Welcome to Tesla Motors Club
Discuss Tesla's Model S, Model 3, Model X, Model Y, Cybertruck, Roadster and More.
Register

Short-Term TSLA Price Movements - 2016

This site may earn commission on affiliate links.
Status
Not open for further replies.
I really like the way you put it. The answer is right in Tesla's mission statement.

That's not to say SBenson is wrong. Just that this is the obvious counter-argument. Also amen to Johan's post too.

I'm NOT questioning the assumption of faster growth.

I'm questioning the assumption that *immediate capital* is the constraint for faster growth.
 
This is where the crux lies, isn't it? Is acceleration of Model 3 a "problem" that can be "solved by throwing money at it" or not? IMO, if by acceleration we mean bringing it to market earlier than late 2017 then no, that will not be helped by raising cash now. If by acceleration we mean increasing the slope of the ramp, so that we hit 1 million cars in 2020 instead of 500k then yes, maybe that can be solved by raising cash now, I mean like a lot of cash, and putting it straight to work in buying or building a second vehicle factory somewhere in the world. And a second Gigafactory too. If you're going to do these things and have them be operational in the 2018-2020 time span you can't start later than NOW.
I think there are two issues:
1. Does Tesla thinking that now is the best time to trigger a squeeze.

2. Do they see a substantial advantage in having the cash now vs waiting?

I don't think that a 3-4 month delay now will be a show stopper.

OTOH it seems like they might be starting to fire some their bullets now.

Sure they can spend millions of dollars to order robots right away. But they would also need to do other preparations that don't cost a lot of money. Like negotiating with hundreds of suppliers, local government/other companies for partnerships in GF2/factory. Not a lot of money except plane tickets here as I see it. Plus they do have over 1 billion cash on hand if they reallywant to go on some shopping spree for a quarter right?
It would be hard to do that without word leaking out. But I agree that a small delay right now won't matter.

Re Fred's point that Elon won't want to wait. I think he has the patience to wait for the best time.
 
Last edited:
My thought on how urgent the cap raise will happen:

Case 1: Model 3 reservation really surprised management.
Under this case, everything was going according to the previous 2020 500k plan, until late March they figured they need to change it. But what can they do to change? The paintshop is already with a capacity of 500k/year. The pressing machines can handle more than 300k/year now. Sure they can spend millions of dollars to order robots right away. But they would also need to do other preparations that don't cost a lot of money. Like negotiating with hundreds of suppliers, local government/other companies for partnerships in GF2/factory. Not a lot of money except plane tickets here as I see it. Plus they do have over 1 billion cash on hand if they really want to go on some shopping spree for a quarter right?

Case 2: They knew all alone Model 3 would get this level of reservations.
Some of us here believe this is the case. And Elon is pretending to be surprised so that Tesla can raise cap. Personally I don't think this is the case. But if it is. It would make sense to raise now because all the other preparation works have been done secretly.
 
This might be counter intuitive to a lot of you folks:

A great IPO is when the stock falls on the first day of trading.

That actually means the original stockholders who sold to primary investors got a higher price than the market would bare. On the other hand a poor IPO is when the stock goes up. This means that the primary market investors made quick money at the expense of founders and original investors.

Causing a short squeeze after a capital raise is a poor outcome for existing stockholders. Other way round is much more desirable. That is how Elon would operate. In fact he has already shown that that is how he rolls.
 
My thought on how urgent the cap raise will happen:

Case 1: Model 3 reservation really surprised management.
Under this case, everything was going according to the previous 2020 500k plan, until late March they figured they need to change it. But what can they do to change? The paintshop is already with a capacity of 500k/year. The pressing machines can handle more than 300k/year now. Sure they can spend millions of dollars to order robots right away. But they would also need to do other preparations that don't cost a lot of money. Like negotiating with hundreds of suppliers, local government/other companies for partnerships in GF2/factory. Not a lot of money except plane tickets here as I see it. Plus they do have over 1 billion cash on hand if they really want to go on some shopping spree for a quarter right?

Case 2: They knew all alone Model 3 would get this level of reservations.
Some of us here believe this is the case. And Elon is pretending to be surprised so that Tesla can raise cap. Personally I don't think this is the case. But if it is. It would make sense to raise now because all the other preparation works have been done secretly.

I think a more likely case is that they very not completely surprised by the reservation numbers but assumed a wide range of possibilities but still has not done enough preparation work for capital to be ready to be deployed soon.

The reservations was a good way to measure, also geographically and not just total demand. It does not make sense to start planning and contacting governments and so forth for many different scenarios.
 
I think a more likely case is that they very not completely surprised by the reservation numbers but assumed a wide range of possibilities but still has not done enough preparation work for capital to be ready to be deployed soon.

The reservations was a good way to measure, also geographically and not just total demand. It does not make sense to start planning and contacting governments and so forth for many different scenarios.
Yes, they would have different scenarios for the outcome of Model 3 reservation. I don't think they were really preparing for how things turned out and there're not so capital-intensive work to be done now.
 
I was firmly in the DTU camp, but now not so sure. I'm still concerned on them making their 80-90,000 vehicles this year. TE numbers are much higher than I thought, and agree that (coupled with the verification that they are less than $190/kWh now) TE will add significantly to the bottom line.

Regarding capital raise, I'm in the camp of thinking that (1) they probably don't need the raise to happen all that soon, with $400mil that suddenly showed up on their doorstep, and (2) when they do the raise, it is far from certain that it will be stock. Banks are probably lining up to lend them money right now.

There's a floor to how low the SP can go (all those shorts out there), but also a ceiling (market cap closing in on F and GM).
 
  • Like
Reactions: Sudre and StephenM
Interesting BMW Blog posts. He makes a fairly good case that BMW can deliver a car that would be competitive with the M3 by 2019. Of course he thinks it will take that long for Tesla to ramp M3 production.

Can BMW Fend Off The Charge of the Tesla Model 3? - PART 1
Can BMW Fend Off The Charge of the Tesla Model 3? - Part 2



He suggests that BMW might decide to partner with Tesla on superchargers and he mentions a high speed DC fast charge association, and I noticed that Tesla is a member:
News: Charging Interface Initiative e. V. (CharIN e. V.)

The other companies will soon find out this is Tesla's market, not EV's market. BMW will not have much chance unless Tesla prices cars at 50% gross margin.
 
There's a floor to how low the SP can go (all those shorts out there), but also a ceiling (market cap closing in on F and GM).

The ceiling part is interesting... I also thought before that it would be hard to break that, not just Ford and GM but BMW, Daimler and others are also in that range. However, if TE also grows with 50% and they get a 10% of the revenue to bottom line from TE then I think the market might just blow past that ceiling.
 
The other companies will soon find out this is Tesla's market, not EV's market. BMW will not have much chance unless Tesla prices cars at 50% gross margin.
What nobody outside of this board seems to comprehend is that a very successful BMW i5 (or whatever) will eat into ICE sales, not Tesla sales; BMW would simply join Tesla's revolution, not counteract it. That would be good for them, good for us, bad for ICE, and actually good for Tesla because the electric pie will now be getting that much bigger. And yet, every single goddamn article out there present these compelling non-Tesla EVs (still mythical creatures, those) as Tesla competitors. They are ICE competitors.
 
Even if the 2020 goal is changed from 500K to 1mln cars I think the market reaction will be very muted. It's just another "goal". Tesla has missed quite a lot of goals overtime. Market will shrug it off. Just like it did with the Model 3 reservation count announcements.

IMO this is very wrong. A cap raise which leads to a raise in production goals will be transformational for share price/valuation.

The undeniable fact is that current valuation in large part is due to Tesla's own projected 500k future target. Otherwise it would be valued by similar metrics to GM, F like the bears mistakenly already do. You are correct that the market only believes this to one degree or another. In fact the believability and perceived likelihood of achieving this goal is what contributes to the ebbs and flows to the stock price. Every analyst's DCF model is based on this projection. Some like MS and GS believe only a base case of 250k in 2020. Some like Andrea James are more optimistic.

No matter the case, future production level is a key variable that is factored in by the cumulative market participants. (In addition to profitability(margins), future earnings multiple(function of growth level) etc)

By raising capital for the express purpose of ramping up said future production level, every market participant will have to re-evaluate their own projections - and thus their price expectations. Even for those who do not believe, like MS and GS, they would still have to adjust their 250k 2020 number, unless they think Tesla is raising cash just to sit on it. So even if they do not believe a 1 million 2020 number, it would still have to be higher than their current model suggests. This means that overnight Tesla's valuation would need to be recalibrated(accounting for some dilution of course). In truth it probably will not be over night but over the course of a few weeks or however long rolling margin calls logistically take.
 
This might be counter intuitive to a lot of you folks:

A great IPO is when the stock falls on the first day of trading.

That actually means the original stockholders who sold to primary investors got a higher price than the market would bare. On the other hand a poor IPO is when the stock goes up. This means that the primary market investors made quick money at the expense of founders and original investors.

Causing a short squeeze after a capital raise is a poor outcome for existing stockholders. Other way round is much more desirable. That is how Elon would operate. In fact he has already shown that that is how he rolls.

I follow your logic 100% here. What if it's this simple then: Elon says on conference call "Oh, by the way, due to unexpectedly high interest in Model 3 we have adjusted our growth plans, we want to aim for 1 million cars built in 2020 so we will need to get started on Gigafactory 2, Vehicle plant 2 and in order to do this we will need to raise cash, approximately 2 billion dollars, and we plan to do this before the third quarter of 2016. We are working closely with our banking partners in GS and MS to make this an attractive deal to the credit markets". Boom - short squeeze, stock price goes up, the capital raise happens after the stock price has gone up.

The point is it's not that the actual capital raise takes place and then this causes the squeeze, but rather that it's the news that a capital raise is needed and is going to take place that can cause the squeeze.
 
I'm NOT questioning the assumption of faster growth.

I'm questioning the assumption that *immediate capital* is the constraint for faster growth.

I understand, which is why I said it doesn't mean you are wrong. We very well may wait to raise capital if indeed they can ramp without it(even better). But until we know that(need or don't need capital to ramp), it is anyone's guess when they will raise capital. And I am unwilling to bet on that timing.
 
  • Like
Reactions: generalenthu
Tesla needs constant cash infusion to replenish its non-stop cash bleed of nearly half a billion each quarter. Do some research on how it spent the $2B raised via bonds in 2014 for the supposed GF. Only 14% built, and they had to raise another $750 million. FCF is a mirage. A good read from David Stockman on this "bonfire of vanities".
Tesla: Bonfire Of The Money Printers’ Vanities
Thanks Doc. That explains it. They need the Cap raise to bleed another 14% of GF so they can make 28% of the 400,000 M3s reserved. Got it.
Man, I really wish they hadn't bled back the DOE loan, talk about burning cash.
Funny thing, When I read your post I thought I'd crapped my shorts.
Turns out they were yours...
 
Evan Niu of Motley Fool - one of the only readable and timely journalists covering Tesla out there.

Tesla's Battery Pack Costs Are Cheaper Than You Think -- The Motley Fool
Tesla similarly doesn't share its $/kWh data often, either, but it just tipped its hand.
No they didn't :D. They have only gave an upper bound.
I understand, which is why I said it doesn't mean you are wrong. We very well may wait to raise capital if indeed they can ramp without it(even better). But until we know that(need or don't need capital to ramp), it is anyone's guess when they will raise capital. And I am unwilling to bet on that timing.
They can probably do a substantial percentage of the ramp without additional capital. Which doesn't mean that they feel it's the best scenario.
 
I'm NOT questioning the assumption of faster growth.

I'm questioning the assumption that *immediate capital* is the constraint for faster growth.

This ought to be a confirmation bias standard warning issued with every trading terminal:

Dear user: Lengthy exposure to this device is known to make the user susceptible to the belief that money is the only limiting factor to achieve any given outcome on any given timescale including the immediate production of inventions not yet invented. Please adjust your perception of the world accordingly and in case of discomfort we suggest you plant an oak tree and try to pay it to grow faster. This simple exercise has helped many of our users to relieve the itching to push tbe wrong buttons.


Let's say Gordon Ramsay wants to develop a new kind of cake. Can't really pay him to decide that the method and recipe is prefect faster and there are limits on accelerating consumer acceptance testing. What money can do one you know that a million people want cakes is buy lots of cake mixers instead of just a few.
 
UBS Sees Telsa's (TSLA) Model 3 As Unprofitable

Colin Langan who recently reiterated his sell rating apparently hosted a call with former GM engineer Jon Bereisa, who sees the Model 3's factory variable cost at $1510 above base price, which implies a breakeven price of $50k.
Anecdotal Evidence Alert: A couple weeks ago we had a service tech come to our house to service our Model X, something about those pesky sensors in the Falcon Wing Doors - who woulda thought?!?

Anyways, since he's just doing all this in our back driveway, I start chatting with him and say, "My wife and I went to the Model 3 unveil, pretty cool, but the first thing out of my wife's mouth when the car rolled on stage was 'it's beautiful' while I turned to the guy next to me and said 'how in the world are they going to make this for $35,000?'

The service tech is grinning but quiet and says, "Well, if hadn't signed a bunch of non-disclosure agreements lately I could probably give you a good idea." He's a cool guy, he's gonna be our friend for awhile as the bugs get squeezed out of our Model X, so I didn't push him. But I didn't need to, he offered it freely and innocently, not like some guy trying to run up the stock price. He didn't say, "I heard a couple guys talking back by the PowerPacks..." he said specifically he'd signed non-disclosure agreements that he felt he should honor. Make of it what you will.

Elon likes to make money, he's got a planet to colonize (after he saves this one). He's not going to sell a $50K car for $35K. Ludicrous.
 
Status
Not open for further replies.