Short-Term TSLA Price Movements - 2016

[geneclean55]

Well, this point is irrelevant because we DO know enough to prove beyond any doubt that majority of the 80,277 ZEV credits sold by Tesla between October 1 2015 and August 31 2016 were booked in Q3. I have made this point before, but you either did not follow it or just refusing to acknowledge it. As far as I am concerned this is certain. I will lay it out methodically one last time for the benefit of the Forum. I am fine with us having differing opinions.

STEP 1.
We know from shareholder's letters that Tesla booked $8MM ZEVs in 2015Q4, $57MM in 2016Q1, and "insigificant" amount in 2016Q2. Therefore total of $65MM ($57MM+$8MM) worth of ZEV credits were booked before the California CARB changed the rules.

STEP 2.
Based on Fortune reported market price of ZEV of $3,000 to $4,000, assuming average price of $3,500, it follows that Tesla sold $65MM / $3.5K = 18,571 credits in 2015Q4 and 2016Q1

STEP 3.
Since 18,571 ZEV credits were booked in 2015Q4 and 2016Q1, the remaining 82,277 - 18,571 = 63,706 ZEV credits were booked in Q3.

STEP 4.
From the first post on this subject I expressed my opinion that price Tesla got for this dump of credits in Q3 got to be discounted. My WAG was about $1,500, @esk8mw assumed $2,500. Your assumption of zero or close to zero does not make any sense. Why would Tesla gift these ZEV points to Chrysler, Ford and Honda? There is absolutely no reason for them to sell these ZEV credits unless it brings meaningful contribution to the bottom line in Q3 - precisely the point you dismiss based on general considerations, but contrary to specific data presented above.

So using $1,500 - $2,500 range conservatively yields Q3 bottom line addition of $95.6MM - $159.3MM. Others may discount the approximately 63,706 ZEV credits booked in Q3 in some other way, but your suggestion that credits sold in Q3 are inconsequential is not consistent with known facts.

STEP 5
Your suggestion that Chrysler and Ford had enough credits "for many years" and therefore had no incentive to buy them at significant discount is just not correct. As shown here Fiat Chrysler and Ford sold 176,212 and 173,976 vehicles in the last CARB reporting period. Based on 14% ZEV requirements for model year (MY) 2016 and 2017 they respectively needed 49,339 and 48,713 credits to cover their ZEV obligations for MY 2016 and 2017.

STEP 6
Based on link in STEP 5 above Fiat Chrysler and Ford bought 37,450 and 35,000 ZEV credits during the last CARB reporting period. They also had a balance of 68,308 and 62,566 credits at the end of the last reporting period. Therefore at the beginning of the last reporting period their balance was 30,858 and 27,566 respectively.

STEP 7
Comparing ZEV credits required by Chrysler and Ford to cover them through August 31 2017 shown in STEP 5 above and their balance of ZEV credits at the begining of the last reporting period (September 1, 2015) in STEP 6 shows that they were 18,481 and 21,147 ZEV credits short to carry them just through August 31 of 2017. This proves beyond any doubt that these credits were worth much more that $100 you've suggested. If anything, this highlights that my calculation of Q3 bottom line impact is conservative.

CONCLUSION
So once again, all of the points you've brought to discount the ZEV impact on Q3 just do not square with facts. Based on the conservative estimate, minimum impact of ZEV credits to Q3 will be $95.6MM - $159.3MM.

Finally, I want to thank you for the tenacity with which you lay out your opinion. Although I believe I shown conclusively that it is wrong, I would not be able to do it with clarity unless questioned in a serious way, which you always can be counted on to do well.

Awesome post.
Coach always told me to load up on CARBs before game day. Elon also knows what it takes to get us through this quartER.

 

[Turing]

I hope you're right. But I think it's more likely that we don't see the major move up you're anticipating until one of the following:
1. it becomes clear to investors that SCTY actually helps TSLA's financial position
2. we see substantial revenue from Tesla Energy
3. or we see substantial revenue from Model 3

To clarify on (2), do you think increasingly signing major contracts for TE counts? At some point even skeptical analysts will have to start taking TE seriously in their models. It seems like that point is approaching.

 

[Turing]

For MS and MX it pretty much shuts down the CA rebate for every potential buyer

I'm pretty confident the vast majority of MS and model X buyers make over 150/300

Sucks for buyers, but it really won't hurt sales at all

I don't agree with that at all. As we have gotten a lot of feedback from people who have bought MS who never bought a car in that price range before. I think 300k joint covers a lot of buyers still, maybe not half, but still a substantial %.

 

[Intl Professor]

Just play back recorded sensor input from real world situations and see if AI picks the necessary skills up.

Now, what if instead of the few training miles used so effectively by Nvidia's gadget, you use Tesla's one billion miles of experience? "Which door of the McDonald's on Maple Street do you want me to drop you off at, sir?," the auto chauffeur might ask.

 

[Turing]

For every person who is willing to drop a grand 2 years out, sight unseen, I am confident that there are between 3 and 20 more who will be willing to buy the car when they can actually see one, and even more still when I can buy one and get it in my driveway in less than 2 months. I don't anticipate you will be able to do that until at least GF2 and more likely GF3 is online.

Most people aren't taking this into proper account imo. It is pretty insane to have as many deposit pre-orders as Tesla got with the model 3, considering it was still just a prototype and over a year out. There is basic rule of thumb in the auto industry which is that most people want to buy a car that is available right away. I'm as big a tesla fan as just about anyone and even i was pretty discouraged at the idea of being 375k in line, so I'm still waiting and haven't jumped in line yet. Although I'm near 100% certain i will get a M3 or if wait continues to be too long will save for MS or MX in 2017/2018. I bet there are more people like me than those that plopped down 1k to wait over 1 year for a pre ordered car.

 

[Yggdrasill]

The mis-stated journo article is not what this is about. That is a different issue.

The spokesperson in the Reuters article claimed all existing reservations will be delivered in 2017. Elon's tweet didn't contradict that.

He said the first 12 months of production were sold out. Combining that with the information that new reservations will be delivered mid-2018, that suggests that production will start mid-2017. All information from Tesla supports this outlook, so I'm not able to see what you're struggling with.

As to the number of reservations, the fact that Tesla hasn't provided further updates does in fact suggest the number of reservations hasn't increased significantly, IMHO. I think the number of reservations is closer to 350k than 500k. But it's lunacy to suggest it's dropped down to something like 100k. There's still not a meaningful competitor in sight (the Bolt won't be sold in sufficient numbers to have any real impact), and there's no other reason I can think of that would suggest a mass exodus. I think we would know about it here on these forums.

If you look at the Model X, one issue that disappointed reservation holders and definitely lead to cancellations (mine included) was the lack of folding 2nd row seats. The delays also didn't help. On the Model 3 you have no such issues, yet. As long as the Model 3 is moving along according to plans, and there are no negative news about the car, there's no catalyst for a mass exodus. Reservations holders know that if they drop the reservation, and then change their minds and do a new reservation, they will move to the back of the line, which can easily add 6-12 months of waiting time. This means that there is a significant threshold for dropping the reservation.

I think Tesla updated the delivery estmate because they expect a catalyst for new reservations in the near term. This could possibly be an Autopilot, HUD, Model Y, Model 3 hatchback/wagon or similar announcement today, or it may be that they are preparing for the Model 3 reaveal part two later this year. Providing an accurate delivery estimate to new customers helps keep them happy while they wait.

 

[Fallenone]

First, I really appreciate your and others time on this. Thank you.

STEP 4.
From the first post on this subject I expressed my opinion that price Tesla got for this dump of credits in Q3 got to be discounted. My WAG was about $1,500, @esk8mw assumed $2,500. Your assumption of zero or close to zero does not make any sense. Why would Tesla gift these ZEV points to Chrysler, Ford and Honda? There is absolutely no reason for them to sell these ZEV credits unless it brings meaningful contribution to the bottom line in Q3 - precisely the point you dismiss based on general considerations, but contrary to specific data presented above.

So using $1,500 - $2,500 range conservatively yields Q3 bottom line addition of $95.6MM - $159.3MM. Others may discount the approximately 63,706 ZEV credits booked in Q3 in some other way, but your suggestion that credits sold in Q3 are inconsequential is not consistent with known facts.

Again our disagreement is mainly on this. I see no facts or solid proof of ZEV market price still fetching in the thousands in Q3, or even in Q2. The closest two would be extrapolation from history and the Fortune story. And I think I made myself very clear that in light of the regulation change, extrapolation from history is invalid; and journalism is not fact these days.

On the other hand, we know for a fact that regulation requirement crashed, and Elon's own comment. Elon's comment is not purely fact but I take it over the Fortune story number.

Let's just stop here and agree to disagree. I would be rejoiced if Q3 ER proves me wrong next week.

 

[stealthology]

If you listen to past conference calls (more than just 1 Q back), Elon has the same reaction when ZEV is brought up.

 

[MitchJi]

Moderators, anything we can do to reduce myusername's waste-of-time posts, such as the one above? At one point he offered some reasonable posts, but those were in the distant past. A visitor to this thread should not have to wade through pages of dribble when the myusername show is on the air. Thank you.

We need to start doing that ourselves!

I shouldn't even entertain your drivel long enough to respond, but your argument is easily refuted.

Thanks, but next time please don't!

I hope you're right. But I think it's more likely that we don't see the major move up you're anticipating until one of the following:
1. it becomes clear to investors that SCTY actually helps TSLA's financial position
2. we see substantial revenue from Tesla Energy
3. or we see substantial revenue from Model 3

I generally agree, except that cash flow positive, depending on the amount could do it.

1. I agree, but I'm not sure what it will take. I think it's likely that if Elon conveys the same information he gave the fund managers that should do it.

2. It's possible that announcing TE V2 with much better prides and capacity with GF Cells, are being produced in quantity will do that and support number 1.

3. I think that the main hurdle that the 3 needs to overcome is producing them in quantity on time. I don't believe that they need to show income, but that wil only take an extra quarter.

Please note that all of those factors are synergistic.

 

[schonelucht]

There is absolutely no reason for them to sell these ZEV credits unless it brings meaningful contribution to the bottom line in Q3 - precisely the point you dismiss based on general considerations, but contrary to specific data presented above.

I know far too little about ZEV credit regulation to form my own opinion, but even at $250 a piece it would add over $15M to the bottom line which is still meaningful. So if that's the argument to form a lower price bound, then I think $1500 is not a conservative guess.

 

[MitchJi]

I know far too little about ZEV credit regulation to form my own opinion, but even at $250 a piece it would add over $15M to the bottom line which is still meaningful. So if that's the argument to form a lower price bound, then I think $1500 is not a conservative guess.

I have no idea what the correct amount is, but wether or not it's a conservative amount is not related the total amount.

 

[mmd]

On the Model 3 you have no such issues, yet. As long as the Model 3 is moving along according to plans, and there are no negative news about the car, there's no catalyst for a mass exodus.

Your comment is lot more realistic. it is also guarded with many clauses.
Here are some catalysts that could lead to cancellations for Model 3. I can list many more, but these are good enough for now. Model X had none of these negative catalysts.
a. Federal tax credit of $7500 for Tesla is exhausted. M3 is delayed, and the credits are used up by Model S and Model X buyers. Those far back in the queue suddenly find that competitors' offers are much cheaper, and lot more choices ae available by then.
b. Comparably equipped Model 3 is priced at $40k, not $35k.
c. IIRC, M3 was revealed with 215 miles of range. Now Bolt is sitting at 238 miles epa range. If M3 range is not upgraded, some may find the Bolt to be a better choice.

 

[GoTslaGo]

Your comment is lot more realistic. it is also guarded with many clauses.
Here are some catalysts that could lead to cancellations for Model 3. I can list many more, but these are good enough for now. Model X had none of these negative catalysts.
a. Federal tax credit of $7500 for Tesla is exhausted. M3 is delayed, and the credits are used up by Model S and Model X buyers. Those far back in the queue suddenly find that competitors' offers are much cheaper, and lot more choices ae available by then.
b. Comparably equipped Model 3 is priced at $40k, not $35k.
c. IIRC, M3 was revealed with 215 miles of range. Now Bolt is sitting at 238 miles epa range. If M3 range is not upgraded, some may find the Bolt to be a better choice.

As an investor, that would be AWESOME that Tesla's 200k US quota for 7500 tax credit is used up by Model S and X buyers. Implies high end demand is insatiable and definitely higher GM vs. Model 3. Nice scenario!

 

[MartinAustin]

...suggests that production will start mid-2017.

Yeah I'm sensing there is a definite increase in Tesla's confidence that production will start earlier in H2 2016 then was initially indicated.

Perhaps they have had really good luck with suppliers stepping up to the plate, since that was I think Elon's major risk.

I'm still reticent to believe the "mid 2017" talk, but hopefully we will get a great deal more "colour" on the subject in a week's time. OMG ER is in a week!!!

The profitability is only one aspect of why next week's ER will be critical for the stock. There will be enhanced visibility into the production start time of Model 3.

 

[Yggdrasill]

Your comment is lot more realistic. it is also guarded with many clauses.
Here are some catalysts that could lead to cancellations for Model 3. I can list many more, but these are good enough for now. Model X had none of these negative catalysts.
a. Federal tax credit of $7500 for Tesla is exhausted. M3 is delayed, and the credits are used up by Model S and Model X buyers. Those far back in the queue suddenly find that competitors' offers are much cheaper, and lot more choices ae available by then.

We're talking about right now, not what might be launched in the next couple of years. But speaking of the incentive:

First, this argument only applies to US buyers. Probably something like 150k reservations are outside the US, where this argument holds zero value.

Second, the phaseout of the incentives is a very good reason for reservation holders to cling onto their reservations for dear life. If they cancel their reservations, decide they want the Model 3 after all and do a new reservation, the fact that they've gone to the back of the line will almost certainly mean that not only have they lost out on the 7500 USD incentive, they've lost out on the 3750 USD and/or 1875 USD incentive as well. The smart move is to hold on to their reservation until a better option presents itself, if ever.

I have no doubt that some people who ended up far back in the line and really needed the 7500 USD incentive have left the line. But I would be surprised if we're talking about more than around 10-20k customers. This is offset by the trickle* of new reservations.

* worst case

b. Comparably equipped Model 3 is priced at $40k, not $35k.

Pricing/specs won't be relased until 2017, and is thus not a catalyst in this present moment in time.

c. IIRC, M3 was revealed with 215 miles of range. Now Bolt is sitting at 238 miles epa range. If M3 range is not upgraded, some may find the Bolt to be a better choice.

The base range of the Model 3 is at least 215 miles. The ranges are basically equal, but the Model 3 has supercharging and it's a Tesla, not a Chevy.

I have seen some people go from the Model 3 to the Bolt here in Norway, but it's not due to the range. The reason is that it will be available sooner. Though now, the Bolt is sold out here until Q3/Q4 2017, which mens the timing advantage of the Bolt is dropping closer and closer to zero.

Here in Norway the Bolt is aided by being a hatchback, rather than a sedan (which is almost completely hated), so I expect the Bolt to be a much less significant factor for Model 3 demand elsewhere. Again, some thousand reservations are likely lost, yet new customers will also be flowing in, as word speads and the production startup inches closer.

 

[Yggdrasill]

Yeah I'm sensing there is a definite increase in Tesla's confidence that production will start earlier in H2 2016 then was initially indicated.

Perhaps they have had really good luck with suppliers stepping up to the plate, since that was I think Elon's major risk.

I'm still reticent to believe the "mid 2017" talk, but hopefully we will get a great deal more "colour" on the subject in a week's time. OMG ER is in a week!!!

The profitability is only one aspect of why next week's ER will be critical for the stock. There will be enhanced visibility into the production start time of Model 3.

One thing to keep in mind is that mid-2017 might mean September 2017. There's no escaping the fact that Tesla has fuzzy definitions of seasons and such.

My definition of mid-2017 would be May-August. With early 2017 being January-April and late 2017 being September-December.

 

[MartinAustin]

IIRC, M3 was revealed with 215 miles of range.

Your recall is not totally accurate. The number printed on the screen and on the website was 215, yes. Elon said (quote) "the range will be at least an EPA rating of 215 miles. I want to emphasize that these are minimum numbers - we hope to exceed them."

The Bolt's 238 miles is 23 more miles... 10% (a nice step up, I concede) but I am sure we will be surprised by the Model 3's actual EPA rating. And don't forget there will be a range of, er, ranges. If the base Model 3 has a shorter range than the Bolt, I am not sure it will be a disaster for anyone.

 

[Johan]

I'd just like to thank @brian4501, @vgrinshpun and @Fallenone for some really great, fact based, contributions with regard to ZEV credits, which is undoubtebly is a complex issue and very hard to decipher.

I can understand Elon's and Tesla's reluctance to speak clearly and directly about this due to the negative PR effects should it turn out that income from sale of ZEV credits should be the thing that tips the scales from say GAAP negative EPS to positive EPS. They would take massive flak from their critics, even though it's neither Tesla who impleneted nor are running the ZEV program.

Historically we know that CARB has been infiltrated by very corrupt high ranking members with clear ties to the oil and gas industry, and to traditional ICE-focused auto makers. From what I've read and come to understand CARB is now being run a bit better and in accordance with its mission statement? The ZEV-program is nevertheless still very complex and thus prone to all sorts of attempts at manipulation and "gaming the system" but this could apply to Tesla as well as those who are net buyers of credits. Getting "pennies on the dollar" whatever that means, must mean that the size of the discount in the ZEV market must be proportional to the percieved risk (on Tesla's side) of not getting to sell the credits and the "chance" (on the buyer side) of the system changing so that the credits won't be needed after all? What I mean by that is we know that as of today the penalty for a missing credit is $5k but credits are not traded at $5 but less, likely substantially less, which in turn must be explain by a combination of supply-demand inbalance (selling pressure) and a negative time value (that is a chance/risk that the credits won't be worth $5k at some point in the future).

 

[schonelucht]

I have no idea what the correct amount is, but wether or not it's a conservative amount is not related the total amount.

I was just following @vgrinshpun 's argument that's basically saying that Tesla would have no reason to sell the credits unless it made a meaningful contribution to the bottom line and working out a lower bound price. So the conservative guess is indeed argued based on the total revenue from the sale. I see no reason why this would not be the valid.

 

[PaulRocket]

All eyes on Tesla ahead of the mysterious product unveil today

Not even Fred from Electrek knows what coming today. I was sure it was going to be AP 2.0 or HUD but now I'm starting to wonder if it might really be something completely unexpected. If it was AP 2.0 or HUD and the cars being produced right now had these features I'm sure someone would have leaked this by now, either a factory worker or someone else