Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Antares Nebula]

Picked up a little more 2021 400 Leaps with the profit I made from my calls yesterday. If I had to guess, based on both the fundamentals and technicals, I would say 290 holds. But there is a small gap fill at 260, and we just had a death cross, and the bears have really gone for a spin on last night's news, so if we do go down to 260, I will be adding leaps and calls in increments and with discipline. Let's see what happens...

 

[BornToFly]

Tesla just delivered the Five Point Palm Exploding Heart Technique to the other automakers. They are dead, Wallstreet just doesn't know it yet. The CEOs at BMW, Audi, Mercedes, Volvo, Jaguar, GM, etc., probably wanted to jump off a bridge last night. While the price cuts probably do mean that there wasn't enough demand at the higher prices, Elon did say that they will probably be profitable in Q2 with these lower prices (and demand will be sustainable now). This means they have found ways to save money. Not only can the other auto makers not match Tesla's new prices on their EVs, but their ICE sales are in BIG trouble now too. Even the slower thinkers on Wallstreet are going to start figuring this out, and the SP will reach new highs. I just have no idea how long it will take for them to put 2 and 2 together....

 

[K_Dizzle]

People need to get with the program. It's one thing if it's Apple, which is rolling in cash. It's another thing for a company that's just trying to get going and also trying to save the planet at the same time. Peeps need to stop being greedy.

I literally paid for FSD today when I saw the price decrease to $4k CAD. I’d be happy to do it again.

 

[VValleyEV]

I do not have the URL for the original Earnings Call, but on yesterday's conference call at 00:17:10 time stamp Elon has re-iterated it referring back to the Earnings call.

URL: Dropbox - Tesla Call Transcript (2.28.19).pdf

Can you point me to a url that shows he clearly said 350k-500k Model 3 PLUS 70k-100k Model S/X? If so, I will gladly admit I was totally wrong and stand corrected. And I'm not being argumentative, but I can't find that info - unfortunately, if you do a google search with Musk in it these days, all you get is crap about the SEC and the tweet.

And also, he said "make" in his tweet - that is not run rate. I would say "around" would mean to most people, between 460k and 540k. So, he would have given guidance of the numbers you quoted for producing - NOT a run rate at the end of the year.

Tesla 2018 Q4 update and full year update:
http://ir.tesla.com/static-files/0b913415-467d-4c0d-be4c-9225c2cb0ae0

Scroll down to the “Outlook” section near the bottom.

1. First paragraph talks about production:
“ ... we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.“. NOTE it does say that 500k number is just M3, but it’s also says “annualized” not annual total, which is why EM needed to correct his tweet.

2. Scroll down further in that section to 4th paragraph from the bottom which it forecasts deliveries as opposed to annualized output. Here is a quote: “In total, we are expecting to deliver 360,000 to 400,000 vehicles in 2019, representing a growth of approximately 45% to 65% compared to 2018. ”

SO:

• Earnings call forecast annualized output of 500k for M3
• Earnings call forecast deliveries of 360k to 400k total. I read that this 400k upper bound is for all vehicles s/x/3. I kinda hope I am wrong, because this indeed would make the statement “we will make about 500k vehicles” outside the previously predicted range.

 

[scaesare]

Speaking as an ice-fisherman, I will say that on some larger lakes, the access point may be a paved boat launch, but by far most of the lakes I drive onto have pretty treacherous access points. They're typically a short, steep hill with badly rutted, bumpy tracks. The shore is a combination of roots, sand and rocks buried in snow. The way down onto the ice is a somewhat scary descent, but the way back off the ice is worse as you often have to take a run at it to ensure enough momentum to make it to the top of the hill. Then there's the navigating backwards downhill when you don't make it. I won't even get into what it's like in the spring when it starts melting along the shoreline...

The rough part of the access is usually quite short: 20-30 metres. However, for that stretch there's a tremendous amount of each wheel going up over rocks, roots and bumps in the snow/ice and dropping back down the other side, it's an incredibly bumpy ride, often with bangs from the underside of the vehicle. When I saw the photo I suspected immediately that the battery pack dropped hard onto a rock while getting onto the lake.

What's new to me is that I thought there was a titanium plate protecting the underside of the battery. It now sounds more like that simply protects the front underside of the battery but not the whole underside. That would offer adequate protection when hitting an object on a paved roadway because the object would hit the front edge and either be crushed or pushed aside, but not when off-roading and the vehicle is frequently dropping down onto rocks in the trail/streambed as the wheels go over uneven terrain. Is this correct?

Mod's in-post answer: Yes, it is correct. Read my "My bulldozer would pop" post: Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable

Correct, the plate was added to address a small "weak spot" in the design wherein a road debris object could tear up thru the under-frunk area of the vehicle and hit a small un-protected area of the front of the pack. You can actually see it here in this pic with part of my frunk-liner removed...the front facing portion of the pack (below the orange HV cable is thin gauge sheet metal:

The bottom of the pack, however, was designed with1/4" ballistic aluminum armor from the beginning. l've never heard of an object piercing that. In fact Tesla will even cover damage in the case that should happen accidentally during normal driving. Hence my curiosity on the matter.

 

[KarenRei]

Skimmed over this before, but it's interesting to note the reinforcement about the concept of them keeping galleries:

Elon Musk: The only way to buy a Tesla will be online and you can buy your car like buy your car on your phone in about one minute in the US and there will make it just as easy to literally one minute purchase and possibly the world as well. We also have stores that there will be converted to galleries and information centers so you can go there and learn about Tesla or learn about electric vehicles. [Inaudible] Tesla merchandise but all sales will be online. So if you do go to the store they'll simply show you how to buy the car online and then in order to get the need for a test drive.

 

[Artful Dodger]

At today's stock prices, not so dead But it'd require buyers without excessive demands that they want to impose - something which clearly didn't exist last year (at least none wanted to get involved in that environment).

If some big player(s) see Tesla as being poised to spring, and the price is low enough, an acquisition could very much be in the cards. Do I consider this likely? No. But possible? Yes, certainly.

You're exactly right here Karen. This is what Adam Jonas is hinting at when he writes 'Tesla is fundamentally overvalued but strategically undervalued.

Let's unpack this. First, A/J is says TSLA is oversold based on its fundamentals? Can this be a serious reading of the financials? Jonas has been wrong for so long on Tesla that its a running joke. This same guy said in July 2018 that 'Telsa won't be able to maintain 4K/wk Model 3 production by May 2019'. Funny stuff, even better if you can get paid for it.

Second, Tesla is 'strategically undervalued'? This is WS code for Tesla being a prime take-over target. In spite of the wet dreams of Wall St, Elon has bigger plans for the future. Where Jonas can't see 1 year in advance (and has burned/tossed his rear-view mirror), Elon is thinking about 2030 and beyond.

Automaker don't have the capital to buy Tesla (it would surely go for more than $420/share now based on the progress since Aug 2018). So that means raising equity from Wall St to make that happen. And now we start to see what makes Jonas salivate like the mutt he is: juicy fees for his employer.

Same way Wall St is begging for Tesla to do another capital raise, so they can take their cut in broker fees. Not going to happen. So now they try to damage the company and pretend they can force a bankrupcy sale. Also not going to happen.

Telsa no longer depends on Wall St. for its survival and growth. When the last big bond payment is made in 2024, Tesla will be debt free and generating $12B FCF/yr. Then the stock buybacks begin. And the market makers can naked short sell themselves 'til they're blue in the balls, 'cuz they will have to buy real shares eventually.

Some thesis, huh? Well, that's the one I'm going with.

Cheers!

 

[Remus]

In regard to a Tesla App Store as Musk mentioned on yesterday's CC. This leads to the larger possibility of carOS, and it's worth, similar to iOS or Android. As the cars get more autonomous, passengers/drivers/users will begin to interact with the OS more for media consumption, games, apps, ads, etc. And the cars will eventually have more and bigger screens. Imagine as the car drives by various locations, ads start appearing (okay, I know, but just saying).

This, I believe, is the principal reason Google and Apple are creating autonomous software -- not for the service itself but for the broader value of an internet connected car OS platform. I mean how much will all that screen real estate in future autonomous cars be worth? I think Apple and Google have asked such a question. I'm not sure if Tesla has. And I hope Tesla doesn't just whore themselves out to Apple or someone and become the cheap hardware to, say, Apple's more valuable carOS (like Samsung did with Android). This is why I would be against a partnership with Apple, unless Tesla gets a significant equity stake in that carOS platform.

As a very rough estimate, I would put the value of a successful carOS at anywhere from $100 - 500B, or more, depending on the how much of a market it has captured. And so if you add this to Tesla's other market opportunities, you get something like this:

- Large scale auto manufacturer, selling millions of vehicles a year: 100-200B (comparing to Toyota and VW market cap, and not F and GM which have major systemic problems)
- Tesla Energy: 20-100B (large uncertainty here; have to see how this market develops)
- Tesla autonomous ride hailing service: 200B (note that Waymo is *currently* valued at 170B)
- Tesla carOS (ala Android, iOS, for media consumption, games, apps, ads): 200B

TOTAL: ~ 500B (conservatively). And if you consider 10-20 years in the future, with inflation and population (market) expansion, you can arrive at a theoretical 500 - 1000B market cap, or even more. And there may also be yet unheard of opportunities available to Tesla. These numbers are also inline with Musk's compensation package. JM2C

App in cars doesn't have to always interact with the driver, it could interact with a smart home system, your calendar, or notify your kids that you're coming to pick them up.

 

[KarenRei]

Tesla 2018 Q4 update and full year update:
http://ir.tesla.com/static-files/0b913415-467d-4c0d-be4c-9225c2cb0ae0

Scroll down to the “Outlook” section near the bottom.

1. First paragraph talks about production:
“ ... we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.“. NOTE it does say that 500k number is just M3, but it’s also says “annualized” not annual total, which is why EM needed to correct his tweet.

2. Scroll down further in that section to 4th paragraph from the bottom which it forecasts deliveries as opposed to annualized output. Here is a quote: “In total, we are expecting to deliver 360,000 to 400,000 vehicles in 2019, representing a growth of approximately 45% to 65% compared to 2018. ”

SO:

• Earnings call forecast annualized output of 500k for M3
• Earnings call forecast deliveries of 360k to 400k total. I read that this 400k upper bound is for all vehicles s/x/3. I kinda hope I am wrong, because this indeed would make the statement “we will make about 500k vehicles” outside the previously predicted range.

Q4 Update != Earnings Call.

On the earnings call, it was stated:

Colin Rusch
Thanks so much. Can you talk a little bit about the geographic dispersion for the guidance for 2019, where you're expecting the Model 3s to sell through as well as the other models?

Elon Musk
Well, I think we did, actually. Yes, it's clear in our letter.

Deepak Ahuja
We indicated in Q1, we will start delivering Model 3s in Europe and China. And we also shared a chart showing the potential market size for midsized premium sedans in North America, Europe and Asia, suggesting those markets could be even bigger. So I think that gives a good sense of where we'll be. And we'll launch the right-hand drive version at some point to go to the other markets.

Elon Musk
Yes. Maybe in the order of 350,000 to 500,000 Model 3s, something like that this year.

Yes, there was a contradiction between those two figures (350-500k Model 3 deliveries vs. 300-400k total production). But that contradiction was public - apparently without comment - with both numbers given in official contexts.

After his "about 500k vehicles produced" tweet, his lawyer made him post a "correction" to the latter number. He's however doubling down on the former. What exactly transpired in that conversation with that lawyer? Honestly, only two people know - Elon and the lawyer.

 

[Ratanpara]

Tesla just delivered the Five Point Palm Exploding Heart Technique to the other automakers. They are dead, Wallstreet just doesn't know it yet. The CEOs at BMW, Audi, Mercedes, Volvo, Jaguar, GM, etc., probably wanted to jump off a bridge last night. While the price cuts probably do mean that there wasn't enough demand at the higher prices, Elon did say that they will probably be profitable in Q2 with these lower prices (and demand will be sustainable now). This means they have found ways to save money. Not only can the other auto makers not match Tesla's new prices on their EVs, but their ICE sales are in BIG trouble now too. Even the slower thinkers on Wallstreet are going to start figuring this out, and the SP will reach new highs. I just have no idea how long it will take for them to put 2 and 2 together....

Totally agree with you, when you make compelling product at reasonable price Tesla doesn’t need dealerships like structure, this will really bite ICE maker traditional bloated Sales structure, how will they cut sales/marketing costs ?, If they mess with their dealerships margin they will bark.

 

[Antares Nebula]

See also yesterday's article:

"Musk issued yet another forecast for how many vehicles Tesla will produce this year, predicting somewhere in the range of 420,000 and 600,000. Three days ago, the U.S. Securities and Exchange Commission asked a federal judge to hold him in contempt of a settlement reached last year over a tweet in which he said the company would make as many as half a million cars.

The CEO doubled down on his defense against the SEC’s claims by reiterating comments he made on a Jan. 30 earnings call that Tesla would sell as many as 500,000 Model 3s this year.

“350,000 to 500,000 Model 3s is what I said in the earnings call,” Musk told reporters. “And we expect to make somewhere between 70,000 to 100,000” Model S sedans and Model X crossovers."

Bloomberg - Are you a robot?

 

[Antares Nebula]

See also yesterday's article:

"Musk issued yet another forecast for how many vehicles Tesla will produce this year, predicting somewhere in the range of 420,000 and 600,000. Three days ago, the U.S. Securities and Exchange Commission asked a federal judge to hold him in contempt of a settlement reached last year over a tweet in which he said the company would make as many as half a million cars.

The CEO doubled down on his defense against the SEC’s claims by reiterating comments he made on a Jan. 30 earnings call that Tesla would sell as many as 500,000 Model 3s this year.

“350,000 to 500,000 Model 3s is what I said in the earnings call,” Musk told reporters. “And we expect to make somewhere between 70,000 to 100,000” Model S sedans and Model X crossovers."

Bloomberg - Are you a robot?

 

[CharlesSr]

I think many people forget Tesla in essence is a tech/software company. The car is just a platform for Tesla to sell its software and/or future applications, such as ride sharing. Notice that Tesla has lowered its car prices many times, but never the price of AP/FSD. The near-term goal is to acquire as many users of the platform as possible even at a cost. I am sure Elon will find additional ways to monetize the platform in the future.

 

[Remus]

Yes this makes sense and you laid it out better than I did. I think the answer to "is the base profitable" was essentially answered here. The exact margin obviously not.

I remember last year there was this conversation on Twitter when Elon said offering 35k model 3 at that time would lose money and jeopardize the company.

Since then they have been proactivly lowering price.

I have confidence that if this would introduce tremendous loss they won't do it.

 

[scaesare]

That's correct. The issue was the square battery front caused objects to dig into the pavement and push up through the 6mm aluminum tank armour. The titanium shield channels the objects to the side and prevents them from digging into the pavement. It won't do anything for a high centre strike.

I don't believe this is correct.

My understanding is the objects penetrated the thin sheet metal casing on the front side of the pack. Hence the titanium plate there to protect that area.

 

[Antares Nebula]

Adam Jonas is so clueless. Years ago, he was saying how Tesla is worth 500. Last year he changed his tune. How's that? After some years of significant progress, Tesla is worth now almost half. Apparently, he has no more faith in autopilot and thinks its a show me story. Meanwhile, he pontificates about robotics and the space industry. He thinks he's some kinda academic scholar musing on future technology disruptions, but in reality what's needed is a little bit more down to earth analysis. I just ignore his reports these days.

 

[KarenRei]

I'm going to throw out what I suspect a number of people are thinking:

• 350-500k Model 3s sold was Musk's typical overoptimism - which unsurprisingly came out in the call.
• 300-400k total vehicles produced was a conservative, easy-to-beat plan that they had intended to lay out instead after talking Musk down.
• Nobody bothered to call Musk out - either on the call, or afterwards - leaving the discrepancy in the public record.
• After Musk tweeted the "about 500k cars produced" tweet:
  • Musk's attorney insisted on sticking with the conservative plan, filed in the earnings report. I presume there was more liability risk for deviating from it than from Musk's statements in the call.
• When the SEC decided to "make an example of Musk" over the "500k cars produced" tweet:
  • Musk decided to double down on the 350-500k numbers as a way to undercut the SEC, because he has an excuse (the earnings call), and because he secretly thinks he can pull it off (or at least get into the range)
• I wouldn't be surprised if the SR launch was pushed up somewhat in order to max out annual production.
  • That's not necessarily a bad thing.
  • Production capacity for the SR and all of these variants didn't appear out of thin-air; they've clearly been readying for this launch for a long time, even if they did move it forward (which is far from certain).

 

[MarcusMaximus]

Concerning the price (emphasis mine on tenses, and corrections on the 15/50 thing that I think is the only way it makes sense in context):



It is grammatically ambiguous, to be sure. The first part sure sounds like they were - past tense - at breakeven, before they set out on this "Game of Pennies". But then it's not clear whether he's talking about a still-ongoing process to reach what would be a 14,2% margin, or whether he's "storytelling" and has put himself as the narrator into the mindset they were going through (e.g.: "So, I went into the woods to slay the dragon. And that means first I have to find the sword, and then I need to track down the dragon...")

I think what's going on is that the latter part is an ongoing process. That they're currently somewhere between where they were - where "each one basically cost about $3,50 or thereabouts" - and where they need to be - "more like $3,00 on average". And that the route they've taken - including closing stores and the like - will achieve the stated goal - they think. But until all the numbers are crunched in the end, it's impossible to say that they were correct in their calculations.

This is how I interpret it, at least.

A 14,2% margin on the base version would, BTW, easily support an average automotive margin of 25%. Easily.

Note also that AP+FSD give >18% margin by themselves on the base version. 24% if both are added after purchase.

 

[EVNow]

Musk is doubling down on the 350-500k numbers as a way to undercut the SEC, and because he secretly thinks he can pull it off, or at least get into the range.

There is another confusing issue. 3 vs all models production.

 

[jerry33]

I don't believe this is correct.

My understanding is the objects penetrated the thin sheet metal casing on the front side of the pack. Hence the titanium plate there to protect that area.

That's not what I recall, but I could be mistaken. What I recall is that Tesla said the objects penetrated the 6 mm aluminum armour after being picked up by the front of the battery. This made the Tesla act as if it was pole vaulting. Half the weight of the car, small cylindrical object plus speed equals puncture. The shield prevented the object from being picked up in that fashion and sent it towards the side so that it would eject rather than penetrate. Some numbers, that I can't now recall, were given for the force the penetrating object had.