Short-Term TSLA Price Movements - 2016

[EinSV]

People buying TSLA new shares might be Tesla shorts too. 30M shares borrowed for shorts, so this is good opportunities for them to cover bulk of short position without pushing up the SP. I'm just kidding

That would probably be wise, actually.

 

[Fallenone]

Right, I'm assuming the tooling, buildings, and salaries for newly hired line workers would account for most of the capex. All those would be depreciated as COGS, and I'm assuming the depreciation included in SG&A would be significantly smaller.

While the tooling is expensive, it only takes up about 15% of their total property, plant and equipment. But on the other hand, tooling is depreciated across 250k cars made, and the other items are depreciated on a fixed period of time basis. So the ratio of depreciation occurred from tooling every quarter would not be as little as 15%. Still, the majority of depreciation would be recorded in SG&A.

 

[Julian Cox]

And what are your credentials? Mine are in the information section of my TMC profile.

Perhaps I might chip in too. I am a Senior Partner and Consultant Business Strategist with EV Volumes. We have unique advanced data on global EV and PHEV sales volumes with national granularity (including of course for Tesla) also the traction battery industry, charging infrastructure and government programs. This is a bench test of our ability to put that together with qualitative business insight, technology insight, consumer market and capital market forecasting. Apparently we can do that.

Note the very earliest #tag on the list discussing Model 3 reservation volumes and revised 2020 guidance: That occurred. We were not taken by surprise.

May 6th I left a note on TMC #15290 one of the many annotations on the graph below:

"Hello and welcome. Anyone interested in knowing what to do next?

Answer: On the assumption that a raise is imminent. Probably should buy alongside that raise whenever that is at whatever price assuming no unforeseen thing makes it an ATH. At this rate it would coincide with a local bottom."

This morning (Thurs 19th May) #16957:

"Now would be a good time to go long TSLA.

Some may recall that this was called for on a raise. They did a raise."

Too early to call a PT at this juncture but this does not seem like a short term bottom but more the bottom of a longer term up-leg. Current situation since "going Long" today: Today's low, a local bottom of $207.28. Close of play: $215.21 (currently $218.16 After Hours). Yes we care, yes we're passionate. Objectivity? May I proudly present :-

Kindly Note: The only exception where we were still calling long on a significant short term dip was the market wide dip in the aftermath of the 22nd March Brussels Terrorist Attack coincident with #8235 - and even then we had the M3 pre-unveil dip forecast from March 26th - 31st at a range on one month prior on Feb 26th see #6461.

 

[Sparky]

From reading yesrderday's post, we can see who got left behind... from reading this evening's post, we can tell who is getting burned very badly.

Being an avowed DTU'er, I got so used to the 'D' that I was caught flatfooted for the 'TU'! Chased the stock for an hour today and finally am back in with 80% of what I sold several weeks ago. Happy to be long again at around $212 but I would have preferred more volume today. Stop loss at $201. On autopilot (but hands near the wheel) for the next several weeks. It's been a "fun" couple of months. Sometimes I wasn't sure I was "tall enough" for this ride.
Now back to my Mindfulness Meditation.....

 

[Fallenone]

The depreciation of their entire PP&E was $100M last quarter, is 1/3rd of their quarterly net loss. Their equity went down $113M + another was it $300M they got before the quarter ended in M3 deposits? That would be more than $400M in equity lost. In Q4 they lost $231M in equity. These huge equity losses suggest that they are a far cry from being profitable from operations.

Their total depreciation last quarter was $156M. More than half of their net loss. And the vast majority of M3 deposits didn't make it into last quarter financials due to credit card process time.

To put these numbers into perspective, 7.5k Model X with ASP $105k and 20% gross margin would provide about $150M.

 

[The Blue Owl]

While the tooling is expensive, it only takes up about 15% of their total property, plant and equipment. But on the other hand, tooling is depreciated across 250k cars made, and the other items are depreciated on a fixed period of time basis. So the ratio of depreciation occurred from tooling every quarter would not be as little as 15%. Still, the majority of depreciation would be recorded in SG&A.

Thanks. Also, I made a mistake when I included the salaries in capex.

 

[lango]

I agree it does seem weird that Tesla can't be profitable at this point, this is the main reason I sold my shares last year, their margin just haven't gone up as far as I had hoped (for the record I'm not bearish, pretty neutral at this price point). When you look at their income statement it just doesn't look great, like I said both their R&D and their SG&A would have to come down massively for them to show a profit, clearly a lot of the R&D is for the model 3 which isn't relevant for the S and X profitablity, but the lion's share of the SG&A is relevant to their current sales.

What it looks like to me is that Elon is trading profitable for sale volume hoping to then get the economies of scale that will let the margin go up later.

I don't think it is weird so we have different opinions. There are unavoidable costs necessary for growth which for many is unknown, but I am 100% certain they are close to optimally spent.

To actually operate the line at a loss and keep it at a loss even after 2000 cars a week into 2016 and 2017 either one of these things have to be true:

1. No-one or very few can make cars at a healthy profit at 100k yearly run rate at 90k ASP per car with a highly vertically integrated automated factory and R&D already spent and component cost coming down.
2. Tesla is doing reckless spending which causes the losses. Or they don't know how to automate a line or negotiate with suppliers.
3. Tesla is doing necessary carefully measured spending which is necessary for accelerated growth but unclear to most people (including me) what this exactly is and how it is accounted for. This is the first new car company in a long time so it is not like there are many examples to compare to.

I will go with 3 and there is no doubt about it from my side. If there is one thing Musk has proven over and over is that he is really good at capital allocation.

 

[Perfectlogic]

Their total depreciation last quarter was $156M. More than half of their net loss. And the vast majority of M3 deposits didn't make it into last quarter financials due to credit card process time.

To put these numbers into perspective, 7.5k Model X with ASP $105k and 20% gross margin would provide about $150M.

Depreciation and amortiziation was $156M in total last quarter, not sure exactly what is in the amortization part. According to Google Finance Tesla's PP&E depreciated by $102M. But anyway at least half of that must be stuff already in use, I mean they can't have spent that much on the gigafactory and the M3 yet compared to the $4B in PP&E.

First of all they currently don't have a quarterly demand for 7.5k Model X. Secondly 20% gross margin still doesn't mean 20% net profit, with those sales comes extra sales cost and extra superchargers needing to get built.

 

[lango]

Depreciation and amortiziation was $156M in total last quarter, not sure exactly what is in the amortization part. According to Google Finance Tesla's PP&E depreciated by $102M. But anyway at least half of that must be stuff already in use, I mean they can't have spent that much on the gigafactory and the M3 yet compared to the $4B in PP&E.

First of all they currently don't have a quarterly demand for 7.5k Model X. Secondly 20% gross margin still doesn't mean 20% net profit, with those sales comes extra sales cost and extra superchargers needing to get built.

I have yet to see anyone really breaking the finances down on a detailed level to answer the questions how profitable the S+X line will be once it reaches 100k and has been at that rate for let's say 6 months. There is plenty of source for costs when a line is not running. Employees idling, education of employees by a changed component, component design changes, tooling changes, low volume component orders etc etc.

The demand for X will be at-least 10k per quarter once it get's out in the wild and there is demo cars available and when everyone knows the bugs are gone. I think it will reach 60k yearly before Model 3 is launched.

 

[Perfectlogic]

I don't think it is weird so we have different opinions. There are unavoidable costs necessary for growth which for many is unknown, but I am 100% certain they are close to optimally spent.

To actually operate the line at a loss and keep it at a loss even after 2000 cars a week into 2016 and 2017 either one of these things have to be true:

1. No-one or very few can make cars at a healthy profit at 100k yearly run rate at 90k ASP per car with a highly vertically integrated automated factory and R&D already spent and component cost coming down.
2. Tesla is doing reckless spending which causes the losses. Or they don't know how to automate a line or negotiate with suppliers.
3. Tesla is doing necessary carefully measured spending which is necessary for accelerated growth but unclear to most people (including me) what this exactly is and how it is accounted for. This is the first new car company in a long time so it is not like there are many examples to compare to.

I will go with 3 and there is no doubt about it from my side. If there is one thing Musk has proven over and over is that he is really good at capital allocation.

It is possible to make profitable cars at pretty much any price point. It is also possible to lose money at any price point. If you took a car that sells for $1M today and sold that for $300k you would lose money. Tesla just isn't making any money with their current prices. It is pretty clear what they are spending on, they have spent on getting the MX ready, they are spending on the gigafactory and on new production capacity, and soon on the M3.

 

[lango]

It is possible to make profitable cars at pretty much any price point. It is also possible to lose money at any price point. If you took a car that sells for $1M today and sold that for $300k you would lose money. Tesla just isn't making any money with their current prices. It is pretty clear what they are spending on, they have spent on getting the MX ready, they are spending on the gigafactory and on new production capacity, and soon on the M3.

Your $1M car for $300k example is clearly number 2 on my list. And your first sentence indicates you think 1 is false. So do you think what is happening is 2 or 3?

 

[Perfectlogic]

Your $1M car for $300k example is clearly number 2 on my list. And your first sentence indicates you think 1 is false. So do you think what is happening is 2 or 3?

I think Tesla's spending is fine, I don't have any reason to believe they are wasting money on capex. I am just saying that capex aside Tesla isn't profitable selling 50k $100k cars per year at their current price point. 18 months ago I believed they would be profitable by now and I'm sure every single one on this forum thought the same (maybe apart from tftf) so that has dissapointed me. If they can get to 100k MS+X per year at a 30% GM which I do believe is their target then I'm sure they will be profitable, I'm not sure how profitable though, with their relatively large overhead I doubt it would be more than around 10% pre tax, which I think is kinda low for expensive cars. But it all depends on their competetivenes, if they can make a much better car than the competition at the same price then they will obviously be able to attain a higher profit margin. Right now though Tesla can't sell their cars at the volume they want at a profit.

 

[theschnell]

I think Tesla's spending is fine, I don't have any reason to believe they are wasting money on capex. I am just saying that capex aside Tesla isn't profitable selling 50k $100k cars per year at their current price point. 18 months ago I believed they would be profitable by now and I'm sure every single one on this forum thought the same (maybe apart from tftf) so that has dissapointed me. If they can get to 100k MS+X per year at a 30% GM which I do believe is their target then I'm sure they will be profitable, I'm not sure how profitable though, with their relatively large overhead I doubt it would be more than around 10% pre tax, which I think is kinda low for expensive cars. But it all depends on their competetivenes, if they can make a much better car than the competition at the same price then they will obviously be able to attain a higher profit margin. Right now though Tesla can't sell their cars at the volume they want at a profit.

What part of Musk saying they won't be gaap profitable until at least 2020 did you not understand? I think it was at least a year ago that he said that. I have had very little expectation of profit in the near term for Tesla because they themselves have said they would not be. There was talk of being cash flow positive, which didn't happen, but almost no talk of gaap profitability.

 

[techmaven]

I am just saying that capex aside Tesla isn't profitable selling 50k $100k cars per year at their current price point. 18 months ago I believed they would be profitable by now and I'm sure every single one on this forum thought the same (maybe apart from tftf) so that has dissapointed me. If they can get to 100k MS+X per year at a 30% GM which I do believe is their target then I'm sure they will be profitable, I'm not sure how profitable though, with their relatively large overhead I doubt it would be more than around 10% pre tax, which I think is kinda low for expensive cars. But it all depends on their competetivenes, if they can make a much better car than the competition at the same price then they will obviously be able to attain a higher profit margin. Right now though Tesla can't sell their cars at the volume they want at a profit.

You've made several comments that conflate deliveries with demand. Enough that makes me think that you think that Tesla's current deliveries, and hence revenue and net profit/loss has some result due to demand issues. That clearly is not the case. If the factory was able to max out production and Tesla is unable to sell that production in a reasonable period of time such that they have to bring down production levels, then sure, we can talk about demand. Right now, deliveries numbers are primarily a function of production and delivery logistics, not demand limitations. If we could remove the Model 3 related expenditures and then examine the current factory production level at a steady state, then we can see if the current product line is overall profitable or not. I submit that they would be profitable if you back out lease accounting, residual value guarantee, and remove the Model 3 related expenses. One of the conflating factors is the build out of fixed infrastructure in order to handle much larger volumes - the sales and support locations are built to a level that is designed for Model 3, not the current Model S + X. Of course, any particular location is under built, but the overall, they are expanding for 100,000's of volumes, not 10,000's of volume.

 

[Perfectlogic]

What part of Musk saying they won't be gaap profitable until at least 2020 did you not understand? I think it was at least a year ago that he said that.

With profitable I meant profitable from the MS+X operations, chill dude.

Edit; I didn't mention GAAP profitability either btw.

 

[sunhelm]

Right now TSLA is:
-undervalued
-oversold
-underdiluted (props to @kenliles for coining this great term up-thread)

One possible near term catalyst that I believe is important, that may become public in the coming weeks, is something @AudubonB among others discussed earlier today; what if this secondary offering was tailored for some very big investor/institution wanting to initiate a substantial long position? If so that would very likely turn out to become a "strong long" and it may have a significant signal effect.

Words like "Strong Long" and "DP" has given me a not so pretty picture.

 

[Perfectlogic]

You've made several comments that conflate deliveries with demand. Enough that makes me think that you think that Tesla's current deliveries, and hence revenue and net profit/loss has some result due to demand issues. That clearly is not the case. If the factory was able to max out production and Tesla is unable to sell that production in a reasonable period of time such that they have to bring down production levels, then sure, we can talk about demand. Right now, deliveries numbers are primarily a function of production and delivery logistics, not demand limitations. If we could remove the Model 3 related expenditures and then examine the current factory production level at a steady state, then we can see if the current product line is overall profitable or not. I submit that they would be profitable if you back out lease accounting, residual value guarantee, and remove the Model 3 related expenses. One of the conflating factors is the build out of fixed infrastructure in order to handle much larger volumes - the sales and support locations are built to a level that is designed for Model 3, not the current Model S + X. Of course, any particular location is under built, but the overall, they are expanding for 100,000's of volumes, not 10,000's of volume.

If the waiting time is steady then demand equals production, that is just logic 101. The waiting time was steady last year and has been going down a bit this year. If they really had infinite demand or whatever you are suggesting then they would raise prices, it makes no sense to leave money on the table if the demand really is much higher than capacity, especially when they are raising capital every 3rd quarter.

It's fine that we disagree on how close Tesla is to profitability, or whether the Model S is profitable or not at 50k/per sales, it is impossible to prove anything with 100% certainty I guess. I just think the huge equity burn every quarter is very hard to explain if you think operations are profitable. What they spend on PP&E gets listed as assets so this isn't the reason, even if you cut R&D to 0 they would still lose equity.

 

[The Blue Owl]

If the waiting time is steady then demand equals production, that is just logic 101. The waiting time was steady last year and has been going down a bit this year.

The waiting time was steady while deliveries increased more than 50%.

 

[Papafox]

Perfect Logic,
If you don't intend to invest in Tesla, why are you here? You seem to be putting in a lot of effort for nothing.

 

[Perfectlogic]

The waiting time was steady while deliveries increased more than 50%.

Most of the capacity upgrades happened in Q1 2015 or before. I acknowledge that demand did increase last year but not nearly 50% from Jan to Dec. As far as I can tell the demand growth is slowing so I doubt they will sell more than around 55k S this year.