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

[RobStark]

Even with CapEx spending, are there room to expand there? and I dont mean tents.

I don't think anyone outside Tesla knows for sure.

Tesla manufactures a lot of components at Fremont. It can move some functions outside the Fremont factory in order to assemble more cars. It can move seat manufacture to another building in the general area. It can move S/X motor manufacture to GF in Nevada for example. And become more final assembly at Fremont like it was during the Toyota/GM ownership.

I think Elon speculated about a year ago that Fremont could make 1M cars per year but that it likely would not be cost effective. The logistics of moving so many parts and workers in and out of the factory would be cost prohibitive.

 

[JustAaronnoraA]

I don't think anyone outside Tesla knows for sure.

Tesla manufactures a lot of components at Fremont. It can move some functions outside the Fremont factory in order to assemble more cars. It can move seat manufacture to another building in the general area. It can move S/X motor manufacture to GF in Nevada for example. And become more final assembly at Fremont like it was during the Toyota/GM ownership.

I think Elon speculated about a year ago that Fremont could make 1M cars per year but that it likely would not be cost effective. The logistics of moving so many parts and workers in and out of the factory would be cost prohibitive.

Excellent points! Your thoughts on Lathrop?

 

[Causalien]

This.

Needless to say this forum is concerned about near term movements in the share price; sadly, this concern can be stronger than concern over the rate at which Tesla grows.

Elon no longer concerns himself with the stock price. His focus is on growth, which has been successfully decoupled from capital raises. He figures that by focusing on growth, the share price sorts itself out eventually, and he'd be right.

Some suggest that more funding can provide faster growth. Elon has refuted this. Again he's right - growth is limited by other factors, such as the rate at which knowledge can be passed to new staff - poor customer service is one symptom of growing too fast - the person on the other end of the communication is simply green, still learning the ropes. Tesla is growing at a phenomenal rate. Patience.

Here's the thing. To move the share price, one has to convince more than half the market that the stock is undervalued, it's like winning an election, you need to sway the slow adopters, people set in their ways. To sell cars, you only need to convince the select group of people who will go to the web site and place an order. They are already keen. The latter does not require mass market advertising - viral advertising, youtube, family and friend networks, twitter, forums like this, reveal nights such as Thursday, they all work too. And like viruses, there's a critical mass where they hit epidemic proportions. At the rate Model 3 is selling, that point is near.

If you read a 'pro advertising' comment, please consider if the motivation is growth, or near term share price. The former will take care of the latter soon enough.

With regards to the stock price. I am seeing other earth moving technology that have been beaten down like Tesla. The symptoms are pretty similar: underlying platform is improving, the on boarding of new customers is increasing and adoption is spreading, however the valuation of the companies are beaten down to a 3 year low. Alot of these are caused by the negative waves of attacks from news media.

In the current climate of business, the media, lacking traditional subscription revenue, is simply a propaganda machine for the highest bidder.

The other part of the equation for the valuation to go up is the business climate. We are getting close to April and still, no big stimulus event has happened. If the Chinese deal gets delayed for 1 month, the stimulus effect will be too late in reaching the general population when election time comes and will blame trump. It is safe to say that Trumps chance of being a 1 term president is now very high. And if an anti business president like Bernie Sanders gets elected... In any case, I am hoarding cash.

 

[neroden]

Brutal and snide dismissal of outlandish statements have been part of this board since the beginning and we've never approached SA levels of comment quality, outside of a few unfortunate times when ridiculously disruptive FUD stirrers were allowed to remain too long.

You saw the flak I took a few years back for saying that Full Self Driving wasn't coming any time soon. Of course, now everyone knows I was right...

Second, some historical context in an area in which I have personal expertise:
-Since at least PayPal credit card offers (Peter Thiel has discussed] Elon has thought about a problem and acted on his thoughts, often without considering precedent (on credit cards Citibank tried Elon's idea in California a couple of decades earlier with similar results).

(Emphasis mine.)

I think this is a very important point. Where Elon has considered precedent -- as with most of what SpaceX has done, where he researched the whole history of rocketry -- he's done great. Where he has failed to consider precedent -- as with the joke of "full self driving by 2016", or the idiotic cars-in-tunnels ideas -- he's done poorly.

Part of the scientific method is actually looking up what research has already been done. Often you want to try to *replicate* that research. But just ignoring it and going with your gut feeling is dumbassery.

In public transport, there are a bunch of things which people try over and over again which always fail -- they're *standard mistakes*. Musk is making the standard mistakes there because of not doing his homework. He is getting rightly ridiculed. He doesn't need to be making these mistakes. There's a lot of opportunity to make better, faster, cheaper public transport -- just don't repeat mistakes.

It doesn't take long to do your homework. Looking up the rules on who could be stockholders in private companies... you know, it took me ten minutes. Musk didn't bother to do this before tweeting. This is dumb.

This specific insight was offering credit cards to anybody who wanted one. Years earlier, early 1970's, I participated in a project to lend money to anybody in Germany who applied (after all Germans always paid their debts). In all three of these cases the people who accepted the deal were not the people one imagined would respond. In my case the borrowers were 'guest workers'. In all three cases the results were catastrophic. In all three cases the people who made the mistake learned rapidly, albeit painfully, from their decisions.

SolarCity made a mistake (borrowing short-term to lend long-term) that's so classic there's an entire field of study devoted to it (the study of banking and bank runs), complete with solutions to the problems SolarCity encountered. A little homework and a captive bank subsidiary which had access to the Federal Reserve would have made the zero-money-down model work.

So I think this pinpoints Elon Musk's real weak point. He is prone to not doing his homework, and therefore making mistakes which are really obvious to anyone who has done their homework. When he does his homework, he's practically unstoppable.

(Most Wall Streeters don't do their homework either so they don't spot these.)

 

[Carl Raymond]

Right now? China is definitely making a play for the status of "country where innovators want to be". They may succeed or not.

Certainly the GF3 activity in Shanghai is fascinating to watch. They know the world is watching and are using the opportunity to emphatically make a number of points:

Whatever you can do, you can do it three times faster here.
We support the energy revolution.
Trump is an idiot for not embracing Tesla - thanks for the redirect.

 

[RobStark]

Excellent points! Your thoughts on Lathrop?

Tesla has an old machining site at Lathrop.

I don't think the new site is manufacturing or assembly.

I think the consensus is right that is a parts warehouse and distribution site.

Getting parts to repair and collision shops in a timely manner should be a top priority. Having a bit of stock for Fremont is not a bad idea either.

 

[Buckminster]

Let's say I own a trucking company. I would want to get my hands on Tesla Semi ASAP, long before all my competitors. $150k, 180k or 200k is really a none issue. Once I get the Semi, I can thoroughly evaluate it, this would be a valuable input for my business decisions in the following areas:

1. Should I order more? how many?
2. Should I reduce my ongoing diesel Semi orders?
3. Should I dump my current diesel trucks before everybody else?
4. Should I continue to keep the long term diesel hedge on my book?
5. Should I change the way how I do business because of this new truck? for example, maybe I can sign long term contracts because I know my cost is going to reduce.

Great post - once you've answered 5, you will probably start reconsidering 1. Transportation cost could come down 20% before most even take receipt.

 

[lklundin]

48k is an interesting forecast. 93k was the Q4 delivery number. So, almost 50% lower.

For this to be true, EU deliveries have to go quite badly and US demand has to be really low.

Not just that - assuming the production isn't much lower than Q4, almost 35k cars have to be in shipping waiting shipment. That looks too high - so is there any indication of production slowing down significantly ?

I still expect some 10k to be in transit to EU/China. Transit to US customers unchanged from last time (7k ?). If the production was reduced by 15k (!) - that still leaves 65k as the delivery. IOW, for the delivery to be < 50k, we should have missed something significant - assuming AlphaHat numbers are not wrong.

You can take InsideEV numbers and probably come up with a low delivery count. Even this ignoring 5k number from Canada.

Model 3 : 12k + 8k = 20k
S & X : 3.6k + 2.4k = 6K

(16 ships = 40k out of which only ~50% gets delivered !)
EU = 12k
China = 10k

For actual shipping transit it has now been 6 days since a vehicle carrier arrived at Pier 80 with none currently having Pier 80 as their destination.

There is little reason why Tesla would pause shipments, except to avoid having vehicles in transit at the end of the quarter. So it is likely that shipments will resume only once the new quarter starts.

The most recent shipment departed Pier 80 on March 10 and is expected to arrive in China in about 18 days, leaving three days to clear customs and probably get at least some cars delivered.

The most recent shipment for EU departed Pier 80 on March 3, and is expected to arrive in EU in about 23 days, leaving five days to clear customs and probably get at least some delivered.

So for non-North American deliveries, I think we are looking at maybe a few thousand cars in transit - if Tesla can organize their EU + China deliveries during the last days of the quarter efficiently.

PS. The above information is based on the spreadsheet by Franco Mossotto (@FMossotto) | Twitter

 

[Singer3000]

Just to advise that deliveries of the SR+ have officially commenced:
SR/SR+ Waiting Room

Harry Half-Glass Empty says this is because there's no demand for MR or LR in North America anymore.

Hannah Half Glass Full says this is because unit production in Q1 far exceeds the various analyst estimates.

 

[MarcusMaximus]

Where he has failed to consider precedent -- as with the joke of "full self driving by 2016", or the idiotic cars-in-tunnels ideas -- he's done poorly.

In fairness, for the first, nobody knows what’s requires for full self driving(other than that it’s possible to do as well as a human with at least 2 cameras, as long as you can get a good view of everything around the car), as nobody has accomplished it. Not getting the timeline correct doesn’t really sound like a dumb mistake to me. It’ll likely seem like far off science fiction right up until someone cracks it.

And for the second, he doesn’t seem to be doing all that poorly? It’s still (very) early days, but Boring Co. seems to be getting a good amount of inbound. They haven’t actually built anything real yet, though, so while *you* might think it’s dumb and unworkable, actual real life hasn’t (yet) shown it to be.

 

[printf42]

I'm going to repeat my theory, since everyone missed it the first time.
We know China factory is only making *SR* cars (maybe SR+).
We know that there's a lot of worry about theft of IP in China.

My theory is that the SR cars coming out of China will use inferior battery cell technology -- always one generation back from Tesla's cutting edge which will be used at the Gigafactory. For the purposes of protecting IP. Each time the cutting edge moves forward, China will get the older tech.

I could be totally wrong but it's a theory.

Agree on this, they are going to buy whatever Chinese suppliers already have, and won’t give Tesla’s recipes to them.
I remember Elon said GF3 will use locally sourced batteries that’s made to the spec of Tesla, so they won’t compromise on performance(lower energy density is highly probable though, which can be compensated by more cells), but didn’t say they will find local partners to manufacture Tesla’s formula.

I guess they will start to use their own chemistry only when they have their own cell lines up and running.

 

[MarcusMaximus]

Just to advise that deliveries of the SR+ have officially commenced:
SR/SR+ Waiting Room

Harry Half-Glass Empty says this is because there's no demand for MR or LR in North America anymore.

Hannah Half Glass Full says this is because unit production in Q1 far exceeds the various analyst estimates.

Both Hannah and Harry’s logic is flawed. We already knew they had built *some* SR/SR+. Why would we not expect them to deliver those?

 

[lklundin]

The only way to control the spin is to work on the "trend setters" one by one, wine & dine them, treat them like royalty etc. Probably advertise on their media. I don't think EM wants to do that.

Elon Musk did a pretty good job influencing Joe Rogan, who can be said to be a trend setter.
The youtube video has I believe passed 20M views - with Rogan now going on and on about how great his Model S is.

 

[Singer3000]

Both Hannah and Harry’s logic is flawed. We already knew they had built *some* SR/SR+. Why would we not expect them to deliver those?

Both Hannah and Harry are assuming that you don't make 550 cars in two days and then just stop making them. Well Harry might, but only because he thinks the SR+ still has a negative cash margin.

 

[Fact Checking]

To add to this (as a lawyer myself, be it a European one) I can confirm a written defense is always layered and throws out all the possible arguments you can think of.

[...]

So don't be awed too much by how great this document looks. I read it in about 5 minutes, it just says:
-tweet immaterial;
-didn't harm stock price; (SEC's tweet did!)
-SEC misreads the settlement with Tesla/Musk.

BTW., there's a lot more depth to it, and Elon's lawyers added those layers for an entirely different purpose than just layered defense:

• The reply by Elon's lawyers cites strong precedents that compells the settlement to be narrowly interpreted not just for this case, but for similar future cases as well. I.e. it's an attempt to de-fang the settlement permanently - this protects Tesla shareholders even if the constitutional aspects are not decided.
• Expert opinion from MIT accounting professor establishes facts not just for materiality, but documents the economic harm of the SEC's erroneous interpretation of the settlement caused to shareholders: 1.1 billion dollars.
• Elon volunteered a full sworn testimony of what happened, but his testimony (affidavit) is not just covering the tweet, but is carefully outlining the harm the SEC's erroneous interpretation does and did, which prepares the next step:
• Their constitutional arguments are not primarily defense (the SECs case fails robustly on the facts and on established law already), but offense: Elon's filing is an attempt to strip the SEC's power to harrass Tesla through contempt of court proceedings permanently, by setting a precedent that raises the bar for the SEC significantly.

Basically Tesla is using the fact that the SEC is wrong on the facts and is harming both investors, Tesla and Elon for a legal attack to attempt to strip the SEC of several key powers. About 75% of the filing lays the groundwork for that.

It's a rather ingenuous approach, which even you as a lawyer missed.

The SEC certainly didn't miss it: this attack is why IMO the SEC panicked yesterday and asked not for a contempt hearing but for a reply brief, which is not the usual procedure of contempt proceedings AFAIK.

So it's not just legal mumbo jumbo:

The rest is legal mumbo jumbo and can be skipped. The judge will too.

It's highly unlikely that she will skip the details, because this is not a usual judge: the federal judge hearing Elon's case, Judge Alison Julie Nathan, is a top lawyer and judge with an outstanding background, she clerked on the 9th circuit and on the U.S. Supreme Court, then she worked as White House counsel and assistant to Barack Obama:

Judge Alison Julie Nathan (S.D. New York) – CourtListener.com

• She was clerk to the 9th Circuit, one of the most important circuits in the U.S. (2000-2001),
• She was a clerk to Justice Stevens at the U.S. Supreme Court (2001-2002),
• She was associate White House counsel and special assistant to President Barack Obama (2009-2010)

Her ruling yesterday (adding two more rounds of filings and adding an evidentiary hearing before the contempt hearing) suggests that she wants to approach this case methodologically and broadly.

A broad case is absolutely not what the SEC wanted: they wanted a quick ruling holding Elon in contempt, then they wanted sanctions ... (I expect the SEC's reply brief to attempt to narrow the case back on various procedural grounds.)

(BTW., you heard it here first: I believe if there's a Democratic victory in 2020 Judge Alison Julie Nathan will be one of the candidates to be nominated to the Supreme Court.)

I believe she was waiting for a high profile case with constitutional arguments like this, which case has the potential to set important precedents.

 

[lklundin]

In an informal discussion with a Tesla employee about a year ago, she told me employees had the option of buying the stock at different intervals for the lowest price it had been at in the previous 90 days. I did not ask for any more details...

In the case of TSLA, the lowest price in 90 days is an amazingly good offer...

I would assume the purchase would need to be held for some time, otherwise it would just be free money.

 

[lklundin]

Did everybody see this (thanks @Papafox )?

Recent Tesla (TSLA) Noise is 'Just Noise', Selling Every Car They Can Produce - Wolfe Research

This is also consistent with Ross Gerber's recent tweets after his factory tour. Seems there is a huge gulf between media reports and insider views of Fremont. Both sides can't be right. We'll find out soon enough!

That is actually a part of my investment thesis, that there is such a divide between the bear and the bulls (in the media and elsewhere), that one has to be wrong. (I'm betting that the bears are wrong...)

 

[lklundin]

OK, guys, let's be clear on this: all guidance since last July or so has been that Q1 will be more or less breakeven on a GAAP basis. Does it really *matter* whether it's slightly above the line or slightly below it ? Either way free cash flow should be positive.

It would matter for S & P 500 inclusion, right?

 

[WarpedOne]

Does it really *matter* whether it's slightly above the line or slightly below it ?

A huge effing YES... (not) profitable is a huge thing.

 

[Fact Checking]

It would matter for S & P 500 inclusion, right?

IIRC Q1 would have to be above ~360m profit for S&P inclusion. (But this is from memory.)

If that happens (unlikely at this stage), +$100 jump secured. I don't think it's in the cards - and the delivery report due in two weeks will help a lot in ruling it out (or in).