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

[ItsNotAboutTheMoney]

I look at Q1 as the Tesla equivalent to buffering an audio or video file before playback begins. Now it is in steady state so no more buffering pauses needed.

They're also just worked through almost all the (P)3(LR)D in the established LHD markets.

But they haven't delivered:
3SR- anywhere
3SR+ outside of the USA
3SR+ full backlog in the USA
3 LHD outside of USA, Canada, China, major EU+EEA markets
3 RHD anywhere
3, S or X in a number of markets
3SR+ AWD is also not available

So, plenty of flux in there.

Even S and X demand has a bit of flux. The big hit would have been the market shrinking due to the combination of the vehicles being old, current and impending competition from Jaguar, Audi and Porsche and the release of the Model 3. But 2019Q1 sales in the USA would have been impacted the falling tax credit, and Q1 is the low period for sales.

With wanting cash and there still being backlog out there, Tesla will likely still have some rushes for SR- and RHD.

In April 2016, after the Model 3 reveal, Musk was asked about the expected ASP for the 3 and said it would be $42k.
Having worked through almost all of the high-spec 3 backlog, they're close to the crunch, of needing profitability on the natural volume and the $42k ASP.

 

[azaz]

Don't agree with any kind of advertising, but PR could improve and communications is their weakest suit by a long way. There's a load of us here that could head-up Tesla communications better than who-ever is doing it right now. Is there anyone, seriously?

As for anti-FUD, well a lot of us are busy on Twitter, which seems to be the main social media conduit for it, but I think there's scope for some more official Tesla pushback to some of the straight mis-truths we read and hear on CNBC, BI and their ilk.

well, they are gonna have to start advertising to push US demand to levels of supporting 500k a year eventually.

and honestly I just couldn't disagree more on this idea that Tesla doesn't need to advertise, but I've had that discussion in this thread already so will save it. and I wasn't talking about financial FUD but rather a large amount of customers just not being educated about Tesla/EV.

 

[jhm]

Unclear on Neal's math. Wishful thinking?

View attachment 393662

He's a journalist. Don't expect him to get arithmetic.

 

[CyberDutchie]

From all the analyst reactions out there, I like this one the best:

Toni Sacconaghi, at Bernstein, reiterated a Market Perform rating and a $325 price target.

“We believe that Tesla should have raised capital in the second half of 2019 and eschewed near-profitability to press its first-mover advantage and grow as quickly as possible in 2019 and 2020,” Sacconaghi wrote. “It is now in the uncomfortable position of likely needing to raise capital from a position of relative weakness.”

It’s all in hindsight but it would have made more sense to double down investments to grow faster with multiple new GF plans. Now we are seeing the production and delivery problems, signs of Fremont to simply not able to produce more. It is slowing the company down and giving the competition a chance to catch up.

Hopes of total dominance of the EV market (and $1000+ share price in a few years) have been dealt a big blow today. I do no longer see a chance of us reaching $400 any time soon, and will have to adjust my own expectations and rethink my investment in TSLA all together, unfortunately.

 

[Fact Checking]

You've got it backwards. The current stop/start overseas production schedule stresses working capital more than a smooth cadence does.

My point was about end of quarter working capital: assuming they can flush inventory by the of quarter and order deliveries to produce cars for faraway customers first and closest customers last, the number of in-transit units is reduced, which reduces working capital requirements at the end of the quarter.

You are right that working capital doesn't dip as low with smoother deliveries - but that wasn't my point: Tesla is still judged by end of quarter financials so they flush inventory to improve EoQ working capital.

Eventually they'll take the plunge, but that means ~35 days worth of international production in transit at the end of quarter: with 100k units and 50%/50% U.S./RoW split and U.S. delivery delay of 10 days that's about ~50k units in transit in steady state, which is a lot.

Yes, I agree that they should smooth it out, but they don't have much of a choice for the next two quarters.

 

[Nocturnal]

One big sticking point for me is how the margins will be on M3 SR. Making money on a 35kUSD EV is considered impossible by some(mostly old geezers way past their prime and relevance). Other sources that seems more reliable says that a 35k EV can be profitable enough. I should trust them.

A few thoughts on that. The base SR may always been a zero profit (or small loss?) item. However, Tesla has already shown that many of their buyers are ok with stretching, so that base SR may have no profit, but a 2k upgrade to autopilot is almost 100% profit. Then whatever profits may be achieved by maintenance, supercharging fees, sharing revenue from in car streaming etc. will be something to consider. Furthermore, even if it's a zero profit item, more EVs and Teslas on the road make the entire brand more attractive. If I see Teslas everywhere that may push me to buy one, and there is a decent chance I'm not buying the cheapest one. (assuming you believe, which I do, that more people would buy a Tesla if they knew that driving electric wasn't a compromise but rather a net benefit to your lifestyle)

That’s it, I’m out. I will still hold my retirement TSLA as I can’t touch that for 10 years (at least), and Tesla will be absolutely massive by then. But sold all my stock and calls outside of that.

My reason is that Elon always has to do things the hard way. You close half of your galleries, discontinue the lower priced S/X, and don’t expect a dramatic fall in sales? Why are they not advertising!?

In this world, you have to play ball. It sucks, but that’s how it is. If you don’t advertise, you lose way more $ in lost sales due to negative press. Imagine how many S/X sales have been lost over the years due to negative FUD!

I’ve had my S for 6 years, and people still ask me about all of the nonsense you see daily in mainstream media. Elon would rather fight with Cramer than schmooze Wall Street. I’m just so over it.

You have to do what makes you feel comfortable. I hold most of my TSLA in retirement accounts as well so it necessarily encourages me to be super long. I have a lot of faith still but I think it's reasonable to say that Tesla isn't taking the easy path.

I also think they need some amount of advertising. Plenty of companies advertise just for brand awareness without any real need/goal to increase short term sales.

 

[Tslynk67]

well, they are gonna have to start advertising to push US demand to levels of supporting 500k a year eventually.

and honestly I just couldn't disagree more on this idea that Tesla doesn't need to advertise, but I've had that discussion in this thread already so will save it. and I wasn't talking about financial FUD but rather a large amount of customers just not being educated about Tesla/EV.

Seriously, who pays attention to advertising? Did you ever buy car because of an advert? I didn't. Mostly it has been because of recommendation or just seeing something in the streets that I liked the look of and then researching it.

 

[X Fan]

So key to tsla survival and thriving, in my opinion, is not tied to S and X thriving. The model3 and soon to come semi are the keys. That is why tesla has not expanded lines for those models. They are not done with those but suspect they won’t be expanded and maybe a line’s robots and space used for semi. As model3 ramps the importance of S and X decreases proportionally not ready to disappear but lower volumes will allow higher margins on those. I loved my S but sold it for the X and recently sold my X because I loved our 3s so much. Of course size of S and X will be needed by some but most of X and S sales were not about that that, just no car as good until model3 came out

3 instead of S I get but the X fills another buying space. Also, low profile of 3 is challenging for a part of the market (lol: old folks like me).

Btw: I actually view a successful Y launch as one of the most important keys to the company’s future.

 

[durkie]

Can someone clarify the uptick rule? Since it's in effect right now, short selling is restricted until trading hours begin on Monday.

This to me says:

1: The price action is likely to be neutral-to-positive for the rest of today and tomorrow, since the SP will only decrease from existing shareholders selling, and I would imagine many are not eager to sell on a down day.
2: The SP is likely to drop on Monday as short selling resumes.

Is this correct?

 

[Remus]

Has the EU denied Tesla homologation? Did no one in China pre-order a Tesla? Did Tesla go bankwupt? Because that's most of what I had been hearing from shorts most of the quarter.

Those were super bears, to which we have super bulls here as someone predicted they delivered almost all cars shipped to China partly driving upwards surprise, based on some online rumors. Neither of those should be taken seriously.

The question is how much is the steady state demand. If model 3 turns out to be a niche, then Tesla should be evaluated in a similar way with BMW, with P/E in the single digit. Even with model Y, produced with stable profit, it will be just another slightly bigger niche. We just have someone saying in Europe they have exhausted all backlogs and the demand forecast is bleak for cheaper versions.

I think the truth is probably somewhere in between. The "demands" went down somewhat. But logistics issue and production constraints seems to be a major factor affecting the numbers this quarter. They are still struggling with production problems, and resorted to batching popular combination of options to keep production numbers at present level. Essentially this is NOT build to order, so naturally they have inventory, and some people in Europe got their car several days after ordering. And Historically S 75D was a better seller than 100D, so I still think the cheaper 3 would have more customers instead of less.

But production and logistic problems are real problems. We already seen many pessimistic estimate about the cash on hand, and there is no info from Tesla to counter those. So the bankruptcy narrative will be everywhere. Although I think the 2017~2018 production hell and the falcon win door problem were much worst, hence no need to worry about bankruptcy but I am just me so stock price probably will suffer.

While I can still keep my faith and believe 1. Tesla won't bankrupt, and 2. they are still on a bumpy road to challenge Toyota's market share with higher margin, I am disappointed to find I am part of an echo chamber and contributing to it.

hopefully truth prevail

 

[azaz]

From all the analyst reactions out there, I like this one the best:

Toni Sacconaghi, at Bernstein, reiterated a Market Perform rating and a $325 price target.

“We believe that Tesla should have raised capital in the second half of 2019 and eschewed near-profitability to press its first-mover advantage and grow as quickly as possible in 2019 and 2020,” Sacconaghi wrote. “It is now in the uncomfortable position of likely needing to raise capital from a position of relative weakness.”

It’s all in hindsight but it would have made more sense to double down investments to grow faster with multiple new GF plans. Now we are seeing the production and delivery problems, signs of Fremont to simply not able to produce more. It is slowing the company down and giving the competition a chance to catch up.

Hopes of total dominance of the EV market (and $1000+ share price in a few years) have been dealt a big blow today. I do no longer see a chance of us reaching $400 any time soon, and will have to adjust my own expectations and rethink my investment in TSLA all together, unfortunately.

I don't think they need a cap raise because they aren't production limited right now. it's demand in the US at least.

 

[Nocturnal]

Don't agree with any kind of advertising, but PR could improve and communications is their weakest suit by a long way. There's a load of us here that could head-up Tesla communications better than who-ever is doing it right now. Is there anyone, seriously?

As for anti-FUD, well a lot of us are busy on Twitter, which seems to be the main social media conduit for it, but I think there's scope for some more official Tesla pushback to some of the straight mis-truths we read and hear on CNBC, BI and their ilk.

For sure. I'm not even a corp com or marketing person (IT consultant) and I know I could do a better job assuming the powers that be actually let me do the job. Maybe I could actually use my MBA in that role.

 

[Doggydogworld]

When it comes to a refresh, I still believe there is a need to upgrade the batteries.

Definitely need a new battery pack with improved cooling. I still can't believe they announced 250 kW for Model 3 and left S/X twisting in the wind. Musk is one of the best marketers of all time, but this was boneheaded. Unless there's a "one more thing" out there...

A 115 kWh Model S pack with Model 3-style PMSR motor and updated power electronics should get 400 miles EPA. Maybe even 110 kWh with more aerodynamic wheels (not ugly ones!) and a couple other aero tweaks. That would re-establish Model S as Tesla's flagship and set a new bar the ~240 mile Jaguars, Audis, Porsches, etc. can't touch.

As you say, it's about consumer perception. Make 400 miles the standard at the high end.

 

[Tslynk67]

Can someone clarify the uptick rule? Since it's in effect right now, short selling is restricted until trading hours begin on Monday.

This to me says:

1: The price action is likely to be neutral-to-positive for the rest of today and tomorrow, since the SP will only decrease from existing shareholders selling, and I would imagine many are not eager to sell on a down day.
2: The SP is likely to drop on Monday as short selling resumes.

Is this correct?

Just means you can't short the stock until market open on Monday. Of course if you short form here then you're probably a bit dumb.

But you can sell puts and sell the stock, if you have it, below market value, so plenty of ways the shorts can still exert influence.

 

[X Fan]

I pretty much agree with this. I think a lot of folks here have been underestimating just how important growing the Model S/X business is to Tesla's financial stability.

When it comes to a refresh, I still believe there is a need to upgrade the batteries. Of course, autonomy tech will be cutting edge, and the bodies are timeless. But as long as there is the PERCEPTION that the battery tech maybe a generation behind that of the Model 3, we've got problem. A colleague of mine bought a Model 3 Performance. He said he could have afforded a Model S, but was concerned that the Model 3 was more advanced. So the perception that the Model 3 may be technologically more advanced than the Model S/X is a real problem that leads to some buyers opting for the lower price vehicle. There are two basic option for fighting this perceptual problem: advertise the Model S/X or upgrade the pack.

I know folks here will give me flack for raising this issue yet again. However, when we are discussing issues of consumer demand, perception is often more important than the reality. For the most part, the technical arguments put up against a battery upgrade have failed to address consumer perception. If you have to wade through detailed engineering material to make your case, you've already lost 99% of consumers out there. The absolute easiest way for Tesla to tell customers that the Model S/X have best battery tech is to swap out the pack for the latest battery tech. The second easiest way is to drop cash into ad campaigns to "educate" buyers to see the 18650 packs as optimized for highest performance. Or Tesla could do nothing and watch demand shrink 50%.

Good post. I’d argue that S/X current GUI is superior to the Model 3.

Second stalk for easy AP and additional screen is the differentiator (two of my sons have the 3 and I’ve driven their cars several times).

 

[lencap]

Seems to me that some of the TSLA pain is self inflicted. Musk is the largest stock holder and is passionate about his company. He also has an intense dislike for the Short Sellers. I believe that clouds his focus. He has resisted issuing new stock, partly to not dilute his personal holdings, but also out of principal to avoid giving the Short Sellers any ammunition that TSLA's financial picture and future growth aren't as strong as he projects.

For example, when the stock soared above $350 earlier in the year and optimism about the company was high, Musk decided not to issue new stock. This seems like a mistake that a more seasoned CEO wouldn't make. He had an aggressive agenda at the time - Expand into China, introduce several new cars - Model Y, Truck, Roadster (New revenue sources) - enhance and expand the SuperCharger Network (needed to keep new Tesla owners happy with increased charging demand) - and support better customer service and possibly begin to advertise - reinforcing the positive TSLA narrative and expanding demand. All of this is incredibly capital intensive. He could have issued a secondary stock offering of $2+B (about 6 million shares) and taken advantage of the high stock price to replenish the Balance Sheet, reduce debt, fund many capital intense projects. This was especially critical since there was a convertible debt offering coming due shortly that required the stock to remain at lofty levels to avoid a big cash payment. If the stock stayed high, the extra shares wouldn't have been much dilution. If the shares fell, as they did, the $2B cash infusion would offset part of the $950M debt payment. Either way, TSLA would have benefitted. It was a low risk strategy at the time, giving TSLA lots of flexibility at minimal risk.

Now, if cash flow remains low from reduced sales, balancing sales to China, etc., Musk may have to sell stock anyway, and at prices 30% lower than they were in January. This, to me, is one of Musk's shortcomings - his passion may sometimes cloud his financial judgment, and blind him to the financial arguments made by his senior management team. That may be why the new CFO resigned quickly - he saw the issues clearly and likely wasn't able to get Musk to set aside his emotions and make the hard business call.

I'm still a fan, and owner, but I'm also realistic about the differences between Wall Street's financial demands for any company and those of a founder. TSLA is a "Story Stock", run by a passionate leader. That can work (look at AMZN), but for it to work there has to be consistency and a clear vision that is achievable. Bezos lost money for years, but he kept to his plan - aggressively disrupt traditional businesses and build for the future. TSLA has the same concept, but the clarity of the vision, the ability to "stay on script", and showing continuing progress and financial consistency seems lacking.

This situation is further complicated by the liabilities TSLA assumed when it bought SolarCity, which are significant and haven't been discussed very much lately. If you read TSLA's SEC filings carefully you may be surprised by the risks TSLA assumed through the SolarCity buyout. I would expect Short Sellers to begin to resurrect the financial implications of SolarCity's potential cash drain on TSLA as they press their negative FUD bet.

Finally, whether the SEC "wins" and has an impact on Musk's position at TSLA or not, there seems very little upside in having another distraction, especially one with potentially significant impact on the company. For TSLA to reach the same trajectory and success, it may be time for TSLA's Board of Directors to do more than cheerlead and get a suitable team around Musk to reach the next level.

Is the world ending for TSLA? Clearly not, but the transition from "Story Stock" to "Real Company" demands more consistency and focus, and a skillful team dedicated to doing just that. Bezos has that focus alongside his passion, and Tesla needs the same. The quicker this happens the better for all involved, IMHO. Facebook had a similar problem, and the answer was to reshuffle management, bring in some talent where needed, and move forward. TSLA is more like Facebook than AMZN in many ways, I believe, and the remedy may be a similar refocus and team buildout.

 

[jhm]

I know @DaveT has talked about it in the past, but at some point Tesla is gonna need a real communications and advertising team to effectively counter disinformation. they are missing out on too many sales just from misinformation.

Yep, at some point you pay for advertising because it is less costly than the alternatives.

 

[2virgule5]

I don't think they need a cap raise because they aren't production limited right now. it's demand in the US at least.

I have a different interpretation at least for model 3 - with the launch of SR/SR+ they are now certainly production limited and will remain so for many quarters when they expand these models to the rest of the world.

 

[Causalien]

And here am I crying about $185 I paid for a Friday 312.5 call

I learned something though - yesterday that option was up 60% at one point and even taking into account 2x$20 trading fees, I could have pocketed $50 profit = take the money when you can...

That's why you need at least 2 so you can sell half when a short run up is unwarranted.

 

[shrspeedblade]

It will be interesting to see the Q1 financials from the standpoint that they lowered production- but they lowered expenses as well:

-S/X production cut by an entire shift
-now only shipping the higher margin S/X as well
-4Q (and 3Q, for that matter) '18 Model 3 production almost certainly had higher labor costs due to overtime for the big year end push, if this has been trimmed back significantly while still producing nearly 5000/week, with several shutdowns, that's not exactly a bad thing.

Things are rarely as good as the optimists see it, a hard lesson at least I'm digesting right now, but they're rarely as bad as the pessimists see it, either. I guess we'll find out more in a month.