elsewhere. A quicker TE ramp, combined with better vehicle margins, may make a cap raise for Model 3 unnecessary through Q1 2017, if at all.

And even if a cap raise for Model 3 becomes desirable, the amount of capital needed for Model 3 in this scenario would be much less than expected by many. Tesla still might elect to do a larger cap raise and use some of the capital to expedite development and production of the Model Y and the other MP Part Deux vehicles, services and solar roofing product. I would expect the returns on capital raised for those purposes to be very high.

If Tesla were somehow to pull a rabbit out of the hat and begin production of the Model 3 in July 2017, then a (modest) cap raise becomes more likely. I don't think that will happen. But even if it does, earlier than expected production of Model 3 will put an even bigger "tsunami of hurt" on the shorts than eliminating the need for a cap raise.

So the bottom line is that if TE ramps up quickly, which it appears on track to do, shorts are toast. Even if Model 3 is delayed, there will be substantial profits from TE that no one seems to expect and have not been priced into the stock. And if Model 3 is on time or early, the tsunami of hurt on shorts is going to be even worse.

Can't wait. I'm getting popcorn.

 

[NOLA_Mike]

I will limit my posts to a max of one per 60 minutes days... let's see how that goes.

(I'm kidding - I've got no problem with your posts so far)

 

[Drax7]

Tesla may need capital expenditures in the folllowing areas
Within a year and a half to bring model 3 to market.

My guess estimates , and probably fiction,

Model 3. $2.0 billion
gigafactory . $.5
Service centers. .15 billon
Superchargers. .15 billion
Retail shops .15 billion
Autopilot .1

Total. $ 3.05 billion

At 100,000 unit sales per year, they might generate $1 billion in cash
To reinvest. Implying they may need to raise at least $ 2 billion .

Trying to put a dollar boundary around what to expect.

The timing of the raise can be done when the stock is at an
Advantages level.

 

[Mario Kadastik]

I think one has to look at what Elon actually said:

"Would also like to correct expectations that Tesla/SolarCity will need to raise equity or corp debt in Q4. Won't be necessary for either."

So first off the people saying that it's not a capital rise but instead debt are immediately wrong as he said no need to raise equity OR corporate debt. Same goes for SCTY.

Now the clear word here is "need". Therefore they can raise, but don't need to. This means that they will only do a capital raise or some other funding method if the provided raise is at good/excellent in the terms they'd get (either interest rate or stock valuation).

The fact that they probably don't need the funds in the next two quarters is a good indicator of TE rampup indeed I think. We'll hopefully get more colour on this at the Q3 ER.

 

[theschnell]

Tesla may need capital expenditures in the folllowing areas
Within a year and a half to bring model 3 to market.

My guess estimates , and probably fiction,

Model 3. $2.0 billion
gigafactory . $.5
Service centers. .15 billon
Superchargers. .15 billion
Retail shops .15 billion
Autopilot .1

Total. $ 3.05 billion

At 100,000 unit sales per year, they might generate $1 billion in cash
To reinvest. Implying they may need to raise at least $ 2 billion .

Trying to put a dollar boundary around what to expect.

The timing of the raise can be done when the stock is at an
Advantages level.

As of Q2 2016 they had $3 billion in cash on their balance sheet!!! Maybe that's why they don't need to raise funds now that they are going to be profitable (or close) the next couple of quarters.

 

[theschnell]

I think one has to look at what Elon actually said:

"Would also like to correct expectations that Tesla/SolarCity will need to raise equity or corp debt in Q4. Won't be necessary for either."

So first off the people saying that it's not a capital rise but instead debt are immediately wrong as he said no need to raise equity OR corporate debt. Same goes for SCTY.

Now the clear word here is "need". Therefore they can raise, but don't need to. This means that they will only do a capital raise or some other funding method if the provided raise is at good/excellent in the terms they'd get (either interest rate or stock valuation).

The fact that they probably don't need the funds in the next two quarters is a good indicator of TE rampup indeed I think. We'll hopefully get more colour on this at the Q3 ER.

I think the term "raise" indicates in a public market. It doesn't mean they won't take on any debt this year. It just means they won't have to raise it in a public market, but can simply borrow it from private sources like a bank.

 

[vgrinshpun]

@vgrinshpun made a play on a single one contract worth of $4B in prepaid Tesla Energy products. But that's absolutely far out left field, the single utility name he mentioned in that context was quickly dismissed.

First, let me re-state few obvious things, which I mentioned before. First, the idea I presented was about offtake agreement, NOT The Oncore offtake agreement. The Oncore was just an example.

Second, I clearly stated that it is a possibility, and I do not know what the probability of it happening is, as opposed to your and another member opinion that you both *know* the probability, and in your case it is exactly zero, while @brian45011 thinks that it is close to zero. To clarify it further, it is not the only possibility out there, and I do not think that it is the most likely one.

As far as your apparent reference to @brian45011 "dismissing" the idea for offtake agreement playing any role here, I am curious based on what did you come to this conclusion. I certainly do not believe that the idea was "dismissed", although he certainly tried.

 

[vgrinshpun]

I think one has to look at what Elon actually said:

"Would also like to correct expectations that Tesla/SolarCity will need to raise equity or corp debt in Q4. Won't be necessary for either."

So first off the people saying that it's not a capital rise but instead debt are immediately wrong as he said no need to raise equity OR corporate debt. Same goes for SCTY.

Now the clear word here is "need". Therefore they can raise, but don't need to. This means that they will only do a capital raise or some other funding method if the provided raise is at good/excellent in the terms they'd get (either interest rate or stock valuation).

The fact that they probably don't need the funds in the next two quarters is a good indicator of TE rampup indeed I think. We'll hopefully get more colour on this at the Q3 ER.

I think that the key is whether borrowing against asset backed line of credit in case of Tesla and borrowing based on future stream of income in case of SolarCity is considered "corporate debt" or not. I posed this question up-thread and hopefully somebody versed in corporate financing can answer it.

 

[vgrinshpun]

Today before the market open Fidelity shares available to short went up to 1,221,928, with interest continue to slide down to 11.75%.

Based on the trend of last several trading days it is clear that the supply of shares available to short is growing steadily. The big question is whether short sellers will be enticed to pile on at this time or will rather wait until SP goes up before jumping in.

Shares available for shorting at Fodelity 1,128,207, interest steady at 11.75%

 

[brian45011]

... what do the amendments and restrictions of that loan have to do with them applying for a new one to pay for the tooling for the model 3?

Money lenders (including the federal government) take measures to assure it is repaid. The covenants and restrictions in loan agreements are one mechanism for doing that and to trigger remedies when repayment appears in jeopardy. Take a look at the covenants and restrictions in the ABL agreements. Tesla was in violation of the covenants in the original DOE loan agreements multiple times, requiring four amendments and two waiver agreements, including acceleration of the bigger loan's repayment date, before the convertible note proceeds were used to pre-pay the balances.

There's no restriction against re-applying for the same loan to bring a new product to market: ATVM Loan Program | Department of Energy

Re-applying would be a futile waste of time. Tesla is NOT going to get a second bite out of that apple for a variety of reasons, probably too many to list, but here are a few:

-when Tesla decides it needs more capital it will want to act quickly. From the time of the initial application in 2008 to approval in late 2009, the original negotiations took well over a year.

-at the time of the original application Tesla had zero debt; a glance at the balance sheet shows that has changed dramatically:

-at the time of the original application Tesla had no credit rating; currently S&P shows it as B- (four levels below investment grade) and on negative credit watch;

-at the time of the original application all of Tesla's valuable assets were unencumbered; Tesla has now granted the ABL lenders security interests in all valuable assets outside of Nevada, putting the DOE in an inferior position. IIRC, the ABL covenants restrict Tesla from taking on new debt and/or require prior approval;

-in the three years since the loans were repaid, Tesla's accumulated deficit has grown from $1.1 billion to $2.9 billion, indicating a loss of $1.8 billion over that three years.

Tesla may be able to raise capital through some kind of equity offering, but borrowing again through the ATVM Loan Program will not happen.

 

[GBleck]

201.51 and 20.00 for a 10.8% on the .11 exchange rate. No capital raise news is closing the gap.

 

[surfside]

I think that the key is whether borrowing against asset backed line of credit in case of Tesla and borrowing based on future stream of income in case of SolarCity is considered "corporate debt" or not. I posed this question up-thread and hopefully somebody versed in corporate financing can answer it.

I think it is a little more nuanced than you are trying to make it. "Raising" corporate debt would imply that they have to go to the markets to get either a new bond or convertible deal done, as opposed to accessing lines they already have in place. Amounts drawn under asset based lines of credit like Tesla has is certainly considered corporate debt' however, drawing under an existing line would not be considered "raising" debt.

Putting a new asset based line of credit in place or expanding an existing facility could certainly be considered raising new debt though given it involves consent from the banks. Even the accordion feature of their ABL requires consent from the bank group (although there is an expedited process for taking down the accordion, which is why they exist in the first place).

Hope this helps.

surfside

 

[stealthology]

New S-4 out - can someone check?

 

[esk8mw]

There it is. S-4 just dropped and as expected, they changed the cash raise language to say they "may" raise additional funds "in the future" not by the end of the year.

They also consolidated the 7 BS lawsuits into one action as I predicted. More to come as I review, thing just dropped 45 seconds ago.

Future Liquidity Needs of the Combined Company (Page 137)

As of June 30, 2016, Tesla had $3.25 billion in principal sources of liquidity available from its cash and cash equivalents, which included $2.76 billion of money market funds. Subsequent to June 30, 2016, Tesla has received notices of conversion from holders of approximately $426 million in aggregate principal amount of Tesla’s convertible senior notes due 2018 (“2018 Notes”), which conversions require Tesla to repay the principal amount in cash. Tesla expects to pay this amount in the third quarter of 2016 and, after giving effect to these conversions, Tesla has approximately $220 million in aggregate principal amount of 2018 Notes outstanding.

Sources of cash are predominately from Tesla’s deliveries of vehicles, as well as customer deposits for vehicles, sales of regulatory credits, proceeds from retail financing activities, sales of energy products, and non-warranty repair and maintenance services. While Tesla expects that its current sources of liquidity, including cash and cash equivalents, together with its current projections of cash flow from operating and retail financing activities, will provide it with adequate liquidity based on its current plans through at least the end of the current fiscal year, Tesla may raise funds in the future, including through potential equity or debt offerings, subject to market conditions and recognizing that Tesla cannot be certain that additional funds would be available to it on favorable terms or at all. The amount and timing of funds that Tesla may raise is undetermined and would vary based on a number of factors, including Tesla and the Combined Company’s liquidity needs as well as access to current and future sources of liquidity. For additional information, see the section entitled “Risk Factors” beginning on page 36.

EDIT: Done reviewing. There's no other changes in the document.

 

[dc_h]

I think it is a little more nuanced than you are trying to make it. "Raising" corporate debt would imply that they have to go to the markets to get either a new bond or convertible deal done, as opposed to accessing lines they already have in place. Amounts drawn under asset based lines of credit like Tesla has is certainly considered corporate debt' however, drawing under an existing line would not be considered "raising" debt.

Putting a new asset based line of credit in place or expanding an existing facility could certainly be considered raising new debt though given it involves consent from the banks. Even the accordion feature of their ABL requires consent from the bank group (although there is an expedited process for taking down the accordion, which is why they exist in the first place).

Hope this helps.

surfside

Thanks for the insight. Interesting that Tesla Energy could use ABL to keep inventory costs down and focus internal funds on capex. That could allow them to stay focused on strategic spending, and getting production moving. It may be nuance, but I think Tesla could open a new TE ABL and not consider it a return to the equity market. That would cut TE margin about 3%, but free up perhaps 500 million for capex.

 

[doctoxics]

My take on Elon's tweet that additional financing is not needed for Q4 and Q1 is that he is sharing new visibility on Tesla's cash flow from car and energy sales. Based on demand and production capacity, he can see that there will be enough cash to pay for Tesla's continued expansion until at least Q2, a new development that should be a strong catalyst for the stock price. If Tesla makes it to Q2 without a cash raise, they may never need another one!

 

[Hogfighter]

I just received my monthly securities lending report from Fidelity. It looks like Vlad was correct in that the lending rate skyrocketed during the last week of September (when the shares were being recalled in order to vote), but that it didn't trigger a short squeeze.

It shows again that there are many, many market forces at work on any given day, and that the shorts, although many of them exist, in fact do little in regards to affecting the share price.

I sure was happy with the increase in lending rate during that week though!

 

[Zhelko Dimic]

I was just being sarcastic The dude/gal who got pissed for a valid question I asked, also labeled me a "troll" in the same comment. Added a couple to my ignore list. Will have to add a few more to keep my calm on this thread.

Same here, adding couple of overly positive members to Ignore.

I find most value from balanced members that can turn both negative a positive, but in a pinch, I prefer negative bias to positive, to keep my optimism in check.

 

[Lump]

My take on Elon's tweet that additional financing is not needed for Q4 and Q1 is that he is sharing new visibility on Tesla's cash flow from car and energy sales. Based on demand and production capacity, he can see that there will be enough cash to pay for Tesla's continued expansion until at least Q2, a new development that should be a strong catalyst for the stock price. If Tesla makes it to Q2 without a cash raise, they may never need another one!

Elon has incredible visibility 3-6 months out but wasn't aware of large discounts handed out in September .

 

[Cosmacelf]

Elon has incredible visibility 3-6 months out but wasn't aware of large discounts handed out in September .

That isn't a contradiction. The few discounts given were immaterial to the company's financial position.