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

[Gigapress]

Yahoo! Finance has lowered their EPS Consensus a couple of pennies to $1.01.

For reference:
- Tesla sold 310,048 EVs in Q1 2022 resulting in actual EPS of $1.07.
- Tesla sold 343,830 EVs in Q3 2022 resulting in actual EPS of...
I expect another significant Beat in the cards coming right up.

View attachment 863569

So in Q1 we had about $300M of extra ZEV credits compared to recent average. That was an extra $1k per car bonus which came out to around $0.09/share post-split. $1.07-0.09 = $0.98 non-gaap comparable to Q3.

11% higher deliveries, assume $300M less ZEV credits, and yet earnings only 3% higher?

How did they get these estimates? I haven't looked at the institutional analyst models recently but honestly I am baffled.

 

[WarpedOne]

I haven't looked at the institutional analyst models recently but honestly I am baffled.

Institutional analyst models are not there to produce result, they are there to to pretend results are computed from them.
Estimates exits to manipulate, remember?
Have we payed for them? No.
So we are paying the other way.

 

[Gigapress]

Commercial airplanes are designed with extreme degrees of safety. The FAA requires a one-in-a-billion rate of catastrophic failure.

The engineers achieve this with redundancy. Extra structural material, extra wheels on the landing gear, multiple independent structural load-bearing paths, extra flight-control surfaces and associated hydraulics and auxiliary equipment. Independent left-side and right-side electrical systems. Extra oxygen bottles. Duplicated or triplicated fluid systems. Triple-redundant electrical bonding, sealant application, and fasteners. We blow nitrogen gas into the fuel tank to make sure it can’t explode, even though that shouldn’t be possible in the first place because we systematically eliminate static electricity buildup in the tank to ensure there is no ignition source.

Did you know that every jet you’ve flown on has a RAT on it? A ram air turbine, that is. A heavy windmill power plant that gets hauled around as dead weight and only gets used in an extremely rare emergency, which probably will never occur in the entire multi-decade life of the aircraft.

All of this makes for an aircraft that is much less efficient than one that works 99.99% of the time. It's pure waste almost always. Extra weight. Extra fuel burn. Extra cost. Extra manufacturing operations. Extra maintenance. Extra pre-flight inspections. Because of this caution, you are paying substantially more for flights than you would otherwise, probably by hundreds of dollars worth.

Yet it's deemed to all be worthwhile because we want the risk of catastrophic failure to be that low. Sometimes the first two systems fail and that third one is what saves everyone on board.

Why not treat Tesla's liquidity with the same degree of caution, considering the tragic consequences of hypothetical failure?

 

[WarpedOne]

Why not treat Tesla's liquidity with the same degree of caution, considering the tragic consequences of hypothetical failure?

I guess this is regarding share-buy-back...

Cash is a form of value storage. Besides other direct fees, you also pay one a bit more hidden: inflation.

You pay 2B just for holding 20B in cash for a year with 10% inflation.
Sure, the number doesn't change, it still reads 20, but the value (i.e. purchase power) is only equivalent to past 18B. 10% of value evaporated.

Cash buyback is not really a buy - it's an investment. It boggles my mind how people who tear up sofas for same spare change to buy another share, suddenly turn 180 and see tesla doing the same as wrong.

 

[Cobbler]

I like this guy. Hopefully the market is really forward looking.

Makes me think of a PID controlled system where the feedback loop is lagging so much because of an oversized moving average filter, causing the system to overcorrect way too much.

If you would implement this for steering in a self-driving car, it would never manage to take a corner

 

[Gigapress]

It boggles my mind how people who tear up sofas for same spare change to buy another share, suddenly turn 180 and see tesla doing the same as a wrong?

@traxila described the reason perfectly. Tesla matters. We don’t. The standard of safety is not the same.

I put my money where my mouth and am currently getting hammered. In my margin account I have been steadily forced to liquidate ancient shares and have been buying LEAPs to try and replace them. I should be one pining for buybacks and criticizing cash flow not properly deployed. I am not.

I came here for electric cars and a renewable future.

Will go down with the ship if I must on this account. Play with fire, burns happen.

Tesla is NOT allowed that option. They matter. I don't.

A severe macro disturbance that takes three to four quarters to play out can still crush this company. All our factories could transform to those cash burning furnaces that EM was bragging about in an eye blink. There is a reason why EM has wiped the debt off the company. He knows the vultures will come for Tesla while still alive and crawling on the desert floor to pluck out the eyeballs.

What is the hurry? Can we see this fantastic cash flow pile up for a while? Then we can brag about it afterwards?

The inefficiency of allowing cash value to slip away from inflation was exactly the analogy I was making. It costs extra to get safety. Everyone knows that. Let’s think very carefully about whether, in the case of Tesla’s liquidity, that safety in worth the price.

 

[CorneliusXX]

The shares still exist, so they still just own 1/10 of the company. But since the company owns the two shares, they also own 1/10 of each of those shares. So they own 12% of the company. If the shares were retired they would own 12.5% of the company. (I think I got the math on that correct.) But that is right up until the company does something with those shares, which they can do much easier than issuing new shares. Be that sell them, issue them as part of stock compensation plan, or use them to buy another company.

But it would reduce the float used to calculate S&P500 balancing/etc. just like retiring the shares.

I think you're missing a recursive element in your calcs. If there's 8 investors that own 1/10th of the treasury shares, then treasury owns 2/10ths of the treasury shares - so the 8 investors also own 1/10th of the 2/10ths...and so on.

either way, the remaining 8 investors own 1/8th of the economic interest in the company.

 

[WarpedOne]

@traxila described the reason perfectly. Tesla matters. We don’t. The standard of safety is not the same.

There is not much safety in evaporating asset. Cash is needed for liquidity and is good for some peace of mind. What this buyback debate is missing is concrete numbers. When does a growing pile of cash transform from adding value to destroying it?

End of q2 cash pile was $18B. That would pay for say 4 new GF. End of q3 the pile will grow by say 4B to 22B. Annual inflation is expected to be 8% so this cash pile will end up destroying $1,7B of value, almost half of a GF will be "invested in safety" i.e. evaporate.

The point is this situation will only get "worse" i.e. inflation will destroy more and more value as cash grows. This "surplus" cash must thus be invested into something that is less subject to inflation.

 

[Thekiwi]

There is not much safety in evaporating asset. Cash is needed for liquidity and is good for some peace of mind. What this buyback debate is missing is concrete numbers. When does a growing pile of cash transform from adding value to destroying it?

End of q2 cash pile was $18B. That would pay for say 4 new GF. End of q3 the pile will grow by say 4B to 22B. Annual inflation is expected to be 8% so this cash pile will end up destroying $1,7B of value, almost half of a GF will be "invested in safety" i.e. evaporate.

The point is this situation will only get "worse" i.e. inflation will destroy more and more value as cash grows. This "surplus" cash must thus be invested into something that is less subject to inflation.

Tesla earns interest on its cash pile, the interest rate which increases along with inflation. The difference between interest rates from cash invested and inflation is generally ~3%, perhaps a little higher currently.

So the cash is not devaluing at the same rate of inflation when you account for the return Tesla is getting on its cash.

=========

To be clear, I think most people here who are currently advocating against a large buyback NOW - are not doing so because they think buybacks are not a good idea eventually - only that it is best to wait until the cash pile is bigger and the multiple current large uncertainties have somewhat receded. Its possible the more appropriate time is merely 3-6 months away to unleash the buyback floodgates.

 

[MikeAtkinson]

Creating the Robotaxi fleet is going to take insane amounts of cash. My estimates are in the low trillions worldwide over the first few years [1]. Some of this will come from third parties buying teslas and joining the Tesla Network, but much will be internal Tesla investment.

I would much rather any spare cash be used to create the Robotaxi fleet than used for buybacks.

Indeed my worry is that Tesla has too little cash to fully take advantage of the Robotaxi opportunity. There will be a limited window when FSD is working, but rival systems are not (or are too expensive or not scalable). Reductions hardware costs, improvements in AI algorithms/training and the example of FSD to show what works, mean that effort required to create a rival robotaxi will be much, much less in 10 years.


[1] Assume 1.4 billion cars, half of which can be replaced by Robotaxi, each Robotaxi replaces 10 private cars. So 70 million Robotaxi required. Each Robotaxi is $50,000 including overheads, so $3.5 trillion is needed to build out the Robotaxi fleet. Lots of reasons why Tesla will not need all that in cash: competition reducing market share, revenue during rollout, third party investment through Tesla Network, still it drawfs the amount of cash Tesla has on hand at present.

 

[CorneliusXX]

There is not much safety in evaporating asset. Cash is needed for liquidity and is good for some peace of mind. What this buyback debate is missing is concrete numbers. When does a growing pile of cash transform from adding value to destroying it?

End of q2 cash pile was $18B. That would pay for say 4 new GF. End of q3 the pile will grow by say 4B to 22B. Annual inflation is expected to be 8% so this cash pile will end up destroying $1,7B of value, almost half of a GF will be "invested in safety" i.e. evaporate.

The point is this situation will only get "worse" i.e. inflation will destroy more and more value as cash grows. This "surplus" cash must thus be invested into something that is less subject to inflation.

The full term for the cash line on the balance sheet is "Cash and Cash Equivalents". Tesla isn't going to have $18b in an everyday bank account - most of that cash will be invested in liquid assets that return interest - e.g. money market funds, government bonds, etc. It's standard operating procedure for corporate treasuries to do this. Even buying bitcoin was just a corporate treasury operation, albeit a less common one.

So their balance isn't going to be eaten away at the inflation rate as they will be earning interest (although if inflations is higher than the interest they earn, the cash value could still be going backwards). The interest income is also another line item in their financial statements.

 

[cliff harris]

Its only just really sunk in to me that elon buying twitter is ANOTHER reason for the press to despise him. Its bad enough that he has a colossal energy and car company that refuses to pay them advertising dollars or give them interviews. Now he might actually grow twitter, which is already a platform that totally subverts their business.
Follow the top 10 journalists from a site on their twitter accounts and... who needs to bother visiting that site again? tweets are sent faster than news is published, and you don't need to see their ads and their subscription nags. It also allows for perfect customization of what news you want in your feed.

This could be another industry disrupted. Expect even more FUD, even more lies, even more hatred for Tesla by journalists in the coming year.

 

[WarpedOne]

Creating the Robotaxi fleet is going to take insane amounts of cash.

Robotaxi will come from Tesla's production lines and will thus be limited by their production capacity.
At full 20M annually and $20k RT COG that insane amount is... 20M x $20k = $400B

Say first year tesla only produces 1M robotaxis and 5M SEXY.
1M robotaxis will cost $20B to build.
5M SEXY sold will earn them ... $50k AVP, 30%GM ... $75B

Second year 2M robotaxies cost $40B to build, 4M SEXY sold brings in $60 B, 1M robotaxis on road doing 100m/day, earning $0,5/mile brings in $50B.

Do the numbers, Luke!

 

[Thekiwi]

Its only just really sunk in to me that elon buying twitter is ANOTHER reason for the press to despise him. Its bad enough that he has a colossal energy and car company that refuses to pay them advertising dollars or give them interviews. Now he might actually grow twitter, which is already a platform that totally subverts their business.
Follow the top 10 journalists from a site on their twitter accounts and... who needs to bother visiting that site again? tweets are sent faster than news is published, and you don't need to see their ads and their subscription nags. It also allows for perfect customization of what news you want in your feed.

This could be another industry disrupted. Expect even more FUD, even more lies, even more hatred for Tesla by journalists in the coming year.

The biggest social networks will be controlled by the following three entities:

- Chinese government (Tik Tok Via Bytedance)
- Mark Zuckerberg (majority control of facebook/instagram)
- Elon Musk (Twitter)

This is not the greatest club in the world in the eyes of many people, especially journalists.

 

[navguy12]

I guess this is regarding share-buy-back...

Cash is a form of value storage. Besides other direct fees, you also pay one a bit more hidden: inflation.

You pay 2B just for holding 20B in cash for a year with 10% inflation.
Sure, the number doesn't change, it still reads 20, but the value (i.e. purchase power) is only equivalent to past 18B. 10% of value evaporated.

Cash buyback is not really a buy - it's an investment. It boggles my mind how people who tear up sofas for same spare change to buy another share, suddenly turn 180 and see tesla doing the same as wrong.

I am not a subject matter expert in this area, this is just one persons opinion thrown into this churn about a buy back:

Your point is taken.

However, one could view that 2B cost as the cost of insurance.

About 40 years ago, I had a discussion with my dad that involved him paying a fee (off his pay check) for (what was at the time called) unemployment insurance (UI).

UI was, back in the day, set up so that if you lost your job through no fault of your own, you didn't lose everything (you worked decades for) over the following six months just because you had bad luck.

Dad was lamenting at the "wasted money" he had to pay over decades and never "got to collect any of it", all the while his net worth continued to grow while being protected from a disaster.

I asked my dad, "Do you pay for fire insurance on this house? Yes. Have you ever had to collect on it? No. So, why aren't you lighting a match to this place to collect the insurance, since you've been paying into it for decades and never get anything back from it?..."

2B a year for what could be construed as unemployment insurance for Tesla as a going concern doesn't sound like a bad deal (to me).

Back to the game...

 

[cliff harris]

I agree that its worth Tesla having some cash as insurance against black swan events. However, its really a matter of degree. Things get way too polarized on this board, with people being in camps 'for' or 'against' certain actions by the company.

I am FOR a share buyback in very specific circumstances:

1. The company has a very very large cash stockpile
2. Inflation is extremely high, eroding cash value
3. The share price is unusually low, and thus represents good value
4. The future continues, via order backlog, to look very very good

These are very unusual and unlikely circumstances, but all 4 apply right now. Therefore I support a limited buyback, with some portion of the cash holdings. I don't think any rational person wants Tesla to do buybacks constantly regardless of circumstance. Its all a matter of degree. Gary is suggesting $10billion over multiple years. That sounds reasonable, if conditions persist.

 

[2daMoon]

I agree that its worth Tesla having some cash as insurance against black swan events. However, its really a matter of degree. Things get way too polarized on this board, with people being in camps 'for' or 'against' certain actions by the company.

I am FOR a share buyback in very specific circumstances:

1. The company has a very very large cash stockpile
2. Inflation is extremely high, eroding cash value
3. The share price is unusually low, and thus represents good value
4. The future continues, via order backlog, to look very very good

These are very unusual and unlikely circumstances, but all 4 apply right now. Therefore I support a limited buyback, with some portion of the cash holdings. I don't think any rational person wants Tesla to do buybacks constantly regardless of circumstance. Its all a matter of degree. Gary is suggesting $10billion over multiple years. That sounds reasonable, if conditions persist.

One thing I'd like to add to this is, at the current rate of growth, how long would it take for Tesla to recoup, say, a $10B buyback from future profits?

In other words, what would be the time of exposure for any potential risk incurred? Time is a factor which has been absent from some of the excellent data we've seen regarding the pros and cons of a buyback.

 

[OrthoSurg]

On the plus side, my account is so much smaller now that a 5% dip doesn't hurt nearly as bad as it once did.

Edit. I don't think this is all that funny.

I thought I was alone with that feeling.

The positive thing I told myself last 10 days was for every subsequent -5% drop, I am losing less and less money daily =)

 

[mongo]

Elon's 2018 CEO compensation plan will result in 9% new shares on or by Jan 20, 2028. Basically 5 years from now at a present value $67 Billion.

Any impacts of a less than 2% per year buyback will be undone by the level of 2028 dilution.

To really impact things, Tesla needs to pay Elon in existing shares; but again, $67B needed today. Debt might be difficult as the funds will flow out rather than increase the company coffers/ value. However, perhaps they can finance a large buyback now (keep shares that have value), and pay Elon with them later (debt paid down). Still transitory, but eventually less dilution. Helps shareholders, but not Tesla.

 

[ZachF]

There must be a way for the US to make nice with EU over this, otherwise the EU wouldn't be bothering much with any pretence of talks (except for brief enough ones to log as a charade for the pre-action protocol).

So what's the way ?

The EU should offer their own incentives.