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

[Fact Checking]

I think the everybody wants a base model thing is a myth. When people see the difference in a loan payment for a few grand spread out over 4-6 yrs is small, they met opt for bigger battery. This is a generation that thinks not twice about buying 5$ coffee and avacado toast... no offense millenials...

The problem is the many buyers who can normally only afford a $25k-$30k car and who are already straining their finances to get a $35k Tesla. For them a $40k car is simply not an option - and they possibly wouldn't get the loan to begin with.

Here's the typical annual household income distribution in the UK (U.S. IRS data is way too coarse unfortunately, but it's similar):

As we can see it on the histogram, "mean" and even "median" income levels don't give a real picture of income distribution: the best figure is "modal" income (not depicted), the peak of the histogram, which is about 65% of "mean" and 80% of "median".

U.S. median disposable income is around $31k, the "modal" max is probably around $25k. For most people the prudent "affordability limit" is around 100% of their annual disposable (post tax) income, and this is roughly how far their banks will allow their car loans to stretch as well.

A lot of people in the $25k-$35k income bracket (~20% of the population) are probably straining to get a Model 3 (giving /r/personalfinance a collective heart attack), and for them the $35k entry price is a godsend.

Put differently: due to the non-even distribution of income, every $1,000 reduction in the entry price moves about +2% more of all car buyers into the "affordability range" of the least expensive Tesla.

In the U.S. alone that's ~2 million more households that can afford a Tesla - and those households alone are buying 300,000 cars per year on average (!).

These entry price reductions are expanding Tesla's addressable market enormously.

 

[Tslynk67]

Yah, Starship Troopers - love that movie!

 

[schonelucht]

Factchecking told you a few weeks ago that you are out of your depth in financial discussions. Reflexfunds now also made clear that you are making mistakes in your financial calculations. Why do you keep going down that path?

I still believe my position with the convertible was correct and it is @Fact Checking who is wrong.

Wrt this estimate, I explicitly solicited input so I am very grateful of @reflexfund doing so, although his very first contribution was a misunderstanding of my method (which he acknowledged) Nevertheless his first, incorrect, assessment stands at 26 informatives, 10 likes, 3 helpfully and 2 loves. Says enough about the quality of independent thought here.

Honestly, I don’t know why I am going down this path. All the good posters who did go down this path in trying to take a deep look at Tesla’s numbers and story are eventually pushed out by the forum and retreat to other places. Maybe that’s something the moderators want to ponder over. But I don’t expect too much given that my last interaction with a moderator was a subtle hint that ‘I should let things go’. At that time I took it as valuable feedback but when I see other posters repeating the same cheerleading lines with no value at all ad nauseam, I am not so sure about that ‘advice’.

 

[Artful Dodger]

Q. So 200 to start and maybe 250 with liquid cables ?

• A. No, I was told just a flat 200. That said, 200 at 400v is faster than the Taycans 350 at 800v"

"200 KW is faster at 400v than 350 KW at 800v" <= this guy does not know what he's talking about. What else did he misinterpret?

Totally unreliable source. Dubious claim discounted.

 

[Artful Dodger]

But what is the reason for Model Y reveal, at all ? I actually don't see any strong reason for revealing it more than 2 months before delivery.

• improves cash position with reservations (not revenue)
• proves demand to Parts Suppliers (negotiating leverage)
• Osbornes other SUV brands (look at BMW 3 sales post reveal)

 

[Fact Checking]

But what we don't know (yet) is how many online orders have been placed since the SR release. Your anecdote may be the visible tip of the iceberg. Seems pretty likely.

My hypothesis is that all available March Model 3 production and most of inventory got ordered already by the time Elon tweeted the Model Y reveal.

He'd not risk Osborning Q1 Model 3 sales without having a firm idea about SR and SR+ induced sales.

 

[Tslynk67]

10% larger probably doesn't apply to each dimension. I would think it would more than likely apply to the overall volume of the vehicle. I can definitely see it being a bit taller and a bit longer, but 10% in all three dimensions would make it huge.

10% bigger in all dimensions would result in 32% overall volume increase! I think Elon's rather referring to 10% overall volume increase which would imply 3% increase in H/L/W dimensions.

I suspect in reality 5% in height - to allow for a more upright seating position - and 5% in length for cargo/3rd row space.

 

[Fact Checking]

• improves cash position with reservations (not revenue)
• proves demand to Parts Suppliers (negotiating leverage)
• Osbornes other SUV brands (look at BMW 3 sales post reveal)

Also, the Model Y reveal:

• Will be a highly publicized PR event that will create extra awareness of the availability of the $35k Model 3 as well.
• Allows Tesla to measure Model Y demand, to size their initial capex, in particular 2170 cell production which has long lead time.
• Might create additional Model X demand: with the Y a known quantity it might push people over the edge: "I like the X better" or "not gonna wait 2 years" or "need Falcon Wing Doors".

 

[Artful Dodger]

This is then pushed out to the chargers (posts) and DC 180-500v, 250kW max"

Is anyone actually reading these claims? No Tesla battery supercharges below 250v DC. Thats the absolute rock bottom of the pack's (SOC near 0%) It's simple math 96 cells in series at min 2.6 volts.

At the top, 500 volts DC would be 5.2 volts per cell. The max allowable is 4.2 volts before damage occures and is recommended to be used only seldomly.

This is a bad joke by some tech-head. Critical thinking? absent.

 

[Artful Dodger]

Why would it be "clear" that Dana's early December report that Tesla offered 50%/50% stock/cash split to convertible note holders in case of conversion was "false"?

The 50%/50% cash/stock split would only have happened had there been a conversion event, which required the stock price to be above $360 for much of February.

That obviously didn't happen, so paying back 100% cash was the mandatory outcome at the default conversion ratio, as none of the note holders chose conversion.

So I don't know on what basis you are calling Dana's report false. I still maintain that it was likely true, for the various direct and circumstantial reasons outlined in the comment you linked to. I believe @brian45011 made similar arguments.

Read the bloody story again. She didn't say "if" such and such, she said "Tesla will". That's demonstratively false. And it's disingenuous to continue this while ignoring my (and others) comments that Elon said they will pay the bond in cash both before and after the Dec story by Hull.

Believe what you want. I'm done.

 

[Buckminster]

Haven't caught up on the thread yet - some thoughts.

Has anyone mentioned Geneva? CNBC interviewing the German CEOs today I think. Will either party mention the tusk wielding elephant? V3 will come out mid show and blow out all their presentations. Charge rate is one of the few things they have over Tesla at the mo. Oh yeah, and small SUVs.... Will be like Apple at CES a few years back - not there but everyone talking about them.

I expect MY to have the same width, almost the same length and somehow fit in a third row. Primarily, the vehicle needs to be ready to be a Tesla Network taxi - if you need size for your family - buy a refreshed X. Not having a third row would be peculiar - what are people going to put in the trunk? - Mark Spiegel's entire bathroom?

 

[saniflash]

caught up just now

By lowering price of performance models Tesla is moving to higher volume, lower margin sales and likely counts on upgrades from non performance models.

The 40% price drop for the P100D sounds like a huge thing, but not if you realise they probably had 60% margin on that model. The price was so high that maybe 5% of orders were for that version. By lowering the price so much this percentage can easily triple or quarduple, which means that in the end Tesla makes more.

Inventory flush for interior refresh and possible new 105-110 kWh Performance model in April-May.

I find it curious that the P100D price was reduced by that much (and frankly it sucks for me because I own one). Based on Tesla's/Elon's words in the past, I was under the impression that the P100D was meant to always commend a significant premium to capture purchasing power from the "Mercedes Benz S600 V12" "I need top of the line to show off no matter how much it costs" type of persons (like I am one). I take away that (a) a Model S refresh, or (b) a P110D/P120D is in the pipeline, or (c) they want to maximize the utilization of the Model S lines as much as possible or (d) they want to maximize the 18,650 consumption as much as possible.

It's possible this decision turns out to be correct, but I would have been happier if before making a decision like this, Tesla spent time trying to test the hypothesis first and prove that it works allowing them to make an informed decision before rushing in like this.

I'm also not 100% sure. The problem is that online sales and # of stores are not statistically independent from each other. Do we know how many people visited a store and then bought online, but would not have bought if they hadn't visited the store in the first place? We can just assume that Tesla has run the numbers properly (which I think we can very well assume).

I very much agree, this is my belief as well. I’m just hopeful some thorough soul here at TMC might have a list of what’s changed with M3. Perhaps a long shot, but felt worth a try.

You could ask those guys:

-- they tracked changes to the Model S in the past

So if the odometer has even 1 extra mile on it, you can't use this 14 day protection to return for any reason. Even opening the door to sit inside the car and setup the phone key would change it from "unused goods" to "used goods". So not a problem for Tesla as far as I can tell.

EU consumer protection laws are usually interpreted very much in favor of the consumer. I assume that the 14 days return right will definitely apply to Model 3's ordered over the internet. The right exists to ensure "proper testing" of the good or service purchased on side of the consumer. It can be argued that at a dealership, a test drive of at least 30 minutes ~ 50km would be considered to be such proper testing. Thus, anything above that might mean that the product has been overly used, which means that the merchant is entitled to damages (reduction of value of the item). In practice, I assume the 7d/1000mi will be 14d/1500km in EU.

Not sure what they are talking about in terms of "GPS activity pings from anonymized cellular devices at Tesla delivery centers". Do they have people snooping in front of Tesla delivery centers all over the US 24/7 ?

You can buy this data in bulk at cheap.

Switzerland, I don't think deliveries started there yet.

Yes, they do deliver here since at least a week

By introducing the Y to address the fastest growing and strongest vehicle segment in North America (and Europe?), the demand will be immense and, for the purposes of my point here, allow the 3 the time to further penetrate the broader sedan segment market as word of its prowess spreads...like an avalanche picking up momentum. All without hurting Tesla's bottom line of rapid growth since the Y will more than pick up any slack.

For me, the 35k M3 is all about getting people in the door. The easy upsell via very small steps (35k -> 37k -> ...) will make many ppl upgrade (first evidence already mentioned above, that only a very small minority in fact buys the SR). Similar mechanic might be in work for the Y, i.e. the Y may bring people in the stores (haha -- should say website) who then upgrade to an X; or many will come for an M3 and then buy a Y, etc.

 

[Fact Checking]

I still believe my position with the convertible was correct and it is @Fact Checking who is wrong.

I still disagree for the plain reason that it only makes sense for Tesla to bother about convincing note holders to convert to shares if they do it with newly issued (dilutive) shares. All the other non-dilutive conversion variants you hypothesized about where Tesla would be using hedges (call options) to buy shares from the open market and hand those shares over to note holders are in the end just shuffling around the same amount of near-cash-equivalent financial instruments. You provided no rational explanation whatsoever for why Tesla would chose to do that complicated non-dilutive 50%/50% conversion instead of a plain cash payment (with a very similar total settlement value and cash cost to Tesla), other than past vague anti-dilution guidance which even if you were right Tesla was free to override with a simple "changed circumstances" board decision to earn $460m in new equity cash while investors are happy with $TSLA at near all time high levels ... (Maybe @brian45011 and @ReflexFunds can offer an opinion.)

Wrt this estimate, I explicitly solicited input so I am very grateful of @reflexfund doing so, although his very first contribution was a misunderstanding of my method (which he acknowledged) Nevertheless his first, incorrect, assessment stands at 26 informatives, 10 likes, 3 helpfully and 2 loves. Says enough about the quality of independent thought here.

I still believe my position with the convertible was correct and it is @Fact Checking who is wrong.

The figures in your post were false for the (many....) reasons @ReflexFunds outlined in the other thread which you didn't want to quote here:

According to my calculations (see elsewhere on this forum), unrestricted cash for Tesla stood at $1.1B right after the bond payment with several hunderds of millions of possible downsides. That would explain the fire sale and severe cost slashing we're witnessing. It's also lower than management possibly anticipated : the delivery ramp in Europe is going relatively slowly. Despite 4 vehicle carriers unloaded already, Model 3 registrations in Europe will likely not surpass 2000 in February. March will see a large inflow of cash as cars gets delivered. Still, I could see Elon describing this moment in time in a few years as 'Tesla passed within weeks of bankruptcy'. I have trimmed my holdings accordingly. Not an advice.

I see what you're doing now, the cash flow line item labels are confusing but your method should largely work overall.
Looking at the numbers considering your methodology, I think the main things wrong or potentially wrong are:

• Your stock comp is subtracted rather than added back to the cash flow.
• SG&A and R&D look too high, there is also some depreciation within SG&A which should be add back. (likely $50-100m per Q).
  
• Your vehicle trade in adjustment should be positive cash flow rather than negative. Trade-ins are tied to sales volume, so if sales volume is down, clearance of used car inventory held at Dec-18 will generate much more than the cash lost from new trade-ins.
• Payables days are actually more like 70-80 on average at year end. After you remove depreciation, warranty reserve and staff costs from COGs, the actual supplier COGs is lower. This means likely $500m or so of the year end payables remain unpaid. This will actually be largely offset by COGs staff costs paid over the 2 month period, so adjusting for both of these won't change your overall numbers so much. Also on the payables side, payables days were much higher historically for Tesla than at year end, and they could likely stretch payments again in low cash flow periods.
• Your method doesn't factor in increased drawings of revolving credit and other inventory backed debt against the massive increase in new car inventory. At the minimum, Tesla will have drawn the remaining $230m on its credit line, but they likely increased this facility or temporarily added more vehicle and other loans; it is easy to get cheap debt secured by such high value car assets.
• Some of the Services COGs also have delayed payment terms, so in your method you should not have subtracted 100% of these costs from cash balance.
• Hard to know what Jan and Feb deliveries were, but I would guess your numbers are a bit low. Very wide variation between Alphahat, Insidevs, Edmunds and Bloomberg recently though.

Yeah, the only thing @ReflexFunds "acknowledged" that I can see is that your (bad) math adds up to the $1.1b figure, but he also pointed out gross sign errors and several methodological flaws. Why again didn't you post your corrected numbers?

But note that in fact it's even worse for your argument:

• @ReflexFunds is probably too conservative in discounting AlphaHat's 11.5k deliveries in the U.S. alone for January, which GPS tracking based Tesla deliveries estimate had 99% accuracy in Q4. Their methodology has a very good track record predicting Tesla deliveries for the past 1.5 years, and they are not susceptible to the systematic VIN registration methodological errors that the other estimates are subject to.
• I.e. if we assume that after the seasonally slowest month of the year (January) Tesla delivered the same 11.5k units in February then they delivered around ~23k units in the U.S. alone, and at minimum a few thousand in Europe - which gives a total January/February global deliveries of around 30k units where customers already paid in full, generating about 2 billion dollars in cash - while the payables for the first 2 months of the year were not due to be paid yet. (And while solar and storage sales are slow seasonally, there's some trickle of income from there as well.)
• Seasonally the "accounts receivable" peak from end of December which stood at almost a billion dollars would generate about ~$500m of excess cash in the first two months of the year, if we go by past seasonal patterns.
  
• Plus there's 1-2 billion dollars in high value cars in transit with 99%+ historic delivery acceptance rates, i.e. which are close to cash equivalents, which can be used as collateral for deep short term credit lines to draw on to finance manufacturing output.
• What matters to supplies, production and the delivery pipeline is net cash, not "unrestricted cash". Why you think that even a hypothetical $1.1b in unrestricted cash for a company that improved its balance sheet by billions of dollars since mid-2018 and which has another 0.5-1.0 billion dollars worth of already sold inventory value not on the balance sheet would be 'within weeks of bankwuptcy' is a mystery to me.
• You never outlined the "several hundred million dollars of potential downsides" that I can see, and I don't think such downsides exist. But the statement, which might have been a mistake or a misconception, is also a perfect communication vehicle to drive the erroneous $1.1b figure further down, towards the false "weeks to bankwuptcy" thesis you offered.

Your "$1.1b" argument was also dishonest because it used the "unrestricted cash" qualifier which few readers of the general thread would know to interpret correctly, but which technically correct qualifier is perfectly suited to create FUD about Tesla's true cash position which is probably in the $2b-$3b range after the bond repayment.

Wrt this estimate, I explicitly solicited input [...]

No in reality you didn't really solicit input, you posted here with a preconception and a conclusion:

I have trimmed my holdings accordingly.

Or are you trying to tell us that you solicited input for your thesis after you (purportedly) sold part of your TSLA holdings?

Also, rather inexplicably, you have neither retracted your original post in a clear fashion, nor have you corrected the numbers, which correction would expose that your first post was false.

Instead you are doubling down and you are insulting members who agreed with @ReflexFund's first post:

Says enough about the quality of independent thought here.

Note that while @ReflexFund partially misunderstood your figures, he might have been led astray by your misleading presentation of Tesla's cash position. His conclusion that your $1.1b figure is wrong is still correct - even the misleading 'unrestricted cash' value is much higher than $1.1b.

TL;DR: Your "unrestricted cash for Tesla stood at $1.1B right after the bond payment with several hundreds of millions of possible downsides" false claim from yesterday was not just erroneous and was presented in a misleading fashion, but it was also borderline FUD delivered rather pompously, so IMO if you are feeling embarrassed about it it's well deserved and I'm not assisting in your attempts at face saving and history rewriting.

 

[jerry33]

This basically requires a rear wheel drive single motor with ~220 miles of range.

They are going to need a lot more Superchargers in the prairie states. Driving from Selina to Lincoln (200 miles) with a 220 mile range Y won’t work except in the nicest weather, They haven’t done hardly anything in this area recently.

 

[Fact Checking]

They are going to need a lot more Superchargers in the prairie states. Driving from Selina to Lincoln (200 miles) with a 220 mile range Y won’t work except in the nicest weather, They haven’t done hardly anything in this area recently.

The "prairie states" and neighboring sparsely populated areas have a population of about ~10 million people, which is less than 5% of the U.S. population.

While I expect Tesla to make the Supercharger network denser, I don't think the "prairie states" are expected to be a primary factor to the ~1 million annual Model Y sales target and addressable market. Residents of such states can buy the LR version if they intend to use the car for more than just local travel - and eventually the SC network will become much denser.

 

[SPadival]

About those store closures:

There’s 140 stores total. The first 15 will be the lowest performing stores globally rated on performance. After that it will be a slow roll out to transition people from closing stores to other stores to help in the mean time, work from home, or transition into other roles.

It’s minimum 2 weeks severance if you’ve been with the company after 90 days, it scales with seniority. There’s stores who know they are low performing and are worried about closing and there’s stores that know they’re top performing and don’t have to worry to an extent.

The transition period of the next 2 months is to see where the sales go forward and what department needs help. My store in the last 2 days have sold 45 M3s since the announcement(3 of which are standard plus and standard). February we sold 18 M3s and 8 S/X. Vins are being matched within an hour for all the other cars due to the inventory count we have.

We do know for a fact that the only people who knew about this was Elon’s circle. My boss, who is 3rd under Elon, has no idea about this and is relaying information to us as he finds out.

 

[mongo]

The problem is the many buyers who can normally only afford a $25k-$30k car and who are already straining their finances to get a $35k Tesla. For them a $40k car is simply not an option - and they possibly wouldn't get the loan to begin with.

Here's the typical annual household income distribution in the UK (U.S. IRS data is way too coarse unfortunately, but it's similar):

As we can see it on the histogram, "mean" and even "median" income levels don't give a real picture of income distribution: the best figure is "modal" income (not depicted), the peak of the histogram, which is about 65% of "mean" and 80% of "median".

U.S. median disposable income is around $31k, the "modal" max is probably around $25k. For most people the prudent "affordability limit" is around 100% of their annual disposable (post tax) income, and this is roughly how far their banks will allow their car loans to stretch as well.

A lot of people in the $25k-$35k income bracket (~20% of the population) are probably straining to get a Model 3 (giving /r/personalfinance a collective heart attack), and for them the $35k entry price is a godsend.

Put differently: due to the non-even distribution of income, every $1,000 reduction in the entry price moves about +2% more of all car buyers into the "affordability range" of the least expensive Tesla.

In the U.S. alone that's ~2 million more households that can afford a Tesla - and those households alone are buying 300,000 cars per year on average (!).

These entry price reductions are expanding Tesla's addressable market enormously.

Question: since the graph is labeled disposable income, is it already reduced by their existing car loans?

 

[SebastianR]

Frankfurt is up 1.9%...

 

[Fact Checking]

Question: since the graph is labeled disposable income, is it already reduced by their existing car loans?

I believe it's income minus compulsory taxes, which in the UK would be personal income tax and national health insurance contributions.

Existing car loans are "discretionary spending" in the sense that you can stop or refinance them anytime with a penalty, and that most people would buy a new car when they know what to do with the old one.

But you'd be right to suggest that real effective discretionary income position is significantly worse than that, because neither existing car loan payments nor mortgages/rent are included. But it seems a rule of thumb that to most people their annual disposable income correlates with the psychological limit for car purchases.

There's another, older histogram (from the UK too, 2013) that supports this rule of thumb:

Note how closely new car purchase transaction price distribution (blue bars) is tracking income distribution (grey bars).

 

[Fact Checking]

Frankfurt is up 1.9%...

Frankfurt is tracking pre-market $TSLA trading on NASDAQ, which is currently trading slightly below the $300 barrier at $299, up from the $294.79 close on Friday.

While NASDAQ Composite futures jumped +0.8% on the positive weekend China news, they gave back about half of that gain in European trading and are currently at around +0.4%. It still implies a green NASDAQ day - for the time being that is.