Short-Term TSLA Price Movements - 2016

[techmaven]

If there is a recession next year, and Tesla is down to their last $300M in cash, and they're forced to raise money but the markets are in a severe downturn, it could get very very nasty. We're talking about possible double digit stock price (ie., a recession could sink TSLA stock price by 30-40% or more, and Tesla's precarious cash position could sink it another 20%). This is something that should be avoided, and that's why a capital raise really isn't "optional" but it is "needed". With Tesla, they really shouldn't drop their cash balance lower than $2 billion, or else that's just entering a place of precarious cash position... especially for a company that's trying to sell roughly $15 billion in autos next year (ie., $10 billion in S/X and $5 billion in Model 3 assuming 100k cars at $50k asp due to earlier orders leaning toward performance/etc). Actually, I'd be more comfortable if Tesla didn't drop under $3 billion in cash at all next year. Now, I know others will disagree with me and that's fine. Ie., "Elon says Tesla will be fine, so they will be fine". But my question would be for a company that's selling $15 billion in autos (which is a capital intensive business), how much would cash in bank would you want that company to maintain especially in case there's a recession? And then, add on top of that a cushion for SCTY which, as I shared earlier, might burn some cash as well in 2017.

Well, there are a slew of places where Tesla can choose to alter their plans if the macro conditions force the situation.

1) The Gigafactory phase one is essentially paid for on Tesla's side. Initially it will make Tesla Energy products as they communicated in their recent shareholder's letter
2) Fremont factory equipment is essentially accounted for or will be in 1.5 quarters
3) Delay 500,000 unit build plan, including 2nd phase of the Gigafactory and Fremont expansions

Tesla is spending money on the 2nd phase of the Gigafactory in 2016. That's a luxury if cash was really necessary for 2017. It's purely for 2018. A 150,000 unit Model 3 build plan needs about 10 GWh, or half of the first phase. If they shipped zero TE product, they could use the first phase only for vehicles... we're talking maybe 25-30 GWh of capacity online between Panasonic's capacity and the Gigafactory phase 1. That's somewhere around 350,000 to 400,000 vehicles, depending on the product mix. But to have the 2nd phase of the Gigafactory online in time for end of Q1, 2018 would mean likely that the shell needs to be completed by summer, 2017. So Tesla is spending that $350 to 400 million on that.

If there is a recession in Q1, 2017 and capital was harder to come by, then Tesla can just stop the 2nd phase expansion. They would still have a 250,000 unit build plan intact, and depending on vehicle versus TE product mix, could still hit north of 300,000 vehicles. That's probably $100 million or so that they wouldn't spend. They also would hold off on the first set of equipment for the 500,000 build plan... that $1.25-ish billion won't be spent in Q3-Q4 2017, and obviously the 2nd set would be pushed off indefinitely. Basically, there would no longer be overlap between the capex for Model 3 launch and the capex for the 2018 500,000 build plan.

Now, since they are building out 2nd phase of the Gigafactory, and the first phase will hopefully start shipping product in Q1, 2017, Tesla is obviously gearing up for a lot of stationary storage. Given that the plan is to start Model 3 production in Q3, 2017, with ramp in Q4, 2017 to the tune of 100,000 to 200,000 vehicles, the Gigafactory phase 1 ramp has to planned for more than 12 GWh of production rate by the start of Q4, 2017. Assuming another s-curve ramp of the Gigafactory phase 1, that still means a lot of Tesla Energy product being made in Q2, and Q3 of 2017. Matter of fact, it seems that in 2017, Gigafactory phase 1 might make 50% TE product, 50% automotive. That's 8-10 GWh of TE product. I think that's $500 million to $1 billion in gross profit in 2017 - $250/kWh price (original estimate), 25% gross margin. You can pick your own numbers, anywhere from that $250/kWh to the $400+/kWh they have been charging for PowerPack 1. Presumably gross margin was positive but poor when they were shipping merely 10's of MWh per quarter, but as they move to 100's of MWH per quarter or 1000's, the margins would improve dramatically.

I'm disappointed that Tesla hasn't really stated projections for Tesla Energy in 2017. I suspect there's just a lot of issues with timing. The exact ramp of the Gigafactory phase 1 and the ability for the market to actually order and install many gigawatt hours of stationary product is tough to predict. Clearly, there's a market at > $400/kWh. At $250/kWh for the PowerPack, there's a much, much bigger market. The other issue is the Osborne effect. They don't want to talk about Gigafactory sourced cells for TE product since it isn't here... they want to sell TE products based on non-Gigafactory sourced cells this quarter and next.

Matter of fact, even in a recession, at $250/kWh, there are capital projects that will continue to happen since it would be much cheaper to buy Tesla Energy product than build, say, another peaker plant. A lot of those projects are budgeted and allocated for years. Further, the likely economic stimulus as a result would favor infrastructure projects that would use TE product. Sure, residential would crash and burn. But ironically, if that emergency scenario, Tesla could jettison almost all of new residential solar + stationary storage and just collect the PPA revenue to help keep them afloat.

 

[esk8mw]

What does stock price got to do with merger approval? The conversion rate is set at 0.11 without any caveats. Right?

I have seen some folks mention about $170 as the TSLA stock price at which deal gets killed. I don't see that anywhere in the S4 documentation. Am I missing anything?

You are correct about the conversion rate - it's 0.11 no matter what.

My point was that the parties could mutually (or unilaterally + pay the exit fee) terminate the agreement if the SP declined drastically, as is often the case with deals.

I agree on the 170 point - that made me scratch my head earlier and wonder if I missed something. I haven't read the S-4 cover to cover so I didn't want to correct whoever said it first. The only explicit mention of SP decline I see is in the negotiation details - one proposal on the table was giving SCTY a termination right if TSLA goes under 175, but I don't think that made it into the final deal.

 

[MartinAustin]

Just that in the next two decades, solar products will be far more advanced and far cheaper than the 80% output from 20 yr old panels.(just a guess, no promises).

When I think about putting panels on the roof of my house, I think, once I've got enough panels to provide the power I need, why would I be interested in getting a new set that was more efficient? The current panels produce what I need. There is no desire to look upon new hi-tech panels with envy... my house already has what it needs. Sure, future recipients of panels will need less panels on their roofs because the panels are better, and thus it costs them less money. But, once I have the panels I need, I do not need more.

 

[Ulmo]

What if Tesla is planning to, finds it prudent to, decides to, after seeing what is happening sees an opportunity to, or otherwise strategically:

1. Merges with SCTY,
2. Quickly monetizes $2B - $6B of its long term receivables while
3. watching its share price drop hugely, then
4. quietly buys back about $2B of low-price TSLA stock, as an investment in itself, then
5. when it files the SEC document making this public, continues
6. buying back its own shares for a few more $100M or so,
7. letting its share price go up pretty healthily, then,
8. decide that "due to the volatile nature of the markets" wants to, in Elon's own officially repeated words, de-risk (i.e., capital raise (sell its stock)), at a pretty high stock price (like 2x or 2.5x their purchase price) about the same amount of billions of dollars worth of stock (or more), and
9. end up holding more of its own shares, de-diluting the shares in the market, basically injecting about $2B extra into Tesla's cash position, less voting power in the public investors, more control by the board and the institutional investors (and huge gains by the stronger longs of them and all strong longs), and
10. Elon's personal wealth now twice as much for his SpaceX Mars investments, and
11. all of Tesla's projects well funded, and
12. all of its employees with good options packages very happy (the ones who are smart enough not to cash out in a bad tax way, that is)?

That would certainly be a profitable strategy by Tesla, and could put them in the green pretty quickly, regardless of if they planned it that way or not (probably not), and would make it even more certain that they would achieve their goals.

 

[Ulmo]

When I think about putting panels on the roof of my house, I think, once I've got enough panels to provide the power I need, why would I be interested in getting a new set that was more efficient? The current panels produce what I need. There is no desire to look upon new hi-tech panels with envy... my house already has what it needs. Sure, future recipients of panels will need less panels on their roofs because the panels are better, and thus it costs them less money. But, once I have the panels I need, I do not need more.

Right, which is why it's good to buy them now if they make sense now financially for any particular application, whenever, whatever, wherever, whyever, and whoever that now is.

It's analogous to iPhones, computers, and Tesla cars: as SOON as you have the latest and greatest, and MORE THAN LIKELY BEFORE THAT, someone else will have the next greatest and best that MAKES YOURS NOT THE BEST ANY MORE (if it ever was). So what? You have what you need, what provides life. Do you want to wait until you can drink some water from the mountain spring, and dehydrate to death, or can you just turn on the highly filtered water dispenser water now, and do very well?

(Brian): Payment Stream renewals between 20 to 30 years $0.9 B (no technological advancement will make those 20 yr old panels obsolete???)

In many cases, the already working and installed panels will be the better choice than upheaval and chaos to put in something else, and in some cases, it will be an opportunity to switch to a superior situation, for both parties.

---

Well, there are a slew of places where Tesla can choose to alter their plans if the macro conditions force the situation.

...

Matter of fact, even in a recession, at $250/kWh, there are capital projects that will continue to happen since it would be much cheaper to buy Tesla Energy product than build, say, another peaker plant. A lot of those projects are budgeted and allocated for years. Further, the likely economic stimulus as a result would favor infrastructure projects that would use TE product. Sure, residential would crash and burn. But ironically, if that emergency scenario, Tesla could jettison almost all of new residential solar + stationary storage and just collect the PPA revenue to help keep them afloat.

That's like an ideal default situation. SCTY + TSLA really is better than the sum of its parts, even in the worst of cases, but especially in the best of cases.

---

I do wonder how many people forfeited their $2,500 deposit and canceled their AP1 ordered cars to then place an order for an AP2 car. And how much Tesla would then discount that now inventory AP1 car to move it. Ideally, many of those cars become the showroom demo cars. I'm thinking AP2 cars do not become demo vehicles since they make a terrible demo while the AP2 software isn't yet enabled. That might be enough to have a gross margin positive effect, as Tesla has to have demo cars anyways and their discounting is already a cost of doing business.

Further, the take rate of the AP2 features would mean some parts of that revenue would count in Q4 (hardware + markup) and the rest would be deferred until the various features are enabled and recognized on some sort of schedule. It's in interesting dynamic for Q4.

I like this too, because there's two car margins instead of one: one is put to market as an AP1 car, and another at a huge margin for the AP2 car. This is more margin than that person only ordering one of those cars, I think: you might say the first car buyer would have gotten a car anyway, but that's not always true, since a lot of buyers are only buyers because they are able to get a car right away from inventory.

---

Thanks for your insight. Something I have trouble understanding is that if you know this, then wall st. should also know this. So we should see the gap close to what, less than 5% tomorrow? For some reason, I suspect we won't. Perhaps I will be surprised tomorrow.

I don't think the herd of street hustlers who mob-shot-short TSLA really care about that; they just use the illusion of that not mattering to their advantage during the ticks and the AI bots and nerve-impulse investors who follow the wicked. Throw in a few savvy shorts there too that have a honed game, and facts aren't even considered. If anything, facts are a good fulcrum point to use leverage against to reach something far away from the facts, in a real, hard-cash dollar and sense and immediate way.

 

[brian45011]

Well nobody's going to pay full price for 20 year old panels, but perhaps they could become like how people donate their old cars now.

OK. At the end of the 20 year lease and PPA, SCTY/TSLA still owns those panels. If SCTY/TSLA wants to donate them to charity, fine. My speculation is that who ever owns the residence at that time will not be interested in those panels (yet, SCTY still estimates them as 22.5% of their "future value")

I've owned and occupied 7 residences (half a dozen more un-occupied flips); longest occupation of those 7 was 15 years during my children's maturation, but the average period owned of all occupied is about 5.5 years. Lyndon thinks those leases/PPA add value to the property; i think just the opposite. That's what makes a market.

 

[Papafox]

Could someone help me better understand the $2 billion of recourse debt of SolarCity? I'm sure others share my curiosity. My understanding of recourse debt is that it is collateralized debt, something that SolarCity is on the hook to pay. Is this a portion of each PPA contract that SolarCity would need to pay to various parties if all homeowners defaulted on all PPA agreements? Is there other debt on the books for SolarCity, such as mortgages on buildings, etc., or is that just part of the $2 billion recourse debt? Much thanks.

 

[brian45011]

When I think about putting panels on the roof of my house, I think, once I've got enough panels to provide the power I need, why would I be interested in getting a new set that was more efficient? The current panels produce what I need. There is no desire to look upon new hi-tech panels with envy... my house already has what it needs. Sure, future recipients of panels will need less panels on their roofs because the panels are better, and thus it costs them less money. But, once I have the panels I need, I do not need more.

Do you buy or lease those panels? Buy--"no brainer" in Elon's words. If leased and the lease of the panels was a good deal when they were first installed, would a new lease of new panels or a renewal of 20 yr old panels be a better deal?

You live in Austin: what kind of roof is on your property and what do think is it's useful life. (I know the DFW and surrounding areas have an appreciable hail risk, but not sure about Austin.)

 

[brian45011]

Sure, but doesn't the revenue assume reduced rates are negotiated beyond the 20 yr contract? .

If you can cite a SCTY filing that explains that I'll concede the $0.9 billion is possibly realistic.

 

[SebastianR]

Seems overly optimistic. There was no way the same enthusiasm about reserving a PW2 that there was about reserving Model 3. Where people stood in line just to be the first etc... I would be surprised if they have 100k reservations by now.

I'm not sure that's needed (the long lines to get to 100k reservations). There are a number of people (at least in Germany) that wanted to have a Powerwall 1 and never got one delivered. These people are quite happy to take a powerwall 2 now. Also, I have read comments on German forums that indicate that if the price is the price that Tesla announces on the German website and if they can deliver, then they would happily buy a lot of them.

My (uneducated - thus proceed with caution!) guess is, that Powerwall 2 will be sold as quickly as it can be produced.

 

[brian45011]

Could someone help me better understand the $2 billion of recourse debt of SolarCity? I'm sure others share my curiosity.

Your best source is FINRA.org. The document issued today said SCTY would add $0.5 billion to the combined Balance Sheet in the next three years. However, about $0.9 billion of SCTY recourse debt must be repaid/re-financed in those 3 years.

Take a look at SCTY's converts--Tesla will pay them off at !00 cents on the dollar if the merger closes.

2018 $230 million face value. due 11/01/18 Coupon 2.75% Last trade 0.8395 (effective interest rate 12.04%) Traded as low as .06512 on 6/16/16 --five days before the acquisition announcement

2019 $556 million face value. due 11/01/19 Coupon 1.625% Last trade 0.7825 (effective interest rate 10.25%) Traded as low as .0.5401 on 6/16/16 --five days before the acquisition announcement .

You would think a "cash is king" CFO is quietly accumulating these notes if the vote is a lock and the rise between 6/16/16 and today is because of that accumulation (maybe not)

 

[brian45011]

decide that "due to the volatile nature of the markets" wants to, in Elon's own officially repeated words, de-risk (i.e., capital raise (sell its stock)), at a pretty high stock price (like 2x or 2.5x their purchase price) about the same amount of billions of dollars worth of stock (or more),

Love that "de-risk" term--both Elon and Jason use it. The $450 million "de-risk" of TSLA's 2018 notes was NOT Tesla's decision. It was the note holders expressing a lack of confidence in the SCTY acquisition. Those $450 million of face value in 2018 notes were converted early for a total of approximately $813 million--ignoring coupon interest. What do you think the effective return to those note holders was?

 

[RobStark]

My speculation is that who ever owns the residence at that time will not be interested in those panels (yet, SCTY still estimates them as 22.5% of their "future value")

If SC sells to the new resident at 30% per the current kW produced by the panel vs a new panel why not?

Original system was 10 kW. Now produces 8 kW. New 8kW system is $1000.

You get 10 years of 8kW for $300 vs 30 years 8kW system for $1000.

Or whatever the numbers turn out to be you discount enough so the electricity from the old panels are cheaper than the new. Some cash is better than throwing the old panels in the trash.

If the person wants a fashion statement with a Tesla Solar roof or for the vanity of some new gizmo solar panel they may happily pay a premium but for most people it is just an appliance to produce electricity.

If you buy or lease for a cheaper price per kWh than brand new panels why not?

The cost to SC is zero, sunk cost. Anything they could get is a positive.

BTW Had to be away from the computer this afternoon. Took me a while to finally catch up on this thread!

 

[RobStark]

Production equipment at SolarCity's Buffalo Gigafactory aka Warehouse 13

Buffalo GF Parking Lot

Inside Look: SolarCity Plant Ready for Outfitting

 

[PaulRocket]

Production equipment at SolarCity's Buffalo Gigafactory aka Warehouse 13

Buffalo GF Parking Lot

Inside Look: SolarCity Plant Ready for Outfitting

The picture of the production equipment is actually not real and from a movie. I don't remember which one, but you can see it in the quality of the picture.

 

[virtuesoft]

The picture of the production equipment is actually not real and from a movie. I don't remember which one, but you can see it in the quality of the picture.

Indiana Jones

 

[winfield100]

The picture of the production equipment is actually not real and from a movie. I don't remember which one, but you can see it in the quality of the picture.

"WAY OT) "Raiders of the lost Ark" (and for poppa fox, the N number of his plane was C3PO)
back to lurk mode

 

[aubreymcfato]

Very detailed article from Julia Pyper of GreenTechMedia:
SolarCity Has a Plan to Unlock Tomorrow’s Electric Grid
https://www.greentechmedia.com/arti...lock-the-Potential-of-Tomorrows-Electric-Grid
OT: could we make a poll to decide the new name of the thread?
Daily discussion was good, IMHO.

 

[Stretch2727]

OT: could we make a poll to decide the new name of the thread?
Daily discussion was good, IMHO.

Daily Investor Discussion


Should keep to topics Investors would have interest.

Everyone should ask the question if their topic and/or information will be meaningful in effecting the stock price, profit, cash flow or balance sheet of the company.

I guess it is in the "Investors" section so this should be clear.

 

[schonelucht]

This is just one data point, but October deliveries in Norway were 86% higher than last quarter: 123 in October vs. 66 in July. The split MS/MX: October - 39 / 84, July - 43 / 23. So at least this single data point is consitent with my hypothesis that October mix includes an increase of overseas deliveries vs. NA.

If you are referring to our earlier discussion, then the question was : if Q4 2016 is a repeat of the Q4 2015 strategy, then why are US deliveries last month lower than last year (despite to overall quarter projected to grow 50%). And the potential given answer was : because this year they will deliver more overseas which biases against a good October month for the US. So the proper comparison to answer that question is not with last quarter (when they didn't do the speculated extreme pipeline emptying) but with last year. And then the picture is less rosy. Compared with last year, October deliveries in Norway are down by 38%, those in the Netherlands are down by 48% and are only up in Sweden by 29%. While we don't have data yet, there is a very high certainty that both UK (by a little) and Denmark (by a lot) will do worse than last year. Taken together I feel confident to estimate that Europe won't do better than last year. Maybe Asia will pick up the slack, but I think current data actually strengthens the argument that deliveries in Oct are down because Tesla choose to produce inventory over custom orders.