Short-Term TSLA Price Movements - 2016

[esk8mw]

Not the suppliers. The actual teams of people working on Tesla's project at supplier locations. As stated on EC - Musk is meeting them personally. What I have said makes perfect sense. If you can't understand this please don't haze those that can - and would benefit from understandjng this point. It's significant.

Couple things here - one, it's not clear that Tesla is even allowed to provide options to suppliers under their equity plan. Look at the eligibility section in Appendix A to the 2014 proxy statement. I suppose they could take the position that suppliers are "Consultants" but I wouldn't want to make that argument. As a result, they'd have to amend the plan to allow for this. Any amendment to the eligibility section of a shareholder-approved equity plan must be reapproved by shareholders under Code Section 162(m), meaning it would have to wait until the 2017 proxy is out a year from now, unless they call a special meeting of shareholders (they won't).

Second, paying suppliers in options would likely be received as a HUGELY bearish signal to investors. It would signal that they cannot afford the cash outlay and that the company is in distress - which is the primary concern of non-bullish investors. I suppose this could be mitigated by raising a bunch of cash before doing this but then there would be no strong reason to do the options.

I think paying suppliers in stock options is exceedingly unlikely.

 

[Lessmog]

Important to keep in mind to that all the Model 3 cars sold in 2017 will be heavily optioned cars. Avg Selling Price will be over 45k (IMO)

Exactly. ASP of X is now at, what ~130k? Average of S+X per ER almost precisely 100k iirc. M3 will be less, but not the same. So number of units is not directly interchangeable, at least to my mind. Which was supposed to be my point.

 

[Julian Cox]

You mean the suppliers employees would get paid by Tesla in options? That would go against their hiring contracts with the supplier. Maybe the board would have authority to get paid by another company, but that's it. So I assume you mean the supplier would agree to let their employees be paid with Tesla's options?

If you mean Tesla employees working at the supplier then I don't see how that would matter at all as all employees at Tesla has stock based compensations.

Like I said. Not an invitation for you to misunderstand on principle and you are just distructively guessing which is not even constructive.

Where is @esk8mw that's the guy I want to hear from on this.

 

[eloder]

What about employee discount?
I do agree that $42K is likely the low end of the range for the first couple hundred thousand M3s, especially if there is a battery upgrade option.

Tesla vehicles have no employee discount whatsoever. Musk has mentioned this on multiple occasions.

 

[esk8mw]

Like I said. Not an invitation for you to misunderstand on principle and you are just distructively guessing which is not even constructive.

Where is @esk8mw that's the guy I want to hear from on this.

Nice timing! I think my response came in right as you wrote this post.

 

[EinSV]

I think Julian's explanation for why that hasn't occurred is true. Pretty much everyone is in agreement that they need to raise money yesterday if they are to have a prayer of hitting the new targets on time (Earth time, not some relativistic rocket time).

Musk may have not seen any path to an ATH under the circumstances, so he gave up on convincing the analysts. The only parties he needs to convince are his employees and his lenders. The rest just doesn't matter right now.

Agreed. Elon is playing long ball. He is moving fast to capitalize on a huge first mover advantage and more than 400,000 customers already lined up who want their cars as soon as possible, and many more to come. The M3 is already largely designed and wildly popular. Moving straight to the finish line IMO is the right approach for long-term shareholders (not to mention all the customers clamoring for their cars).

 

[Julian Cox]

Nice timing! I think my response came in right as you wrote this post.

Ok but a couple of things here - thank you but your answer didn't address the actual question. Which is to effectively bonus third party staff and managers that work on a Tesla project at a supplier - not the legal entity of the supplier company. All incentives are aligned here even though supplier credit payment penalties and bonuses would be normal. No invitation to discuss weakness. This is a pure power play. Incredibly hard for competitors to pull these staff off Tesla's project to do something else, improved chance of head office avoiding a late penalty and winning an early completion bonus - and retaining the client long term.

Competing auto companies and not even Apple can compete with this - their stocks are like cash equivalents with no chance of being worth double for example if you do a great job making windscreen wipers for them etc.

Proctor & Gamble innovated something reminiscent of this nearly a hundred years ago which is when and largely how they emerged as a Blue Chip.

So the question is not why not but how - assuming they were determined - and BTW this year's shareholder meeting is probably in June as usual no??

 

[wallaby]

I wish things played out the way Julian expected. Show strong steady quarters, proving the Business out, while wiping the shorts out as a nice side effect and do the raise an a new ATH.

The problem is, Tesla may not have the time. In their earnings report, they report having $1.44 bil cash on hand. However, that includes $430mil drawn against their credit line. That means their real cash on hand was $1bil. The CFO has said that they need $1bil COH in order to comfortably manage day-to-day business. Now, they got a reprieve by getting so many M3 deposits, and ended up paying back $350 mil on their credit line. However, those deposits aren't really a stable source of cash because they are refundable at any time.

So at the end of the day, with a quarterly free cash flow of -$300-400mil, they have ~2-3 quarters of cash on hand, and very close to their comfort level. I'm sure the financial guys would have loved to give it a few more quarters, prove out the Model X production and let the stock rise further before announcing a capital raise. But I don't think they have time. It will take at least a quarter for them to actually receive any money from a capital raise (unless they've been secretly working on it already, they need to meet with investment banks, draft a plan, solicit investors, etc. This all takes time). At which point they could be dangerously low on cash.

Indeed, if I were to put on my tinfoil hat, I'd say the conventional wisdom on cause and effect are actually reversed: Musk announced the the move up in M3 delivery ramp *because* he needed a reason for the cash raise that wouldn't absolutely tank the stock price if it wasn't accompanied by good news of *some* sort.

Imagine the stock reaction if he said he needs to raise $1bil in cash to comfortably manage the current CapEx plan, given that the delay and increased costs in MX production has left a significant hole in their forecasted revenue. The shorts would have started a BK watch. So to prevent that, he puts out feelers about a capital raise while moving up future forecasts that don't have any material effect on current company operations.

Frankly, he should have made an announcement about the capital raise a few weeks ago, when the company was riding high on the M3 deposits. He could have easily said at that point that, given how many deposits they got, they want to accelerate the CapEx spending and bring the M3 to volume production 2 years early to fulfill the unexpectedly high demand. People would have accepted it, and Tesla would have been able to raise money at a higher valuation.

 

[Curt Renz]

A little more than an hour ago the share price was pushed to the low since mid-March, as it appeared that weak longs with a stop loss limit of $210 were knocked out. That low of $209.79 accompanied by a sharp volume spike of nearly 100,000 shares during that minute may have marked a significant bottom.

 

[Fallenone]

The problem is, Tesla may not have the time. In their earnings report, they report having $1.44 bil cash on hand. However, that includes $430mil drawn against their credit line. That means their real cash on hand was $1bil. The CFO has said that they need $1bil COH in order to comfortably manage day-to-day business. Now, they got a reprieve by getting so many M3 deposits, and ended up paying back $350 mil on their credit line. However, those deposits aren't really a stable source of cash because they are refundable at any time.

So at the end of the day, with a quarterly free cash flow of -$300-400mil, they have ~2-3 quarters of cash on hand, and very close to their comfort level. I'm sure the financial guys would have loved to give it a few more quarters, prove out the Model X production and let the stock rise further before announcing a capital raise. But I don't think they have time. It will take at least a quarter for them to actually receive any money from a capital raise (unless they've been secretly working on it already, they need to meet with investment banks, draft a plan, solicit investors, etc. This all takes time). At which point they could be dangerously low on cash.

Indeed, if I were to put on my tinfoil hat, I'd say the conventional wisdom on cause and effect are actually reversed: Musk announced the the move up in M3 delivery ramp *because* he needed a reason for the cash raise that wouldn't absolutely tank the stock price if it wasn't accompanied by good news of *some* sort.

Imagine the stock reaction if he said he needs to raise $1bil in cash to comfortably manage the current CapEx plan, given that the delay and increased costs in MX production has left a significant hole in their forecasted revenue. The shorts would have started a BK watch. So to prevent that, he puts out feelers about a capital raise while moving up future forecasts that don't have any material effect on current company operations.

Frankly, he should have made an announcement about the capital raise a few weeks ago, when the company was riding high on the M3 deposits. He could have easily said at that point that, given how many deposits they got, they want to accelerate the CapEx spending and bring the M3 to volume production 2 years early to fulfill the unexpectedly high demand. People would have accepted it, and Tesla would have been able to raise money at a higher valuation.

The ABL grows as deliveries grow. So it's not like the $430 credit line would disappear.

 

[wallaby]

Are you under the impression that "units" are all alike? But M3 is priced at half the S/X. Cost is less. Materials too. Of course, margin and profit. All things are not equal.

True. Personally, I don't think Tesla will have as many issues with the M3 as they did with the MX. Even Musk said he regrets putting so much new technology into the MX. So the M3 ramp should be smoother. But will it be smooth enough to go from a 60% growth rate to a 150% growth rate? I'm not so sure...

 

[wallaby]

The ABL grows as deliveries grow. So it's not like the $430 credit line would disappear.

Understood. I'm just saying if they felt the need to tap the credit line, that means they're already pretty close to their minimum comfort level.

 

[austinEV]

Well, I had to sleep through the ER so It has been a long day slogging through the commentary.

I am confused and furious about how they handled this ER. They aren't playing by any sensible playbook. Why, why announce ambitious expansion plans when you are struggling/failing to meet much more modest goals, and before you have done the cap raise. Here is what the street heard:

* FINANCIALS BAD
* TESLA NEEDS MONEY

They could have kept their timetable quiet for another quarter, kept to their game plan, had a blowout quarter, done a cap raise and then built shiny factories and supplier agreements. Instead we got a greatest hits of things Tesla should NOT do:

1) Renege on promises of prudent cash management in 2016

2) PULL IN Model 3 deadlines and EXPAND the volume. Even FANS of TM broadly discounted their ramp plans along the lines of "they will do it, just a little later than the plan". Doing this just sounds dumb. TM has zero history of even making goals, why publicly pull them in? Then why ANNOUNCE PUBLICLY your internal stretch goal of July 2017? This goes to my theory that Elon has no concept of an internal goal and an external goal. That is not clever, or admirable. If you can do X, guide for 0.9*X, not 1.1*X but Elon just cannot help himself. The output is always "X" but by guiding for 1.1X everything is a "failure".

3) say you are going to go spending more before you have financing. Last quarter they played it perfectly: Say they were going to self-finance and not need financing. That way they have options. Rule #1 of doing a capital raise is to NOT NEED MONEY.

4) Zev sales in Q1... come on, that could be pushed to later.


Ugh, so very very dumb. All they had to do was NOTHING. Keep these new plans quiet. Keep capital plans quiet. Reaffirm everything. Do good work in Q2. simple.

This does give valuable insight: Truly, Elon is just trying to get as many cars on the road as fast as possible. The fully fleshed out DTU theory had that Elon was planning on helping the stock up later in the year to do a cap raise. But, now it seems clear that he just wants to spend asap and gear up as fast as possible and damn the torpedoes. So the conspiracy theory fails on that account. Instead, it turns out Elon wanted to publicly speed up the goal and timetable to put pressure on suppliers. No other reason comes close to explaining it.

DTU trade problem. It's now unclear when "up" will be. The idea was that it would be either the Q2 or Q3 ER. But now it could actually be WHEN MODEL 3 SALES ARE ACCRETIVE. It is all pain and spending between now and then. Investors might as well hang out on the sideline for a year waiting for a more obvious entry.

SILVER LINING: DTU might still be in play despite Elon clearly not trying to help us. The pure dumbness of this ER might well spark a retest of 180 or god forbid 150, then we can assess the possibility that Q2 or Q3 will be financially great in spite of increased model 3 spending. That could spark a rally just as potent, if not more so than the original thesis. I had originally called for EM to "tank" this ER to send the stock into a tailspin, so maybe I am getting my wish, with dumbness instead of financials.

Edit: For the record, I am not sore from losing money, I lost a very small amount (stock + puts) just annoyed of the missed opportunities here.

 

[The Blue Owl]

Right now, gloom and doom seems to be in fashion in the market, but contemplate just for a second what will happen to the car industry if Tesla actually manages to pull this rabbit out of Elon's hat. Can you imagine where the 3 Series will be, and the 5 series, and every other series, given what is currently happening to the 7 series? Not to mention the fate of lesser guys, like Fiat.

Heck, even if Tesla sells only half as many Model 3s in 2018 than they are aspiring to, I cannot see how it is not going to be game over for a lot of ICE makers. All Tesla needs to do to make that happen is to not die. Unless one thinks they are going to go bankrupt, Tesla is going to give new meaning to the word 'tsunami'.

 

[Lessmog]

True. Personally, I don't think Tesla will have as many issues with the M3 as they did with the MX. Even Musk said he regrets putting so much new technology into the MX. So the M3 ramp should be smoother. But will it be smooth enough to go from a 60% growth rate to a 150% growth rate? I'm not so sure...

But aren't you still counting units as interchangeable when you calculate growth? It seems to me that may not be correct.
50-60% growth in value on S/X may well come close to 100-130% in items delivered. Not the same, is it?

Edit:
Or maybe I just don't understand what you are saying. Always a possibility.

 

[eloder]

Right now, gloom and doom seems to be in fashion in the market, but contemplate just for a second what will happen to the car industry if Tesla actually manages to pull this rabbit out of Elon's hat. Can you imagine where the 3 Series will be, and the 5 series, and every other series, given what is currently happening to the 7 series? Not to mention the fate of lesser guys, like Fiat.

Heck, even if Tesla sells only half as many Model 3s in 2018 than they are aspiring to, I cannot see how it is not going to be game over for a lot of ICE makers. All Tesla needs to do to make that happen is to not die. Unless one thinks they are going to go bankrupt, it's going give new meaning to the word 'tsunami'.

Although super risky, even if Tesla only hits 50% of their goal that will still be incredible lined up to the old plans in 2017.

Many short models were governed by the fact that their 2020 goals wouldn't be possible, when a worst case scenario puts a comfortable 500k in 2019 pending some really bad events or horrible mismanagement (not likely on the latter).

 

[Julian Cox]

Understood. I'm just saying if they felt the need to tap the credit line, that means they're already pretty close to their minimum comfort level.

Not really the right way to look at this. ABL revolver primarily keeps overseas deliveries effectively cash flow positive like US deliveries. Just bridge financing shipping delays. As Musk said you can basically look at the bit of interest paid for goods in transit as a tiny addition to COGS. Sounds like BS but it isn't.

Also the $430 they explained was settled by $300+ million ($340m? without looking it up) by goods that had landed with customers. So net $90 M ish used out of a 1 $billion facility. Lots of leeway and not like they are pressing on the ABL for working capital.

 

[esk8mw]

Ok but a couple of things here - thank you buy your answer didn't address the actual question. Which is to effectively bonus third party staff and managers that work on a Tesla project at a supplier - not the legal entity of the supplier company. All incentives are aligned here even though supplier credit payment penalties and bonuses would be normal. No invitation to discuss weakness. This is a pure power play. Incredibly hard for competitors to pull these staff off Tesla's project to do something else, improved chance of head office avoiding a late penalty and winning an early completion bonus - and retaining the client long term.

Proctor & Gamble innovated something reminiscent of this nearly a hundred years ago which is when and largely how they emerged as a Blue Chip.

Legal analysis still stands - the plan only allows for option grants to non-employees if they are "consultants." Not sure they could make this argument, so they'd have to amend the plan which is a pretty big (and extremely visible, it's in the proxy) undertaking.

I'm pretty young, but I've never seen or heard of anything like this in my career. Options are generally falling out of favor - full value awards (restricted stock, RSUs) are taking the place of options at most places. Option awards to non-employees are increasingly rare. I just wouldn't count on this happening.

 

[anticitizen13.7]

I am confused and furious about how they handled this ER. They aren't playing by any sensible playbook. Why, why announce ambitious expansion plans when you are struggling/failing to meet much more modest goals, and before you have done the cap raise. Here is what the street heard:

* FINANCIALS BAD
* TESLA NEEDS MONEY

Ugh, so very very dumb. All they had to do was NOTHING. Keep these new plans quiet. Keep capital plans quiet. Reaffirm everything. Do good work in Q2. simple.

I wouldn't say I was furious at this ER, but I was certainly puzzled as to why Elon and Tesla would over-promise to the point where under-delivery is likely.

When I read the "500k units in 2018 rather than 2020" I was in disbelief. Getting Model 3 to production ready status by mid-2017 is doable from an engineering perspective. Getting the production lines, and particularly the Gigafactory running at that level by 2018 just doesn't make sense to me. The Gigafactory will be 1/7th complete soon, and start producing cells and packs at the end of this year. Is the next 7/8ths really going to be done by 2018?

Well, the shareholder meeting is soon. I hope someone asks serious questions about all of this, although from a historical perspective we are likely to hear a lot of inane questions that do nothing but waste time.

 

[Julian Cox]

Legal analysis still stands - the plan only allows for option grants to non-employees if they are "consultants." Not sure they could make this argument, so they'd have to amend the plan which is a pretty big (and extremely visible, it's in the proxy) undertaking.

I'm pretty young, but I've never seen or heard of anything like this in my career. Options are generally falling out of favor - full value awards (restricted stock, RSUs) are taking the place of options at most places. Option awards to non-employees are increasingly rare. I just wouldn't count on this happening.

From what you say about industry fashion and trends then I think one can practically guarantee Musk will do this.

No matter.

The idiot John Pettersen has just chimed in with a hit piece on Seeking Alpha! It does not matter what it says. There is no such thing as better buying signal than Peterson whining that the sky is falling - the very wrongest of the wrong TSLA Bears is never right! Ever!