Short-Term TSLA Price Movements - 2016

[wycolo]

'Long and Strong':

Assume this to mean half of investor's TSLA holding would be bought and then sold to take advantage of this
cycle. Its a square wave ;^))

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[theschnell]

That appeared as clear as mud to me. I'm an engineer and am pretty good with numbers, but this stuff seems to be deep in accounting territory. Both you and vgrinshpun said the same thing about capex, so I guess that must be the case.

But just for my edification, are you saying that whatever is spent for capital expenses (like factory equipment, airstream trailers, and buildings) doesn't get deducted (even though the full dollar amount was already spent) from revenue in exactly the same way as COGS? Instead, only the depreciation of those capital goods are what's deducted? If that's the case, then doesn't this undermine one of the pillars of support of Tesla's financials? How can we claim last year that if it weren't for all the spending on growing the business (expanding the production line, opening new stores and service centers, and building out the supercharger network), Tesla would've been a profitable company. All those growth items should've been treated as CapEx, and amortized over a long period of time? right? Or am I missing a fundamental detail?

I had that same question myself. The reality is a good part of the expenses are sg&a (read sales centers) and R&D. Having sales over a large geographical area requires sales centers over a large geographical area.

The other side is that depreciation on a multi billion dollar building and on manufacturing equipment does add up to a material amount, especially when you're only selling 15k cars per quarter. But one quarter of incremental m3 capex seems unlikely to me to tip the scales from profitable to loss.

 

[sinv]

But just for my edification, are you saying that whatever is spent for capital expenses (like factory equipment, airstream trailers, and buildings) doesn't get deducted (even though the full dollar amount was already spent) from revenue in exactly the same way as COGS? Instead, only the depreciation of those capital goods are what's deducted? If that's the case, then doesn't this undermine one of the pillars of support of Tesla's financials? How can we claim last year that if it weren't for all the spending on growing the business (expanding the production line, opening new stores and service centers, and building out the supercharger network), Tesla would've been a profitable company. All those growth items should've been treated as CapEx, and amortized over a long period of time? right? Or am I missing a fundamental detail?

This is something I also had to learn and this is something why I really lose my trust in TSLA (from an economic point of view). Finally TSLA will have to earn money after you deduct all the costs (incl. the growth costs). Until now TSLA needs external money not only for the growth, also for their current operations (e.g. in Q2/20016 they had revenues of 1,25B (from selling cars, service, ...) but the costs and operating expenses have been 1,5B. Even if you leave out the research and development costs and only include selling, general and administrative, they would not have earned any money. If you now additionally consider all the growth related costs, you can see that TSLA will need a very long way to go.

From an investors point of view the TSLA concept and future plans only make sense if TSLA can keep a very strong position with a high margin for min.10 years. Until now the market probably trusted and believed that TSLA could build and keep such a position for many years, beginning with the model 3. It now still may be likely that they get into such a position for a short time, but with all the upcoming competition it is considered as unlikely that they can keep such a position for many years after the model 3.

 

[Hogfighter]

I'm out of my bunker after Matthew. Got a little breezy around these parts.

The fact that no one on Wall Street is giving any credence to what Tesla Energy is going to do next year (and beyond) is very surprising. There is massive demand for their products around the world, yet very few analysts factor TE into their valuations.

I hope that the SP stays low until the Jan '19 calls come out in November.

 

[andrewt3000]

That appeared as clear as mud to me. I'm an engineer and am pretty good with numbers, but this stuff seems to be deep in accounting territory. Both you and vgrinshpun said the same thing about capex, so I guess that must be the case.

But just for my edification, are you saying that whatever is spent for capital expenses (like factory equipment, airstream trailers, and buildings) doesn't get deducted (even though the full dollar amount was already spent) from revenue in exactly the same way as COGS? Instead, only the depreciation of those capital goods are what's deducted? If that's the case, then doesn't this undermine one of the pillars of support of Tesla's financials? How can we claim last year that if it weren't for all the spending on growing the business (expanding the production line, opening new stores and service centers, and building out the supercharger network), Tesla would've been a profitable company. All those growth items should've been treated as CapEx, and amortized over a long period of time? right? Or am I missing a fundamental detail?

You are correct about depreciation...
Some investments like the GigaFactory are depreciated and the expense is spread over the lifetime of the operation of the factory. However, R&D, although it’s an upfront cost that pays off over the long term, is not depreciated. You take the full charge in the quarter the money was spent. I suspect it’s because R&D has a less predictable payoff and timeframe than an investment in a hard asset like a factory.

Another factor in Tesla’s lack of profitability is their high sales expenses (SG&A). Currently SG&A is about 20% of non-gaap revenue. At most auto companies it’s about 10%. The number of Model 3 preorders indicates that their current sales infrastructure is scalable and can support much larger revenues. At scale SG&A is likely to be a lower percent of revenue. The sales model is an area of uncertainty especially since Tesla doesn't have independent dealerships. Tesla is doing lots of experiments in this space... referral programs.. pop up stores. even ridesharing.

 

[MitchJi]

Couple thoughts about product dev timelines:

Regarding Model3 launch concerns, I'm sure we will get lots of progress updates during Q3 call.

Grilled tofu, instead of sizzle. The most convincing aurgument should be another two quarters of excellent and increasing deliveries. Existing Q4 at 2,400 per week would be a nice start.

I'm out of my bunker after Matthew. Got a little breezy around these parts.

The fact that no one on Wall Street is giving any credence to what Tesla Energy is going to do next year (and beyond) is very surprising. There is massive demand for their products around the world, yet very few analysts factor TE into their valuations.

I hope that the SP stays low until the Jan '19 calls come out in November.

I hope you didn't have any damage or injuries!

I'd love a nice spike to the mid 250's or higher, then a drop in the November-January time frame.

 

[Drax7]

Upcoming competition is vaporware so far.

Creative destruction may have a huge negative impact on the established
Auto manufacturers , hampering their ability to compete. This will be
An amusing spectacle .

 

[Runarbt]

...It now still may be likely that they get into such a position for a short time, but with all the upcoming competition it is considered as unlikely that they can keep such a position for many years after the model 3.

Upcoming competition?

The car market is huge - Tesla aim for the Car-market, not EV market.

If new EVs are to be able to compete against Tesla, they will have to be better than existing ICE cars on the market from the same manufacturers. Both regarding performance and cost.

When this happen - then the new EVs will compete against existing ICE line-up primarily. and help the EV cause in general. It will no longer be "only" Tesla.. but a broader acceptance that EV are the future.

Again..

The car market is huge - Tesla aim for the Car-market, not EV market. Any EV will first and most compete against ICE, together with Tesla, not against Tesla.

 

[myusername]

I'm out of my bunker after Matthew. Got a little breezy around these parts.

The fact that no one on Wall Street is giving any credence to what Tesla Energy is going to do next year (and beyond) is very surprising. There is massive demand for their products around the world, yet very few analysts factor TE into their valuations.

I hope that the SP stays low until the Jan '19 calls come out in November.

"There is massive demand for their products around the world"

do you have data to back this statement?... I assume the analysts don't... otherwise they'd factor it in.

 

[porc]

I would like more discussion on the topic capex and profitability.

CapEx is no excuse for lack of profitability, since it is depreciated over a long period of time.

SGA costs have been increasing proportionally to sales. Gross margins are better at Tesla, partly because they dont have to give dealers a lower price, but instead can sell directly to consumers. Tesla does have to shoulder higher SGA costs though.

My question to longs: How will Tesla become profitable?

R and D will always be needed. Of course it will decrease as a percentage of revenue, when you increase sales. However even if we eliminate all R and D spending, Tesla is still unprofitable today.

SGA costs arent showing any signs of slowing down, despite vehicle sales increasing.

Why did Tesla give so many deductions in Q3, when demand is high? Does that signal that Q4 sales will be dissapointing, when deductions are discontinued. Or does it signal that deductions will continue, despite Musks email, by reclassifying what counts as used cars?

To summarize:

1) They arent profitable and capital investment is not the reason (basic accounting)
2) They have higher SGA costs than industry average, due to their direct sales model. This allows them to sell vehicles at a higher price, as no discounts to dealers is needed, artificially inflating gross margin (compared to other manufacturers).
3) Even if you eliminate R and D costs, Tesla is still not profitable.
4) Why is Tesla discounting if demand is not an issue?
5) Can sales be kept constant, without discounting?
6) SGA costs are increasing porportionally to unit sales.

 

[Vitold]

"There is massive demand for their products around the world"

do you have data to back this statement?... I assume the analysts don't... otherwise they'd factor it in.

This is what we will see more of:

Energy company subsidizes hundreds of Tesla Powerwalls to create ‘virtual power plant’

 

[dc_h]

"There is massive demand for their products around the world"

do you have data to back this statement?... I assume the analysts don't... otherwise they'd factor it in.

Model 3 pre-orders. Unprecedented 300,000 orders, sight unseen. Orders have continued and they have first year of orders taken care of, before starting construction. Assuming Tesla doesn't build an electric Yugo, they can easily sell 500,000 model 3, plus existing demand for the S&X. Add a CUV to the Model 3, and you have a low hurdle to 1mm by 2020/2021.
Are you asking rhetorical questions to help make the bull case?

 

[Leo9]

Tesla is doubling the energy capacity of the Powerpack with new battery cells from the Gigafactory

"Electrek has learned some details of Tesla’s ‘Powerpack 2.0’, the second generation of Tesla Energy’s scalable battery pack for commercial and utility-scale projects, which will be equipped with the new 2170 battery cells. The new cell is potentially Tesla’s most important product to be unveiled this year – and yes, I’m aware Tesla unveiled the Model 3 earlier this year."

"While the current Powerpack is being advertised with a capacity of 100 kWh, sources say that the available energy is closer to 95 kWh and that the new Powerpack 2.0 will have a capacity of 200 kWh."

"Another interesting improvement coming with the Powerpack 2.0 is that Tesla is dropping the Dynapower inverter and introducing its own inverter, which has been referred to as ‘Tesla Inverter’. That’s something Tesla has been talking about for a while. When discussing power electronics in August, Elon Musk said of Tesla: ‘we are probably the best in the world on advanced inverter technologies’."

Tesla is doubling the energy capacity of the Powerpack with new battery cells from the Gigafactory

 

[myusername]

This is what we will see more of:

Energy company subsidizes hundreds of Tesla Powerwalls to create ‘virtual power plant’

as interesting as that is... it kind of coincides with the recent headlines:

"The company plans to deploy 400 Tesla Powerwalls ... potential capacity to shave 2.8 MW off the peak demand."

400 x $3000 = virtually nothing

even if you saw 10 headlines like this... it would still be 10 x virtually nothing

in order for TE to make a significant financial impact for Tesla... we need to start seeing orders totaling 100s of MWh to 1GWh per quarter... not a headline or two once a quarter for 10 to 30 MWh installations.

so this link you provided is not sufficient evidence that there is the demand required to factor in TE.

is there other data that could?

 

[Krugerrand]

Any idea why Elon didn't wanted to let the cat out of the bag back then? With the employee memo, he let more cats out of the bag, arguably premature. His actions are puzzling and contradictory. Could it be to confuse shorts?

Why do people keep saying (assuming?) the leak of the e-mail was orchestrated by Elon? Did I miss something at some point?

 

[eloder]

as interesting as that is... it kind of coincides with the recent headlines:

"The company plans to deploy 400 Tesla Powerwalls ... potential capacity to shave 2.8 MW off the peak demand."

400 x $3000 = virtually nothing

even if you saw 10 headlines like this... it would still be 10 x virtually nothing

in order for TE to make a significant financial impact for Tesla... we need to start seeing orders totaling 100s of MWh to 1GWh per quarter... not a headline or two once a quarter for 10 to 30 MWh installations.

so this link you provided is not sufficient evidence that there is the demand required to factor in TE.

is there other data that could?

Just look at the many billions of dollars needed for stationary storage today.

For example, every major cell tower site and data center in the world has large quantities of inferior lead-acid batteries right now. Lithium ion is poised to overtake that entire industry.

Otherwise I agree with you that as of right now, the production numbers we're seeing now is meaningless in terms of an impact to the financial line. I just don't see them running into demand issues as they ramp up production capabilities because replacing lead-acid battery backups will create immense savings (maintenance/longevity) for businesses.

 

[Lessmog]

Model 3 pre-orders. Unprecedented 300,000 orders, sight unseen. Orders have continued and they have first year of orders taken care of, before starting construction. Assuming Tesla doesn't build an electric Yugo, they can easily sell 500,000 model 3, plus existing demand for the S&X. Add a CUV to the Model 3, and you have a low hurdle to 1mm by 2020/2021.
Are you asking rhetorical questions to help make the bull case?

Hahaha, low hurdle indeed! 1mm = 0.04inch approx Not a thing to stumble over

 

[Yggdrasill]

I'll grant myusername the point that Tesla has yet to prove that the market for Tesla Energy products is huge. But it's not so easy to prove until the Gigafactory is running at full speed and you start shipping the products. When your product isn't available, the customers will find other solutions.

Q4 should be the quarter where Tesla Energy can no longer be disregarded by analysts.

 

[myusername]

Just look at the many billions of dollars needed for stationary storage today.

For example, every major cell tower site and data center in the world has large quantities of inferior lead-acid batteries right now. Lithium ion is poised to overtake that entire industry.

Otherwise I agree with you that as of right now, the production numbers we're seeing now is meaningless in terms of an impact to the financial line. I just don't see them running into demand issues as they ramp up production capabilities because replacing lead-acid battery backups will create immense savings (maintenance/longevity) for businesses.

this I get... and see it as a difference of perceived market vs demand.

I think something negative here though is that the target market was well defined and understood when described in early 2015... and anticipated demand was laid out in timelines from 2015 through 2017 based on revenue projections... and here we are in late 2016 talking about articles discussing 2 MWh.

this is why I don't factor it in and why I assume many of the analysts don't either.

 

[Vitold]

as interesting as that is... it kind of coincides with the recent headlines:

"The company plans to deploy 400 Tesla Powerwalls ... potential capacity to shave 2.8 MW off the peak demand."

400 x $3000 = virtually nothing

even if you saw 10 headlines like this... it would still be 10 x virtually nothing

in order for TE to make a significant financial impact for Tesla... we need to start seeing orders totaling 100s of MWh to 1GWh per quarter... not a headline or two once a quarter for 10 to 30 MWh installations.

so this link you provided is not sufficient evidence that there is the demand required to factor in TE.

is there other data that could?

Powerwall/Powerpack deployment will be as big as demand for replacing peaker plants with battery storage so, yes, the market is huge. California just recently approved a mandate to install 1.3GW of battery storage by 2020.