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

[neroden]

The biggest one, by far: China!

No, China has a massive legacy ICE auto industry. Luckily the central government is really shoving them to go electric, and shoving them HARD, and they're doing it.

 

[neroden]

Some sources mention over 23,000 Teslas registered in January in US and 6,000 for February. If that's true, we're talking around 34,000 Teslas registered in US and Canada in Jan-Feb. Add 36,000 (minimum) between China (18K) and Europe (18K) for Q1 and they only need to deliver 10K in US/Canada/Mexico in March to reach 80K global deliveries in Q1 (my floor estimate). I'm more for 90K/95K.

The most contentious data point is January deliveries, as other sources talk of under 10K, which I find harder to believe.

The catch is that Jan registrations often relate to Dec deliveries.

 

[neroden]

Trump has been under investigation for the last two years and it looks like he’s not going to be charged with anything. Turn on cnn or Fox News for some political theatre

He's still being prosecuted for stealing from the "Trump Foundation" charity in New York. (Technically, this is a civil case to bar him from ever running a charity... but over an action which is a crime... well, anyway...)

And the entire House wants the report on Russian election manipulation released.

Oh, the cloud is not over.

 

[Antares Nebula]

High demand indication?

Tesla raises Model Y prices by $1k, will raise inventory car prices April 2


Curious whether Tesla will drop Model Y reservations numbers. Could be an unexpected stock price catalyst.

No comments on the Model Y price increase? I figure it is the biggest news of the day.

 

[neroden]

They blocked their access to capital. SC had long term assets and short term cash needs. We don’t have the books, but the contracts are probably cash flow positive over the long run. Part of the story was that short term rates were about to shoot up and that would reduce the present value of the long term solar leases. Rates haven’t gone up much and Tesla can just milk the leases and focus on cash sales going forward. The 20 year risk of these solar assets is probably lower then a lot of Permian shale resources.

Yep. This is the analysis I made at the time.

 

[neroden]

Do you consider it valid to adjust accrual basis (GAAP) figures by cash basis (non-GAAP) estimates and then apply a GAAP metric like P/E to derive a valuation that "Mr. Market" will give credence to?

That's why I calculated a proper P/CF instead.

P/E is unsound for fast-growing companies (as is P/FCF), and cash flow has been preferred to earnings for analysis for the last 20 years anyway.

 

[neroden]

This is why I don't invest in Chinese corps:

China’s Tesla Rival Denies Reports of Mass Layoffs, Inflated Sales Figures - Caixin Global

This is perfectly likely to be disinformation, of course. The main problem is that I can't get enough data from China to cross-check it since I don't read Chinese (which I really should have learned, but oh well)

 

[neroden]

Are we at 6k or 7k model 3s a week?

Somewhere in between; I won't bother to guess where.

 

[NicoV]

Finally, the value over time for Tesla having control over their own machine learning stack, starting at the very lowest levels, is hard to overstate.

And some day, the nvidia hardware will not be fast enough for the latest neural net. That’s when progress will stop for ap 2.x hardware, just as it stopped for my ap 1.0 car not very long after I bought it. At least ap2.x users will be able to upgrade.

 

[Donatas]

Really bothered me that even in this seeeminglu positive article, they used a supercharger map for a few years ago showing only a small percentage of the current coverage. Geesh, media can’t even get it right when they seemingly want to write a positive article....

Ok, so I took another look at it and the pic looks like it’s supposed to be a video, maybe showing the growth of the network?? I can’t get it to play though....

It's a gif animation, it plays automatically, works for me on chrome. Here is it's separate link:
https://cnet2.cbsistatic.com/img/qo...e492-9839-4b67-a3e1-9f2aea3824e0/tesla-sc.gif

 

[LordAstinus]

The catch is that Jan registrations often relate to Dec deliveries.

Yeah, I missed that. Thanks!

 

[Fact Checking]

No, China has a massive legacy ICE auto industry. Luckily the central government is really shoving them to go electric, and shoving them HARD, and they're doing it.

But China does not think of their automotive segment as "theirs" in terms of national identity, and is, very importantly, not exporting the vehicles in any significant quantities (yet...).

This decouples China from other countries like Germany, France or Japan who are depending on automotive exports as a key pillar of their economies.

I.e. to China the domestic automotive sector is basically "just" a social service, a piece of infrastructure and employment vehicle they don't feel particularly strongly about, and which they are willing to reshape as necessary - without many external dependencies. This is why they invited Tesla into the country and are building a Gigafactory for them for free.

Neither Germany, France or Japan is able to do that.

 

[Fact Checking]

Plus higher unit count will drive down per unit depreciation and amortization costs.

So of D&A was say $2,000/unit at the Q4 4,700/week Model 3 production rate, if the production rate increases to 6,200/week in Q1 then the per unit depreciation cost would go down about $1,500 - a $500 margin improvement, which at a $50k ASP is about +1% gross profit improvement, which is pretty good.

Another aspect is that when lines are running at 4.7k/week then labor cost is roughly the same as when running at 6.2k/week (with a bit more maintenance labor). So if the per unit labor cost is around $5,000/unit at the $4.7k/week rate, then this goes down to about $3,800 at 6.2k/week rate. That's a $1,200 margin improvement - or about +2.4% gross margin - all other things equal.

So just from speeding up the lines and improving labor efficiency they would be able to improve margins by about 3.4% over Q4 margins.

Finally, by using 30% more material they'll be able to get into larger volume pricing tiers with suppliers, which cuts down on material costs - which are significant, ~$20k+ on a $50k Model 3.

So scaling up volume is very important - and selling more SR+ units will thus indirectly improve the margin of higher ASP configurations as well.

One more additional thought: 1% or 3.4% might not sound like much, but in Q4 Tesla had 6 billion dollars of automotive revenue - every percentage point shift in margins is increasing Tesla's income by 60 million dollars.

A 3.4% improvement in margins would shift their income (and cash flow) up by around +$200m - counter-acting half of the average effect of the 6% price drops.

I'm pretty sure that of the 6% price drops at least half was the already realized efficiency gains at their 6k/week Model 3 output rate, the other half was efficiency gains in the retail store chain. (Note that they might have realized part of the retail optimizations, they did stop the employee referral bonus program which apparently was gamed in certain retail locations.)

This means that 20-30% increase in output would generate almost linearly more cash in Q1: a lot of the production costs are fixed.

So we could be looking at pretty good FCF in Q1 if the end of quarter push is a success. Some of that extra cash might be locked up in 'accounts receivable' and 'vehicles in transit' though. (Will be interesting to see @ReflexFunds's latest model run in light of the production & deliveries report.)

 

[CorneliusXX]

Not @Fact Checking;
All cars have to be delivered with some kind of HW cpu &c. Probably not all HW3 was available at build time so some need a retrofit. It has been "promised" (tricky word that!) that prospective cars will have full capability. My guess is that the cheapest option for Tesla is to recall some number of delivered cars, swap the hardware and scrap the barnacles. Not many hundred dollars worth, it seems. (Maybe the rejects can be sold on E-Bay? ) I also guess that the data collected from a fleet of fully capable FSD hardware is worth much more than a few chips to Tesla.

All my feeble opinion, of course.

And it is the cost of innovation. If you make a better product you end up making the current product obsolete.

Tesla could ignore the better product like Kodak did with digital cameras or just find the best way to minimise the cost of the transition. Sell the old chips for whatever they can, get customers to pay up front where possible and make the most of the new tech to sell even more cars.

 

[schonelucht]

I'm sorry, but whether you turn out to be right or wrong, factual observations about the future do not exist.

Technical correct is the best kind of correct.

 

[Tslynk67]

Absolutely, also here are some other EV talking points for Trump supporter neighbors;

• "My car tops up the tank overnight in my garage, with gas prices of under $1 a gallon",
• "With this car I can finally show those Krauts how well a 100% American made muscle car accelerates",
• "Instant torque AWD in the winter, perfect for the upcoming Global Cooling",
• "Frunk for the handguns, trunk for the rifles. Titanium plating against landmines. Two independent motors for enhanced RPG resilience. No gas tank to explode. Satellite maps. This car is Prepper Heaven."
  
• "When I'm refilling this beast not a single dollar is going to the Middle East",
• "Trump owned a Tesla too but those librul wimps at the Secret Service couldn't keep up with him so they insisted on a Cadillac",
• "Driving a Tesla is the real MAGA: it Makes America Grin Again!",
• Finally show him this true historic photo of Donald Trump teaching Elon Musk how to make cars, how to land rockets and how to become a billionaire:
• 

Looks like he's demonstrating something completely different to me...

 

[schonelucht]

Elon didn't say there will be no delivery rushes - just that this Q1 one will be the strongest one due to one-time factors where basically three big waves are cresting at the same moment in time.

Overall sales are projected to rise all through the year and investment in sales and delivery infrastructure is guided to be kept in check. There is zero reason to believe it will be any less wild. This is a company focused on and structured for relentless growth on the back of a product unmatched in the market. Those that long for it to stop should not have entered the ride.

Also, you didn't respond to this argument:

I did. I said it is irrelevant. In fact, if the reasons are business realities and externalities, then that just strengthens the point that it will happen over and over again.

 

[schonelucht]

Give Tesla another quarter or so, and their balance sheet will be less impacted by ship with cars and things will be able to even out.

You & I are old-timers here. The youngsters are forgiven, but we know that Tesla promised before that they'd smooth out the S transit cycle many moons ago. They tried one quarter and gave up pretty much right away after. If all it took is one quarter to overcome it, Elon wouldn't list it as a reason to take the company private. He knows it is going to repeat over and over and over again. And if by chance there is a quarters with a little less severity then suddenly there'll be a fiscal change in some country and import tariff that expires, a new product that launches.

I am baffled that it is controversial to claim that Tesla is not in a steady state of operation. You guys are arguing nothing less than the short thesis : that this is the one exceptional quarter where they pull out all the stops to get sales and then it won't happen again. Newsflash. Not going to happen. If Tesla squeezes by today's all-out-effort than tomorrow that's the new normal that the company is expected to exceed. By its customers, by its shareholders, by its employees and most certainly by its executive team.

 

[schonelucht]

What is Tilburg doing with all the recently expanded extra space since Tesla decided M3 final assembly in the EU was not needed for tariff minimization?

The new building was always meant for logistics. Spare parts storage etc. Never for manufacturing.

 

[aubreymcfato]

Oh, short positions in SCTY converted to short positions in TSLA, at $180. Which promptly shot up and hasn't been anywhere near $180 again. So they lost tons and tons of money. They had the choice of closing the positions out or throwing good money after bad... I guess they chose to throw good money after bad.

(If they'd shorted SCTY at its peak of $84, or even at $50, they could have still exited for a tidy profit. But somehow I suspect they shorted it down at $30.... which became $272 for TSLA...)


Yep.

Can we say then that $180 is a sort of magical number for shorts? I was wondering what is the average price for shorts to be profitable. I bet some shorted recently at 360, but many others way before.
I knew a short that told me that his fund added short positions at different prices (I still don't know if they covered or not).
It would be useful to understand the "strike price" for Chanos&co.