Short-Term TSLA Price Movements - 2016

[Julian Cox]

I know we differ in opinion on this subject. I can add some color to my thinking:

I think we both agree that there is no way any ICE manufacturer can survive with gradually introduction of EVs. It has to be done on a massive scale with the majority of the vehicle platforms and EVs have to become a first class citizen. There is no plans of this happening yet for any of them. When I say 2020 does not mean I think that date is the most likely date of this to start to occur, just that there is 0% chance of it happening before. I do think the panic mode will start to happen around 2020, it will not happen sooner because Model 3 will take customers from such a broad base to not hurt one manufacturer enough to panic. There is also the customer inertia. Many will irrationally stick to their old brands and ignore EVs. The lead time for new vehicle platforms are also too long to really enable any type of panic development. They got the years laid out and have made their bets already.

I think a massive EV push can and will happen for some of them post 2020 with government support and share holder and customer pressure after some bad years, but the transition will mean years of losses. Surviving is much better from a share holder perspective than bankruptcy, even if it would cost more in total for society and business partners. There is also no evidence at all that government support will not happen, countries like China, Japan, South Korea and Germany (before diesel-gate) have a history of companies with great execution and governments that are going to bail them out and support them and this will also create the effect of pressure to move to EV from the governments. In Germany for example Merkel has already had serious talks with the German car industry about the slow adoption of EVs and how they are falling behind while the country is leading in the renewable transition. Society wants the transition and they want it from "their companies", too.

There is also a big difference between a GM type of bankruptcy which is more like a legal and moral reset of the company versus a bankruptcy that means going out of business and being totally replaced in the market by something else. The former I think is likely for a large number of ICE, but not the latter unless Tesla takes up an unheard of massive market share (which I don't rule out at all and can totally see happen).

From some of your previous posts I got the impression you mean that the old ICE industry will be replaced by startups because they will go bankrupt and put out of business. I think that is overestimating the difficulties for ICE to transition to EVs (but I do agree it will be extremely challenging and many will fail) and underestimating the difficulty for a startup to succeed.

Surviving a major technology transition is not impossible. It happened for example for global telecom that successfully made the transition from landlines to cellular networks.

In the end I am not sure it matters all that much if the current ICE companies are doomed to go under or not. The question is how large market share EVs will have at a certain time and how large Tesla's share will be.

If the total vehicle market contracts, which can happen for example because of autonomous fleet then the future looks very dark for those that lags behind. So what I wrote above is my prediction only in a slowly growing or constant market.

Telecoms - night and day difference. This is not an example of 2+2 equalling something other than 4. It's not a tech disruption. Just an innovation.

Wireless carrier business was able to grow to enormous scale while charging consumers a premium when compared to land lines. Cellular networks grew up as value added service mounted on top of traditional trunk services. They don't bypass trunk services - if you call cellphone to cellphone from New York to California most of the distance is covered by fiber.

As and when Musk puts up 4000 global broadband satellites and mounts cell towers on top of that, that would be a disruptive technology. If he charges half the price of terrestrial services for trunk + cell traffic, goodbye AT&T and all the rest, nothing their technology can offer will mean anything of value to consumers that the new technology cannot supply BOTH cheaper and better. (In this case much faster data services and a contiguous global network).

When it comes to launching EV capacity in the millions of units it will always be cheaper just to do it than to have to retire millions of units of ICE production first. On a business risk basis it will always be preferable to grow capacity rapidly for a brand and design capability that is in demand than to take the chance of launching vast capacity only to discover consumers don't like something unforeseen about your brand or product. So yes unless a government is willing to absorb that risk on behalf of is taxpayers it's either a startup that does not have either of those problems or pivoting from ICE to EV is an insurmountable problem - not a viable business or investment case. Can be a giant EV startup like Apple or Samsung but it can't be Ford or GM especially considering that in the US the taxpayer has already been hit up once for bailing out the ICE industry. Germany may well be willing to bail out is auto industry, maybe Japan too and the Chinese government is the worlds biggest VC fund.

Put it this way, it would be worth making sure your pension does not contain any Big Auto. Governments don't tend to reward shareholders and whatever the national flavor of restructuring, passing through bankruptcy is an accurate enough description. In the US I suspect it is strictly accurate.

 

[lango]

Tesla is an excellent investment case and ICE is very much not at this point, no question about that so no disagreement there

There are some players in the global auto industry though that has a history of great execution in one of the most competitive industries. Obviously GM and Ford is not one of those. SpaceX is shaking up tired monopolies with government contracts but this is not the case at all with auto - it is and remains super competitive. It is totally possible the great execution becomes bad execution because of the technology shift, but it is too early to say if that is the case. What we have seen so far from them is not encouraging (or is very encouraging for Tesla investors), but I still think once the path they need to take is more clear that some of them will start doing the right thing. But yeah, we have not seen it yet. No matter how good they do it though the challenges are going to be massive for them while Tesla just avoids it all together.

What is happening now is that they are starting electrification with hybrid technology and then some of them are carefully doing BEVs. It is not really mismanagement so far from ICE I don't think because it is not possible to do BEVs at 5%, 10%, 20% or 30% commitment so given that you might as well do it 5%. it has to be a first class 100% citizen and doing that now when the ICE business is still growing and BEV costs are high is probably not a good risk reward trade-off, mainly because their BEV product will be bad compared to Tesla's. So they can't try to fight Tesla's lead at this point. They can only try and go for this when the market and volumes becomes much bigger. Model 3 will have the effect of clearly showing everyone that the market is indeed very big. Ideally then the ICE company should start planning for a complete restructuring. This will not happen and things will take longer so Tesla's won't have any competition to at-least 2020 so Tesla's first mover advantage is going to be massive but they will still "only" make 500 000 or a bit more vehicles by 2020 and there is still the remaining 95% of market to fight for that has not become BEV yet. A Toyota and Volkswagen or KIA that is explicitly or implicit backed by government or any other national mobilization effort is going to be in a better position than a startup to capture parts of that share. Technology changes that goes further than the drivetrain eg. autonomous fleet will change this further and then I think a startup has a better chance compared to if it is mainly the drivetrain.

Anyway, this development will be interesting to follow and it is an interesting discussion. I avoid looking to much further than 2020 which I guess is why I mention that date frequently. The roadmap for Tesla is clear to 2020 and it is for ICE too: hybridization with some experimental BEVs. The big problems for ICE will not start to happen until some time after that point unless macro turns really bad. But historically when you look back Model 3 will be seen as the starting point.

 

[Ulmo]

I hope the model 3 is great but not TOO great if that makes sense. It needs to suck enough for people to keep buying model S', or the model S needs to be made more compelling or both. Just whatever seperates a BMW 3 and BMW 7 needs to apply to Teslas now.

While I understand your point, there will be a couple of years in which to improve the Model S and Model X lines. If it costs less to offer a great Model 3 than a Model S, then why not? They'd sell more Model 3. If Model S and X become uninteresting, then Tesla can go back and work on them. There's a lot of room for improvement for both S and X; I am not a good focus group, but at least I can see for myself they could have more luxurious interiors and features, quieter operation, smoother ride, better integrated smartphones, heads up display, chairs that swivel so you can turn the X into a meeting room, or whatever the hell. I don't think they have to do all of these particular things, but if they get enough engineers and product developers swarming around the S and X to increase their features and quality, there gets to be a point where the rich folk will both enjoy the extras and be able to show that they respect themselves enough to get those extras for themselves in such a way that the luxury segment will be happy to buy those cars.

But, you're right, as the S and X sit right now, if the 3 gets to have comparable features, and nothing is ever done to upgrade the S and X lines, then the 3 will replace S and X sales. That's already going to happen with a lot of the environmentalists (which I would like to think are the norm of the population) that had to stretch to get the S or X, and can now more easily afford the 3.

 

[ev-enthusiast]

First Model X spotted in China at Beijing airport cargo terminal (link). Tesla might Show the Model X at Beijing Motor Show later next month.

 

[Ulmo]

Model X production line seems to be going smoothly now, I was just told by my DE that my Model X is entering the paint shop today or tomorrow and that delivery will likely be next Tue or Wed. From paint shop to assembly to final inspectin to delivery in about five days-- that seems very fast!

I should spend more time in Silicon Valley. I was out of the area all week and didn't read TMC and lost perspective.

So, here's my elementary school level take on this:

I came back to TMC and SV Friday & Saturday. On TMC, I see a lot of X's shipping are having numerous annoying issues of quality, and Saturday I drove up I5-CA152-US101 and saw two truck carriers filled 100% with Model X (~7 vehicles per truck). Model X is definitely shipping now. This will continue the narrative that Tesla has delivered the Model X, relieving down-pressure on the stock regarding failure to deliver. Continued quality issues will then either get solved by Tesla quickly by being very open and effective at the repair centers for all those issues, or they will cause down-pressure on the stock for the brand image issue. I think most of the X delivery fix has been restored in the stock price, and the quality question is half already there and half not yet considered by stocks, so there may be some little fluctuations as these issues get reflected by East Coast media and such.

 

[Ulmo]

If we assume that WK's hacking forced their hand then we are assuming they are going to announce the 100 earlier than they intended. Since they didn't know ahead of time that WK was going to hack them how would they know to secretly produce 100's but label them as 90's? And why not, (if they had 100's available), simply announce the 100 at that time instead of the 90, especially in the X which could use the extra range? As for annoying 90 buyers, we've already heard rumors of price increases coming, which if true means annoyance should be minimal, i.e. they got what they paid for. Tesla is always innovating, so as Elon says the best time to buy a Tesla is now, or you'll never buy one. The other option not discussed is they are not going to be announcing a 100 any time soon. I find that more probable than the secret 100's labeled as 90's theory.

I completely agree. A price increase neatly quells complaints about upgrades.

(And remember, I introduced the 100 masquerading as 90 theory as extremely unlikely. While there's nothing technically or marketing-wise wrong with the idea technically, when considering that's what they did with the 40 battery (it was actually a software limited 60 battery), it seems Tesla already decided the 40 was a bad idea, so why would they repeat that idea now? It was just one crazy zany theory I put forth, as one of the less likely of a long list of unlikely things I put forth.)

 

[Ulmo]

Yesterday I was listing reasons why this product announcement might be a "buy the news" instead of sell. Here is another one:

In unveiling the 35k high-volume vehicle, TM can now change the narrative about how they are a "Tax subsidized maker of rich people's toys". A favorite attack of the anti-tesla crowd is very blunted. They might still try it, but the audience will not be a receptive since they now all about TM's plans to make an affordable car pretty soon.

Not the strongest "plus" item, but convenient for rebutting SA trolls and such.

You think stock traders consider this? I agree with your point in general, but for stocks let's look at what happened with the narrative that Tesla's are coal-powered: when they looked at the ENORMOUS upswing in solar panel uptake by both the owners of Teslas and the sister companies to Tesla (Solar City), and the Tesla owners responded to the "coal-powered car" insult by saying EXCUSE ME, MY TESLA IS SOLAR POWERED, and pointing at the HUGE increased marketshare of solar power, and then the insulters pointed and said "they're still coal powered since they charge at night", and Tesla introduced the battery for electricity time shifting, then it became real all of a sudden: the batteries haven't yet been installed, but if the insulters kept saying Teslas are coal-powered, then many Tesla owners would jump-start the battery market, REALLY stopping the insult. For now, the insult that Teslas are coal powered has withered and died. And as an offset, LESS coal is spewed in the daytime (many coal plants being shut down) since the upswing in direct fresh solar market share, and overall, BECAUSE OF DAYTIME SOLAR, so it is true to some extent that solar panels charge the cars. My question is: how much of this is reflected in the stock? I don't know, but I wouldn't be surprised at all if it wasn't reflected a lot (although it has to have some reflection).

Yes, it is very convenient to say it's not tax subsidizing the rich, though (although telling rich people how to spend their money is a lot of power for the government to have -- they're complaining?). It will be a lot more convenient if (a) the narrative includes the bailouts and supports given to their competition and (b) the rebate runs out completely. It will also turn into the opposite narrative that Tesla is in trouble because it "blew" its rebates already, and it hasn't benefited from bailout money. We've already seen many articles on stock trading sites stating both those things.

 

[roblab]

EXCUSE ME, MY TESLA IS SOLAR POWERED.

I'm sorry, but if I actually paid for electricity, I guess someone could make a case that I am buying coal. But I don't. I may dump my free electrons into the grid, and pull out some others, but the fact remains that I don't pay. Sunlight is free. My panels paid for themselves in about 6 years. I've had them for a dozen years. And I get a check for generating more than I use.

All this hullaballoo about whether or not some one is using coal is a last desperate wheeze of the oil industry and auto makers. Maybe even coal, but they know they are fading.

 

[McMuggets]

Some may not see relevance of this article in this forum, and a mod may remove it.... but I think it is very telling for TSLA investors. One good excerpt and telling of where "smart money" is going:

"Electric and hybrid vehicles will reach sales of 25m by then, driven by plunging battery costs and tightening car emission rules in China, Europe and the US. Goldman says these curbs are nearing the point where car producers will stop investing in the internal combustion engine. That is when the switch to electricification will become a stampede."

Here's the full article:

Even if the global warming scare were a hoax, we would still need it


You will see that the smart money is already leaving for eventual full electrification of personal transport. And the biggest gorilla in the room, China, is leading the way.

 

[Ulmo]

EXCUSE ME, MY TESLA IS SOLAR POWERED.

I'm sorry, but if I actually paid for electricity, I guess someone could make a case that I am buying coal. But I don't. I may dump my free electrons into the grid, and pull out some others, but the fact remains that I don't pay. Sunlight is free. My panels paid for themselves in about 6 years. I've had them for a dozen years. And I get a check for generating more than I use.

All this hullaballoo about whether or not some one is using coal is a last desperate wheeze of the oil industry and auto makers. Maybe even coal, but they know they are fading.

Yes. I know. Tesla's being coal powered was an old argument that is mostly dead. That's why I used it as an example. My point was that since that argument died, has the stock reflected that argument going away?

 

[Julian Cox]

Tesla is an excellent investment case and ICE is very much not at this point, no question about that so no disagreement there

There are some players in the global auto industry though that has a history of great execution in one of the most competitive industries. Obviously GM and Ford is not one of those. SpaceX is shaking up tired monopolies with government contracts but this is not the case at all with auto - it is and remains super competitive. It is totally possible the great execution becomes bad execution because of the technology shift, but it is too early to say if that is the case. What we have seen so far from them is not encouraging (or is very encouraging for Tesla investors), but I still think once the path they need to take is more clear that some of them will start doing the right thing. But yeah, we have not seen it yet. No matter how good they do it though the challenges are going to be massive for them while Tesla just avoids it all together.

What is happening now is that they are starting electrification with hybrid technology and then some of them are carefully doing BEVs. It is not really mismanagement so far from ICE I don't think because it is not possible to do BEVs at 5%, 10%, 20% or 30% commitment so given that you might as well do it 5%. it has to be a first class 100% citizen and doing that now when the ICE business is still growing and BEV costs are high is probably not a good risk reward trade-off, mainly because their BEV product will be bad compared to Tesla's. So they can't try to fight Tesla's lead at this point. They can only try and go for this when the market and volumes becomes much bigger. Model 3 will have the effect of clearly showing everyone that the market is indeed very big. Ideally then the ICE company should start planning for a complete restructuring. This will not happen and things will take longer so Tesla's won't have any competition to at-least 2020 so Tesla's first mover advantage is going to be massive but they will still "only" make 500 000 or a bit more vehicles by 2020 and there is still the remaining 95% of market to fight for that has not become BEV yet. A Toyota and Volkswagen or KIA that is explicitly or implicit backed by government or any other national mobilization effort is going to be in a better position than a startup to capture parts of that share. Technology changes that goes further than the drivetrain eg. autonomous fleet will change this further and then I think a startup has a better chance compared to if it is mainly the drivetrain.

Anyway, this development will be interesting to follow and it is an interesting discussion. I avoid looking to much further than 2020 which I guess is why I mention that date frequently. The roadmap for Tesla is clear to 2020 and it is for ICE too: hybridization with some experimental BEVs. The big problems for ICE will not start to happen until some time after that point unless macro turns really bad. But historically when you look back Model 3 will be seen as the starting point.

Despite your platitude regards the stock I had to give this a dislike. You are reciting the Auto Industry view of the situation that stands in absolute defiance of all logic - and you can't even plead ignorance because I have taken the time to spell out the logic long hand.

This: "history of great execution in one of the most competitive industries"

This is an impossible response to what I have written. This is a mantra, not an argument. Tesla escapes competition with ICE by operating a business that is not dependent on engines. Different industry competing to meet the needs of the same customers. ICE makers can't escape competition with ICE can they! Why? Because their own ICE production lines are the freaking competition. Competing with ICE for an ICE maker is like having a boxing match with your own face - not a fight that is winnable - not even if you are the most competitive and most undisputed heavyweight champion of the world and if you were you'd only deliver yourself a knock out blow all the faster. Which bit of that is hard to comprehend? ICE makers can ONLY compete with each other in the EV space and only while EVs are too expensive and too unappealing to harm ICE sales and profits, in five days times Tesla is about to take that fight below the price competition threshold where ICE makers CAN NOT follow. There is no clever twist and no exceptions, no wait and see, no too early to tell - it's OVER, forever.

This: "the ICE business is still growing and BEV costs are high is probably not a good risk reward trade-off"

What do you mean BEV costs are high? We are just about to witness ICE being undercut by a mid-market BEV which is the entire point of the discussion. Unlike the $100K price class that ICE is rapidly conceding, ICE makers must compete for the mid market for survival, can't carry overheads without it, and after the 31st of this month it can't compete under any circumstances. Thereafter they have exactly two choices: Either to commit seppuku by also offering consumers attractive EVs at better value for money than their own ICE vehicles or they can drag out the demise of ICE by price slashing ICE vehicles to maintain market share. They will do the latter, most likely by masking what is effectively price slashing behind leases.

 

[ssq]

Weekend.. I understand brought a LOT of discussions on everything tesla except short term price movements A lot of good discussions, debates and topics, enlightening!
I kid. so where are we headed tomorrow, oil is up, so aer asian markets! I am eyeing exit from the short term options (Apr 15 $250 calls) while putting a 5% tstop on 50% stock holdings and let the remaining 50% sit and ride with a stop loss at 185. Care to review/comment/chime in ?

 

[30seconds]

Despite your platitude regards the stock I had to give this a dislike. You are reciting the Auto Industry view of the situation that stands in absolute defiance of all logic - and you can't even plead ignorance because I have taken the time to spell out the logic long hand.

This: "history of great execution in one of the most competitive industries"

This is an impossible response to what I have written. This is a mantra, not an argument. Tesla escapes competition with ICE by operating a business that is not dependent on engines. Different industry competing to meet the needs of the same customers. ICE makers can't escape competition with ICE can they! Why? Because their own ICE production lines are the freaking competition. Competing with ICE for an ICE maker is like having a boxing match with your own face - not a fight that is winnable - not even if you are the most competitive and most undisputed heavyweight champion of the world and if you were you'd only deliver yourself a knock out blow all the faster. Which bit of that is hard to comprehend? ICE makers can ONLY compete with each other in the EV space and only while EVs are too expensive and too unappealing to harm ICE sales and profits, in five days times Tesla is about to take that fight below the price competition threshold where ICE makers CAN NOT follow. There is no clever twist and no exceptions, no wait and see, no too early to tell - it's OVER, forever.

This: "the ICE business is still growing and BEV costs are high is probably not a good risk reward trade-off"

What do you mean BEV costs are high? We are just about to witness ICE being undercut by a mid-market BEV which is the entire point of the discussion. Unlike the $100K price class that ICE is rapidly conceding, ICE makers must compete for the mid market for survival, can't carry overheads without it, and after the 31st of this month it can't compete under any circumstances. Thereafter they have exactly two choices: Either to commit seppuku by also offering consumers attractive EVs at better value for money than their own ICE vehicles or they can drag out the demise of ICE by price slashing ICE vehicles to maintain market share. They will do the latter, most likely by masking what is effectively price slashing behind leases.

How about neither? No one is getting a Model 3 for at least 20 months and even after launch the volume will be minimal compared to the global auto industry. GM can introduce the Bolt and keep ramping up capacity and number of models over the next 3-5 years. No need to undercut price compared to similar ICE design, they will be able to charge a premium because there is little to no EV manufacturing capacity compared to the demand.

I think that the Model 3 will be a much better car than the 3-series or A4 or C-class or CTS, but the "small luxury" class in the US is over 600,000 units a year. Even at 50% of the proposed 500,000 unit output Tesla can only affect about 35% of the US volume. Great for Tesla for sure, but hardly the death blow to the entire auto industry.

 

[FredTMC]

It could be personality clash between Zanoni and Wheeler.

That was my immediate assumption

 

[austinEV]

Weekend.. I understand brought a LOT of discussions on everything tesla except short term price movements A lot of good discussions, debates and topics, enlightening!
I kid. so where are we headed tomorrow, oil is up, so aer asian markets! I am eyeing exit from the short term options (Apr 15 $250 calls) while putting a 5% tstop on 50% stock holdings and let the remaining 50% sit and ride with a stop loss at 185. Care to review/comment/chime in ?

My plan remains the same. I don't think the market is adequately pricing in the *expected* model 3 news. There might be volatility this week, but I expect a positive market reaction to the reveal, and if it isn't there then positive Q2 shipments and M3 reservations numbers. I feel like the only negative theories (on the stock direction) are either a sell-the-news reaction or just "stock may go down so be careful". IMO there are more positive surprised possible than negative in the next few weeks.

 

[sundaymorning]

According to the report by Electrek, based on Chinese media reports, Tesla representatives had a meeting with local government in Suzhou regarding possible location for the new automobile factory there.

This is kind of important. Hopefully someone will interview Elon or JB about this soon.

 

[Xpert]

My plan remains the same. I don't think the market is adequately pricing in the *expected* model 3 news. There might be volatility this week, but I expect a positive market reaction to the reveal, and if it isn't there then positive Q2 shipments and M3 reservations numbers. I feel like the only negative theories (on the stock direction) are either a sell-the-news reaction or just "stock may go down so be careful". IMO there are more positive surprised possible than negative in the next few weeks.

I was hoping it goes down a bit early monday so i can get back in with a short term option, but with positive oil + strong X ramp lately I doubt it. Still holding Jan 18. There are so many more upside than downside catalysts i could think of. To sum it up next week:

Bearish catalysts:
More Bear attacks such as downgrades (high valuation)
Sell the news
Yellin wants to raise rates in April (on friday speech)

Bullish catalysts:
More X ramp news
More model 3 reveal buzz
Huge lines on 3/31 starting in Australia first
delivery target crushed
Huge reservation number announced
"One more thing" big surprise at reveal in addition to a great looking model 3 and positive test drive reviews

 

[WarpedOne]

Great for Tesla for sure, but hardly the death blow to the entire auto industry.

Death blow is not when you cannot sell any of your vehicles anymore, death blow is when you sell to few of them to cover your expenses.
How many M3 "reservationists" will go and buy a new ice car while waiting on m3? A precious few.
Many would be buying a new ice car but will just hold onto the old one a few years longer. Instant loss of ice sells eating into already quite thin margins of mid-priced cars.

20% lower sells is already a disaster endangering the company future.

 

[Johan]

Death blow is not when you cannot sell any of your vehicles anymore, death blow is when you sell to few of them to cover your expenses.
How many M3 "reservationists" will go and buy a new ice car while waiting on m3? A precious few.
Many would be buying a new ice car but will just hold onto the old one a few years longer. Instant loss of ice sells eating into already quite thin margins of mid-priced cars.

20% lower sells is already a disaster endangering the company future.

Yes. Most large automakers have low margins, with most margin coming from higher end cars (luxury, upper mid market i.e. exactly the markets Tesla are taking on with the S/X and Model 3 respectively). A 20% "sudden" drop in sales for higher margin cars will be difficult for them to handle. Ford are a bit safer for now, seeing how the majority of their profit comes from trucks (F150).

 

[WarpedOne]

Luxury car makers with strong mid-range portfolio will be hit the hardest and soonest, likes of BMW, MB, Audi, Jaguar.
Those in the economy segment (french automakers, fiat, etc) without real presence in higher priced segments will be 'safe' for some time to come.