Short-Term TSLA Price Movements - 2016

[Fallenone]

Can someone educate me on how Baron arrived with his conclusion of Telsa on the verge of being capital light?

Billionaire investor bets on Tesla being one of the world's biggest companies

Yes I understand they have made a ton of CapEx on future growth. But I was lost when Baron using the paint shop as the example. Something like spending another 50M to double production and gain 150M or something like that.

 

[Intl Professor]

Come on guys; he may not have revealed much else about himself, but he claims the title of Doctor. That implies he is an authority of some sort and deserves our respect.

I use it all the time for dinner reservations.

 

[Tenable]

Can someone educate me on how Baron arrived with his conclusion of Telsa on the verge of being capital light?

Billionaire investor bets on Tesla being one of the world's biggest companies

Yes I understand they have made a ton of CapEx on future growth. But I was lost when Baron using the paint shop as the example. Something like spending another 50M to double production and gain 150M or something like that.

I watched it, hes arguing that the foundation has been laid and additional expenditures will almost immediately be a net positive. His example was that they spent $300mm on the paint factory and they will save $150mm in man hours as a result. However, if they invest another 50mm it would double capacity. That doubling in capacity would save $150mm for a $50mm investment. Hes extrapolating that anything new will be so efficient they will easily pay for itself.

 

[Fallenone]

I watched it, hes arguing that the foundation has been laid and additional expenditures will almost immediately be a net positive. His example was that they spent $300mm on the paint factory and they will save $150mm in man hours as a result. However, if they invest another 50mm it would double capacity. That doubling in capacity would save $150mm for a $50mm investment. Hes extrapolating that anything new will be so efficient they will easily pay for itself.

But where did the $50m additional investment brings 100% more production capacity come from? His own estimate?

 

[Stretch2727]

But I was lost when Baron using the paint shop as the example. Something like spending another 50M to double production and gain 150M or something like that.

He was not very good at explaining it. Basically any manufacturing process has a bottleneck with uneven capacity along the manufacturing line. The whole line runs at the pace of the bottleneck process. The manufacturing line will have some high base cost and some areas of the process will be over capacitized with just one machine. (You could not buy a 1/2 machine even thought you only needed 1/2).

You invest in the bottleneck process area for incremental capacity and you unlock the value for all the other process areas that were essentially underutilized. Basically if you spent $1B to get to 50K capacity you might spend only $250M to get to the next 50K of capacity and $100M to get the next 50K. (Just a hypothetical example...not Tesla specific.)

This works very well if you are building like products and you are not increasing the product complexity on a given manufacturing line. Sometimes it does not work so well if you try to increase capacity and add a new product at the same time. The complexity of changing over tooling etc will many times offset the capacity increase. If there are large product/process differences it maybe better just to build another line as what you gain in capital efficiency will be lost to operational efficiency. (changeover time, operational losses due a certain part of the line not being used for one product, etc.)

 

[AlMc]

Hopefully some macro tailwinds for Wednesday: Asian shares near six-week high on oil, Fed expectations

 

[ggr]

bafooon

This is a beautiful neologism, a perfect hybrid of buffoon and baboon. Thanks!

 

[Zhelko Dimic]

But where did the $50m additional investment brings 100% more production capacity come from? His own estimate?

From his language, I believe this is something he's gleaned from factory visits and (I assume) privileged access and higher up executive guides he'd have during his visits.

 

[Fallenone]

He was not very good at explaining it. Basically any manufacturing process has a bottleneck with uneven capacity along the manufacturing line. The whole line runs at the pace of the bottleneck process. The manufacturing line will have some high base cost and some areas of the process will be over capacitized with just one machine. (You could not buy a 1/2 machine even thought you only needed 1/2).

You invest in the bottleneck process area for incremental capacity and you unlock the value for all the other process areas that were essentially underutilized. Basically if you spent $1B to get to 50K capacity you might spend only $250M to get to the next 50K of capacity and $100M to get the next 50K. (Just a hypothetical example...not Tesla specific.)

This works very well if you are building like products and you are not increasing the product complexity on a given manufacturing line. Sometimes it does not work so well if you try to increase capacity and add a new product at the same time. The complexity of changing over tooling etc will many times offset the capacity increase. If there are large product/process differences it maybe better just to build another line as what you gain in capital efficiency will be lost to operational efficiency. (changeover time, operational losses due a certain part of the line not being used for one product, etc.)

Thanks a lot for explaining it. Although still don't know if the numbers in his "$50m for another doubling resulting $150m gain" are really that good.

 

[kenliles]

Elon tweet, re Tesla cells from Panasonic :

"Would like to clarify that Tesla is working exclusively with Panasonic for Model 3 cells. News articles claiming otherwise are incorrect."

"S and X cells are also Panasonic"

 

[vgrinshpun]

Elon clarifies that cells obtained from Samsung (ostensibly for testing/validation) are not intended for use in Model 3.

Given that original GF output was 35GWh of cells, 50GWh of packs, including 15GWh of packs for TE, one can surmise that Samsung cells might be tested for TE. I still have a question that I posed in the shareholders meeting questions thread: why Tesla was planning for 15GWh (originally) of cells to come from outside of the GF, if the GF cells expected to have lowest cost. I believe that the answer could reveal nuances in strategy which we might be currently missing.

 

[CButterK]

Elon clarifies that cells obtained from Samsung (ostensibly for testing/validation) are not intended for use in Model 3.
View attachment 179912

Given that original GF output was 35GWh of cells, 50GWh of packs, including 15GWh of packs for TE, one can surmise that Samsung cells might be tested for TE. I still have a question that I posed in the shareholders meeting questions thread: why Tesla was planning for 15GWh (originally) of cells to come from outside of the GF, if the GF cells expected to have lowest cost. I believe that the answer could reveal nuances in strategy which we might be currently missing.

So, Panasonic focuses on the higher end 20700 cells for cars only moving forward, leaving no capacity left for low end cells for TE? Or, Samsung, in the hopes of becoming a bigger player(equal second source to Panasonic) for Tesla in the future, are providing the TE cells at a price that Panasonic can't compete with? And Panasonic doesn't mind that Tesla is sourcing these cheap low end cells from Samsung, since Tesla will be taking all the new 20700 cells that Panasonic can produce at a higher margin than the cheap cells from Samsung? This also leads me to think that even their(Panasonic) failed cells are still too high spec & priced for TE products...

 

[vgrinshpun]

So, Panasonic focuses on the higher end 20700 cells for cars only moving forward, leaving no capacity left for low end cells for TE? Or, Samsung, in the hopes of becoming a bigger player(equal second source to Panasonic) for Tesla in the future, are providing the TE cells at a price that Panasonic can't compete with? And Panasonic doesn't mind that Tesla is sourcing these cheap low end cells from Samsung, since Tesla will be taking all the new 20700 cells that Panasonic can produce at a higher margin than the cheap cells from Samsung? This also leads me to think that even their(Panasonic) failed cells are still too high spec & priced for TE products...

I would not call cells for automotive application "higher end". Although they do need to be more robust to withstand vibration and wider variability in charging/discharging cycles, they are designed for fewer cycles than the cells for TE.

I also believe that Samsung cells are more, not less expensive than TE cells obtained from Panasonic, leave along cells manufactured at the GF, so I am still puzzled of what is the strategy in using procured, rather than cells manufactured at GF for the TE. It seems that there is more to this than just diversification...

May be Tesla plans to use new 20700 manufactured at the GF not only in M3, but in MS and MX, as profit margins required for TA are tighter. Since margin pressure is lower for the TE, and Tesla is still locked into the purchasing 18650 cells from existing Panasonic factories, may be the strategy is to use older 18650 cells for TE?

 

[Vitold]

So, Panasonic focuses on the higher end 20700 cells for cars only moving forward, leaving no capacity left for low end cells for TE? Or, Samsung, in the hopes of becoming a bigger player(equal second source to Panasonic) for Tesla in the future, are providing the TE cells at a price that Panasonic can't compete with? And Panasonic doesn't mind that Tesla is sourcing these cheap low end cells from Samsung, since Tesla will be taking all the new 20700 cells that Panasonic can produce at a higher margin than the cheap cells from Samsung? This also leads me to think that even their(Panasonic) failed cells are still too high spec & priced for TE products...

Or maybe having alternative battery supplier will allow Tesla negotiate better future contract with Panasonic and keep them investing in GF. Plus maybe Tesla is buying time to work with Dahn's team to develop in-house chemistry for TE.

 

[Intl Professor]

Despite his visionary rep maybe he's a conservative planner too, just opening up another source of supply should M3 demand, for example, surprise again.

 

[austinEV]

Elon clarifies that cells obtained from Samsung (ostensibly for testing/validation) are not intended for use in Model 3.
View attachment 179912

Given that original GF output was 35GWh of cells, 50GWh of packs, including 15GWh of packs for TE, one can surmise that Samsung cells might be tested for TE. I still have a question that I posed in the shareholders meeting questions thread: why Tesla was planning for 15GWh (originally) of cells to come from outside of the GF, if the GF cells expected to have lowest cost. I believe that the answer could reveal nuances in strategy which we might be currently missing.

I think the answer is 100% clear. Even if the GF is up and running, Panasonic has existing old factories. This represents TM's obligation to take the old supply as well. Panasonic isn't going to write off all their old factories just because the GF is open. Panasonic wouldn't sign on the dotted line on the GF unless TM agreed to take all they could make from the old factory too.

 

[vgrinshpun]

I think the answer is 100% clear. Even if the GF is up and running, Panasonic has existing old factories. This represents TM's obligation to take the old supply as well. Panasonic isn't going to write off all their old factories just because the GF is open. Panasonic wouldn't sign on the dotted line on the GF unless TM agreed to take all they could make from the old factory too.

Yes, as I posted upthread, this is my current theory too, but I am not 100% clear on it . I am wondering whether there could be something else to this...

One interesting conclusion that can be drawn from our theory is that the reason that GF is scheduled to start manufacturing 20700 cells by the end of this year is to start incorporating them in MS/MX in the 1H 2017 (after a quarter or so of testing/ramp up), and then, after further ramp-up starting using these new cells in M3 by the end 2017. This would mean that Panasonic factory capacity (8-9GWh?) will become available for the TE by the end of this year.

 

[austinEV]

Yes, as I posted upthread, this is my current theory too, but I am not 100% clear on it . I am wondering whether there could be something else to this...

One interesting conclusion that can be drawn from our theory is that the reason that GF is scheduled to start manufacturing 20700 cells by the end of this year is to start incorporating them in MS/MX in the 1H 2017 (after a quarter or so of testing/ramp up), and then, after further ramp-up starting using these new cells in M3 by the end 2017. This would mean that Panasonic factory capacity (8-9GWh?) will become available for the TE by the end of this year.

I believe the TE business was launched solely to market surplus cells. I mean its a nice business, but the timing only makes sense if they have surplus Panasonic capacity in the near term.

 

[dakh]

Oh Brother! Are you doubting the Teslarian math used by the billionaire investor? Didn't you read upthread, that doubting a billionaire's method, be it Ron Baron or Elon Musk or Donald Trump or Koch brothers, is pure ad hominem, and possibly blasphemy? He has seen the paint shop; have you? If you don't know Teslarian logic, you have no business investing in Tesla.. Just drown yourself in the visions and let them bafool you till the story falls apart.

Ok so it's fair to call out stock price movements that are likely based on no-news both to negative and positive direction and you could play the sarcastic role on the up side. But alas you can't actually pull that off, you're about 3 octaves too high.

 

[Papafox]

Dr. ValueSeeker,
I know you're sore about losing money today on your TSLA short position, but here's a suggestion. Rather than coming onto this forum and calling names, why don't you get a good night's sleep, close your short position in the morning, go long on TSLA and recoup your losses? If we stay above the 50dma Tesla is going to soar this summer. Let bygones by bygones. The momentum with TSLA has clearly shifted in favor of the longs. Rather than harassing the longs, you're so much better off making some money. Honest.