Short-Term TSLA Price Movements - 2016

[SBenson]

<snip>

At the end of the day the question is do you believe in Tesla's words or not? Do you believe they won't need to raise capital this year? Do you believe they will deliver 80-90k?

<snip>

My understanding is that ALL if this depends on successful Model X ramp up in a timely manner. If that is delayed, everything gets derailed. There are no two ways about it. Like someone said 'X marks the spot'.

 

[Brian2527]

Hi,

Newbie here. Learned a lot from all of you. Thanks.

Obama recently proposed in his final budget to charge $10.25 each barrel of crude oil to facilitate the continued effort in the next decade to improve our infrastructure, automatic driving technology, and other green initiatives. Total for 10 years would be around 320 billions.

I think if this is implemented, we could be some very positive results for Tesla alike, short term and long term. Of course the GOP controlled Congress has declared this DOA (Dead on Arrival). I am thinking about writing some letters to my Congressman and senators.

Does anybody have any insight? When is this going to come up in their agenda?

Thanks again. I enjoy reading your posts.

 

[Fallenone]

The chance of it being implemented is slim to 0. No way it can be passed.

Hi,

Newbie here. Learned a lot from all of you. Thanks.

Obama recently proposed in his final budget to charge $10.25 each barrel of crude oil to facilitate the continued effort in the next decade to improve our infrastructure, automatic driving technology, and other green initiatives. Total for 10 years would be around 320 billions.

I think if this is implemented, we could be some very positive results for Tesla alike, short term and long term. Of course the GOP controlled Congress has declared this DOA (Dead on Arrival). I am thinking about writing some letters to my Congressman and senators.

Does anybody have any insight? When is this going to come up in their agenda?

Thanks again. I enjoy reading your posts.

 

[mejojo]

Hi,

Newbie here. Learned a lot from all of you. Thanks.

Obama recently proposed in his final budget to charge $10.25 each barrel of crude oil to facilitate the continued effort in the next decade to improve our infrastructure, automatic driving technology, and other green initiatives. Total for 10 years would be around 320 billions.

I think if this is implemented, we could be some very positive results for Tesla alike, short term and long term. Of course the GOP controlled Congress has declared this DOA (Dead on Arrival). I am thinking about writing some letters to my Congressman and senators.

Does anybody have any insight? When is this going to come up in their agenda?

Thanks again. I enjoy reading your posts.

IMO this is DOA in the current (and near-term) congress.....it only serves to open a discussion.

 

[Fallenone]

Some speculation on M3 reveal being on Mar 31 and deposit of $1k. I think this could mean they are fairly positive of being FCF positive for Q1 and can show an increase in cash on their balance sheet. Otherwise why not set the reveal date earlier to take advantage of the deposit? Deposits still count on the balance sheet right? $1k deposit is lower than most people anticipated I think, so I guess they are aiming for maximum reservation number to be reported in Q2 or sometime earlier.

 

[schonelucht]

People's Model 3 Hypothesis: Tesla will begin with the base model at $35k in 2017 and progressively add higher end options.

No. From the transcript :

Our default plan, as we've done in the past, is that the initial sales are relatively highly optioned versions of the car. Because obviously, we've got to pay back the investment of all the tooling and everything.

 

[AlMc]

Outside of perhaps daytraders, real long term shorts are not covering based on this ER. If anything, they will be emboldened - the actual numbers were much worse than expected, all the good news was guidance, which Tesla has failed to meet 2 years in a row. Talk of cash flow positive was sketchy, since they are using new metrics to measure this that may not represent real free cash flow. Bulls will view this as new accounting measurements used by a new CFO that better represent the state of the business, bears will view it as financial engineering at best and deliberate deception at worst.

So no, if you had a bear thesis for the past 2 years, there is nothing in this ER to make you cover. However, the guidance was also good enough to give bulls ammo as well. And whether or not it is FCF or some made up cash flow, the bottom line is that they stated they will not need to raise outside capital for 2016 - which was the major fear in this current environment.

At the end of the day the question is do you believe in Tesla's words or not? Do you believe they won't need to raise capital this year? Do you believe they will deliver 80-90k?

Well, if you are a Tesla long it is because you believe in Tesla, and if you are a Tesla short you never believed them in the first place. So nothing in the ER changes any of that.

As for the bottom, to me, it depends on how price action closes this week. We need to close above 160 on Friday to confirm a reversal on the weekly charts. Otherwise, expect some back and forth. Guidance was good enough to give bulls some guns for the fight, so instead of the one way ticket to hell the past two weeks, now there should be a battle. Like I said last night, what got me back long is that IMO worst case <120, <100 is off the table. Not that we have necessarily hit bottom.

^^Voice of reason^^ Not overly bullish or bearish. Thanks

Now I don't always agree with 'Jesse' as we initially 'discussed' his $500 PT for 2016 several months ago that would have got me buying him dinner in NYC if it came true....But this is a sane assessment of where we are at right now.

I will still remain cautious before buying back my original position. IV and nice run up crushed my protective puts but that was more than made up for by seeing less red in my LEAPS.

We did not get real good steak yesterday but great sizzle....sizzle might mean a real nice steak mid to late year....but it is still sizzle.

 

[jhm]

Elon says Model 3 will release first as highly optioned.

I should have stated the hypothesis more precisely. I meant higher end versions not options.

People's Model 3 Hypothesis: Tesla will begin with the base model at $35k in 2017 and progressively add higher end versions and new features.

Another way to put this is that Tesla will not initially offer a performance version with ludicrous. If you want a car that can do 0 to 60 in 2.5s, you can content yourself with a Model S P90D or wait a year or two for the Model 3 P80D.

What I heard regarding the Model X was that Musk regrets loading so many new features into the original run car when they could have started with something simpler and added new features over time. For example, there was no need for the panaramic front window. It's a cool feature, but they could have waited till 2017 to introduce it.

As far as ordinary options go like leather seats, advanced audio, sunroofs, etc. I expect all that to be available from the outset. So one can certainly order a highly optioned Model 3 in the first year.

The deeper problem is how to manage demand creation through the difficult process of scaling production. One option is to only offer really expensive packages initially so that customers are forced to wait for more affordable versions. This leads to declining ASP. This is the Model X approach. The other way is to offer a more modest package initially and build demand by adding new features. This is the Model S approach. AP, D, Insane mode, 90/70, and Ludicrous were only offered well after the Signature series and have served to create incremental demand.

 

[Brian2527]

IMO this is DOA in the current (and near-term) congress.....it only serves to open a discussion.

I understand the point, but could there be any wiggling room? For example, if Obama wrap this into his whole budget, and force the congress to take a up and down vote. Is Congress willing to goto extreme, such as shutting down government, just for this item? Can Congress pick and choose which budge item to pass and which to reject? I think this is somehow called line item veto for president.

I am not sure Obama's determination to push this through. But considering that supreme court just recently turned down his coal reduction initiative, he may want to fight this one just for his legacy? I believe he truly envision this is the way to go for job creation and leadership in future transportation technology. etc.

 

[jesselivenomore]

Thanks for the insight Jesse. Could you go expand upon this? In the Q4 Shareholder letter, they used the Cash Flow from Core Operations (the first chart) to show they were +, which is just one aspect of free cash flow. However, in the letter they said they plan to be "net cash flow positive" in 2016. I'm pretty sure in the call they re-iterated this, too. They plan to have more in the bank at the end of this year vs. the start, and it begins next month.

By "net cash flow positive", they mean they will have more cash on hand by the end of 2016 compared to 2015. However, they are achieving this by drawing on their ABL, and does not represent "free cash flow". To Julian's credit, this is what he talked about as well, and I pointed out that this would be a deceptive representation of FCF, which is exactly what many are now saying like the UBS report this morning.

The reason why we look at "free cash flow" is because it is a measurement of if a business can financially sustain itself. Becoming "net cash flow positive" by leveraging yourself through further borrowing defeats the spirit of this metric.

However, in Tesla's defense, outside of "free" vs "net" cash flow and the debate over their financial soundness, the key takeaway is that they won't need outside capital because their available credit line is enough. This was the fear that drove the stock down so much, this is the question that has been answered. Eventually they will still have to achieve "true" "free cash flow" positive. Jason Wheeler stated on the call that they cannot depend on this "drug" referring to the ABL. But for now, what is important is this "drug" can sustain Tesla and it won't need to go to the capital markets for the time being.

 

[techmaven]

However, in Tesla's defense, outside of "free" vs "net" cash flow and the debate over their financial soundness, the key takeaway is that they won't need outside capital because their available credit line is enough. This was the fear that drove the stock down so much, this is the question that has been answered. Eventually they will still have to achieve "true" "free cash flow" positive. Jason Wheeler stated on the call that they cannot depend on this "drug" referring to the ABL. But for now, what is important is this "drug" can sustain Tesla and it won't need to go to the capital markets for the time being.

The one distinction to make is that the ABL is directly tied to finished goods inventory, as opposed to general borrowing. In some ways, it's not much different from vehicles going to dealerships where the dealer commits the funds and the automaker is paid off before the vehicles are paid by the consumer. The ABL gets Tesla the funds a little bit faster at a slightly higher cost.

 

[aznt1217]

By "net cash flow positive", they mean they will have more cash on hand by the end of 2016 compared to 2015. However, they are achieving this by drawing on their ABL, and does not represent "free cash flow". To Julian's credit, this is what he talked about as well, and I pointed out that this would be a deceptive representation of FCF, which is exactly what many are now saying like the UBS report this morning.

The reason why we look at "free cash flow" is because it is a measurement of if a business can financially sustain itself. Becoming "net cash flow positive" by leveraging yourself through further borrowing defeats the spirit of this metric.

However, in Tesla's defense, outside of "free" vs "net" cash flow and the debate over their financial soundness, the key takeaway is that they won't need outside capital because their available credit line is enough. This was the fear that drove the stock down so much, this is the question that has been answered. Eventually they will still have to achieve "true" "free cash flow" positive. Jason Wheeler stated on the call that they cannot depend on this "drug" referring to the ABL. But for now, what is important is this "drug" can sustain Tesla and it won't need to go to the capital markets for the time being.

Correct. I do like the fact that they used the Core Cash Flow metric as its a representation of the business (as it stands) and a good glimpse into the future when the ratio of capex investment levels out. I don't think its deceptive at all. This comes down to metrics and KPI's. It's just another KPI to measure the health of the business filtering out noise and one time charges. I view the ABL as a credit card. Obviously you don't want to overuse it, but it certainly helps to know its a tool/backup.

- - - Updated - - -

The one distinction to make is that the ABL is directly tied to finished goods inventory, as opposed to general borrowing. In some ways, it's not much different from vehicles going to dealerships where the dealer commits the funds and the automaker is paid off before the vehicles are paid by the consumer. The ABL gets Tesla the funds a little bit faster at a slightly higher cost.

I also see it as a move to get more favorable terms with suppliers. Essentially an increased credit score if you will for the company.

 

[AudubonB]

I understand the point, but could there be any wiggling room? For example, if Obama wrap this into his whole budget, and force the congress to take a up and down vote

That's not how it works. The Executive proposes budgets but it is Congress that takes the president's ideas and then crafts what the budget is. They may or may not use any or all of what comes out of the Executive Office in determining what the budget looks like. The impasse between these two legs of the government is so strong that effectively nothing the president puts out is considered by Congress. You can take, perhaps, some opiate abuse measures as common ground but Big Picture items like the crude tax are, as written above, DOA.

MY own suggestion was that the White House should have used language that the other party likes - and that it should have called for a "$10 per barrel reduction in crude subsidies". This is demonstrably true and, although it is - without getting into the prohibited area of political discussion - still immensely unlikely to have survived, it would have given the other side some uncomfortableness in rejecting - not the case with the Executive's clumsy just what were they thinking, anyway?​ - proposal of a "tax raise".

 

[schonelucht]

I should have stated the hypothesis more precisely. I meant higher end versions not options.

Then I fail how to see how you can state is a departure from the modus operandi used with the model X since we don't know enough if they maybe are going to come out with more advanced options for that car a few years down the line.

 

[jesselivenomore]

^^Voice of reason^^ Not overly bullish or bearish. Thanks

Now I don't always agree with 'Jesse' as we initially 'discussed' his $500 PT for 2016 several months ago that would have got me buying him dinner in NYC if it came true....But this is a sane assessment of where we are at right now.

Thanks.

Unlike "investors", as a trader I can't afford to "stick to my guns", but rather have to "go with the flow". My $500PT was when the indices were still in a bull market. If we broke 300 in that environment, a short squeeze would've brought us to 500 IMO. Since then, macro conditions have worsened, which has impacted TSLA greatly due to their perceived need for borrowing. Also since then, I have 1. sold at 220 2. shorted major indices. Both of which I posted here around the time I did so. I was also one of the only people(outside of perma-shorts) pushing back against those calling 200 the bottom with certainty. So "do as I do, not as I say"? (is that how it goes?)

 

[everman]

Elon says Model 3 will release first as highly optioned.

While I appreciate JHM's "people's Tesla" hypothesis, I don't think it makes sense from a gross margin due to operating efficiency and line balance point of view. The increased ASP from highly optioned 3's will keep the cash flow in the right place while throughput increases.

Based on the reservation amount, I believe Tesla will have several years worth of production sold out on the day they make their first delivery. Even if the high end of the distribution curve of ASP's is thin, the sheer magnitude of orders should provide them a year (150,000 max for first year?) of highly optioned 3s to choose from.

Things are lining up nicely with Julian's roadmap for Tesla actions this year. The fly in the ointment has only been the giant macro effects, pulling the rug out from under the overall market.

 

[jesselivenomore]

Correct. I do like the fact that they used the Core Cash Flow metric as its a representation of the business (as it stands) and a good glimpse into the future when the ratio of capex investment levels out. I don't think its deceptive at all.

I never said "core cashflow" was deceptive. I said to represent it as "free cash flow" would be deceptive. Tesla is not doing that. The guy that got banned was.

 

[sunhelm]

Correct. I do like the fact that they used the Core Cash Flow metric as its a representation of the business (as it stands) and a good glimpse into the future when the ratio of capex investment levels out. I don't think its deceptive at all. This comes down to metrics and KPI's. It's just another KPI to measure the health of the business filtering out noise and one time charges. I view the ABL as a credit card. Obviously you don't want to overuse it, but it certainly helps to know its a tool/backup.

Can you please explain the difference in the metric: cash flow from operating activities (which to me is the same as cash flow from operations) vs the new metric in the shareholder letter - cash flow from core operations? Isn't "Change in collateralized lease borrowing" essentially revenue that should have been included in the first place from prior statements?

Can they just willynilly introduce a new metric with their own definition that would sway to their advantage?

 

[FredTMC]

Outside of perhaps daytraders, real long term shorts are not covering based on this ER. If anything, they will be emboldened - the actual numbers were much worse than expected, all the good news was guidance, which Tesla has failed to meet 2 years in a row. Talk of cash flow positive was sketchy, since they are using new metrics to measure this that may not represent real free cash flow. Bulls will view this as new accounting measurements used by a new CFO that better represent the state of the business, bears will view it as financial engineering at best and deliberate deception at worst.

So no, if you had a bear thesis for the past 2 years, there is nothing in this ER to make you cover. However, the guidance was also good enough to give bulls ammo as well. And whether or not it is FCF or some made up cash flow, the bottom line is that they stated they will not need to raise outside capital for 2016 - which was the major fear in this current environment.

At the end of the day the question is do you believe in Tesla's words or not? Do you believe they won't need to raise capital this year? Do you believe they will deliver 80-90k?

Well, if you are a Tesla long it is because you believe in Tesla, and if you are a Tesla short you never believed them in the first place. So nothing in the ER changes any of that.

As for the bottom, to me, it depends on how price action closes this week. We need to close above 160 on Friday to confirm a reversal on the weekly charts. Otherwise, expect some back and forth. Guidance was good enough to give bulls some guns for the fight, so instead of the one way ticket to hell the past two weeks, now there should be a battle. Like I said last night, what got me back long is that IMO worst case <120, <100 is off the table. Not that we have necessarily hit bottom.

Completely agree.

On a side note, oil and macros need to hold support (not breakdown). Recession and further macro Econ decline could drag everything down including demand for Tesla's existing line-up (MX/MS). Tesla said in writing and on CC they haven't seen any decline in orders - only increases. That's good so far. Further Econ collapse may change that. Let's be careful out there

baring world Econ collapse, Tesla's future looks bright.

 

[esk8mw]

Can you please explain the difference in the metric: cash flow from operating activities (which to me is the same as cash flow from operations) vs the new metric in the shareholder letter - cash flow from core operations? Isn't "Change in collateralized lease borrowing" essentially revenue that should have been included in the first place from prior statements?

Can they just willynilly introduce a new metric with their own definition that would sway to their advantage?

Yes, they can introduce any metrics they want. It's up to investors how they want to interpret the metric. I will say that virtually every company on earth presents financial data on an "adjusted" or "normalized" basis to exclude one-time or extraordinary expenses. GAAP rules are not one size fits all and will not give an accurate picture of the company - especially a growth company.