Short-Term TSLA Price Movements - 2016

[dmckinstry]

Our company relies on government reimbursements for a portion of its revenue stream. The US government may default on its obligations, which would have an adverse impact on our revenues.

Yes, that's a real risk factor I've drafted. Seriously, as someone who drafts and reviews companies' risk factors I cannot begin to tell you how ridiculous this argument is.

Was the fact that the world might end this year listed as a risk factor?

 

[mejojo]

Was this a haiku?

Was this a Haiku?
I don't know if it was one,
But it shouldn't be.

 

[Xpert]

What do you do? I only worked in manufacturing for a few years, but at least I have been in a factory and understand how the supply chain and accounting functions.

You want to be rude to me, yet you back up nothing you say that shows learning in that area.

Your posts seem to indicate you are apparently still working for GM. Want to spill the beans on your current title or should we give you one?

 

[lango]

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 constraint won't change materially until model 3 volume production.

They put those predictions that high to motivate/push the organization to work harder. What is important is the actual rate of growth and the cost to achieve that growth, not if they miss or beat predictions. The former Tesla is crazy good at and the latter they are bad at, but for a good reason. i don't know why so many focus on the prediction misses, maybe because it is right in front of them and the growth rate less so.

Model S and X are not demand constraint, that is also obvious. Tesla choose this growth rate and production because of their capital structure and because it is damn hard and risky to grow too fast. You need to hire people, have capital, it takes time to do all legal agreements, they need service centers and super chargers and on and on. You don't want to grow to fast and take wrong decisions and derail the company. Model X is on a nice exponential path, 500, 2500 and now production is suppose to be much higher. Each pause have been shorter than the one before.

With Model 3 it seems they are willing to grow faster revenue and unit wise but they are not going to start another factory until volume production has been reached and it is just one new model they introduce. I don't think we are going to see Model Y. So past years we have seen one model, installation of new factory line in Fremont and the start of GF 1, and now we are seeing another model, installation of more lines in Fremont and completion of modules for GF 1. To me it seems they are not taking wild risks. How they manage growth and investments have been exceptional.

 

[Papafox]

What do you do? I only worked in manufacturing for a few years, but at least I have been in a factory and understand how the supply chain and accounting functions.

You want to be rude to me, yet you back up nothing you say that shows learning in that area.

Electracity, I use humor here because your statement is silly. In order to double production capability with the current number of shifts, Tesla could not use the previous body in white line and final assembly line. A great deal of work was needed to speed up the final assembly line as was witnessed in recent months, and the BIW #1 line certainly cannot double its output. What you need is a BIW line such as the #2 which is producing X at this moment with its great increase in number of robots. In order to double production capability an entirely new production line would need to be created (and was) but until recently when X started running smoothly it is probably not a good idea to move S to the new line as well. Building a new production line which is way out of sync with demand would be foolish.

What we've seen at Tesla is incremental increases in production capability and levers pulled to keep demand in line with production capability. Demand levers for Model S pulled in the past included the introduction of right-hand drive, introduction of Tesla to new countries, the 70D which much value contained in the package, owner incentive program, introduction of autopilot (a huge lever, btw), and more-recently the Model S redesign. Future levers include introduction of Model S to Korea and numerous other countries, approaching scaling down of U.S. federal tax credit sometime in late 2017 or 2018, autopilot hardware upgrades to make S compatible with autonomous driving, more robust supercharger networks, more stores and service centers, and the list goes on and on. My point is that by taking factory tours and by studying what Tesla says, a person doesn't need to be a factory expert to understand the strategy. The advantage of such a strategy is that it keeps the waiting time down for ordering and receiving a new Model S. It's not coincidence that Model S orders keep growing but at a rate that is consistent with production capabilities, it is planning.

If your point is that by doubling production capability but not pulling appropriate demand levers production capability could exceed demand at that moment, then I would agree with you. But what's the point of such an academic exercise when we can see Tesla's methodology quite clearly, it has been working and will likely keep on working until they run out of new demand levers to pull? By the time they start running low on new demand levers, Model 3 will be in volume production and growth of S deliveries will become unimportant.

And so I repeat myself. Saying that there is a demand problem with Model S is silly. Demand is being carefully managed through demand levers to stay a bit ahead of production capability (which is growing about 50% per year, as planned), and this is the most intelligent way to produce made-to-order vehicles.

 

[viKtor slamet]

Model S/X demand will plateau at 100K-150K, maybe when economy good 200K. It is written on the wall. Model S/X is luxury car with a price tag of $80K+, it's not going to double every year, and at some point will plateau, and I would be fine with that. Imo, it's more important that Tesla keep updating and adding new features to these model, and improve Gross Margin.

Can we talk about price movement instead, instead of endless argument about demand constraint vs production constraint? Are we going sub-200 or are we bouncing?

 

[FANGO]

What do you do? I only worked in manufacturing for a few years, but at least I have been in a factory and understand how the supply chain and accounting functions.

You want to be rude to me, yet you back up nothing you say that shows learning in that area.

Technically, claiming that you worked in a factory is not backup for your argument either. This goes back to the post I made several pages back about ad hominems, and you will note that in that post I was defending a bear from an ad hominem. The generalized definition of an ad hominem is an argument which focuses on the person making the argument rather than the argument itself. This is not a logically sound way to make an argument, and it does not raise the already-ailing level of cordiality in this thread.

The same goes for everyone else on this thread, too. Can we stop getting so personal? It's really quite annoying to see pages of nonsense attacks on each other. I have to dislike/report what seems like several posts each page because of this.

 

[electracity]

Electracity, I use humor here because your statement is silly. In order to double production capability with the current number of shifts, Tesla could not use the previous body in white line and final assembly line. A great deal of work was needed to speed up the final assembly line as was witnessed in recent months, and the BIW #1 line certainly cannot double its output. What you need is a BIW line such as the #2 which is producing X at this moment with its great increase in number of robots. In order to double production capability an entirely new production line would need to be created (and was) but until recently when X started running smoothly it is probably not a good idea to move S to the new line as well. Building a new production line which is way out of sync with demand would be foolish.

What we've seen at Tesla is incremental increases in production capability and levers pulled to keep demand in line with production capability. Demand levers for Model S pulled in the past included the introduction of right-hand drive, introduction of Tesla to new countries, the 70D which much value contained in the package, owner incentive program, introduction of autopilot (a huge lever, btw), and more-recently the Model S redesign. Future levers include introduction of Model S to Korea and numerous other countries, approaching scaling down of U.S. federal tax credit sometime in late 2017 or 2018, autopilot hardware upgrades to make S compatible with autonomous driving, more robust supercharger networks, more stores and service centers, and the list goes on and on. My point is that by taking factory tours and by studying what Tesla says, a person doesn't need to be a factory expert to understand the strategy. The advantage of such a strategy is that it keeps the waiting time down for ordering and receiving a new Model S. It's not coincidence that Model S orders keep growing but at a rate that is consistent with production capabilities, it is planning.

If your point is that by doubling production capability but not pulling appropriate demand levers production capability could exceed demand at that moment, then I would agree with you. But what's the point of such an academic exercise when we can see Tesla's methodology quite clearly, it has been working and will likely keep on working until they run out of new demand levers to pull? By the time they start running low on new demand levers, Model 3 will be in volume production and growth of S deliveries will become unimportant.

And so I repeat myself. Saying that there is a demand problem with Model S is silly. Demand is being carefully managed through demand levers to stay a bit ahead of production capability (which is growing about 50% per year, as planned), and this is the most intelligent way to produce made-to-order vehicles.

So no experience or training in a relevant field. Law school?

 

[SW2Fiddler]

I have to dislike several posts each page

Reeeally?

 

[electracity]

Technically, claiming that you worked in a factory is not backup for your argument either. This goes back to the post I made several pages back about ad hominems, and you will note that in that post I was defending a bear from an ad hominem. This is not a logically sound way to make an argument, and it does not raise the already-ailing level of cordiality in this thread.

The same goes for everyone else on this thread, too. Can we stop getting so personal? It's really quite annoying to see pages of nonsense attacks on each other. I have to dislike/report what seems like several posts each page because of this.

What arguement?

I only have two recent positions that I recall:
1) I'm not sure Tesla has enough consumer demand for 80-90K units this year, but they have a "black car" option.
and
2) Tesla has planned to make the number of cars they think they can sell. They are not "production constrained".

 

[dakh]

Model S/X demand will plateau at 100K-150K, maybe when economy good 200K. It is written on the wall. Model S/X is luxury car with a price tag of $80K+, it's not going to double every year, and at some point will plateau, and I would be fine with that. Imo, it's more important that Tesla keep updating and adding new features to these model, and improve Gross Margin.

Not only that but that's what Elon is predicting too, the question was asked in one of the interviews. "Maybe 200K worldwide of Model S and X when we are fully established in all markets" or something along those lines was the answer.

 

[techmaven]

Going through the 10-Q, I note this fascinating tidbit:

Derivative Financial Instruments

In November 2015, we implemented a program to hedge the foreign currency exposure risk related to certain forecasted inventory purchases denominated in Japanese yen. The derivative instruments we use are foreign currency forward contracts and are designated as cash flow hedges with maturity dates of 12 months or less. We do not enter into derivative contracts for trading or speculative purposes.

We document each hedge relationship and assess its initial effectiveness at the inception of the hedge contract and we measure its ongoing effectiveness on a quarterly basis using regression analysis. During the term of an effective hedge contract, we record gains and losses within accumulated other comprehensive loss. We reclassify these gains or losses to costs of automotive sales in the period the related finished goods inventory is sold or over the depreciation period for those sales accounted for as leases. Although our contracts are considered effective hedges, we may experience small amounts of ineffectiveness due to timing differences between our actual inventory purchases and the settlement date of the related foreign currency forward contracts. Ineffectiveness related to the hedges is immaterial as of March 31, 2016.

The net notional amount of these contracts was $306.9 million at March 31, 2016. Outstanding contracts are recognized as either assets or liabilities on the Consolidated Balance Sheet at fair value within other assets or within accrued liabilities, depending on our net position. The cumulative gain of $28.1 million in accumulated other comprehensive loss as of March 31, 2016 is expected to be recognized to the cost basis of finished goods inventory in the next twelve months. The total fair values of foreign currency contracts designated as cash flow hedges as of March 31, 2016 is $26.8 million and was determined using Level II inputs and recorded in prepaid expenses and other current assets on our Consolidated Balance Sheets. No amounts have been reclassified to costs of automotive sales as of March 31, 2016 .

So... $306.9 million dollars in Japanese yen hedging? I still can't quite untangle... did this gain them $28.1 million, or lose them $28.1 million? So in mid-November, USD/Yen was above 120. It's now weakened to below 110. Can someone help me unpack this? I think they bought hedges against $306.9 million dollars worth of yen against the weakening dollar, just before it plummeted and will use that when buying cells from Panasonic over the next 12 months, so it's recognized against the cost of goods sold. That's about 2 GWh of cells they've hedged against. Is that right?

Interestingly enough, since Tesla and Panasonic inked the last cell supply deal, the yen dropped about 30-35% in value. The cell supply contract is denominated in yen. If Tesla was paying $185/kWh for cells the fall of 2013, they're paying about $130/kWh now just based on currency changes.

 

[drinkerofkoolaid]

Anyone with an invite to the Gigafactory opening party know anything about a date? Is it still confirmed to be at the end of May?

 

[mejojo]

2) Tesla has planned to make the number of cars they think they can sell. They are not "production constrained".

Are you saying that virtually every manufacturer is demand constrained because they have production facilities sized for expected demand and they stubbornly refuse to build out unneeded facilities and therefore could not handle a bump in demand, should it arise?

 

[drinkerofkoolaid]

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 constraint won't change materially until model 3 volume production.

I wouldn't call it dialed back expectations. Tesla has had to adjust production to reflect its suppliers ability to supply the necessary parts on time. Additionally, Tesla has had to handle some recalls due to problems with some of its suppliers. If you recall, initially Elon said Tesla suppliers weren't taking Tesla's orders seriously resulting in further delays.

Tesla is being careful to not ramp up production beyond what its thinks is sustainable. It's a waste of money to invest in accelorating production capacity if it's not done in a timely manner, to match up with demand. Tesla has consistently been very conservative about expectations.

The reason Tesla isn't producing 500,000 vehicles today is because there isn't present demand for 500,000 (Model S + Model X). Incrementally increasing production allows Tesla to gague demand, optimize deliveries by region and price, and make sure to not deliver too many vehicles to one region before there are enough Superchargers and service centers to address the demand and ensure customer satisfaction.

500,000 vehicles is extremely conservative, especially since 90% of people who placed deposits for the Model 3 sedan only placed one deposit. What about the Model 3 truck, or Model 3 SUV? By the end of 2017 Tesla will have received north of 1 million deposits. Once deliveries begin, demand is extremely likely to increase. The only question is how Tesla obtains the cash and facilities necessary to produce them.

One of my theories is that Tesla plans to use funds being lent out, basically for free, from the EU investment bank (It's called somethings else but I can't recall the name) that is making $700 billion available to all companies, irrespective of national origin, seeking to invest in sustainable tech and EVs in the EU.

 

[Johan]

What arguement?

I only have two recent positions that I recall:
1) I'm not sure Tesla has enough consumer demand for 80-90K units this year, but they have a "black car" option.
and
2) Tesla has planned to make the number of cars they think they can sell. They are not "production constrained".

... and you did say this:

They can ramp to whatever model S level they can sell. There is no reason that minor changes would affect their ability to produce the car.

If after four years Tesla can not ramp model S production to meet increasing demand they are doomed as incompetents. As car production goes, the Model S is still at very modest level. The modestly selling Ford Mustang is produced at 2X the Model S.

... which was, quite rightly, interpreted by @Papafox as you claiming that it would be easy for Tesla to scale up production of Model S to whatever demand there is. Hence he was also in his right to point out, albeit sarcastically, that perhaps you should head Tesla's growth team since you apparently have some amazing insight in to how to effortlessly ramp up production.

Now you go on my ignore list so please don't reply.

 

[electracity]

Are you saying that virtually every manufacturer is demand constrained because they have production facilities sized for expected demand and they stubbornly refuse to build out unneeded facilities and therefore could not handle a bump in demand, should it arise?

I'm not sure how to answer. I will say that the primary characteristic of "demand constrained" is long lead time. Every manufacturer will "bend over backwards" to accelerate production to normalize lead times. The money is made by making stuff, after all. No product is hot forever. Shortages encourage competitors.

The only exception would be limiting runs to increase exclusivity. Like making only 100 of a certain Rollex. Musk played off this feeling of exclusivity when Tesla had long lead times. It is the basis for the insistence that Tesla is demand constrained today. The self described "world's best salesman" knows his followers.

 

[Krugerrand]

I only have two recent positions that I recall:
1) I'm not sure Tesla has enough consumer demand for 80-90K units this year, but they have a "black car" option.
and
2) Tesla has planned to make the number of cars they think they can sell. They are not "production constrained".

Well, there's a whole lot of logical fallacy. I'll correct it for you.

*YOU* are not sure Tesla has enough demand, therefore *YOU* believe they are production constrained.

*Tesla* knows what their consumer demand is, therefore *Tesla* has planned to make the number of cars they will sell.

 

[The Blue Owl]

I'm not sure how to answer. I will say that the primary characteristic of "demand constrained" is long lead time. Every manufacturer will "bend over backwards" to accelerate production to normalize lead times. The money is made by making stuff, after all. No product is hot forever. Shortages encourage competitors.

The only exception would be limiting runs to increase exclusivity. Like making only 100 of a certain Rollex. Musk played off this feeling of exclusivity when Tesla had long lead times. It is the basis for the insistence that Tesla is demand constrained today. The self described "world's best salesman" knows his followers.

You keep saying "demand" when you mean "production". No wonder everyone is confused.

Also, I'd be interested to see a source for the claim that Musk has described himself as the world's best salesman.

 

[dha]

You keep saying "demand" when you mean "production". No wonder everyone is confused.

Yes! This times a million!