Short-Term TSLA Price Movements - 2016

[Bgarret]

Apple chooses to partner with Didi in China for $1 Billion. $1 Billion for what? - the article is a bit loose on those details.

Apple Invests $1 Billion In Uber's Chinese Competitor Didi Chuxing

GM partners with Lyft.

In this scenario, who is the Cinderella at the ball with a gigafactory and 500,000 reservations for an affordable EV??? In the realm of autonomous driving, who is lining up to be the Prince Charming to Tesla's Princess (no to be confused with Princess Tesla - aka Bonnie). What is he value of the millions + daily miles of data being accumulated by Tesla cars every day.

Stay tuned - the ball has just begun. I recommend refreshing your popcorn, refilling your beverage and buckling up for the ride. I don't know some of the lead actors, but I recommend casting Chanos as the wicked stepmother and Paolo Santos and other FUDsters as the bitchy stepsisters. Midnight is right around the corner - let's see who will come calling with a glass slipper and the Capital it represents.

 

[vgrinshpun]

Just to follow up on general surprise to my statement that Tesla meeting guidance means Q2-Q4 (aggregate) non-GAAP profitability, below is my calculation. Note that meeting guidance means profitability, even with no ZEV in Q2-Q4.

It appears that Tesla intentionally did not mention profitability explicitly in their shareholders letter. Seems to be one of the surprises awaiting market IF Tesla meets their guidance. Aside form FCF positive (not going to happen after the acceleration of M# schedule and MX delays), this is huge, because it demonstrates that they can generate positive operational cash flows.

Assuming 135M shares at the end of 2016, the non-GAAP Income per the below could be $1.52 per share

 

[lango]

Tesla has a $27B market cap. I really don't see the big deal for a traditional equity raise of $1B + $1B in debt sometime in summer. If they need more in mid 2017, wait till then

It is not a big deal in terms of dilution but it is a big deal for controlling the story about Tesla. The bear narrative is that they burn cash and is a losing operation and eventually will fold because of competition and more resourceful competitors. So the more they have to raise the more it ties into that narrative.

I just read this article: Tesla Needs Billions to Meet Musk's Ludicrous Assembly Timeline

It is written by what seems to be a bear that tries to be negative by stating equity and debt capital so far...
At the time of Tesla's IPO I think $300 million in equity had been put into it. Summing up the total equity so far we get about $3B? It is so low anyway it does not really matter. So for about $3B in equity we now got one 500k car capable factory and two fully developed class leading cars in S and X that is in volume production. We also got a battery factory finished in R&D, planning and contract stage and maybe 20% in construction and a new vehicle Model 3 done to 80% in R&D. Also another model Y of the new vehicle probably done to at-least 60%. We got the new TE business unit with two almost finished product lines. Finally we also got the supercharger network and service centers and stores. Let's add $1B more in equity to get the yet to be finished projects finished and let's compare the $4B number to various R&D program for big auto.

For example $2.9B got Daimler their new diesel engines: Mercedes Sticks to Diesel With New $2.9 Billion Engine Lineup

Mercedes R&D budget:
Mercedes spends £10m A DAY on research and development. Here's how

Audis $22B for five years:
Audi Said to Plan Cost-Growth Reduction of $2.5 Billion

Ford $4.5B for "electrification"
Ford Investing $4.5 Billion in Electrified Vehicle Solutions, Reimagining How to Create Future Vehicle User Experiences | Ford Media Center

Toyota wasting $4.2B on fuel cells
Toyota Fuel Cell Research Getting $4.2 Billion Investment - HybridCars.com

 

[EinSV]

non-GAAP profitability is different from FCF. You can be non-GAAP profitable while FCF-

I am very bullish on Tesla, but have a hard time seeing the possibility of Tesla being FCF-positive or having non-GAAP profitability in Q2 (or any time in 2016/2017). Once Tesla committed to filling the 400K+ pre-orders by the end of 2018 all bets were off IMO for short-term metrics like these. I am not sure they are even meaningful measurements of the business at this point.

Ramping up production by an unprecedented 1000% from 2015 to 2018 (50,000 vehicles to 500,000) requires massive upfront investment. This is not only in the form of capex, but also R&D/opex, including to finalize and prove out the design, validate and build the supply chain, design and validate the production tooling and processes, build stores, superchargers and service centers, and develop all the finance, legal, IT and other infrastructure to support all this.

As just one data point, Tesla already has about 2000 open positions posted-- Jobs at Tesla | Tesla Motors -- and this is undoubtedly just the tip of the iceberg. Tesla needs to rapidly build the infrastructure for a company 5-10X its current size for a smooth M3 launch. Since the costs of a much larger business needs to be incurred long before the revenue arrives, using measures like FCF-positive or GAAP or non-GAAP earnings do not provide meaningful benchmarks for Tesla's financial performance for the foreseeable future.

This does not mean there are no catalysts out there for a near-term pop to the share price. There are quite a few moves still on the chessboard to minimize dilution, including beating the 17K/20K Q2 targets, improving gross margins on Model S/X, a new technology reveal when the 100kWh S/X are announced and (especially) TE.

I think (and hope) that Elon will err on the side of meeting the Model 3's ambitious delivery targets over short-term FCF/earnings metrics that might provide a short-term boost to the stock but create added risk in the long term. I just don't see Elon delaying investment that could in any way jeopardize the biggest event in the history of Tesla. And if the M3 launch goes relatively smoothly, I don't think any Tesla investor would doubt that all the turmoil and drama this year will be worth it.

Edit: Just saw vgrinshpun's post. I really appreciate the analytical rigor. Have not reviewed in detail yet but am skeptical about the opex numbers for the reasons summarized above. Would love to be wrong.

 

[vgrinshpun]

I am very bullish on Tesla, but have a hard time seeing the possibility of Tesla being FCF-positive or having non-GAAP profitability in Q2 (or any time in 2016/2017). Once Tesla committed to filling the 400K+ pre-orders by the end of 2018 all bets were off IMO for short-term metrics like these. I am not sure they are even meaningful measurements of the business at this point.

Ramping up production by an unprecedented 1000% from 2015 to 2018 (50,000 vehicles to 500,000) requires massive upfront investment. This is not only in the form of capex, but also R&D/opex, including to finalize and prove out the design, validate and build the supply chain, design and validate the production tooling and processes, build stores, superchargers and service centers, and develop all the finance, legal, IT and other infrastructure to support all this.

As just one data point, Tesla already has about 2000 open positions posted-- Jobs at Tesla | Tesla Motors -- and this is undoubtedly just the tip of the iceberg. Tesla needs to rapidly build the infrastructure for a company 5-10X its current size for a smooth M3 launch. Since the costs of a much larger business needs to be incurred long before the revenue arrives, using measures like FCF-positive or GAAP or non-GAAP earnings do not provide meaningful benchmarks for Tesla's financial performance for the foreseeable future.

This does not mean there are no catalysts out there for a near-term pop to the share price. There are quite a few moves still on the chessboard to minimize dilution, including beating the 17K/20K Q2 targets, improving gross margins on Model S/X, a new technology reveal when the 100kWh S/X are announced and (especially) TE.

I think (and hope) that Elon will err on the side of meeting the Model 3's ambitious delivery targets over short-term FCF/earnings metrics that might provide a short-term boost to the stock but create added risk in the long term. I just don't see Elon delaying investment that could in any way jeopardize the biggest event in the history of Tesla. And if the M3 launch goes relatively smoothly, I don't think any Tesla investor would doubt that all the turmoil and drama this year will be worth it.

I just laid out the numbers for anybody to pick apart. All of the things you mention are included in the shareholder's letter guidance. I have hard time to follow logic of general discussion of why they can't be non-GAAP profitable, without paying attention to guidance and actual numbers.

Regarding Tesla actually meeting their guidance, the jury is obviously out, but there are signs that extrapolating past onto this year is not going to work. Few things commonly noted and other few which are not to consider:

• "Cash is King" mandate
  
  
• Tesla beat their OpEx guidance in Q1 (I think for the first time ever): guided for slightly more than $429M, actual - $417M
  
  
• There is a contradiction in Tesla's Q2 production/delivery guidance. They said that production will be 20K and they will deliver as many produced cars as possible in Q2, but deliveries are guided to 17K. This is very clever sand bagging. When Tesla is planning their production batching in a way that maximizes deliveries of cars manufactured in a quarter within the same quarter, they routinely able to deliver about 1K cars less than produced (Q1 is the latest example - manufactured 15,510 cars; delivered just 700 cars less - 14,810)
  
  The US and European delivery (estimated) numbers for April are out, and they follow the same pattern of light deliveries in first month of the quarter, wich is an indication that the bulk of deliveries will be happening in the third month, as in Q1, and that deliveries will be about 1K less than production.
  
  If they will build 20K cars, the deliveries will likely be around 19K, not 17K.

To make it clear, meeting guidance is possible, but far from guaranteed. But if they do meet guidance, they will likely to be non-GAAP profitable in Q2-Q4.

 

[MartinAustin]

In addition to the other ideas that have been mentioned e.g. solid Model X production, here are some other ideas for what might boost TSLA pre-offering -

1) Model X crash tests and results from the NHTSA
2) Consumer Reports gets behind the Model X
3) another manufacturer decides to use the Supercharger network
4) any other voluntary news out of Tesla re: specific battery chemistry improvements, perhaps alongside 100kWh reveal

 

[Fallenone]

Just to follow up on general surprise to my statement that Tesla meeting guidance means Q2-Q4 (aggregate) non-GAAP profitability, below is my calculation. Note that meeting guidance means profitability, even with no ZEV in Q2-Q4.

It appears that Tesla intentionally did not mention profitability explicitly in their shareholders letter. Seems to be one of the surprises awaiting market IF Tesla meets their guidance. Aside form FCF positive (not going to happen after the acceleration of M# schedule and MX delays), this is huge, because it demonstrates that they can generate positive operational cash flows.

Assuming 135M shares at the end of 2016, the non-GAAP Income per the below could be $1.52 per share

View attachment 176365

I came to similar conclusions as well. However, I'm not sure what the analyst consensus for 2016 is at now. I know AJ significantly lowered his but still positive I think. Being non-GAAP profitable is sure something, but if the consensus is at $1 and TSLA made $0.1, then it's kinda hard to say how people will see it.

 

[Fallenone]

I am very bullish on Tesla, but have a hard time seeing the possibility of Tesla being FCF-positive or having non-GAAP profitability in Q2 (or any time in 2016/2017). Once Tesla committed to filling the 400K+ pre-orders by the end of 2018 all bets were off IMO for short-term metrics like these. I am not sure they are even meaningful measurements of the business at this point.

Ramping up production by an unprecedented 1000% from 2015 to 2018 (50,000 vehicles to 500,000) requires massive upfront investment. This is not only in the form of capex, but also R&D/opex, including to finalize and prove out the design, validate and build the supply chain, design and validate the production tooling and processes, build stores, superchargers and service centers, and develop all the finance, legal, IT and other infrastructure to support all this.

As just one data point, Tesla already has about 2000 open positions posted-- Jobs at Tesla | Tesla Motors -- and this is undoubtedly just the tip of the iceberg. Tesla needs to rapidly build the infrastructure for a company 5-10X its current size for a smooth M3 launch. Since the costs of a much larger business needs to be incurred long before the revenue arrives, using measures like FCF-positive or GAAP or non-GAAP earnings do not provide meaningful benchmarks for Tesla's financial performance for the foreseeable future.

This does not mean there are no catalysts out there for a near-term pop to the share price. There are quite a few moves still on the chessboard to minimize dilution, including beating the 17K/20K Q2 targets, improving gross margins on Model S/X, a new technology reveal when the 100kWh S/X are announced and (especially) TE.

I think (and hope) that Elon will err on the side of meeting the Model 3's ambitious delivery targets over short-term FCF/earnings metrics that might provide a short-term boost to the stock but create added risk in the long term. I just don't see Elon delaying investment that could in any way jeopardize the biggest event in the history of Tesla. And if the M3 launch goes relatively smoothly, I don't think any Tesla investor would doubt that all the turmoil and drama this year will be worth it.

Edit: Just saw vgrinshpun's post. I really appreciate the analytical rigor. Have not reviewed in detail yet but am skeptical about the opex numbers for the reasons summarized above. Would love to be wrong.

A lot of these expansion is CapEx, which would be reflected in OpEx over a long period of time. I agree FCF+ is out of the window, but non-GAAP profitability is very likely, given they meet their 80k guidance

 

[FredTMC]

Regarding capital raise, my belief is that they need less than the market is projecting. They already have the stamping and paint shop, not to mention the factory itself. Increased delivery rate means an increase of the ABL availability. $400 million of free loans in 2 weeks doesn't hurt either. Elon mentioned a mixture of loan and stock, so I'm not seeing billions and billions of dilution. Just my 2 cents though.

I completely agree.

Ramping to 500k Model 3s is done in STAGES (just like GF multi year buildout).

Step #1. For 2017 model 3 initial production they'll bring up a SINGLE assembly-line with a max output of ~200k cars/year. This M3 assembly line is similar in output as the MX/MS existing assembly line.

Step #2. In 2018, they'll bring online a second assembly line for model 3 at Fremont

Step #3. Beyond 2018, they'll bring up factory in EU &/or Asia.

Bottom line: ONLY Step#1 capital is needed NOW.
Step #1 includes: Model 3 tooling, human assembly line, Body-in-white line

As discussed above, these are done:

- Model 3 production powertrain is done (per Elon / CC)
- Paint shop.
- stamping presses in place. Just need the dies.

How much additional CapEx is needed for step 1? I'm guessing ~$1B

 

[vgrinshpun]

I came to similar conclusions as well. However, I'm not sure what the analyst consensus for 2016 is at now. I know AJ significantly lowered his but still positive I think. Being non-GAAP profitable is sure something, but if the consensus is at $1 and TSLA made $0.1, then it's kinda hard to say how people will see it.

Looks like in his latest note AJ revised his 2016 EPS from 0.68 to -0.02. If Tesla meets their guidance, the EPS will seemingly have no trouble of beating expectations...

 

[ev-enthusiast]

German car manufacturer Opel said to join exhaust fraud with diesel version of model Astra (google translate).

 

[Gerasimental]

German car manufacturer Opel said to join exhaust fraud with diesel version of model Astra (google translate).

Opel is wholly owned by GM btw.

 

[snellenr]

Nice article in Forbes this morning:

Tesla Model 3: The Knives Come Out

 

[Drax7]

Objective:
Cash flow positive would be sufficient, achievable with economies of scale once
Model X and S production is humming, prior to model 3.


Free cash flow positive = cash flow from S and X - cap ex for model 3
This objective before 2018 is not feasible. If cap ex for model 3 is
Done in incremental stages, as Fred suggests, then the near term raise is smaller .

Either way for a company in the growth stage , in a capital intensive
Industry, free cash flow positive is not the forcing function .
Cash flow positive is sufficient, free cash flow positive is growth limiting.

 

[PaulRocket]

I completely agree.

Ramping to 500k Model 3s is done in STAGES (just like GF multi year buildout).

Step #1. For 2017 model 3 initial production they'll bring up a SINGLE assembly-line with a max output of ~200k cars/year. This M3 assembly line is similar in output as the MX/MS existing assembly line.

Step #2. In 2018, they'll bring online a second assembly line for model 3 at Fremont

Step #3. Beyond 2018, they'll bring up factory in EU &/or Asia.

Bottom line: ONLY Step#1 capital is needed NOW.
Step #1 includes: Model 3 tooling, human assembly line, Body-in-white line

As discussed above, these are done:

- Model 3 production powertrain is done (per Elon / CC)
- Paint shop.
- stamping presses in place. Just need the dies.

How much additional CapEx is needed for step 1? I'm guessing ~$1B

Speaking about Model 3 production, how realistic is it that Model 3 will be built completely by machines? Interior everything. It seems that if they would do this they could have the factory producing 365 days a year and this would probably decrease cost.

How far are we away from that? What are the issues that wouldn't work today?
Already most of the exterior is built by machines, why not interior also?

 

[Irishjugg]

Listen to the following 20 minute NPR interview about HFT firms and the "Flash Crash"
Episode 396: A Father Of High-Speed Trading Thinks We Should Slow Down


HFTs have been putting electronic Market Makers out of business as they do not need to play by the same rules (e.g. always maintain a two-sided quote). HFTs give the 'illusion' of more liquidity, but in market volatility they can so easily disappear as what happens in these 'flash crashes'

It is finally good to see the mother of all HFT firms (Citadel) being formally investigated as reported just a few days ago:
Exclusive: U.S. investigates market-making operations of Citadel, KCG

However, I am afraid it will not go anywhere as they are so in bed with the SEC already and did everything they could to deny IEX's exchange application a few months ago.

P.S. There is a gentleman on twitter anyone interested in the effects of HFT on the markets should follow: @nanexllc

I'll give that a listen when I get a chance, but I should point out much news based on HFT is woefully inaccurate. I also think it is worth mentioning that market making HFT firms are required to be quoting both sides of a larger percentage of strikes, most of the day. Simply bringing those rules closer to 100/100 prevents the concern you raised from happening and many exchanges have been upping the requirements periodically.

During the flash crash the firms that made money were the ones that stayed in. Source: the firm I worked for at the time stayed in the market and placed the Champaign order before lunch was over.

Citadel is more important in the equity space than options space, other than purely equity markets their relative market share isn't that great.


The flash crash was caused by several things happening at once in quick succession and HFTs didn't trigger it, they exacerbated it a little bit and truthfully a lot of firms algos were *sugar* and didn't know what to do when the entire bid side if the market got swept at once. Several went out of business that day because of it. Now, algos handle these situations a lot better and the likelihood of a similar outcome is greatly diminished.

There can be no argument that removing HFT would not result in wider spreads, it's just guaranteed. Humans cannot safely quote as tight as computers. Spreads have gone from several dollars to a few cents or less purely due to HFT, which is a market benefit.

 

[Irishjugg]

I'm not buying that. The HFT system is pretty clearly documented in the book to cause costs to the little people. Read the "Flash Boys" book and its hard to come away not seeing them as parasites on the system.

It is also clearly documented that Tesla losses 18k on every car sold. There is a lot of misinformation in both cases.

What costs on little prior are you referring to, because they need to be larger costs than the savings of considerably tighter spreads to matter.

Also this is off topic so we should stop pretty soon

 

[electracity]

........

As discussed above, these are done:

- Model 3 production powertrain is done (per Elon / CC)
- Paint shop.
- stamping presses in place. Just need the dies.

...........

I guarantee the paint shop and stamping are not "done" and need more capital investment. They would not have spent the money far in advance to to bring these functions up to full needed capacity. You can also be sure that the full tooling isn't done on the powertrain. What they really said is that the power train design is essentially done (which is reassuring). They could not have an actual production drivetrain in the prototypes.

I'm guessing $3 billion, but it could be smaller due to current SP.

 

[mrdoubleb]

For record, there is a video interview with EM back to May 2014. China Market situation and outlook



EM was predicting almost 44000 production in 2014 and at least 80000 in 2015. Later on TM announced in Q2 2014 shareholder letter that 2015 exit rate will be 2000/week, i.e. 100000/year. I think there is no need of more arguments for the facts that how TM intentionally dialed down the production growth rate due to slower than expect demand growth rate while yet claiming production constrained.

As a TSLA investor, I care the stock value no less than anybody else here. If I would find an explanation for the disappointing stock price trend, the model S demand constraint (demand growth lower than expectation) would attribute the most in the past a few years. And this constra

I guarantee the paint shop and stamping are not "done" and need more capital investment. They would not have spent the money far in advance to to bring these functions up to full needed capacity. You can also be sure that the full tooling isn't done on the powertrain. What they really said is that the power train design is essentially done (which is reassuring). They could not have an actual production drivetrain in the prototypes.

I'm guessing $3 billion, but it could be smaller due to current SP.

man that's gonna be one expensive guarantee when we call it. Paintshop is done, read for 500k pet year. This has been clearly communicated several quarters ago. Not sure about stamping, will let others chipin.

 

[virtuesoft]

I guarantee the paint shop and stamping are not "done" and need more capital investment. They would not have spent the money far in advance to to bring these functions up to full needed capacity. You can also be sure that the full tooling isn't done on the powertrain. What they really said is that the power train design is essentially done (which is reassuring). They could not have an actual production drivetrain in the prototypes.

I'm guessing $3 billion, but it could be smaller due to current SP.

Tesla Motors prepping to paint 500,000 cars per year, paint shop to be complete end of 2015 | Tesla Motors

"The car body paint shop has two sealing, two primer and two top coat lines. It is designed to paint as many as 500,000 bodies per year."

Building Tesla: inside Elon Musk's car factory of the future (Wired UK)

"At one end of Tesla's 500,000 square metre factory in Fremont, California, there is a very large, white box. Inside it is a Schuler SMG hydraulic stamping press, and it happens to be the largest in North America; this one machine can stamp out a new car panel once every six seconds, or 5,000 per day, with up to 10,000 tonnes of force out of an aluminium coil that weighs 9,071kg when it shows up at the factory. "