Short-Term TSLA Price Movements - 2016

[esk8mw]

We've discussed the ZEV topic some time ago. Guys, don't get over-excited about it.

While I believe each ZEV credit was worth $3-4k in the past until 2016 Q1, the current value of ZEV I believe is near zero. Yes, I mean it, near zero.

The reasons are two facts:
1. ZEV requirement for model years 2009 through 2011 was 11%, 2012 through 2014 was 12%, 2015 through 2017 was 14%.
https://www.arb.ca.gov/msprog/zevprog/zevregs/1962.1_Clean.pdf

This was the plan made several years ago. A clear uptrend. Many OEM can't meet the current requirement so they have been buying ZEV from others, Tesla being the biggest source. The price was good ($4k maybe), basically the net profit of their best profit making models. During this time frame, other OEMs also accumulated a surplus, in anticipation of increasing requirement.

2. But, in mid this year. CARB came out with the plan for 2018 and beyond. Guess what, the requirement for 2018 model is 4.5%. A 68% decrease. It will not be until 2022 when the requirement climbs back to 14.5%.
https://www.arb.ca.gov/msprog/zevprog/zevregs/1962.2_Clean.pdf

This suddenly changed everything. The surplus other OEMs sitting on is good enough for the next few years. The value of ZEV is near zero because there's no need for it. That's where the "penny on dollar" comment from Elon came from. Sure, Tesla can still sell the ZEV, but at a huge discount compared to the few k before. I think it is under $100 now.

And @vgrinshpun I am aware that news you cite was written in September. But I don't believe it reflects this change in ZEV requirement.

This is very good info; thanks! You might prevent me from buying calls now.

One thing to consider, though. Would Tesla really sell them at that big of a discount ($100 vs. $3000-4000) if they knew the market would return for the credits when the requirement moves to 14.5%? I'm thinking if the market was really that poor then Tesla would have sat on the credits until 2018 and maybe trickled them out until then instead of selling virtually all of them. I don't think the market would shift that dramatically if the stringent requirements are known to return in less than 2 years.

Your information does have me rethinking my math, though. The 2500 per credit I assumed might be too high; maybe it should be closer to 1500-2000. I'm going to try and do more research at some point.

 

[dandurston]

I think they would still sell them, because they have a heck of a lot more credits pouring in.

Tesla could try to game the credit market by refusing to sell most of their credits to jack the price for the ones they do sell, but there's enough other EVs coming to market this would be unlikely to pay off. So I think they're just selling them for whatever they can get.

 

[Fallenone]

This is very good info; thanks! You might prevent me from buying calls now.

One thing to consider, though. Would Tesla really sell them at that big of a discount ($100 vs. $3000-4000) if they knew the market would return for the credits when the requirement moves to 14.5%? I'm thinking if the market was really that poor then Tesla would have sat on the credits until 2018 and maybe trickled them out until then instead of selling virtually all of them. I don't think the market would shift that dramatically if the stringent requirements are known to return in less than 2 years.

Your information does have me rethinking my math, though. The 2500 per credit I assumed might be too high; maybe it should be closer to 1500-2000. I'm going to try and do more research at some point.

But at 2022, nearly all other OEM should be meeting the requirement by their own cars. Toyota has been doing this for years. Their Prius is worth around 0.7-0.9 ZEV and they are selling a lot of those. With the GM Volt and Bolt, GM should be doing well on its own too. By 2022, EV market should already be pretty big (otherwise Tesla would be in trouble too) and I think the German brands should have something compelling out by then. And remember, a 200 mile EV is worth 2.5 credits. So you only need to sell about 5% of your fleet as 200 mile EV to satisfy your own need. Mix in some hybrid, even less. So by 2022, the supply of ZEV should also be pretty great and I don't think the ZEV value would be up to where it was.

With the slim chance of ZEV value climbing up in the near future (one year), and the cash need for Model 3, and the discount on future cash value. It makes no sense for Tesla to horde the ZEV to sell later. I did think they did this in Q4 last year. Because the new requirement plan was not out, people are still anticipating ZEV requirement to go up. Unloading 2 or even 3 Q's of ZEV in one ER would have a nice surprise. But the X issues prevented them doing that to turn Q1 or even Q2 into a huge beat. And although the new ZEV requirement plan came out around July this year, all OEMs mush have been aware of it in Q2 so the ZEV market should have crashed in Q2 anyway.

 

[oneday]

Breaking News::::
Tesla Model 3: Sold out for 2017
Analysts estimating an additional 9 billion in Tesla 2017 revenue!

 

[NOLA_Mike]

The CNBC effect:

Volume too. Some pockets got picked today...

 

[vgrinshpun]

We've discussed the ZEV topic some time ago. Guys, don't get over-excited about it.

While I believe each ZEV credit was worth $3-4k in the past until 2016 Q1, the current value of ZEV I believe is near zero. Yes, I mean it, near zero.

The reasons are two facts:
1. ZEV requirement for model years 2009 through 2011 was 11%, 2012 through 2014 was 12%, 2015 through 2017 was 14%.
https://www.arb.ca.gov/msprog/zevprog/zevregs/1962.1_Clean.pdf

This was the plan made several years ago. A clear uptrend. Many OEM can't meet the current requirement so they have been buying ZEV from others, Tesla being the biggest source. The price was good ($4k maybe), basically the net profit of their best profit making models. During this time frame, other OEMs also accumulated a surplus, in anticipation of increasing requirement.

2. But, in mid this year. CARB came out with the plan for 2018 and beyond. Guess what, the requirement for 2018 model is 4.5%. A 68% decrease. It will not be until 2022 when the requirement climbs back to 14.5%.
https://www.arb.ca.gov/msprog/zevprog/zevregs/1962.2_Clean.pdf

This suddenly changed everything. The surplus other OEMs sitting on is good enough for the next few years. The value of ZEV is near zero because there's no need for it. That's where the "penny on dollar" comment from Elon came from. Sure, Tesla can still sell the ZEV, but at a huge discount compared to the few k before. I think it is under $100 now.

And @vgrinshpun I am aware that news you cite was written in September. But I don't believe it reflects this change in ZEV requirement.

Fiat Chrysler delivered 176,212 passenger and LDT vehicles in CA in 2015. So how many ZEV credits they will need to satisfy their 2017 requirements assuming similar deliveries?

Your estimate of $100 is demonstrably wrong - just take a look at numbers.

 

[techmaven]

But at 2022, nearly all other OEM should be meeting the requirement by their own cars. Toyota has been doing this for years. Their Prius is worth around 0.7-0.9 ZEV and they are selling a lot of those. With the GM Volt and Bolt, GM should be doing well on its own too. By 2022, EV market should already be pretty big (otherwise Tesla would be in trouble too) and I think the German brands should have something compelling out by then. And remember, a 200 mile EV is worth 2.5 credits. So you only need to sell about 5% of your fleet as 200 mile EV to satisfy your own need. Mix in some hybrid, even less. So by 2022, the supply of ZEV should also be pretty great and I don't think the ZEV value would be up to where it was.

With the slim chance of ZEV value climbing up in the near future (one year), and the cash need for Model 3, and the discount on future cash value. It makes no sense for Tesla to horde the ZEV to sell later. I did think they did this in Q4 last year. Because the new requirement plan was not out, people are still anticipating ZEV requirement to go up. Unloading 2 or even 3 Q's of ZEV in one ER would have a nice surprise. But the X issues prevented them doing that to turn Q1 or even Q2 into a huge beat. And although the new ZEV requirement plan came out around July this year, all OEMs mush have been aware of it in Q2 so the ZEV market should have crashed in Q2 anyway.

The problem for the big automakers is that with low gas prices, the sales of pickup trucks, SUVs/CUVs have climbed 5.8% and 7.1% respectively while cars fell 8.8%:

Top 11 Best-Selling Pickup Trucks In America - September 2016 YTD - GOOD CAR BAD CAR
September 2016 YTD U.S. SUV And Crossover Sales Rankings - Top 103 Best-Selling SUVs In America - Every SUV Ranked - GOOD CAR BAD CAR

Look at the sales charts by segment:
Auto Sales - Markets Data Center - WSJ.com

 

[Papafox]

Kinda sad I blinked and missed out on an amazing buying opportunity.

Jay, you need to be buddies with the CNBC reporter who broke this story. His short-selling buddies saved millions by covering during the brief drop, and don't think they weren't tipped off it was coming. At 1:19pm 77,000+ shares traded hands.

 

[Fallenone]

Fiat Chrysler delivered 176,212 passenger and LDT vehicles in CA in 2015. So how many ZEV credits they will need to satisfy their 2017 requirements assuming similar deliveries?

Your estimate of $100 is demonstrably wrong - just take a look at numbers.

8k of ZEV. And they have 68k on balance. Marginal demand = 0. Marginal value of ZEV to them = 0.

Just look at the numbers.

 

[SunCatcher]

Breaking News::::
Tesla Model 3: Sold out for 2017
Analysts estimating an additional 9 billion in Tesla 2017 revenue!

Sold out for the first half of 2018 too. How many more billions in revenues is that?

 

[vgrinshpun]

8k of ZEV. And they have 68k on balance. Marginal demand = 0. Marginal value of ZEV to them = 0.

How did you come up with 8K?

 

[Fallenone]

How did you come up with 8K?

176,212 * 4.5%.

 

[vgrinshpun]

176,212 * 4.5%.

But according to your post this is requirement for 2018, you indicated that requirement for 2017 is still 14%?

 

[rallykeeper]

Elon said he did exactly what I described. You can either believe in the regulations on the books or in standard industry practices. You could also choose to believe in the tooth fairy if you want to.

Elon said he talked to large shareholders. He did not say he gave them confidential information.

It would have been highly illegal for Elon to give them that information -- and even more highly illegal for them to act on that information (and they've apparently bought more shares -- though that's unclear at this point).

Large holders and street analysts get longer answers with the same underlying publicly-available information -- sometimes they also get a better-explained roadmap to understanding that information. They hardly ever receive material nonpublic information from mid to large cap companies. That's standard industry practice.

 

[Fallenone]

But according to your post this is requirement for 2018, you indicated that requirement for 2017 is still 14%?

Model year 2018, which are sold in 2017. What they are selling now is model year 2017, under the 14% requirement.

But even if it's still 176,212 * 14%, that's 25k ZEV. Still far less than the balance they are sitting on. Marginal value of ZEV to them still being 0.

Basically just look at the total sales and ZEV balance. The former being 2.1M, the later being 345k, or 16% of the former. This could be the result of OEMs expecting the requirement climbs up from 14% next year. But it actually crashed to 4.5%. ZEV is still valuable to a few OEMs with 0 or low balance compared to requirement, like Mazda, Volvo, even Hyundai. But OTOH, Toyota is generating tons of ZEV too so supply is far greater than demand even for these OEMs.

 

[sunhelm]

From reddit, looks like Fidelity is on record that they will vote FOR the merger:
Tesla Merger Proxy Vote for people like me: Fidelity will be voting FOR unless you req ballot • /r/teslamotors

Unless I am reading it wrong, if Fidelity holds TSLA shares in your behalf, as the holders of the shares on record, they will vote based on Board of Director's recommendation (which is FOR the merger), unless you tell them otherwise.

 

[techmaven]

Model year 2018, which are sold in 2017. What they are selling now is model year 2017, under the 14% requirement.

But even if it's still 176,212 * 14%, that's 25k ZEV. Still far less than the balance they are sitting on. Marginal value of ZEV to them still being 0.

Basically just look at the total sales and ZEV balance. The former being 2.1M, the later being 345k, or 16% of the former. This could be the result of OEMs expecting the requirement climbs up from 14% next year. But it actually crashed to 4.5%. ZEV is still valuable to a few OEMs with 0 or low balance compared to requirement, like Mazda, Volvo, even Hyundai. But OTOH, Toyota is generating tons of ZEV too so supply is far greater than demand even for these OEMs.

At 175,000 a year, FCA and Ford have to have:

2018: 7,875
2019: 12,250
2020: 16,625
2021: 21,000
2022: 25,375

Through 2022, they would need 83,125. It is likely they are not expecting to be able to make enough ZEVs versus TZEVs by 2022, hence the high balances. Honda will need something like 130,000 by then, and they have 32.3 thousand now. Toyota needs 217,000 or so... and AT PZEV credits will get discounted by 93.25% at end of 2017.

 

[Papafox]

One small piece of information to consider regarding the CNBC Model 3 delivery story:
If you didn't order your Model 3 yet, you won't get it until mid-2018, Tesla says
Response from Tesla:
"Today's website update does not reflect any change in our plans," said a Tesla representative in a statement to CNBC. "We still plan to begin Model 3 production in mid-2017, and we adjusted the delivery date on our marketing page to reflect more accurate timing for new/future reservation holders."

Notice that Tesla said production begins in mid-2017. This is not a change of plans (theoretical everything-ready-to-go date remains in July 2017) and actual delivery date likely to be later, but it is a slightly more optimistic wording (production beginning in mid-2017 vs. deliveries beginning in late 2017, as per the Model 3 page of website). I know it is a small differentiation in verbage, but it is a positive indication, all the same. For example, it indicates to me that Tesla will not surprise us during the 3QER with a statement that Model 3 production won't begin until Q4 of 2017.

 

[rallykeeper]

From reddit, looks like Fidelity is on record that they will vote FOR the merger:
Tesla Merger Proxy Vote for people like me: Fidelity will be voting FOR unless you req ballot • /r/teslamotors

Unless I am reading it wrong, if Fidelity holds TSLA shares in your behalf, as the holders of the shares on record, they will vote based on Board of Director's recommendation (which is FOR the merger), unless you tell them otherwise.

Looks to be a rather specific situation of shares held in a 401(k). I think it's actually pretty unusual to be able to vote your 401(k) shares (or even hold individual stocks at all unless the Reddit poster actually worked for Tesla).

In a typical Fidelity brokerage account, they do not have the ability to vote your shares in the merger. They only have the "broker vote" power in routine matters (e.g., director elections, approval of auditors, etc). They don't have that power in non-routine matters like mergers or approval of additional share issuance.

 

[sunhelm]

Looks to be a rather specific situation of shares held in a 401(k). I think it's actually pretty unusual to be able to vote your 401(k) shares (or even hold individual stocks at all unless the Reddit poster actually worked for Tesla).

In a typical Fidelity brokerage account, they do not have the ability to vote your shares in the merger. They only have the "broker vote" power in routine matters (e.g., director elections, approval of auditors, etc). They don't have that power in non-routine matters like mergers or approval of additional share issuance.

So I think this is rather good news if you are for the merger, right? Fidelity, should have a significant volume of TSLA shares (their assets under management, thru the 401k or some other investment program held in behalf of individual investors) and by default will bloc vote a yes for the merger.