Tesla Production & Profitability

[Vaamo]

What verygreen is saying is not factually accurate in a lot of places.

M3 production was limited by cells in Q1 but is not in Q2. Model 3 still had reservations that cover most of Q2 and there is no inventory buildup, that claim is complete nonsense. At the end of Q1 there was some high end inventory in the US and some in China in case of tariffs. They had a lot in transit due to international orders and production schedule for different geos.

The claims about low demand and limited production of Model3 are most likely both true. Elon is trying to control spin of the conversation.
Tesla probably was cells limited on production site during Q1, and simultaneously overproducing the demand(increasing the inventory). Almost whole Q1 the SR+ was not available, thus not contributing to the demand.

The Production&Delivery numbers for Model 3 just confirms building up the inventory. Subtracting the vehicles in transit of course. The vehicles with wrong stickers and some import issues are most probably categorized as "in transit" too.
No confusion on building up the inventory of Model 3 then, based on official numbers.

It would be logical, that the inventory for model S&X would decrease in Q1, due to low production caused by the upgrades in manufacturing line(demand is presumably still strong). Instead we have another inventory buildup. That points to lower demand for pre-Raven Model S&X during Q1. May be the Tax-credit effect from Dec 2018.

We will see. There goes hoping for good Q2 numbers.

 

[Vaamo]

I'm not sure how you're coming to this conclusion or what you're comparing it against, but over the last 5-7 days, Tesla has been adding hundreds of new (and used) cars to available, listed inventory. Model S new inventory is nearly at 1000 cars now, which historically is pretty high compared to the last two years. I think the highest it's been has been around 2000. So I wouldn't call 1000 cars "very low" by any measure. Also, Model S and X new inventory has been at zero cars for many months at a time last year.

Do we know for a fact, that all inventory is automatically pushed online and is available/produced?

Maybe it is silly:
Example: There may be 500 M3Ps, with red color, white interior and performance wheels. Why list all 500 of them? Why not list 100, and add slowly the rest as they find buyers.

What would be Tesla's motivation to effectively disclose the amount of inventory vehicles, when they are trying their best to obfuscate this number?

.

 

[Vaamo]

here's the thing.

If you have strong fundamentals, people that short your stock out of ignorance are just giving you money for free! Have you seen Apple leashing on short sellers? Amazon? Other healthy companies?

It's absolutely paramount for market participants to be transparent in my opinion. Nontransparent entities are high risk because you essentially invest into them based on just faith (which is absolutely the case with Tesla, BTW). This is why security regulations exist, but they were created long time ago when it was hard to disseminate information. It's much easier nowadays so companies should look into being more transparent than regulations require, not less.

Also consider that it's much easier to twist lack of information than it is to twist trusted information. Information vacuum filled with gossip and speculation is a very fertile grounds for all sorts of lies dissemination. And this is obviously bad for investors.

I agree with you in most points.

Altough EVnow is right in the sense, that this is a war, and thinking otherwise will in fact hurt you as a company. Rising inventory is a problem, one you should fix quietly. Ordering and delivery system can be much more efficient at Tesla, which would certainly help.
Asking Tesla being dead honest about their problems/screw ups(lots of them) would probably bury the company very quickly.


What Tesla definitely should do is drop the shady practices and being dishonest against their customers. That can only help.
Trying to save cents, and losing whole dollars in the process seems to be a mantra of many previous months.

Roadmap is great, brand recognition is great, but the execution seems often shortsighted on the outside.

 

[Teslijah]

here's the thing.

If you have strong fundamentals, people that short your stock out of ignorance are just giving you money for free! Have you seen Apple leashing on short sellers? Amazon? Other healthy companies?
...
Also consider that it's much easier to twist lack of information than it is to twist trusted information. Information vacuum filled with gossip and speculation is a very fertile grounds for all sorts of lies dissemination. And this is obviously bad for investors.

I think the Amazon shorts comparison is apt for the early days : Data Show Tesla Has More in Common With Amazon Than Enron

I was around for the infamous Barron's Amazon.bomb cover story - short interest was over 20% then. The consensus was low barrier to entry, competition would eat them alive, few people saw the ROIC and cash flow story playing out. At the time, the 1999 convertible debt of $1.8B was the biggest ever. And the info vacuum (even internally!), and churn of chewed-up smart people cycling over and over, was dismaying and very similar. Don't forget Henry Blodgett's $400 price target, an insane number, in 1998, the Cathie Wood of his time; he was widely mocked although he seems to have landed on his feet since then.

The car market and brand are there for Tesla in much the same way that Amazon's customer obsession paid off, and the brand and battery manufacturing are very good moats. The only question in my mind is execution and cash flow, and I'm less sure that TSLA can execute as well as AMZN did in the 2000s, but the debt, short interest, and crazy Musk stories don't bother me, and I do think we should push back a bit on the disproportionate control that short sellers have over a company's health over the short term with "news" stories.

 

[Teslijah]

If you have strong fundamentals, people that short your stock out of ignorance are just giving you money for free!

Also, I really don't understand what you're saying here. Shorts depressing the price until they cover, adds directly to the cost of raising capital or issuing debt, pretty direct impacts. The interest on holding a short goes to the brokerage, not us typical shareholders, and if I'm a longterm buy and hold, the chance of getting a squeeze isn't worth it either, since I'd have to time the market to make use of it.

 

[verygreen]

Shorts depressing the price until they cover, adds directly to the cost of raising capital

Elon stated openly for quite a while they don't need to raise.

The interest on holding a short goes to the brokerage, not us typical shareholders, and if I'm a longterm buy and hold, the chance of getting a squeeze isn't worth it either, since I'd have to time the market to make use of it.

they give you money in the form of lower stock price, so when you buy more (you did not view investment into a great fundamentals company you truly believe in as a one-time event, did you?) you get the discount, paid for by the shorts. (obviously I don't mean Tesla here)

I think the Amazon shorts comparison is apt for the early days

I must again refer you to those income graphs I posted further upthread.

 

[Vaamo]

Elon stated openly for quite a while they don't need to raise.

Things change, Tesla most probably didn't expect such sharp decline in S&X, European part shortage on M3, or delivery issues with M3. Which definitely should be in realm of possible expectations.
Then, at least tried take corrective actions during Q1.

I must again refer you to those income graphs I posted further upthread.

Different business segments. Much less CapEx intensive in book delivery through partnership. It would be better comparison, if we had older data, beyond 2006. Investments and the amount of debt you need to take in order to scale quickly are by not in the same ballpark.

The scale of disruption is also different. Bookstore business was by far not as efficient as automotive industry is/was.
Also consider the magnitude of interests in play. There was a motivation to shut down Amazon, of course. Although not comparable to energy business and automotive business(which is backbone of our manufacturing industry as a whole).
Tesla is not alone in this, but it is the poster child of this transition for good or bad.

TLDR: Amazon and Tesla did not face equally hard challenges, which makes comparison less viable.

 

[verygreen]

TLDR: Amazon and Tesla did not face equally hard challenges, which makes comparison less viable.

This is indeed true to a degree. But the comparison is thrown around quite a bit.

Do note Amazon has quite a bit of CapEx with the infrastructure buildout (all those delivery centers they built everywhere, their own airline delivery and so on).

 

[nipsip]

Tesla raised $2.7b but assuming the past debt will be paid off and cash reserves are returned to zero (was minus $1.5b Q12019) the amount left over is $800MM (read the prospectus). Sort of a non-bailout bailout. Tesla does not have enough cash to do what it wants to do. They are behind on their stated CapEx budget and behind on R&D spending. They are trying to save their way to prosperity.
Furthermore, there is no return to profitability in 2019. Maybe China and Model Y can save Tesla, however, those income-producing sales are in the future and not 2019 and Tesla will burn through all the cash it has by the end of the year based on its current burn rate.
The behemoths in the industry, although very slow to respond, have turned their ship around and are making big/huge commitments to EV and backing it up with spending plans.
Perfect time for someone to acquire/partner Tesla (too much debt??) with the stock tanking by 50% and the slowdown in sales of S and X models. IMO, Musk would not work well with a partner, so an acquisition is probably in the future. Anyone want to guess who?

 

[EVNow]

If you do not see current Tesla inventory build-up, overproduction and inability to sell, we just don't have the necessary common ground to keep an intelligent discussion about this topic.

To close out on this - now that record deliveries and $600 Million free cash flow has been published, do you want to take a fresh look at your assumptions and where you went wrong ? Looks like you drank the kool-aid of shorts.

 

[verygreen]

To close out on this - now that record deliveries and $600 Million free cash flow has been published, do you want to take a fresh look at your assumptions and where you went wrong ? Looks like you drank the kool-aid of shorts.

I've not really been tracking this stuff (no position -> limited level of care), but I don't see my observations changing much?

So we (again) saw price drops, bundling of features (free FSD, free unlimited supercharging) -> this is not done when the demand is strong, this is done when demand is soft and needs to be lifted somehow. Needless to say it greatly impacts margins (e.g. FSD was 100% margin).

If you think about it, they could have dropped prices to zero and started to give away thecars for free and that would have brought truly unlimited demand, but they are doing the more profitable "gradually lower prices to soak demand at max payout" strategy which is good, but they keep losing money doing it and the more they drop prices, the more money they lose (assuming relatively constant volume)

$600M free cashflow is all nice, but considering they raised quite a bit of money in Q2 - yeah, I certainly hope they'd have free cashflow left from that.

So the next question is - how low do you think they'll need to drop the prices (or what stuff would they need to throw in for free) to say maintain current level of sales?

If you think the above stuff is all healthy and nothing to worry about - that's great. I don't see any reasons to stop worrying at a level I've been currently worrying. But bring the price decreases on, I'll likely be buying another X in Q1 and the cheaper it is is the better

 

[Mike Robinson]