Short-Term TSLA Price Movements - 2016

[Seesaw]

i think they will be less intense with Model 3 ramp up than first thought and not do a capital raise at all. I think they will go for an attractive debt facility. While it's a big ramp up regardless, the quotes from Elon in the articles this morning make it obvious that Elons lofty figures were about push targets and squeezing the best deal possible out of suppliers

 

[electracity]

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. "

Yes, and Tesla also purchase the Nummi factory capability of producing 500,000 cars a year. Did you assume when that purchased was announced that the factory was complete and not in need of capital investment?

 

[virtuesoft]

Yes, and Tesla also purchase the Nummi factory capability of producing 500,000 cars a year. Did you assume when that purchased was announced that the factory was complete and not in need of capital investment?

No, I didn't assume that, because I'm not stupid.

There is nothing to assume with regard to the paint shop and stamping press. It is clear that the work has been done. You're wrong, but stick your head in the sand for all I care.

 

[EinSV]

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.

Your numbers check out (as always). I remain skeptical about the ambitious guidance for OpEx given the plans for Model 3. Tesla itself is re-evaluating these numbers -- see below. Would love to be proved wrong -- as long as Tesla does not put the Model 3 launch at risk by deferring hires or work necessary for a smooth launch (which I don't think they will, hence my skepticism).

My main point is that non-GAAP profitability is fairly meaningless for a company growing as fast as Tesla is. But if Tesla can actually turn a small profit (non-GAAP) while building a business that is 5 times its current size, that would be truly amazing.

From the 10Q: While we are also currently in the process of evaluating our operating expenditures given our revised vehicle build plan, we currently expect operating expenses to grow by approximately 20 – 25% in 2016 as compared to 2015. This increase is driven primarily by the expansion of our retail and service centers, as well as increases in research and development required to bring Model 3 to market and selling, general and administrative costs to support the growth of our business.

 

[kenliles]

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

I've been a bit miffed at all the bear-bull bantering frankly.
To me, Both sides agree-
the new mass production timeline is ludicrous
the commensurate stock price will be ludicrous if(when) they pull it off
ModS has Ludicrous - why wouldn't Tesla?

meantime, I'm loving the ludicrous buying opportunity and the shorts are happy too. It's all good

 

[vgrinshpun]

Your numbers check out (as always). I remain skeptical about the ambitious guidance for OpEx given the plans for Model 3. Tesla itself is re-evaluating these numbers -- see below. Would love to be proved wrong as long as Tesla does not put the Model 3 launch at risk by deferring hires or work necessary for a smooth launch (which I don't think they will, hence my skepticism).

My main point is that non-GAAP profitability is fairly meaningless for a company growing as fast as Tesla is. But if Tesla can actually turn a small profit (non-GAAP) while building a business that is 5 times its current size, that would be truly amazing.

From the 10Q: While we are also currently in the process of evaluating our operating expenditures given our revised vehicle build plan, we currently expect operating expenses to grow by approximately 20 – 25% in 2016 as compared to 2015. This increase is driven primarily by the expansion of our retail and service centers, as well as increases in research and development required to bring Model 3 to market and selling, general and administrative costs to support the growth of our business.

While I agree that the plans can change, they did revise their OpEx, as in Q4 2015 they projected 20% growth, and increased it to 20-25% in Q1 shareholder's letter.

It also should be noted that the revised vehicle build plans can affect only R&D for possibly addressing increased ramp and (may be) higher capacity of the production facilities for M3 only. As was mentioned by Elon several times, there was no change to the completion of the M3 design date.

Once again all I am trying to emphasize is that we should not lump the likelihood on non-GAAP profitability with the likelihood of FCF positive, as it was seemingly default thinking of many members here. The former is likely, while the later is just not possible at this point.

 

[austinEV]

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

#3, probably. That would validate Tesla as a leader, since the other car maker would be conceding Tesla's lead. It's for this reason I don't see it ever happening.

The rest no.

#1: good results are priced in. The S set the precedent that it should be near perfect. If anything this is a looming risk that they don't score as highly, or score actually poorly. I see this as negative or neutral.
#2: Didn't they already? I see this as similar, good reviews are expected. Reviews which are 99/100 will be reported as negative as media seizes on the 1%.
#4: Product improvements have a poor record moving the stock. Good for the consumer, neutral for a stockholder.

 

[madodel]

I've been a bit miffed at all the bear-bull bantering frankly.
To me, Both sides agree-
the new mass production timeline is ludicrous
the commensurate stock price will be ludicrous if(when) they pull it off
ModS has Ludicrous - why wouldn't Tesla?

meantime, I'm loving the ludicrous buying opportunity and the shorts are happy too. It's all good

Hey, let me fix that for you "The Model X and S has Ludicrous - why wouldn't Tesla?" ;-)

 

[Irishjugg]

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.

You are incorrect about this. The company has clearly stated that the paint shop is capable of 500k already, they did so anticipating model 3. They also already upgraded the stamping lines.

So yeah, they did spend the money already and it contributed to their current losses. I think the statement you were looking for is "the traditional automakers would never spend that money ahead of time because it would harm their quarterly numbers".

Also, Tesla directly stated that the model 3 reveal cars WERE using a production powertrain.

Above in a reply to detailed proof of this you responded with an unrelated straw man argument. Why? It comes across as you are much more interested in what you believe being correct than actually being correct. That's an attitude most investors don't have.

 

[Irishjugg]

While I agree that the plans can change, they did revise their OpEx, as in Q4 2015 they projected 20% growth, and increased it to 20-25% in Q1 shareholder's letter.

It also should be noted that the revised vehicle build plans can affect only R&D for possibly addressing increased ramp and (may be) higher capacity of the production facilities for M3 only. As was mentioned by Elon several times, there was no change to the completion of the M3 design date.

Once again all I am trying to emphasize is that we should not lump the likelihood on non-GAAP profitability with the likelihood of FCF positive, as it was seemingly default thinking of many members here. The former is likely, while the later is just not possible at this point.

Vgrin, my only concern with your numbers is in GM. If that number is even a bit on the high side it changes things rapidly. 20% mix may be more likely than the 23+ you mentioned. Otherwise the data looks fantastic. I'm a bit more pessimistic on initial year X GM owing to the significant production difficulties they have already experienced.

I do agree noon gaap profit is very possible if they hit that though, as your numbers illustrate well.

 

[electracity]

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?

Tesla as an auto manufacturer is just trying to get past the training wheel stage. Yet Musk sneezes and many fans take it as a sure indication that they are about ready to win the Tour de France.

I do expect major gigafactory improvements in both cell and pack production. I expect these improvements to go well beyond anything as simple as using a larger cylinder. I don't think the gigafactory is just scaling up current Tesla and Panasonic manufacturing functions.

But as far as auto manufacturing itself, if you want state-of-the-art, buy a Toyota Corolla.

 

[vgrinshpun]

Vgrin, my only concern with your numbers is in GM. If that number is even a bit on the high side it changes things rapidly. 20% mix may be more likely than the 23+ you mentioned. Otherwise the days looks fantastic.

I based GM assumption on the guidance of 2015 exit on MS at 30%, 25% on MX, and then assuming linear ramp from Q1 20% to the MS/MX blended EOY 27.5%.

Assuming 20% as an average for Q2-Q4 is way to low, as they were at 20% in Q1, with only 2400 MX delivered. Once volume of MX goes up, GM should go up as well.

Let's hope that they will hit the targets...

 

[schonelucht]

• Tesla beat their OpEx guidance in Q1 (I think for the first time ever): guided for slightly more than $429M, actual - $417M

I'd expect OpEx per revenue going down as economies of scale kick in but for now we haven't yet seen it happening. There is still some more work to do here for the new CFO. OpEx expenditures were a consistent 20% of automotive revenue last year. This quarter that grew to 23% IIRC (I don't have my analysis spreadsheet with me at the moment but it's a fairly trivial exercise based on the financial reports). And that's after already taking stock based compensation into account wrt to hitting some unique milestones this quarter.

It's a bit hard to predict stock based compensations for the next three quarters, but hitting the numbers as guided (and in your table) will likely mean shooting for an OpEx before stock based incentives to automotive revenue percentage of 18% or cutting about 10% in operational fat compared to 2015. Should be very doable on the one hand, but it must be done on the other hand! And preferably without too much damage to brand perception on service, customer experience etc.

 

[SBenson]

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

For what it's worth, consensus analyst estimate for non-gaap eps is -0.32 for Q2, +0.51 for Q3 and +1.04 for Q4.

The entire bear argument of Tesla looses money on every car it sells will be thrown into dumpsters once things turn to the positive. So Q3 ER is where it looks like it will happen.

 

[SBenson]

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.

I have a cynical take on deliveries vs production guidance.

A delivery has a hard black-and-white definition. The car has to be full and complete with no/minimal issues to be deliverable.

Now what counts as produced? Hypothetically, lets say if the entire car is produced but Tesla ran out of led headlights. Tesla sends the car to SC for storage. Would that car be counted as produced or not? Clearly it is un-deliverable and will not count towards a delivery. So who draws the line in defining what is considered produced or not? My sense is, if something makes it out of the factory it will be considered produced however incomplete it might be. Tesla has repeatedly stated shortage of parts with regards to X. So I think the gap of 3K vehicles is the expected number of cars sitting in SCs waiting for final parts and/or tweaks. Sure Tesla might be able to do better than that. But that buffer is to accommodate that situation.

Happy to hear counter arguments.

 

[SPadival]

Audi CEO Stadler at the Annual General Meeting: “Our model and technology initiative will ensure further growth”

Furthermore, Audi is currently preparing for production of its first fully electric large‑series automobile. It will be launched in 2018 as a sporty SUV with a range of more than 500 kilometers and will be produced in Brussels. The plant there will also have its own battery production. “Starting in 2018, we will launch another electrified car each year,” announced Stadler.

Shorters are jumping up and down about this. But I think they don't realize that 2018 is 2 years away and time or technology does not stand still.

 

[MitchJi]

Here my pick up thoughts and general observations.
bignikku, Yesterday (May 12) at 10:26 AM

The X and pickup:
The pickup process was very smooth. We arrived a little early for our appt so we got a chance to look at the car and do the initial payment stuff first saving our 45 mins or more after the tour to look over the car and hear about the features. There were 4 X’s being delivered and 2 S’s (both with old fascia)
<snip>
Factory tour:
The mix of S and X in assembly has changed from before. Last time I went to the factory for the exclusive preview, there 3-4 S’s and followed by an X. It was actually reverse right now, so a lot of X’s were being assembled. When we were on our way to the pickup, three trucks were departing with new cars, majority of them loaded with X’s. Production is ramping up again which is great for all you folks waiting out there. There were many many X’s that were finished already. Just wait a little longer folks, it is worth it.

Great news on the X production!

I guess this means S demand is down, but luckily X demand is picking up the slack ?

 

[EinSV]

Audi CEO Stadler at the Annual General Meeting: “Our model and technology initiative will ensure further growth”



Shorters are jumping up and down about this. But I think they don't realize that 2018 is 2 years away and time or technology does not stand still.

Did he mention how many pre-orders they have?

On a selfish note, I hope this will force Tesla's hand on announcing the Model Y so I can trade in my Q5 for it.

 

[Irishjugg]

I based GM assumption on the guidance of 2015 exit on MS at 30%, 25% on MX, and then assuming linear ramp from Q1 20% to the MS/MX blended EOY 27.5%.

Assuming 20% as an average for Q2-Q4 is way to low, as they were at 20% in Q1, with only 2400 MX delivered. Once volume of MX goes up, GM should go up as well.

Let's hope that they will hit the targets...

I forgot that 20% was the Q1. You are context 20% is too low. Thanks!

Only way 20% or wise happens is if model S and X are near equal with very low X margin. Highly unlikely.

 

[CButterK]

I have a cynical take on deliveries vs production guidance.

Now what counts as produced? Hypothetically, lets say if the entire car is produced but Tesla ran out of led headlights. Tesla sends the car to SC for storage. Would that car be counted as produced or not? Clearly it is un-deliverable and will not count towards a delivery. So who draws the line in defining what is considered produced or not? My sense is, if something makes it out of the factory it will be considered produced however incomplete it might be. Tesla has repeatedly stated shortage of parts with regards to X. So I think the gap of 3K vehicles is the expected number of cars sitting in SCs waiting for final parts and/or tweaks. Sure Tesla might be able to do better than that. But that buffer is to accommodate that situation.

Happy to hear counter arguments.

So, in a typical Mfg environment, you would utilize an ERP system to track cost/movement of the product you are building(Tesla developed their own system). Typical ERP systems use "Work Orders" to capture parts going into the product, along with a physical traveller packet that moves with the product being built. Tesla cars are individually serialized, so each car will have it's own "Work Order" where you would issue the required parts to capture the cost. If an LED Headlight is out of stock, the car could still move out of the factory, but the Work Order could still stay open under "Work In Progress" status in a "Service Center" inventory location, with an exception note "Operation out of sequence" within that Work Order/Traveller. As long as it stays in "WIP", the material/labor cost does not get transacted into "Finished Goods" bucket within accounting, which is when you would consider the car "Built".

There are ways to close the Work order short, meaning Missing parts/quantity etc, but you would not want to do that on a single unit workflow, and you would certainly not want to count it as "built", since you would have to open a rework order to back it out of "FG inventory" anyway.

My belief is, given the huge spike of deliveries at the end of 2015 and the unexpected slow ramp of X in Q4/15 & Q1/16, Tesla had to drain the pipeline and demo inventory as much as possible just to deliver what they did in Q1/16. Now that X is finally ramping up, they are using Q2 to build the transit/demo pipeline back up. Also remember, all the stores and Galleries and Service centers now ideally need twice the demo/loaner cars with 2 different models to show/demo/sell/service as opposed to just 1 model. Hence the wider gap of Built/Delivered IMHO...