First, I agree and plan to buy limited "knive" lots on the way down. The problem I see is traders adjusting to Musk, as "Bezos 2.0", rather than the guy at the end of Q4 who basically set a "cash is king" strategy for the year. Last night was a total reversal, in that regard, and the strategies define two different investors. Bigger, longer-dated, cash flows denominate the valuation, at the expense of shorter ones. Not everyone's comfort zone.
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First, I agree and plan to buy limited "knive" lots on the way down. The problem I see is traders adjusting to Musk, as "Bezos 2.0", rather than the guy at the end of Q4 who basically set a "cash is king" strategy for the year. Last night was a total reversal, in that regard, and the strategies define two different investors. Bigger, longer-dated, cash flows denominate the valuation, at the expense of shorter ones. Not everyone's comfort zone.
CyberDutchie
Active Member
Adam Jonas also a non-believer:
While not impossible, we view 500k units of volume by 2018 as too high to model as a base case. We would even describe 500k units as above any bull case we would be prepared to model at this stage. Again, while we are not in a position to rule out the theoretical or even physical possibility of achieving such volume targets, we believe the motivation to express such an ambitious view is driven by very strong early interest in the Model 3 and a commitment to bring all critical pieces of the vehicle’s supply chain (both internal and outsourced) into a production-ready position as soon as possible. Given the very high capital commitments to such levels of volume, we believe Tesla management wish to make every effort to establish the most ambitious launch plan possible while allowing for the inevitable unknown hiccups that invariably occur with launches on such scale. Going further, Elon Musk expressed a view that as many as 1 million units of vehicle production could be achieved by 2020, a level that is more than 4x higher than our forecast of 248k units. On our current forecasts, we do not predict Tesla will achieve 500k units of volume before 2025 (7 years after their current target) and we do not reach 1 million units in our forecasts at any time before 2030.
While not impossible, we view 500k units of volume by 2018 as too high to model as a base case. We would even describe 500k units as above any bull case we would be prepared to model at this stage. Again, while we are not in a position to rule out the theoretical or even physical possibility of achieving such volume targets, we believe the motivation to express such an ambitious view is driven by very strong early interest in the Model 3 and a commitment to bring all critical pieces of the vehicle’s supply chain (both internal and outsourced) into a production-ready position as soon as possible. Given the very high capital commitments to such levels of volume, we believe Tesla management wish to make every effort to establish the most ambitious launch plan possible while allowing for the inevitable unknown hiccups that invariably occur with launches on such scale. Going further, Elon Musk expressed a view that as many as 1 million units of vehicle production could be achieved by 2020, a level that is more than 4x higher than our forecast of 248k units. On our current forecasts, we do not predict Tesla will achieve 500k units of volume before 2025 (7 years after their current target) and we do not reach 1 million units in our forecasts at any time before 2030.
Not sure sovereign funds controlled by governments with nationalized oil industries are philosophically ideal major shareholders.
As someone who used to work in the car game many years back, they should have no problems in getting infrastructure for a 500,000 runrate by 2018.
Car assembly is an exact science and there are no secrets in the business. The project or production engineer at GM is next week working for Porsche or Hyundai on his next project. Even most of the presses, robots, dies and assembly equipment are the same across different car companies.
Its not a hit or miss game, most setups have KPIs for running ahead of schedule, The Giggafactory is ahead of schedule which shows that Tesla can get it done.
The real problems are things like unions strikes, natural disasters, suppliers or problems with the car itself rather than the assembly infrastructure being delayed.
Car assembly is an exact science and there are no secrets in the business. The project or production engineer at GM is next week working for Porsche or Hyundai on his next project. Even most of the presses, robots, dies and assembly equipment are the same across different car companies.
Its not a hit or miss game, most setups have KPIs for running ahead of schedule, The Giggafactory is ahead of schedule which shows that Tesla can get it done.
The real problems are things like unions strikes, natural disasters, suppliers or problems with the car itself rather than the assembly infrastructure being delayed.
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FredTMC
Model S VIN #4925
Thanks,
So, the Down-then-up (DTU) scenario is in play today (certainly the 'down' part anyway)
Few analysts have weighed in yet and certainly not the few influential ones (GS and MS).
I think we are witnessing the "get my clients in cheap" tactic. WeI've seen this before with TSLA.
Here's what analysts moves I've got so far:
TSLA analysts
PT Increases:
Baird/ Ben Kallo. 300 to 338
RBC 180 to 252
Deutsche Bank 280 to 290
BEARS:
Standpoint reiterates 180-180
PacificCrest/Brad Erickson. ?
So you're completely dismissing inevitable capital raise? I see the decline short term profit taking while new accelerated delivery promise has yet to be digested to yield buyers. I would not be surprised if it went all the way to $205 by end of this week.
Rocket assembly is also an exact science-- oh right, they do that too haha.
Anyway with people thinking these numbers are pie in the sky-- it's really not too bad so long as the suppliers catch up and I think they will now because the pot of money here is huge. Tesla went from making 7 cars a week (Roadsters)->400 Model S/week->2000 cars/week-> potentiall 9615 cars/week. On a percentage basis it's about the same in terms of production rate (actually a little less).
They have the space, they will have the people this weekend (a couple months of training), and suppliers are getting on board. It's just a matter of time.
A capital raise at this point would be for accelerant or a cushion. Having the ABL is huge. The company would just need a cushion to sustain its breakneck pace of growth.
FredTMC
Model S VIN #4925
Wow. What's did he do with his PT?! From what to what?
I think it's likely MS is giving its big clients a chance to get in cheap
FredTMC
Model S VIN #4925
I'm no expert, but I think we hit bottom. I got in for 50 shares at 212. I think that's a good price.
I'm going to be a contrarian here and posit the short-term bear case.
IMHO, Tesla badly managed the earnings report. The truth is, after the delivery report was released in April, no one was going to be surprised with their quarterly revenue and loss. In fact, they came pretty close to hitting analysts' targets on that. If they had just taken that lump, talked about how Model X production was straightened out now, and say they're still on track for year-end numbers, this would have been a ho-hum report (given that Tesla had already dropped ~30pts in the past few days).
I actually think all this talk about moving forward volume production by 2 years is a *negative*. First, it's wildly unrealistic, and I say this as someone who believed in their gigafactory when they first announced it
. We've seen over the past 3 years that the best they can do with ramping production is ~60%/yr. Even that may be too much given the quality problems seen on the Model X (and even the first year vintage of the Model S). And that is with being FCF negative the whole time, and doing fairly large capital raises every 1-2 years to fund expansion.
Now ~60% is very impressive, but Musk is essentially promising >150% expansion every year for the next few years to hit 500k in 2018. Without details on how he's going to do that, I'm very doubtful Tesla will get even close to that number. Manufacturing capacity isn't *just* about throwing money at the problem. You need to hire people, train them, debug production lines, work with vendors, manage logistics, etc. etc. etc. It's like the classic quip that a manager is someone who thinks 9 women can create 1 baby in a month. While it's amazing that Musk has managed`a 60% growth rate so far, that has been a struggle. Do I think he can essentially double that rate of growth? No. Not without a more concrete plan with details.
So his proclamations of 500k in 2018 don't do anything for me. He can promise the moon but I need to see details. OTOH, I *do* believe the rest of his statements, mainly that he'll be FCF negative the rest of this year, and that he's going to raise capital to increase massively increase capex.
So short-term, this is a net negative, while long-term it is potentially a positive (although really no more positive than before; who didn't think Musk was going to expand production as rapidly as humanly possible and introduce the M3 as early as humanly possible?). And I say potential positive because with all the increased spending, he's *increased* the short- and medium- term risk of insolvency. Remember Keynes's famous quote "the market can remain irrational longer than you can remain solvent". While Tesla's long-term prospects are great, it still has to get there from here. Expanding as rapidly as Musk is talking about (expanding Fremont, opening new plants worldwide, doubling production every year, expanding Powerwall, completing the Gigafactory) makes it much riskier that he runs out of money before all the investments bear fruit.
There have been lots of companies with great long-term potential that spread themselves too thin, and expanded faster than was prudent, and went BK before they could realize their long-term potential. Tesla is already showing strain right now (FCF negative, issues ramping production on MX, quality control, vendor management, even burning out senior executives is not a good thing). Setting a goal of moving twice as fast, and taking on additional debt, etc. to do it is risky.
Don't get me wrong: I'm rooting for him, and if he succeeds, world domination is two years closer So I remain long-term bullish. But he has significantly increased the downside risks over the short- and medium- term. Maybe it pays out in the end (I hope so), but the stock price today and probably over the next few days, I think is accurately reflecting a re-evaluation of all that Musk has said.
IMHO, Tesla badly managed the earnings report. The truth is, after the delivery report was released in April, no one was going to be surprised with their quarterly revenue and loss. In fact, they came pretty close to hitting analysts' targets on that. If they had just taken that lump, talked about how Model X production was straightened out now, and say they're still on track for year-end numbers, this would have been a ho-hum report (given that Tesla had already dropped ~30pts in the past few days).
I actually think all this talk about moving forward volume production by 2 years is a *negative*. First, it's wildly unrealistic, and I say this as someone who believed in their gigafactory when they first announced it
. We've seen over the past 3 years that the best they can do with ramping production is ~60%/yr. Even that may be too much given the quality problems seen on the Model X (and even the first year vintage of the Model S). And that is with being FCF negative the whole time, and doing fairly large capital raises every 1-2 years to fund expansion.Now ~60% is very impressive, but Musk is essentially promising >150% expansion every year for the next few years to hit 500k in 2018. Without details on how he's going to do that, I'm very doubtful Tesla will get even close to that number. Manufacturing capacity isn't *just* about throwing money at the problem. You need to hire people, train them, debug production lines, work with vendors, manage logistics, etc. etc. etc. It's like the classic quip that a manager is someone who thinks 9 women can create 1 baby in a month. While it's amazing that Musk has managed`a 60% growth rate so far, that has been a struggle. Do I think he can essentially double that rate of growth? No. Not without a more concrete plan with details.
So his proclamations of 500k in 2018 don't do anything for me. He can promise the moon but I need to see details. OTOH, I *do* believe the rest of his statements, mainly that he'll be FCF negative the rest of this year, and that he's going to raise capital to increase massively increase capex.
So short-term, this is a net negative, while long-term it is potentially a positive (although really no more positive than before; who didn't think Musk was going to expand production as rapidly as humanly possible and introduce the M3 as early as humanly possible?). And I say potential positive because with all the increased spending, he's *increased* the short- and medium- term risk of insolvency. Remember Keynes's famous quote "the market can remain irrational longer than you can remain solvent". While Tesla's long-term prospects are great, it still has to get there from here. Expanding as rapidly as Musk is talking about (expanding Fremont, opening new plants worldwide, doubling production every year, expanding Powerwall, completing the Gigafactory) makes it much riskier that he runs out of money before all the investments bear fruit.
There have been lots of companies with great long-term potential that spread themselves too thin, and expanded faster than was prudent, and went BK before they could realize their long-term potential. Tesla is already showing strain right now (FCF negative, issues ramping production on MX, quality control, vendor management, even burning out senior executives is not a good thing). Setting a goal of moving twice as fast, and taking on additional debt, etc. to do it is risky.
Don't get me wrong: I'm rooting for him, and if he succeeds, world domination is two years closer
So I remain long-term bullish. But he has significantly increased the downside risks over the short- and medium- term. Maybe it pays out in the end (I hope so), but the stock price today and probably over the next few days, I think is accurately reflecting a re-evaluation of all that Musk has said.I think About a week ago I called $200-220 after a bad ER, and I'm sticking with it. With that model 3 demand, I highly doubt it would go below $200. If it does, that'll be a real gift. Im averaging down in shares but will turn into Leaps if so.
Basically, the reactions of bulls and bears to the moving up of the 500k vehicles by 2018:
Bulls:
"Due to a surprising and overwhelming amount of demand for Model 3, the general capacity of the Gigafactory, Model 3 being designed especially to be easier and simpler to manufacture, along with the lessons learned from making S and X, Tesla feels confident enough in their ability to make twice as many vehicles than the previously projected target of 500k vehicles by 2020 and thus have moved up that goal of 500k by a whole 2 years. For this reason, Tesla will now have to reconsider doing another capital raise sooner than expected, as earlier projections before Model 3 demand indicated it was not necessary. This confirms the demand for mass sustainable transportation is real and significant."
Bears:
"Even more lies from EM, saying 500k vehicles by 2020 which is impossible is now replaced by an even bigger lie of moving it up to 2018 (except that no company would purposely set themselves up for bigger failure by shortening timelines if they honestly knew they couldn't meet the first timeline of their goal). They'll definitely have to do another capital raise, as they are burning cash on every vehicle (actually, they're reinvesting profits and need to increase budget to match the increasing demand) and with 400,000 Model 3s will lose even more money (indirectly confirming demand is significant and is rising). Model 3 will be greatly delayed as the Model S and X were very difficult for them to make (actually Model 3 is a simpler platform with less complex systems, made by a now more experienced manufacturer in Tesla)."
The only merit to the bear thesis is the risk for execution appears increased, but that is really due to the need to meet a much larger demand than expected in the same timeframe. Even still, the bears will always twist every word around just to distort to support their short.
Bulls:
"Due to a surprising and overwhelming amount of demand for Model 3, the general capacity of the Gigafactory, Model 3 being designed especially to be easier and simpler to manufacture, along with the lessons learned from making S and X, Tesla feels confident enough in their ability to make twice as many vehicles than the previously projected target of 500k vehicles by 2020 and thus have moved up that goal of 500k by a whole 2 years. For this reason, Tesla will now have to reconsider doing another capital raise sooner than expected, as earlier projections before Model 3 demand indicated it was not necessary. This confirms the demand for mass sustainable transportation is real and significant."
Bears:
"Even more lies from EM, saying 500k vehicles by 2020 which is impossible is now replaced by an even bigger lie of moving it up to 2018 (except that no company would purposely set themselves up for bigger failure by shortening timelines if they honestly knew they couldn't meet the first timeline of their goal). They'll definitely have to do another capital raise, as they are burning cash on every vehicle (actually, they're reinvesting profits and need to increase budget to match the increasing demand) and with 400,000 Model 3s will lose even more money (indirectly confirming demand is significant and is rising). Model 3 will be greatly delayed as the Model S and X were very difficult for them to make (actually Model 3 is a simpler platform with less complex systems, made by a now more experienced manufacturer in Tesla)."
The only merit to the bear thesis is the risk for execution appears increased, but that is really due to the need to meet a much larger demand than expected in the same timeframe. Even still, the bears will always twist every word around just to distort to support their short.
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Maybe to give themselves sometime to adjust positions? Soon they will say, "after checking with suppliers, now we think 1 million per year by 2020 is likely."
I'm going to be a contrarian here and posit the short-term bear case.
IMHO, Tesla badly managed the earnings report. The truth is, after the delivery report was released in April, no one was going to be surprised with their quarterly revenue and loss. In fact, they came pretty close to hitting analysts' targets on that. If they had just taken that lump, talked about how Model X production was straightened out now, and say they're still on track for year-end numbers, this would have been a ho-hum report (given that Tesla had already dropped ~30pts in the past few days).
I actually think all this talk about moving forward volume production by 2 years is a *negative*. First, it's wildly unrealistic, and I say this as someone who believed in their gigafactory when they first announced it
Now ~60% is very impressive, but Musk is essentially promising >150% expansion every year for the next few years to hit 500k in 2018. Without details on how he's going to do that, I'm very doubtful Tesla will get even close to that number. Manufacturing capacity isn't *just* about throwing money at the problem. You need to hire people, train them, debug production lines, work with vendors, manage logistics, etc. etc. etc. It's like the classic quip that a manager is someone who thinks 9 women can create 1 baby in a month. While it's amazing that Musk has managed`a 60% growth rate so far, that has been a struggle. Do I think he can essentially double that rate of growth? No. Not without a more concrete plan with details.
So his proclamations of 500k in 2018 don't do anything for me. He can promise the moon but I need to see details. OTOH, I *do* believe the rest of his statements, mainly that he'll be FCF negative the rest of this year, and that he's going to raise capital to increase massively increase capex.
So short-term, this is a net negative, while long-term it is potentially a positive (although really no more positive than before; who didn't think Musk was going to expand production as rapidly as humanly possible and introduce the M3 as early as humanly possible?). And I say potential positive because with all the increased spending, he's *increased* the short- and medium- term risk of insolvency. Remember Keynes's famous quote "the market can remain irrational longer than you can remain solvent". While Tesla's long-term prospects are great, it still has to get there from here. Expanding as rapidly as Musk is talking about (expanding Fremont, opening new plants worldwide, doubling production every year, expanding Powerwall, completing the Gigafactory) makes it much riskier that he runs out of money before all the investments bear fruit.
There have been lots of companies with great long-term potential that spread themselves too thin, and expanded faster than was prudent, and went BK before they could realize their long-term potential. Tesla is already showing strain right now (FCF negative, issues ramping production on MX, quality control, vendor management, even burning out senior executives is not a good thing). Setting a goal of moving twice as fast, and taking on additional debt, etc. to do it is risky.
Don't get me wrong: I'm rooting for him, and if he succeeds, world domination is two years closer
one of the very few robust and rational analysis written so far.
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