Short-Term TSLA Price Movements - 2016

[Perfectlogic]

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.

1: I'm having fun, I like to discuss and analyze companies.
2: I am a buyer at the right price.
3: I'm doing a public service by balancing the discussion so people doesn't get caught up in the euphoria and bets the farm thinking it's a sure thing.

 

[The Blue Owl]

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.

So, you think they won't meet their 80-90K guidance this year? That's the billion dollar question, isn't it. My bet is that they will, and then some.

 

[Perfectlogic]

So, you think they won't meet their 80-90K guidance this year? That's the billion dollar question, isn't it. My bet is that they will, and then some.

No, I don't think they will actually. Like I wrote in the waiting time thread I did think it would be easy last year when they revealed the X already holding 25k reservations, but the X demand seems to be very soft as the waiting time is already almost as low as the S. Unless the X demand suddenly spikes it doesn't look like they will sell more than 15k this year, add that to my estimate of 55k S and they are 10k short. I'm not a long term bear, but I am short term bearish, I think the stock will have a very hard time if they do miss by 10k on top of the increased cash burn from the accelerated M3 schedule. I don't think $120 is out of the question at all some time in the next 12 months (sorry guys).

 

[Papafox]

: I'm having fun, I like to discuss and analyze companies.
But you don't seem to be receptive to anything said. How fun is that? Where's the learning?
2: I am a buyer at the right price.
But if Tesla will continue to lose money, as you suggest, what is a good price for a money-losing company?
3: I'm doing a public service by balancing the discussion so people doesn't get caught up in the euphoria and bets the farm thinking it's a sure thing.
Nobody here thinks it's a sure thing. Any business enterprise involves risk.

Personally, I don't mind this conversation if it takes place in a "bull vs. bear" thread, or something like that, but I hate to see forum users have to wade through two pages of arguments that we've seen time and time again. Pardon my saying so, but the conversation is such a waste of time for many of us because we've been through these arguments with bears many times before and I don't see any unique angle in this conversation that sheds any light.

 

[The Blue Owl]

No, I don't think they will actually. Like I wrote in the waiting time thread I did think it would be easy last year when they revealed the X already holding 25k reservations, but the X demand seems to be very soft as the waiting time is already almost as low as the S. Unless the X demand suddenly spikes it doesn't look like they will sell more than 15k this year, add that to my estimate of 55k S and they are 10k short. I'm not a long term bear, but I am short term bearish, I think the stock will have a very hard time if they do miss by 10k on top of the increased cash burn from the accelerated M3 schedule. I don't think $120 is out of the question at all some time in the next 12 months (sorry guys).

I attribute any X softness to the botched launch. I am not surprised that many have been sitting on the fence what with all the production issues. I think X sales will be picking up once the quality issues become a distant memory.

Moreover, I don't see Tesla sitting on their hands if they sense that soft demand is jeopardizing their targets. They have many demand levers they can pull.

 

[Fallenone]

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 couldn't find the breakdown of depreciation/amortization in the 10-Q so not sure if that $102M of yours is accurate either. In the 10-Q under the section of PP&E there's only one-line of depreciation and amortization, which was $156M. And no, not nearly half of that is stuff already in use. The paint shop of 500k/year is used less than 20% of it but suffering full depreciation. The pressing equipment is only used 25% of it and suffering full depreciation. The phase 1 of GF1 is clearly also not used much because cells are scheduled to be produced by the end of this year, but still suffering from depreciation.

First of all we don't know if they have a quarterly demand for 7.5k Model X. For all we know the Model X production was the more obvious limiting factor for deliveries so far. I cannot say for 100% that the demand for Model X exceeds 7.5k per quarter but you can't say they don't either. Secondly the whole point of bringing up the depreciation is to discuss at what gross profit level would Tesla need to cover those expenses. Since you are now bringing up the costs for sales and supercharger, If you look at their expenses (OpEx - RND - depreciation), you can see this cost for each car went down from $9.17k in 2014 to $8.38k in 2015. Q1 2016 this number was $7.97k.

 

[sundaymorning]

Between yesterday and today there seems to be an irregular amount of bearish activity on this board. It's either they are brave or extremely nervous due to the infusion of a ridiculous $1.4 billion. In the past where TESLA would only raise $200 million, the argument was, "wow, only $200 million, bankers must be having cold feet." Using this same "perfect logic," it seems like bankers are now aiming for a long term marriage with Tesla. I wonder what this means short term/long term?

So if bankers are willing to drop 1.4 on meager demand for X, what happens when that demand rockets? Still no X in my showroom, S went through the same teething issues, go back to 2012-2013 threads and look it up. The rest is history.

 

[Perfectlogic]

: I'm having fun, I like to discuss and analyze companies.
But you don't seem to be receptive to anything said. How fun is that? Where's the learning?
2: I am a buyer at the right price.
But if Tesla will continue to lose money, as you suggest, what is a good price for a money-losing company?
3: I'm doing a public service by balancing the discussion so people doesn't get caught up in the euphoria and bets the farm thinking it's a sure thing.
Nobody here thinks it's a sure thing. Any business enterprise involves risk.

Personally, I don't mind this conversation if it takes place in a "bull vs. bear" thread, or something like that, but I hate to see forum users have to wade through two pages of arguments that we've seen time and time again. Pardon my saying so, but the conversation is such a waste of time for many of us because we've been through these arguments with bears many times before and I don't see any unique angle in this conversation that sheds any light.

I listen to what people have to say, I just don't agree with a lot of the hyper bulls here.

If you have read what I have written you would know that I do think Tesla will be profitable when they achieve better scale.

Hard to say if noone here thinks it's a sure thing, judging from what is posted here I do think a lot of people have unrealistic expectations.

I think the discussion I have taken part of tonight has been much more interesting than the same old shallow commentary on todays price movements. Just because it's the short term price movements thread doesn't mean that you can't have a more in depth discussion on what actually moves the stock (also short term).

 

[MikeC]

Let's not talk about soft X demand, at least until I get the 75D I am patiently waiting for. The first 75Ds are not expected until July, so they are still on North American P90D/90D cars for the next two months. Any talk of weak X demand is unfounded when they are still so early in the process of catching up with the waiting list.

 

[Perfectlogic]

Between yesterday and today there seems to be an irregular amount of bearish activity on this board. It's either they are brave or extremely nervous due to the infusion of a ridiculous $1.4 billion. In the past where TESLA would only raise $200 million, the argument was, "wow, only $200 million, bankers must be having cold feet." Using this same "perfect logic," it seems like bankers are now aiming for a long term marriage with Tesla. I wonder what this means short term/long term?

So if bankers are willing to drop 1.4 on meager demand for X, what happens when that demand rockets? Still no X in my showroom, S went through the same teething issues, go back to 2012-2013 threads and look it up. The rest is history.

I bet they are extremely nervous, probably about to get margin called on their short positions (short squeeze to $300 incomming?). Also it wasn't the banks who bought the shares, it was (I assume institutional) investors.

 

[Perfectlogic]

I couldn't find the breakdown of depreciation/amortization in the 10-Q so not sure if that $102M of yours is accurate either. In the 10-Q under the section of PP&E there's only one-line of depreciation and amortization, which was $156M. And no, not nearly half of that is stuff already in use. The paint shop of 500k/year is used less than 20% of it but suffering full depreciation. The pressing equipment is only used 25% of it and suffering full depreciation. The phase 1 of GF1 is clearly also not used much because cells are scheduled to be produced by the end of this year, but still suffering from depreciation.

First of all we don't know if they have a quarterly demand for 7.5k Model X. For all we know the Model X production was the more obvious limiting factor for deliveries so far. I cannot say for 100% that the demand for Model X exceeds 7.5k per quarter but you can't say they don't either. Secondly the whole point of bringing up the depreciation is to discuss at what gross profit level would Tesla need to cover those expenses. Since you are now bringing up the costs for sales and supercharger, If you look at their expenses (OpEx - RND - depreciation), you can see this cost for each car went down from $9.17k in 2014 to $8.38k in 2015. Q1 2016 this number was $7.97k.

You can't leave out the entire depreciation (I still believe more than half is relevant but it's hard to say).On top of that comes stock compensation and R&D relevant to the S (and soon X) and cost of capital. I believe this adds up to more than their gross profit at this point, but with scale of course this number will go down, along with COGS as batteries gets cheaper.

 

[mmd]

I bet they are extremely nervous, probably about to get margin called on their short positions (short squeeze to $300 incomming?). Also it wasn't the banks who bought the shares, it was (I assume institutional) investors.

And it wasn't the institutional fund managers' money put on the line in most cases. It is other people's money that they put on line. And each participant earned a bonus or a commission for their acts.

 

[tander]

Let's not talk about soft X demand, at least until I get the 75D I am patiently waiting for. The first 75Ds are not expected until July, so they are still on North American P90D/90D cars for the next two months. Any talk of weak X demand is unfounded when they are still so early in the process of catching up with the waiting list.

I second that. Everyone is entitled to their opinion, and yes short-term demand ebbs and flows. But you don't raise 1.4B and dilute your shares to build more cars when you are worried about demand, and they still don't really do advertising, and they've been steadily raising the prices of the cars.

 

[lango]

No, I don't think they will actually. Like I wrote in the waiting time thread I did think it would be easy last year when they revealed the X already holding 25k reservations, but the X demand seems to be very soft as the waiting time is already almost as low as the S. Unless the X demand suddenly spikes it doesn't look like they will sell more than 15k this year, add that to my estimate of 55k S and they are 10k short. I'm not a long term bear, but I am short term bearish, I think the stock will have a very hard time if they do miss by 10k on top of the increased cash burn from the accelerated M3 schedule. I don't think $120 is out of the question at all some time in the next 12 months (sorry guys).

This is an example of looking at data and the numbers too much.

For me it is just enough to know Model X is the only electric SUV and that electric vehicles have big advantages for many customers and that the large premium car SUV market globally is many hundred of thousands of cars if not a million cars. Of course Tesla can't sell more than 30k a year when BMW sold 200k total of X5 and X6 and Cayenne sold 70k. The global market and comparable ICE vehicles sales are the right data to use, not how many pre-orders have converted to a potentially buggy and unfinished car. Don't use a data driven approach if you have no idea what drives the data.

 

[tander]

Johan, Audoban,

Regarding the strong buyer idea, what makes you think there will be news in the next few weeks? It's a nice thought, definitely a possibility, wonder if it will pan out.

 

[sundaymorning]

I bet they are extremely nervous, probably about to get margin called on their short positions (short squeeze to $300 incomming?). Also it wasn't the banks who bought the shares, it was (I assume institutional) investors.

"Institutional investors" is another fancy word for corporate banking. They loan the money to be repaid. TSLA doesn't need to reach $300 to scare anyone, people are already afraid of them.

 

[30seconds]

"Institutional investors" is another fancy word for corporate banking. They loan the money to be repaid. TSLA doesn't need to reach $300 to scare anyone, people are already afraid of them.

institutional investors are very large, very professional fund managers (Fidelity, Temasek, Allianz, BlackRock, etc.) who take large and long positions via stock and debt. Yes they want their money back, but no these are not loans. These firms take risk of loss be it on the stock or bond investments.

Corporate banking is very different.

 

[sundaymorning]

institutional investors are very large, very professional fund managers (Fidelity, Temasek, Allianz, BlackRock, etc.) who take large and long positions via stock and debt. Yes they want their money back, but no these are not loans. These firms take risk of loss be it on the stock or bond investments.

Corporate banking is very different.

Yes if taken literally, then you're right about my loan comment. Here's a consideration, the banks when giving out a loan to a business, in a way is also taking a risk if that business fails/defaults. Yes, one needs calladoral in a loan, but Tesla also has calladoral in their Nummi plant and gigafactory, Musk's reputation is also at stake. Define it as you may, investing/loan...It's the same idea..institutions are taking a risk, perhaps aiming for a homerun.. Tesla in return, may just provide a grand slam.

 

[Fallenone]

You can't leave out the entire depreciation (I still believe more than half is relevant but it's hard to say).On top of that comes stock compensation and R&D relevant to the S (and soon X) and cost of capital. I believe this adds up to more than their gross profit at this point, but with scale of course this number will go down, along with COGS as batteries gets cheaper.

Leaving out the entire depreciation is to examine what are the costs for sales and supporting superchargers, as you mentioned. Throw in their RND of about $10k per car (Q1 Q2 2015 were higher due to luanching X), the OpEx besides of depreciation is about $18k per car, or 18% of the ASP. I agree some of the depreciation should be attributed to the current sales of cars, but IMO it is quite less than 50%, more like 30%, which translates to about $3k per car, or 3% of ASP (and in the meanwhile, we should set aside part of the RND to be more precise, but let's just use 100% of RND on what they are selling now, which is a conservative assumption). Adding this to the RND and sales, that's 21% of ASP. With gross margin above 25%, I don't see them being not profitable, if they have not been heavily investing in future growth.

Stock compensation is for GAAP accounting. They are far from GAAP profitability and I think even the hyper bulls here acknowledge this. Besides, the market cares more about non-GAAP so shall we keep it non-GAAP in the discussion?

 

[techmaven]

I listen to what people have to say, I just don't agree with a lot of the hyper bulls here.

Actually, we're pretty chill compared to, say, mid 2013. The DTU discussion certainly isn't hyper-bull-esque.

However, made some commentary about profitability and demand that should not go unchallenged. Yes, I'm aware that R&D isn't going in the COGS like other automakers. But then, Tesla isn't quite steady state like the others. There are plenty of money being spent for well into the future on a scale unlike other automakers. So the comp is difficult. The core issue remains... is the Model S business a profitable one? Will the Model X business be a profitable one in the near future? It's hard to untangle the parts that are Model 3, but note that $19.4 million dollars of the loss in Q1 2016 is stock based compensation for Model 3 related milestones. Back out the $88.5 million gross profit deferred due to lease/RVG accounting, that's $107.9 million out of the $282.3 million dollar GAAP loss. That's $174.4 million loss.

I had discussed earlier that the Model X launch caused a huge increase in inventory - raw materials and work in progress. That's easily most of the rest of the loss, and if that ramp had gone through, there's gross margin on top of that too. If that was $150 million, which is about right, at 10% gross margin, that's $165 million more. Now, there's still COGS, but they've paid most of it.. the headcount is already there, the parts are already there, so the marginal COGS to have shifted that $150 million into at least finished goods inventory and/or deliveries is relatively minimal. That's about 1,250 Model X's, or less than two week's worth of production. Then we would be talking break even for Q1 sans Model 3 related milestones with employee stock compensation which clearly isn't Model S/X business.

I do find it disingenuous to talk about GAAP and non-GAAP without addressing deferred revenue, most of which is lease/RVG accounting. That and figuring out how to compare with the difference in revenue recognition. Everyone else with a dealership network recognizes revenue when the car hits distribution. Tesla has to wait until customer delivery. That's fine if you don't want to use the core operations/ABL to do the comp, but some treatment is necessary. Otherwise, you're not doing an equivalent comparison. When one is discussing a GAAP loss of $282.3 million, the facts that deferred revenue is $516.6 million and finished goods inventory is $472.8 million needs to be addressed.