Short-Term TSLA Price Movements - 2016

[neroden]

But I still don't understand what Summers meant in his last paragraph.

“If a greater than 1/3 chance of a rate increase in September was not in markets, the cost of credit for small business would be lower and mortgage rates would decline. Employers would be more confident about hiring. And pressures would be removed from emerging markets. The world economy would be more robust.”

Is he just saying in a backhanded way that the Fed is wrong based on the markets' expectations. Is he saying raising rates will mean small businesses will have higher borrowing rates along with mortgages, employers will lose confidence in the need for more workers, and pressures will increase on emerging markets while the world economy will falter even further. That would be logical to me, but then that's kind of econ 101 simplicity.

He's saying that because markets are expecting a Fed rate increase, the private banks are keeping interest rates up, which means that businesses have higher borrowing rates (etc.) ven though the Fed hasn't raised rates. The "transmission channel" means that an expectation of increased Fed rates leads to *preemptive* increased rates by the private banks, which has all the bad effects of raised rates. (Along with preemptive lack of hiring by employers in anticipation of difficulty getting financing, etc. etc.) Does that make sense? Pretty simple.

It's one reason I disapprove of depending on the private-bank-based lending system. If we had a Post Office Bank, or the legions of government-run banks which FDR set up during the Great Depression -- government banks which lent directly to the final borrower -- *those* banks would keep rates low rather than raising them in expectation of the Fed raising rates. Instead, we have the Fed, which only lends to private banks, not directly to businesses (well, normally). The private banks have the option of raising rates by raising the spread between Fed rates and the rates they offer borrowers, meaning that the Fed cannot actually force rates down if the private banks collude to raise rates.

 

[MitchJi]

1. On the other hand, we know that Elon is now motivated to try to maintain a good share price in the near future - e.g. perhaps by emptying the pipeline for good Q3 numbers, timing Model 3 part 2 announcement sooner than later, etc.

   How is that different from the normal situation?

 

[anon]

1. 
   How is that different from the normal situation?

Of course they never want the price to crash, but it is in their interests to for it to be as high as possible immediately prior to a capital raise, whereas short-term fluctuations even of several tens of dollars are of little importance. For example, it has been widely suggested on the forum in the past that Must probably tried to engineer a short squeeze just prior to the 2013 capital raise.

Musk has stated before at other times that he is interested in delivering a return for long-term shareholders, not short-term traders, hence why he has occasionally commented that the share price is too high, so he doesn't worry about making moves that might depress the share price a bit for a while, as long as it's in the company's long term best interests. This of course doesn't apply immediately prior to a capital raise, where he is likely to put more emphasis on short-term performance (like emptying the channel), even if that causes minor inefficiencies in future. He is also likely to try to make announcements about autopilot v2, Model 3 unveil psrt 2, etc, before the capital raise for the same reason.

 

[MitchJi]

Difference Between Short Selling And Put Options | Investopedia

puts. With short sales, the reward is potentially limited (since the mos

• Short selling is far riskier than buying puts. With short sales, the reward is potentially limited (since the most that the stock can decline to is zero), while the risk is theoretically unlimited. On the other hand, if you buy puts, the most that you can lose is the premium that you have paid for them, while the potential profit is high.

• Short selling is also more expensive than buying puts because of the margin requirements. A put buyer does not have to fund a margin account (although a put writer has to supply margin), which means that one can initiate a put position even with a limited amount of capital. However, since time is not on the side of the put buyer, the risk here is that the investor may lose all the capital invested in buying puts if the trade does not work out.

• More expensive and far riskier. TSLA shorts are far dumber than I thought.

 

[neroden]

Difference Between Short Selling And Put Options | Investopedia

• More expensive and riskier. Shorts are dumber I thought.

Yep. Some possible reasons to short instead of buying puts:
-- if your time horizon is too damn long for puts. This is pretty unusual now that LEAPS exist.
-- if the stock you're shorting doesn't have options trading.
-- if there isn't enough liquidity in the puts for your stock for the very large bets you want to place.

 

[neroden]

The SEC filing says that Tesla will need to raise financing again by the end of the year.

Tesla (TSLA) says it’s currently planning another round of financing for Model 3 and Gigafactory

I feel like Musk got the timing wrong here. After the reservations numbers came in for Model 3, they issued stock to accelerate Model 3 production, and Musk said they were then on track to be fully financed for Model 3 (and said so).

But then the convertibles were called in, he had to patch the leaks in SolarCity, and honestly it looks to me like Model S demand (at this price point) has flattened at its natural level now... all of this was probably unexpected. There's a lot of refinancing to do (both for the convertibles and for Solarcity) and they're not generating enough internal cash to pay down the debt instead of refinancing. IMHO, Q3 and Q4 are really not good timing for stock issuance, so I hope Tesla can succesfully issue bonds instead. If he does have to issue stock, the buyers will be getting a very good deal and existing stockholders will be diluted by more than we had hoped.

 

[austinEV]

... and honestly it looks to me like Model S demand (at this price point) has flattened at its natural level now...

It does really feel like this. But I cannot reconcile this with the fact that TM doesn't seem to be working very hard to generate sales. Where are the South Korean stores? Limited, modest advertising in existing markets? They are pulling demand levers but such half-hearted measures. I wonder if they feel a need to keep to their "no advertising" boast longer than they should... Critics will indeed try to make hay saying they are having demand problems, when really it would mean their production exceeded the lowest hanging fruit of demand, and they were moving into early mainstream from early adopters. I would breathe a sigh of relief if they started advertising, and as Curt likes to say, keeping modest inventory for immediate sale to capture the people who will simply never wait 4 weeks for a car.

 

[adiggs]

Difference Between Short Selling And Put Options | Investopedia

• More expensive and far riskier. TSLA shorts are far dumber than I thought.

That article glosses over the interest paid to borrow the stock to then sell it to establish the short position. People are paying about 11-13% interest to Fidelity to establish and maintain their short position (with Fidelity paying me and other lenders 6% to borrow our TSLA shares to lend them out).

That's down for 18% earlier this month. That's credit card interest rates to maintain the short position - you have to REALLY be strong in that position to think it's worth paying credit card interest rates on such a large amount of money (20M shares short @ $220/share is $4.4B in the aggregate - it's closer to 25M shares).

 

[vgrinshpun]

Somebody bought Oct 21 $235-250 spreads (10K contracts) - a play on the pre-record date SP move?

Unusual options buying: Tesla

 

[maoing]

I feel like Musk got the timing wrong here. After the reservations numbers came in for Model 3, they issued stock to accelerate Model 3 production, and Musk said they were then on track to be fully financed for Model 3 (and said so).

But then the convertibles were called in, he had to patch the leaks in SolarCity, and honestly it looks to me like Model S demand (at this price point) has flattened at its natural level now... all of this was probably unexpected. There's a lot of refinancing to do (both for the convertibles and for Solarcity) and they're not generating enough internal cash to pay down the debt instead of refinancing. IMHO, Q3 and Q4 are really not good timing for stock issuance, so I hope Tesla can succesfully issue bonds instead. If he does have to issue stock, the buyers will be getting a very good deal and existing stockholders will be diluted by more than we had hoped.

True. I suspect the new stock issuing will be below 215 or even 200. It's bad to see the down round capital raise from 252 (2014), 244 (2015), 215 (2016), then next?

 

[vgrinshpun]

Looks like we are back to not having shares available for shorting at Fidelity....

 

[racer26]

We've said it many times before - those statements in SEC filings are standard boilerplate risk assessments. I'd hardly take such a statement as gospel that another equity raise is coming in the immediate future.

Even if it ultimately becomes necessary to raise more capital, it won't be until near the end of FY16, and the smart money says they'd do reveal part 2 first in order to pump the share price, if they're going to do it with more shares. I suspect bonds might be more likely, and if recent history says much, Elon and friends might just gobble up the bonds themselves.

 

[TMSE]

What will scare the shorts most? Is it a quarterly result with GAAP profit? That should crumble every pillar on which their short mansion stands.

Tesla will be GAAP profitable at around 26K deliveries per quarter, and non-GAAP profitable at around 21K deliveries.

I don't expect Tesla+ SolarCity combined results until Q1'17 results in May'17.

 

[Tenable]

Also, I'm wagering a lot of money that there will be no rate hike in Sept The fed notes have been overwhelmingly dovish. Their hawkish commentary is meant to keep the markets from running away. I think its possible in December.

This is just my opinion, please do not follow this as investment advice.

 

[AlMc]

So you completely discount Musk and JB saying that timing was dictated by the product cycle?

Not trying to dispute what you are saying in any way - everybody has their own opinions, just trying to understand which inputs you are considering and which ones you are discounting.

I have no science behind my conclusion/opinion. IMO, I never liked the SCTY business model...no charge product/leasing/becoming in essence, a utility company. I believe their business model would need to be changed or would fail. I know many feel they were a quarter or two away from turning a profit. Personally, I think they were a year away from potential failure. During the next 3-6 months I saw their value dropping dramatically. TM is overpaying (some would call it bailing out) for SCTY.

Now, TM is at a critical stage. They are trying to bridge the gap between bringing the supply/demand up for the S and X to help pay for the
model 3. So, what do they do....let us not only try to fund that but lets overpay for SCTY. I have said before that these decisions/timing are far above my pay grade but personally.....I think this is a *stupid* move.

I have been wrong before and this may turn out to be a brilliant move. I think it would be a good move...in late 2017. They could buy the Buffalo manufacturing facility for next to nothing and add it to TE.

 

[brian45011]

I feel like Musk got the timing wrong here. After the reservations numbers came in for Model 3, they issued stock to accelerate Model 3 production, and Musk said they were then on track to be fully financed for Model 3 (and said so).

But then the convertibles were called in, he had to patch the leaks in SolarCity, and honestly it looks to me like Model S demand (at this price point) has flattened at its natural level now... all of this was probably unexpected. There's a lot of refinancing to do (both for the convertibles and for Solarcity) and they're not generating enough internal cash to pay down the debt instead of refinancing. IMHO, Q3 and Q4 are really not good timing for stock issuance, so I hope Tesla can succesfully issue bonds instead. If he does have to issue stock, the buyers will be getting a very good deal and existing stockholders will be diluted by more than we had hoped.

Apparently, 2018 holders having $11 million in face value gave notices of early conversion between the filings on 8/5 and 8/31. About $230 million in face value of 2018 notes have yet to be noticed for conversion. Refinancing the remaining 2018 notes (and possibly the $2.3 billion in 2019 & 2021 notes) with new debt, if possible at all, will likely require a much higher effective interest rate.

Maybe some kind of preferred?

 

[vgrinshpun]

Tesla has announced the resale value guarantee program is being discontinued as of June 30, 2016. Whether the residual value guarantee (to bank leasing partners) is also being discontinued is unclear. In the shareholder letter, Tesla said it plans to increase direct leases from 8% to 15%. The Q2 increment for cars in these three programs was:

Resale VG--1,790
Residual VG--2,080
Direct Leases--1,120

The resale value guarantee is being discontinued prospectively. The 22,480 cars under that program at June 30, 2016 will still have a 36-39 month run-off, i.e GAAP revenue and GM will increase will non-GAAP revenue and GM will decrease.

Even if the residual value guarantee has been discontinued, the 11,280 cars under that program at June 30, 2016 will still have a similar 36-48 month run-off,

Direct leases are treated the same under GAAP and non-GAAP.

Why would prospective (as of June 30, 2016) elimination of Resale VG lead to lowering GAAP revenue and GM (given Direct Lease / Purchase ratio assumed the same)?

Could somebody with accounting background answer the above question?

 

[3Victoria]

1. SC detraction/timing -- While the SC deal might be a distraction to the shareholders and the market, it is not a distraction to the Tesla designers, tool-makers, and productions staff ... makes no difference to them. The design is (mostly) finished with the Model 3 and have (I hope) moved onto next projects.
2. Demand/production -- Tesla is doing what they said they would; ramp production and use demand-levers to ramp demand to match.
3. P100L -- this is for bragging rights, and shows Tesla is keeping ahead of the other manufacturers vapourware. >300 miles per charge has been a line in the sand of many critics, and now there is actual product achieving surpassing that line. The 100D will move the mine further. 2.5s/0-60mph is bragging and advertising. I will never want it, but it attracts attention to Tesla.

 

[austinEV]

I have no science behind my conclusion/opinion. IMO, I never liked the SCTY business model...no charge product/leasing/becoming in essence, a utility company. I believe their business model would need to be changed or would fail. I know many feel they were a quarter or two away from turning a profit. Personally, I think they were a year away from potential failure. During the next 3-6 months I saw their value dropping dramatically. TM is overpaying (some would call it bailing out) for SCTY.

Now, TM is at a critical stage. They are trying to bridge the gap between bringing the supply/demand up for the S and X to help pay for the
model 3. So, what do they do....let us not only try to fund that but lets overpay for SCTY. I have said before that these decisions/timing are far above my pay grade but personally.....I think this is a *stupid* move.

I have been wrong before and this may turn out to be a brilliant move. I think it would be a good move...in late 2017. They could buy the Buffalo manufacturing facility for next to nothing and add it to TE.

Here is my personal theory for the motivations of the merger:

1) Elon is personally annoyed at the separation. He is inconvenienced that they are not one thing and cannot just review the day-to-day or order something done. There is no reason that that barrier could not be overcome with various partnerships, but Elon didn't want to do that because it would mean getting stuff done through a slow formal process.
2) SCTY was at risk of financial meltdown. True, it could have been picked up for cheaper later but that actually looks worse for TSLA+SCTY. If Elon had waited for the meltdown, the SCTY-TSLA-SpaceX triad would have a leg knocked out. This loss of confidence would cost the triad more than the cost of SCTY right now. Better to spend $2B (or whatever) now than risk the much higher loss of market cap in TSLA when confidence is badly shaken.

I think everyone involved would have preferred SCTY to have been run better, but it is what it is. The cost of a too-late bailout is probably cheaper than a pre-emptive bailout in terms of market cap.

 

[neroden]

o, what do they do....let us not only try to fund that but lets overpay for SCTY. I have said before that these decisions/timing are far above my pay grade but personally.....I think this is a *stupid* move.

I have been wrong before and this may turn out to be a brilliant move. I think it would be a good move...in late 2017. They could buy the Buffalo manufacturing facility for next to nothing and add it to TE.

They can't. I've explained this before. The contracts for the Buffalo facility are set up so that the State of New York owns it and SCTY rents it for basically nothing. If SCTY goes bankrupt the state of NY gets the facility, and can drive a hard bargain with anyone else who wants to rent it.... and the politicos in NY may be completely unwilling to rent it to Tesla if SCTY goes bankrupt. In order to get the Buffalo factory Musk *has* to get Solarcity while it's still a going concern.