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

[neroden]

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.

Note that Nissan very carefully wrote a *question*, then put some unrelated photos and an ad for their car, then put an asterisk and a footnote... they didn't just outright say that their car was the most popular. That's a known technique for avoiding fraud prosecutions.

You know, like "Do we have papers proving that the Senate Republican Caucus has signed their souls away to Satan in contracts written in blood? We report, you decide!" A question doesn''t actually make a claim, technically. Old rhetorical trick.

 

[Carl Raymond]

(first post here, but believe me, I've read all 1633 pages of this thread)

Lets put on pragmatic hat and imagine what could be plausible scenario for this event.
1. Some kind of spike is largely anticipated, a blast to 350-ish (as it did in October, journey to 250s reverted back to 350 in just 3 days)
2. Exact ruling will not be known till at least couple more weeks after the hearing.
3. We will get reports on how did the speeches go no earlier than 4:30pm EST (otherwise SEC will have to open new case on itself, judge Nathan and mr.Hueston)

What else do we know: $TSLA is a wallstreet favourite volatility machine, designed to make sickening flights. Especially when the chaotic movements are amplified by FUD campaign, or downgrading, or else. No naive 5% or even 10% stop loss can survive this and will be harvested.

So what I think, we gonna have slow growth to about 300 in next few days, which will be crowds of optimistic retail investors who already started buying the dip. During the Thursday April 4th speculations, theories and overall hysteria will reach its peak.

Evening April 4th we will get a tsunami of reports declaring SEC to win and Musk to fail, combined with tsunami of FUD publications thru cnbc, sickening alpha, BI and others, and friday April 5th will be the stop loss harvesting day, with prices plummeting to some horrible lows.

And only then the happy end - mid April:
- Alison Nathan releases her ruling in the way which saves Jay Clayton's face
- Musk will get very mild punishment and clearer definition of what sort of tweets is material and what is not
- Donnie gets his china deal finally signed and markets rally (that is said to be his major hope for 2020 elections)
- Institutions come back and not blocked by ongoing SEC case - $TSLA goes to the moon where next 2 years reciprocating cycle starts until modelY/semi/roadster rampening is finished.

Thoughts anyone?

So there is no way the Judge can rule immediately following the hearing on the 4th? That would kill the FUD cycle you describe. If it’s clear cut, a fast ruling saves a lot of heartache.

 

[PANN]

Elon should probably consider being present at the April 4 Court room, to show how much he respect the court, judge and legal system.

 

[Zaxxon]

Funny thing is a couple of folks have chimed in saying they got their SR M3.

Links?

 

[neroden]

View attachment 390419 View attachment 390420
Carbon emissions from fossil-fuel use hit a record last year after energy demand grew at its fastest pace in a decade, reflecting higher oil consumption in the U.S. and more coal burning in China and India.

Bloomberg - Are you a robot?

The economic failure of coal hasn't managed to translate to a reduction in coal burning in India and China yet. It will, but it's *taking* too long. In China, this is due to provincial-level corruption; in India, it's due to inertia.

In the US, the main issue is that gasoline is cheap and EV production hasn't gotten high enough to exceed the "bounceback" of driving due to cheap gasoline. It should exceed it around 2023, sadly probably not earlier.

 

[neroden]

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.

Love all of this analysis, but I'll also point out that Tesla is learning as it goes with capex. Each time they do something for the first time, it costs... oh... probably twice as much as it "should". So replacement/maintenance capex is going to be lower than original capex. (Also, "clone factory" capex will be lower than "first factory of a given type" capex.) This is normal for a company in Tesla's position, but not for a steady-state company.

 

[neroden]

Yes, but Q1 SR margins will probably be poor due to too few units being burdened with a fixed D&A expense and production only having started in the final 4 weeks of the quarter.

In Q2 or Q3 it will be more meaningful to talk about SR GAAP margins.

Also note that this works both ways: the SR lines are not burdened with the expensive history of the Long Range battery pack assembly lines - so eventually even GAAP margins of SR units could be quite nice.

Please note that Tesla will not release margins by trim and perhaps not even by model. They'll only give us overall car margins, and if we're lucky, Model 3 margins.

 

[neroden]

Three main reasons I can see:

• They need all the extra production capacity they can get. Factories are not like software, "rewriting" something isn't just more complex, but it's wasteful as well, plus it disrupts existing production. So things get built append-only, most of the time.

FWIW, I fully expect them to switch LR packs to a Grohmann machine... when they build the NEXT Grohmann machine. Right now, they need all the production capacity they can get. Once they build another Grohmann machine in Nevada, then the priority will be to empty out the space used by the old production lines.

 

[JBRR]

I worked as a consultant to Nokia during 2007-9 and saw the way Nokia dealt with the iPhone at first hand. At that time, Nokia was one of the most valuable companies in the world.

It was my job to look at internet discussion on Nokia models vs. competitors. As soon as the iPhone came out, it broke all records in terms of customer sentiment and intent to purchase from non-owners. Nokia ignored our advice on that people wanted a phone that could do everything. Nokia had structured their whole company based on releasing dozens of phones each year, each with a speciality e.g. music, design, internet browsing. Eventually we had to stop talking about the iPhone as it was clear we were not on message and we stopped getting inviting by Nokia to tender for projects. It didn't matter in the end because we all know that story ended...

That experience is what has made me such a strong believer in Tesla

TSLA Trading Strategies

If you are "still young" in 2018, how did you manage to become a consultant to one of the biggest companies in the world 12 years ago?

 

[neroden]

OT

Well, that's the thing about TMC.

No one knows if @Fact Checking is already doing the above, by being Elon Musk - or the Norwegian minister for transportation - or a dog.(*)

(*) On the Internet no one knows you're a dog.

I remember reading the cartoon in the New Yorker in 1993.

https://www.washingtonpost.com/blog...c56731a202fb_blog.html?utm_term=.6c5f0e648898

Ruff, ruff.

 

[EVNow]

TSLA Trading Strategies

If you are "still young" in 2018, how did you manage to become a consultant to one of the biggest companies in the world 12 years ago?

First job out of college at 21 - so, they could be 33 now. I'd consider that young

ps : More than half the consultants I meet (even from the Big N consulting firms) are fresh out of college.

 

[M3Rider]

Evening April 4th we will get a tsunami of reports declaring SEC to win and Musk to fail,

You forgot to add that after pre- and after- market frenzy, on the 5th we learn it was the other way around.

 

[mongo]

TSLA Trading Strategies

If you are "still young" in 2018, how did you manage to become a consultant to one of the biggest companies in the world 12 years ago?

No reason they can't be 50 now (10-15 years till retirement), that would put then at Nokia at 38...

 

[neroden]

Anyone want to take a guess as to why the SR deliveries have been delayed?

My guess: Homologation. That because the seats, and therefore the restraint system, are different that they have to get re-certified and additional crash testing may be required and Tesla thought they could skip it. (I seem to recall that P100Ds sat at delivery centers for a few weeks while a similar situation got dealt with.)

Could be. But my guess: they're selling too many more expensive cars. Tesla has ALWAYS let people paying more jump the queue. I suspect the factory shifted back to higher-end-model production a bit earlier than the sales team was told they were going to, and here we are.

 

[neroden]

This isn't really negative for Tesla this year, currently it has no access to subsidies in China so it is at a disadvantage relative to the local EV competition. Next year, higher EV subsidies would have been nice, but i don't think Tesla was ever counting on them.

Current national EV subsidy is:

• 150-200 km: 15,000 yuan (c.$2,230)
• 200-250 km: 24,000 yuan
• 250-300 km: 34,000 yuan
• 300-400 km: 45,000 yuan
• over 400 km: 50,000 yuan (≈$7,450)

It looks like this is moving to 0 for <250km, 250km-400km ? and >400km cut in half to 25k yuan (c.$3.7k)

It is also urging local governments to phase out subsidies (currently average 70-80k yuan i think).

EVs should still get significant benefit from no consumption/excise tax (tax varies with engine size: 1 litre engine 1%, 1-1.5L 3%, 1.5-2L 5%, 2-3L 9%, 3-4L 25%, >4L 40%) and no purchase tax (5% temporarily, normally 10%).

There have also been reports that China may introduce local subsidies for electricity to lower ownership costs of EVs further.

China also has its ZEV program to slowly enforce transition to EVs, but this isn't likely to be a market driver unless the targets are made significantly more aggressive.

Don't forget that in major cities in China you need to go to a "license plate auction" to register an ICE car -- as a way of reducing smog, they limit the number of ICE cars which can be registered each year. But EVs can just be registered. As many as people want to.

That is the biggest incentive. That's not changing.

 

[neroden]

If I were a company looking for a battery supplier, I wouldn't touch LG. They're hostage-takers. Same company that's been threatening to immediately cut off battery supplies to VW if they don't cancel their Gigafactory plans with SK Innovation.

Agreed. This unfortunately means GM is in big trouble, since they're dependent on LG. *Sigh*. Pity, I liked the Bolt.

 

[neroden]

Edit: Bad Google Translation. Below 160Wh/kg, subsidy is lower, but above gets 1x.

OK, the restrictions are by watt-hours per KILOGRAM -- what the hell is it measuring?

(Battery cell power density? Battery pack power density? Total battery size divided by CAR gross weight?)

 

[neroden]

Just a data point. I have a Model 3 performance ordered 2 weeks ago, scheduled originally for Tuesday delivery, now to Thursday, and I still don't have a VIN 2 days before the new delivery, meaning my car isn't even built. As far as I know, performance orders get first priority for delivery. How many performance model 3 orders does Tesla have???

Did you order the white interior? Also, what paint color?

Tesla is batching the interiors and paint colors in a pretty extreme fashion, probably more than they should.

 

[mongo]

OK, what the hell sort of unit is watt-hours per KILOGRAM and what is it measuring?

Energy density by mass, how much does your pack weigh. If you know the chemistry, about how much do the raw materials cost.

In this case, I believe it is a ratio of battery capacity to vehicle weight in order to classify them.

 

[neroden]

Never mind, printf had the info. It really does seem to be battery energy divided by *car* weight. And apparently Tesla scores very well and will get lots of subsidy.

Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable