Short-Term TSLA Price Movements - 2016

[winfield100]

Nate Silver had an article about the rating agencies when they downgraded the rating of US debt early in the first Obama Administration. They are consistently and inherently non-predictive. Their ratings are always based on old data not forward thinking analysis. Aside, of course, from their financial arrangements with the people they are supposedly rating.

Thinking back on my own experience as a low-ranking bureaucrat, the tendency in government was to make sure you did what your boss wanted and since there were fourteen levels above me it is no wonder the errors of government are so hard to correct. No wonder we have the surprise showing of Bernie and, of course, Trump who appeal to similarly disaffected classes but for the most part with different solutions.

a more succinct explanation of certain higher level mgmt vs workers
How a plan becomes policy
(various forms exist)

 

[MitchJi]

That was my point in response to Xpert, who was talking about physical changes to the car, i.e. better cooling or a more efficient inverter. The Easter egg is software only, not a physical change to the cars being built.

I thought xpert meant that the egg is probably taking advantage of changes in the cars with the 100 kWh pack.

Improved cooling seems to me be the most likely since they stated that they changed that.

 

[Blurry_Eyed]

It's been a done deal for months. In July (four months ago) he said that he talked to the big institutions and that they were all in favor after he explained the deal to them. He announced that the merger would pass with a super majority.

Elon Musk now convinced Tesla-SolarCity merger will pass after talking to major investors

While Elon and crew talked with all the big institutions back in July and they may have verbal expressed to Tesla/Solar City their approval, maybe what has happened to lighten his mood is that the proxy vote tabulator has reported that enough shares have now been actually voted affirmative to ensure that the merger will happen. Since the official voting proxies went out recently, many people and institutions have been voting and shares are tabulated as they come in. I don't know about the reporting restrictions the proxy vote tabulators have, but I would think they can report current results to the companies as they tabulate them daily.

 

[vgrinshpun]

Thank you for raising that.

Despite all the FUD on Seeking Alpha about Accounts Payable, AP was significantly reduced in Q3 versus Q2 as a percentage of revenue. According to the 10-Qs:

Q3/Q2 AP = $1.6B/$1/1B = 45% increase in accounts payable
Q3/Q2 Gross Revenue: $2.3B/$1.3B = 77% increase in total revenues

So if AP were at the same level in Q3 as Q2 in proportion to the size of the business, cash generation would have been roughly $350M higher than it was -- or about $950M total positive cash flow.

To add to this, there was also an increase in accounts receivable and improvement in terms that Tesla is getting from the suppliers, apparently NOT because they believe that the enterprise will cash burn itself out of the existence. When not cherry picking the data, it appears that there is no there there. Here is the exchange during the ER call on the subject:

Colin Michael Langan - UBS Securities LLC

Oh, great. Thanks for taking my question. I mean it looks like a very strong free cash flow quarter. But when I look through the balance sheet, there seems to be a pretty large increase in accounts payables and accrued liabilities that seems to have helped. How should we think about that going into Q4? Does some of that unwind? Were there any changes to buyer terms in the quarter, or is that just with the ramp in production?

Jason S. Wheeler - Tesla Motors, Inc.

Sure. Yeah. Great question. It's Jason. So, yeah, there was definitely an increase in payables and I think that'll start to unwind a little bit in Q4. A lot of that is natural, I feel like the production, I believe, it increased 37% quarter-over-quarter, so there's naturally going to be more parts coming into the factory. So I think some of that is just in the course of business.

And the other thing that I think is worth pointing out on the cash flow statement is receivables. We had a lot of deliveries right at the end of the quarter, so we weren't able to collect all of our receivables. We ended up with a fairly large receivable balance on cars that were delivered in that last 10 days or so.


Elon Reeve Musk - Tesla Motors, Inc.

Yeah. Definitely also – yeah, with emphasizing that, I mean it's a first approximation you expect payables to increase by 37% if you – production reserve (7:46). And then you have to net out against receivables. And when you do that, I think it's not really a – it's not a material situation.

Jason S. Wheeler - Tesla Motors, Inc.

No.

Colin Michael Langan - UBS Securities LLC

Got it.

Jason S. Wheeler - Tesla Motors, Inc.

And we are actively looking to increase terms with suppliers. And I think as our production has been more predictable, suppliers have been much more open to that conversation.

Elon Reeve Musk - Tesla Motors, Inc.

Yeah. In fact – yeah, in fact – thanks for making that point, Jason. I think it's worth emphasizing that for Model 3. The Model 3 system is designed – the whole manufacturing supply chain system is designed so that the faster Model 3 production grows the faster Tesla's cash balance grows. So the terms that we're getting from suppliers are significantly better, almost 60 days as compared to about 40 days to 45 days for S and X. And Model 3 production and logistics is way faster, so the car spends much of its time in the factory, and we're working on ways to expedite delivery of the vehicles to the end customer, which we can do when we have scale. We don't have to just wait for a ship to go somewhere. We can fill up the whole ship and just have the ship go anywhere we want. So the net effect is that instead of growth being a capital consumer, growth is a capital producer.

 

[MitchJi]

The Tweet storm Elon had been producing recently seems to indicate he's in a playful and relaxed mood. I'm guessing that he has heard back from enough of the institutional investors saying they will support the SCTY merger. That added to the ISS seal of approval is anecdotal evidence that the deal is done. I may be reaching a bit, but to me his playful mood is a good sign for the merger going throu

While Elon and crew talked with all the big institutions back in July and they may have verbal expressed to Tesla/Solar City their approval, maybe what has happened to lighten his mood is that the proxy vote tabulator has reported that enough shares have now been actually voted affirmative to ensure that the merger will happen.

That's possible, but assuming it's true, seems like a stretch, given that it's pretty much been a done deal for months (since July).

I'm basically saying that IMO your earlier post was a substantially bigger reach than "a bit".

 

[Intl Professor]

a more succinct explanation of certain higher level mgmt vs workers
How a plan becomes policy
(various forms exist)

Churchill once described the way he operated as First Lord of the Admiralty during World War I. Something to the effect, "I strode about the Admiralty as though atop an elephant yet able to pluck a flower from the floor of the jungle." I don't know if he was such an effective administrator but he did recognize early on that oil was a better fuel than coal for ships and thus Anglo-Persian oil used more effectively. The consequences for the Middle East were extreme and reverberate today. Now I know better thanks to you how **sugar** happens.

 

[Xpert]

I thought xpert meant that the egg is probably taking advantage of changes in the cars with the 100 kWh pack.

Improved cooling seems to me be the most likely since they stated that they changed that.

Exactly, I am speculating that the P100D has better cooling and/or inverter that has been software capped. Note how the range is a lot higher vs the P90D (315 vs 270?) while 0-60 time difference is very small. A more efficient inverter results in better range but ludicrous acceleration might be capped due to too much heat discharged. Perhaps Elon has figured out a better way to manage the sophisticated cooling system logic via software and the easter egg would lift this cap without overheating the battery. If so the 0-60 time will be even lower.

 

[FredTMC]

To add to this, there was also an increase in accounts receivable and improvement in terms that Tesla is getting from the suppliers, apparently NOT because they believe that the enterprise will cash burn itself out of the existence. When not cherry picking the data, it appears that there is no there there.

Jason S. Wheeler - Tesla Motors, Inc.

And we are actively looking to increase terms with suppliers. And I think as our production has been more predictable, suppliers have been much more open to that conversation.

Elon Reeve Musk - Tesla Motors, Inc.

Yeah. In fact – yeah, in fact – thanks for making that point, Jason. I think it's worth emphasizing that for Model 3. The Model 3 system is designed – the whole manufacturing supply chain system is designed so that the faster Model 3 production grows the faster Tesla's cash balance grows. So the terms that we're getting from suppliers are significantly better, almost 60 days as compared to about 40 days to 45 days for S and X. And Model 3 production and logistics is way faster, so the car spends much of its time in the factory, and we're working on ways to expedite delivery of the vehicles to the end customer, which we can do when we have scale. We don't have to just wait for a ship to go somewhere. We can fill up the whole ship and just have the ship go anywhere we want. So the net effect is that instead of growth being a capital consumer, growth is a capital producer.

Yeah. That was great talk on supplier terms going to 60 days. Amazon.com gets thee best terms.

Amzn calls this "negative operating cycle". Getting paid before you have to pay...
It's a "Cash Flow Generator"

 

[dennis]

Exactly, I am speculating that the P100D has better cooling and/or inverter that has been software capped. Note how the range is a lot higher vs the P90D (315 vs 270?) while 0-60 time difference is very small.

The P100D EPA rating also benefits from the aerodynamic improvements made in the April facelift.

 

[trils0n]

Amzn calls this "negative operating cycle". Getting paid before you have to pay...
It's a "Cash Flow Generator"

One of the nice things about built to order cars and direct sales. Should be able to receive order, build it, deliver and get paid, all before the bill for materials comes due (at least for US orders, probably for overseas if they time it right). Makes it easier to scale up.

 

[EinSV]

They went like this:

Q3 2016: $2,301 million
Q2 2016: $1,673 million
Q1 2016: $1,452 million
Q4 2015: $1,339 million

From Q2 to Q3 we had a cash flow of:

• $597 million including ZEV
• $460 million excluding ZEV
• ($168) million excluding ZEV and deducting the increase in accounts payable
  
• ($21) million excluding ZEV, deducting AP and adding the increase in accounts receivable

With a planned increase in capex of $752 million between Q3 and Q4, the cash flow in Q4 should be something like ($620) million assuming no change in AP/AR, $50 million in ZEV credits and an improvement of $100 million in cash flow from core operations.

I look at this through the lens of how much additional cash is available for Model 3 ramp in Q4 and coming quarters compared to Q3.

So in Q3 there was $460M in cash flow without ZEV credits plus $250M in CapEx. Subtracting $1.04B in planned Q4 CapEx equals a $330M reduction from the $3.1B cash on hand. So roughly $2.8B left if the Q4 CapEx spend is $1.04B as forecast.

For the reasons laid out in my earlier post and @vgrinshpun's post I don't see any reason that Tesla would reduce its AP to the level of a much smaller business so would not adjust for that.

This back of the envelope approximation doesn't include any additional contribution from increased S/X sales or higher margins, from TE or from ZEV credits. It also doesn't include further CapEx savings -- Tesla appears to be seeing some success so far in that department. On the other hand, there is likely to be some increased OpEx from more service centers etc.

The bottom line is that Tesla could spend $1B in capital in Q4 while reducing its cash position by only $300M or less. Not bad.

 

[Xpert]

The P100D EPA rating also benefits from the aerodynamic improvements made in the April facelift.

Yes but 315 vs 270 range is a comparison also with refreshed model P90D not to the old one. Thats 45 miles difference. If my speculation is true, The easter egg is about to make the fastest production car even faster.

 

[Green Pete]

Yes but 315 vs 270 range is a comparison also with refreshed model P90D not to the old one. Thats 45 miles difference. If my speculation is true, The easter egg is about to make the fastest production car even faster.

IMO, the acceleration of tesla cars has always been a gimmick to bring in revenue prior to model 3 launch. High acceleration doesn't really make sense in the grand musk plan of sustainable energy. It wastes a lot of energy to accelerate at unreasonable speeds. And i can't see any circumstance where a self driving vehicle (the general direction tesla is heading with all cars) to actually be of any benefit. Considering the recent release of the 2170 batteries wouldn't an increased energy capacity be a far more likely Easter egg? "Hey, actually we snuck in 2170 batteries in the P100D model S and the range of your model S is 600 miles on a full charge now." For racing enthusiasts this would mean you could race more often per charge. Am I the only one on this train of thought?

 

[Yggdrasill]

I look at this through the lens of how much additional cash is available for Model 3 ramp in Q4 and coming quarters compared to Q3.

So in Q3 there was $460M in cash flow without ZEV credits plus $250M in CapEx. Subtracting $1.04B in planned Q4 CapEx equals a $330M reduction from the $3.1B cash on hand. So roughly $2.8B left if the Q4 CapEx spend is $1.04B as forecast.

For the reasons laid out in my earlier post and @vgrinshpun's post I don't see any reason that Tesla would reduce its AP to the level of a much smaller business so would not adjust for that.

This back of the envelope approximation doesn't include any additional contribution from increased S/X sales or higher margins, from TE or from ZEV credits. It also doesn't include further CapEx savings -- Tesla appears to be seeing some success so far in that department. On the other hand, there is likely to be some increased OpEx from more service centers etc.

The bottom line is that Tesla could spend $1B in capital in Q4 while reducing its cash position by only $300M or less. Not bad.

Your way of calculating assumes that Tesla will be able to continue increasing the AP going into Q4, by around $500 million. Personally, I don't think Tesla will be able to increase AP to $2,800 million, so your numbers aren't working for me.

I think Q4 will end up somewhere in the area of ($600) million in cash flow, and that's fine. Tesla needs to spend money to make money.

 

[EinSV]

Your way of calculating assumes that Tesla will be able to continue increasing the AP going into Q4, by around $500 million. Personally, I don't think Tesla will be able to increase AP to $2,800 million, so your numbers aren't working for me.

I think Q4 will end up somewhere in the area of ($600) million in cash flow, and that's fine. Tesla needs to spend money to make money.

It is fine to disagree but for purposes of this exercise I am assuming AP/AR are flat compared to Q3. Not decreasing or increasing.

 

[Yggdrasill]

It is fine to disagree but for purposes of this exercise I am assuming AP/AR are flat compared to Q3. Not decreasing or increasing.

No, not when you're starting with $460 million in cash flow. This cash flow was a result of a net influx of $481 million from Tesla's suppliers/customers.

To assume no change in AP/AR, you need to start with the ($21) million figure from my post. Like this:

($21) million + $250 million in capex - $1.04 billion = ($811) million

So, $811 million, not $330 million, needs to be spent of Tesla's cash reserves for $1.04 billion in capex.

 

[CALGARYARSENAL]

As a Canadian, should I have my voting information yet? I have not received anything in the mail and there is nothing on my pathetic trading platform.

 

[Nate the Great]

As a Canadian, should I have my voting information yet? I have not received anything in the mail and there is nothing on my pathetic trading platform.

Have you checked your email. Also look in your spam.

I received my notices via email and snail mail.

 

[3Victoria]

I got mine from bmo in the mail and voted already. You should probably enquire.

 

[Nate the Great]

IMO, the acceleration of tesla cars has always been a gimmick to bring in revenue prior to model 3 launch. High acceleration doesn't really make sense in the grand musk plan of sustainable energy. It wastes a lot of energy to accelerate at unreasonable speeds. And i can't see any circumstance where a self driving vehicle (the general direction tesla is heading with all cars) to actually be of any benefit. Considering the recent release of the 2170 batteries wouldn't an increased energy capacity be a far more likely Easter egg? "Hey, actually we snuck in 2170 batteries in the P100D model S and the range of your model S is 600 miles on a full charge now." For racing enthusiasts this would mean you could race more often per charge. Am I the only one on this train of thought?

To me it's pretty clear that this will be faster track times. On twitter EM was discussing doing a early access for Sunday Nov 13, so that the guys from Drag Times, could use it at the strip.