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

[shlokavica22]

Macro related- AAPL got multiple upgrades. We are opening green today.

 

[Unpilot]

Fraud is a harsh word.
The question is "What's the world best-selling EV?" and the answer is "Nissan Leaf"¹.
M3 is a great car with growing demand, probably a game-changer like the iPhone was,
but the Leaf has sold thousands of cars for years, everywhere. Let them have their last moments of glory.

¹ I didn't check 'cos I can't find a global EV chart.

Actually the more leaf's the better right?
To me it's all about the mission SUSTAINABLE transportation.

We should celebrate that.
As a stock holder of course I want Tesla to succeed..... but I am also pulling for this little thing called Earth.

 

[ReflexFunds]

We can attempt to calculate the average depreciation schedule, in Q4 Tesla had depreciation of $500m, while property, pant and equipment was 11.3b on the balance sheet. This suggests average D&A count of ~22 quarters, but buildings would probably have higher amortization schedules: 15 to 30 years, which draws the average up.

Anyway, 10, 15 or even 20 quarter schedules doesn't really matter to the outcome of the basic math: only hundreds of SR units were announced so far, so even if we generously assume a very fast ramp-up to say 1000-2000 units in Q1, even 20-quarter $10m of amortization overhead splits up only between these units, with $5k-$10k per unit D&A expenses. Even with 2k-3k units (which I don't see happening) the GAAP margin would still be negative.

But this doesn't really matter, this is normal ramp-up math when equipment built for 3k/week rate is only running at 10% its planned capacity. It just explains why Elon was reluctant to give SR margin figures.

Only $313m was PP&E depreciation, the rest is solar and auto leases. I'd guess $250-260m is in Auto COGs.

 

[lklundin]

Tesla should put out a “German Edition” that reduces the front fascia by 5 cm.

Then the German law makers would amend the law to exclude the Model 3 on something else.

I believe Tesla could just as well bring this to the EU as a anti-competitive law suit against the German law makers that has (or is about to) adopt this practice.

EU member states such as Germany have agreed to adopt a law which specifically covers state aid given in an anti-competitive manner:

European Union competition law - Wikipedia

PS. EU's current commissioner for competition is Margrethe Vestager (from Denmark), who brought about the EU's fine(s) to Google for anti-competitive practices. I don't think she has any particular reason to give preferential treatment to German auto makers,
European Commissioner for Competition - Wikipedia
Margrethe Vestager - Wikipedia

 

[schonelucht]

There are major car companies whose entire margin is 5% ...

So I think Model 3 ASP will be just fine.

ASP will be fine. GM will suffer somewhat because there are no ZEV and other credits in Europe or China. It's a bit opaque how much they're worth right now, but it's still in the ballpark of several thousands dollars per car. That will weigh on gross margin for sure.

They had to maximize S/X revenue until now to keep the growth story alive, but now the Model 3 is the growth story and the S/X products can just generate cash.

There is quite a bit of S/X inventory so in terms of cash generation, S/X will do fine this quarter.

And then there's the upside wildcard of their re-negotiated 18,650 cell supply contract with Panasonic. If indeed their cell costs improved by ~30% then Model S/X margins could stay pretty healthy, despite lower Q1 sales. There should be lower per unit depreciation/amortization overhead due to the S/X lines being pretty mature, much of the initial capex should already be off the depreciation schedule.

Going forward, the S/X platform needs attention. D&A is currently higher than CapEx. And that CapEx must pay for expansion in China and the Model Y too. In the long run, that's not a sustainable situation. Sure, some of that is gains in efficiency in tooling, buildings etc. But, if you are consuming those gains by passing them on to your customers, at some point you will have to invest and accept lower cash contribution from your platform. The renegotiated supply contract is a two way street. We know there is a cell shortage in the industry. Panasonic may have positioned itself to capture that 30% itself rather than giving it to Tesla by courting other manufacturers...

 

[mrdoubleb]

In other news: we've just crossed 4000 Teslas delivered in Norway in March. So far in Q1 we have 4434 Model 3s, 535 X and 245 S for a total of 5214.
Tesla Registration Stats

PS: previous record was Q4 2017 with 3743 cars and 2018 year end totals were 8614.

 

[Webeevdrivers]

Nice - now let's get to 5k for the end of the month!

View attachment 390452

What is this.

 

[Unpilot]

Me trying to understand all this mumbo jumbo about Noodley finacial's

 

[kbM3]

Note that the SR+ is +$2,500 over the SR, a big chunk of which is profit margin - and SR+ take rate appears to be very high. (It's a really good deal as well.) 75% of Model 3 buyers also select a color other than black, which adds another $1,500. That's a ~$3,000 cash margin improvement over the $35k entry model margin straight away, just in the SR/SR+ space.

But there's another, very important point that I think many have missed: my guess is that a big reason why Elon was noncommittal about SR margins is the significant fixed-size depreciation and amortization overhead.

The background is that Tesla just built the new Standard Range battery pack assembly line at the Gigafactory, a Grohmann Machine the size of a football field. That was probably significant capex cash expense, and once they start selling products they'll have to start amortizing the line, and they'll probably do it on the usual straight line basis.

This necessarily means that the initial GAAP margins on SR and even SR+ will be awful: if the new line has cost them $200m and they are amortizing it over 10 quarters then the straight-line A&D cost is around $20m per quarter. If they deliver 2,000 units this quarter then that's a per unit GAAP overhead of $10,000 (!), which results in significantly negative margins. They'll have to get up to the ~2-3k units/week, 25k-40k units/quarter volume to reduce this GAAP expense to a tolerable $500-$800 range. That is not going to happen until the summer.

(Maybe @brian45011, @ReflexFunds and @schonelucht can confirm.)

So what I'd concentrate on for the SR and SR+ in Q1 financial metrics is the cash margin, with warranty reserves and other high probability future costs imputed as a cash expense, and I think Elon already confirmed that even the base $35k sales are generating cash for Tesla. That's what matters as long as Tesla is cash flow positive - scaling up SR volume this year will solve the GAAP space margins and profit metrics.

Why wouldn’t Tesla use the Grohmann machine packs for LR models as well?

 

[SebastianR]

On topic: looks green and a bit like a SpaceX launch these very first minutes, doesn't she? Not going to page @SpaceCash just yet but a welcome change for now...

 

[ZeApelido]

Tesla Model 3 right-hand drive spotted in California

Shortsville Times

Tesla HW 3.0 has been released - passenger side steering wheel installed for Tesla employee who will drive with you in car for FSD. Tesla drops fake neural net for a real one. Increased costs indicate imminent bankruptcy

 

[MP3Mike]

Why wouldn’t Tesla use the Grohmann machine packs for LR models as well?

Because the LR pack is a different design, and the existing line is already paid for, no reason to just abandon it. They will need all of the capacity the Grohmann machine.

 

[1101011]

Any further word on Maxwell?

 

[Tslynk67]

Waiting for a downgrade... Chanos must be calling around, maybe he's run out of favours...

 

[replicant]

Also, when is Alison Nathan expected to make a decision on the SEC case?

 

[Chunky Jr.]

So imagine Blackberry or Nokia advertising their phones as the "most popular smartphones" ... two years after the introduction of the iPhone?

It's only "technically true" if you use a definition disconnected from the everyday meaning of "popular" - which BTW. is also intentionally disconnected, to dupe people into thinking that their products are indeed still popular.

I.e. it's the text book definition of fraud, which might or might not meet the legal definition of fraud.

I worked at a game company a while back that was sued by a rival for saying their system was more "advanced" than the other. At the end of the day it was not based on facts of which was more advanced than others, but dismissed as "marketing puffery" that did not need to be quantified. I would guess that in your example, BB or N advertising in that way would not be seen as fraud, but rather puffery. I'm not a lawyer though.

 

[Tslynk67]

About that option I bought yesterday...

Get out while it’s good?

 

[ReflexFunds]

Going forward, the S/X platform needs attention. D&A is currently higher than CapEx. And that CapEx must pay for expansion in China and the Model Y too. In the long run, that's not a sustainable situation. Sure, some of that is gains in efficiency in tooling, buildings etc. But, if you are consuming those gains by passing them on to your customers, at some point you will have to invest and accept lower cash contribution from your platform. The renegotiated supply contract is a two way street. We know there is a cell shortage in the industry. Panasonic may have positioned itself to capture that 30% itself rather than giving it to Tesla by courting other manufacturers...

I agree that some capex in a S&X refresh or a body line combination to save space and costs would make sense right now, but I don't think it should be huge capex.

D&A relative to capex isn't a meaningful metric for a growth company, but D&A is not higher than capex at Tesla in any case. To begin with, auto/solar lease depreciation must be removed (for many reasons, not least because lease purchases are not included in capex). That puts Q4 depreciation at $313m vs capex of $466m ($325m + $141m GF3 purchase which was accounted separately on a technicality).

Capex consists of 1) maintenance capex (annual repairs and continued costs which really are more like opex), 2) replacement capex (once a machine/equipment reaches the end of its useful life, it must be replaced) and 3) growth capex (this is to fund production capacity expansion or efficiency investments to reduce production costs).
The capex type most relevant to depreciation is replacement capex. Depreciation tries to spread the lumpy upfront cash cost of this equipment over its lifetime. If a company has 20 factories built at different times and broadly flat sales for the last 5-10 years, then the overall cash cost of replacing equipment each year should be spread out too and roughly flat each year, and replacement capex should roughly equal depreciation (however it is possible the new equipment is significantly more or less capital efficient than that bought 5-10 years ago).

But Tesla's business is not in steady state - the majority of its equipment is new and far from needing replacing. So right now replacement capex is very low (it will pick up in several years time when current equipment needs replacing). So for most businesses, depreciation should roughly equal maintenance + replacement capex to keep roughly flat profits. But right now, Tesla's replacement capex is close to zero, so everything above the maintenance level is for growth. I expect quarterly maintenance capex is likely only $100-150m, so even in Q4 Tesla I expect had $300-350m of growth capex. This is in addition to c.$360m of R&D, which is also largely for growth projects. (Again, at most companies the majority of R&D is for replacement projects for new models to replace retired models and to maintain flat sales, but at Tesla currently R&D is nearly all for growth projects)

So even at the slowed investment rate in Q4, Tesla likely invested around $650-700m in growth EV/AV projects, or an annualized rate of c.$2.8bn. This compares to GM's heavily publicised "major new investment" of $300m in EVs last week.

 

[Silent Ludicrosy]

Any further word on Maxwell?

Merger secured?

 

[shlokavica22]

About that option I bought yesterday...

View attachment 390454

Get out while it’s goid?

Roll it to at least June, while keeping ~50% of the winnings.
And remember- it's a slippery slope. You touch options once and before you know it you end up with half your holdings in options