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That requires that the bank (to my knowledge there are three major auto lending banks working on this now) will use a very different risk profile than has been the historical norm
Are you able to expand on this a little more? What has changed in their opinion to allow for this? Was Tesla being penalised previously from a risk perspective or are they creating a new way to assess risk re Tesla?

Tesla already places some loan paper with each of these entities, with zero recourse to Tesla.

Do you mean they bought leases directly from Tesla and have assumed the RV risk or have they purchased notes from the TALT deals?
 
It would seem that there are about 200,000ish Nvidia boards in Model 3 units. All work fine for EAP and they are paid for ($300+ ea)

Service is already a bit extended with the accelerating deliveries. Adding additional expense to buy new boards to be installed in the field also adds installation expense. Those having paid for FSD should get them of course.

From the decision to drop FSD as an standard option, I think we might infer that field retrofits are not the route they want to go. Possibly inefficient.

At some point I would think that Tesla will want to make the inhouse H/W-NN board the standard. But remember that Tesla will have thousands of Nvidia boards returned from the field (those that paid for FSD) that are perfectly fine for those wanting only EAP.

Tesla could use them as refurbished spares or they could use them as a cost advantage on the SR - not sure how exactly but possibly as a purchase option (refurbushed board) that comes with a slightly extended warranty or maybe free EAP. Bingo, quicker availability of a profitable $35k SR and building volume early of the SR will be incrementally helpful IMO. Tricky to do but there are ways.

The efficiencies of such a move could help reinforce financially the service operations.

A program that offers field upgrade to the in-house H/W-NN board could free up 10s of thousands of the Nvidia boards that might be efficiently repurposed.

This approach has to be compared to the potential value of having more H/W-NN boards immediately in the field to gain additional miles of experience.
How well suited are those surplus NVidia boards for crypto coin mining?
After all Elon has been promising lots of free coins for years now.
 
OT

Not true at all. Tell me, in any realistic scenario with multiple options, how are you going to know in advance how the relative comparisons and any loops that form are going to play out? You can't. It's impossible. Polls are never going to break down how each voting block views each candidate relative to every other one. What percent of the electorate prefers A to B? A to C? A to D? A to E? B to C? B to D? B to E? C to D? C to E? D to E? And it gets worse the more options you have. All of that information is never going to be captured by polls - and even if they did, the margin of error would be too great for that information to be useful.

With approval voting, it's so simple that even a child can tell without being informed that if you want to bury someone who poses a threat to your preferred candidate, you simply don't approve them. That's it. It's that simple. That obvious. And that effective.

If you look at the literature, Condorcet methods are *far more* suspectible to "burying" than approval voting, and they're susceptible to *insincere* burying, while approval voting is only susceptible to *sincere* burying.

(Every system is susceptible to sincere burying.)

Polling data directly translates. If A is at 30% and B is at 29% and the remainder is split by third parties, and you like both A and B but you'd prefer B, are you going to approve A? Of course you're not. Because you're not an idiot. :)
If polling data is at 30+-3% / 29%+-3%, and C is polling with a chance of winning, yes, you approve A. Because yes, the strategy is obvious.

The discussions of strategic voting in approval (where strategic voters generally can't have much effect on the voting of non-strategic voters) vs. Condorcet (extremely susceptible to strategic voters reducing the effective voting power of non-strategic voters, though not as bad as e.g. the Borda count) are all over the literature now.

Approval voting inherently will be voted strategically. Pretty much every time. In practice, it's effectively "First-past-the-post, plus pity votes for the people I feel have no chance of winning but I like regardless"
And in practice, this means what you call the "pity vote" candidates win pretty often.

Which is the whole point.

As for being easy to understand... hey, the easiest system to understand is dictatorship, but that doesn't make it the best! Next easiest is first-past-the-post, but most people don't like that one either! While loop resolution can be tough to explain, the basic Condorcet principle is very easy to grasp: "If any choice would beat all other choices, it's the winner." Simple. Fair.
But not.

It doesn't find a winner frequently, and when it does, *it may not even be the most popular choice*. It sounds at first glance as if "would beat each other option head to head" is a good criterion, *but it isn't*, if you're trying to find the option which the most people tolerate. Satisfying Condorcet means violating consistency, violating participation, and causing favorite-betrayal to work particularly if you have *less* information.

Your assumption that strategy in Schulze is "too complicated" to use is essentially security through obscurity -- there are high incentives to use insincere tactical voting, and even if everyone votes honestly, you still get IMO undesirable results.

Bottom line for me: I consider the majority criterion undesirable for government. It basically discourages more-popular compromises and leads to organizational breakups. Most of the time when there's a Condorcet winner, approval voting will in practice select the Condorcet winner; but when it doesn't, approval is doing the right thing and Condorcet is doing the wrong thing, IMO.

Here's a sadly-not-nearly-hypothetical-enough scenario.
30% of the population is hardcore evangelicals, with extremist opinions, who will always bullet-vote for their theocratic candidate and be angry if anyone else wins.
21% is softcore evangelicals, who think the theocratic candidate is the best and feel some sort of moral duty to vote for them *and* rank them in first place, but are open to compromises and want to get along with everyone so will vote for / rank other candidates.
49% will vote for anyone but the theocratic candidate, and are terrified of the theocratic candidate and will be angry if he wins.

Work out the result of approval voting vs. Condorcet. See which you think creates a more peaceful society.

If you still like Condorcet in that scenario (which is all too real right now), I will not burden you with further comment.
 
The summary below from @ReflexFunds helps explain why Tesla doesn't anticipate the need to raise capital for the foreseeable future (if ever):

As people have mentioned here before, net profit isn't particularly relevant to whether Tesla is sustainably self financing.
From 0 net profit add $500-520m depreciation, $75m non cash interest, $220m stock comp, c.$150m deferred revenue build, c.$110m warranty build. Subtract c.$50m solar purchases, c.$100-150m non cash lease revenue, $100m-200m maintenance capex.

So assuming flat working capital, $0 net profit still leaves around $900m quarterly cash flow available for expansion capex and debt reduction.

$900M quarterly cash generated is $3.6B annually. In the Q3 10Q Tesla estimated $2.5-$3.0B CapEx is needed for 2019 (p 47).

Tesla also has two significant convertible debt payments due in 2019 -- $920M (maximum) in March and $566M in November.

Assuming Tesla pays off the March convertible out of cash on hand on Dec. 31, 2018, Tesla can cover the maximum 2019 CapEx forecast ($3B) plus the $566M November debt repayment out of cash generated in 2019 just by breaking even under GAAP if @ReflexFunds estimates are correct (and they look reasonable to me).

In fact, since Tesla has already announced local debt financing for GF3, Tesla could lose money under GAAP and still pay off the Nov. convertible and make their maximum estimated CapEx payments out of cash generated in 2019.

So Tesla’s repeated statements that they don’t expect to need to raise capital make perfect sense and are backed up by the numbers.
 
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On that note, does anyone recognize this rack hastily photographed at the Affi, Italy Supercharger?

It appears to say Supercharger 3.

C1FE17D4-0C21-40B8-BD67-CE2AC539BF97.jpeg


Enhance.
 
I think Neroden's point here is purely regarding short term profit and cash flow implications not long term business returns.
Yeah. I was just saying that truly in-house leasing uses a lot of cash flow, short-term. Which should be obvious. Any form of financing your customers uses your cash flow, that's what financing means.

Fully-third-party leasing doesn't (Tesla gets paid for the car upfront), obviously.

In the short term if Tesla suddenly sold 100% of Model 3 volume through in-house leases, they would have to fund the production costs themselves which comes directly out of free cash flow, which could be a c.$2bn+ quarterly impact. They also wouldn't register upfront profit on these sales, so auto business quarterly gross profit would reduce by c.$600m. This would partially be offset by larger gross profits in the leasing business, but these profits will instead be spread over 2-3 years of lease payments and residual profit in second hand cars sales post lease.

So in the long term (2-3 years) leasing is neither good nor bad, but in the short term it is a very significant hit to cash flow and profit and significantly increases external on balance sheet debt financing needs through warehouse lines and ABS.
That's what I meant, yes.
 
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I don’t see how that works out. This means that Tesla’s cost to let a fab process the wafers, package and test them and build a working board around it is similar to buying a finished product (including profit margin, R&D and depreciation) from NVidia. At around 1 million chips/year, and probably a fairly large die size, we’re probably talking about many thousands of wafers per year. That looks like a fairly large volume to me, so Tesla is probably quoted a reasonable price for this.

Clearly, Tesla's large, up-front CapEx to secure themselves a superior product at low marginal cost will be more costly at first.

Probably, at some point Tesla should break even on their up-front investment.

In principle, it is also possible that the break-even point will never be reached and instead Tesla simply will be the only auto maker with an NN ASIC an order of magnitude faster than everybody else (with no money paid to e.g. Nvidia, that the rest of the market could benefit from).

In any case, it's vertical integration, just like the Gigafactory.

PS. Also from a longer-term investor's view, it is really mind blowing that Tesla is making their own NN chip. The actual up-front performance gain is one thing, but from their work with how to best use this chip, they will learn so much more. 20 years ago I was lucky enough to work at LANL with a newly built supercomputer (as part of the ASCI - Accelerated Strategic Computing Initiative), briefly the fastest in the world. The main thing there was not the advantage gained from the new hardware, but rather the insight gained on how the software could work optimally. Now, it is one thing that a superpower decides to massively fund some nerds with new hardware to figure out how to best simulate neutron radiation within fissile material (because then they can say that everyone should stop actual testing). But that a comparatively tiny, private company decides to break new ground in a similar fashion for an equally complex problem is ambitious to the point that it boggles the mind. So while I agree with @neroden that FSD is not lurking just around the corner (sorry), this can really propel Tesla far ahead of the FSD competition.
 
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This is the track record so far:
  • -$717m Q2'18
  • +311m Q3'18
+$317m is required for Q4+Q2, and Q1 profitability, for S&P 500 inclusion.

Hmm? Arithmetic suggests +$406m for Q4 + Q1 (average of +$203m per quarter).

Alternatively, +0.1m for each of Q4 2018, Q1 2019, and Q2 2019 gets inclusion into the S&P in August or September, so it really is just a matter of time.

What we know:
  • Q4 is unclear "smaller than $311m" could mean $250m, $150m, but also $30m.
  • I wouldn't read too much into "tiny Q1".
Agreed with this last. Given that Q3 profit was described as "small" and then Q1 was described as "like in Q3", I don't think we should make too much of the difference between "small" and "tiny".
 
3. Given Tesla track record thus far there may well now be major financial institutions prepared to initiate large-scale Tesla leases that would not force Tesla to assume risk under FASB 842/IFRS 16. My US sources in the auto leasing world (there are several) all are working on approaches to do just that right now.
Thanks for the information.

Please understand that, if my sources are correct, there will be zero direct manufacturer involvement other than dealer or distributor entity lease origination processing (BTW they anticipate processing exactly as third party POS originated external leases are done today).
So this would not involve Tesla fronting cash at all, even for short periods. Fully third party leases, just with Tesla doing some paperwork. That would be good, as Tesla's cash flow would be the same as if they only did cash sales.
 
This is the track record so far:
  • -$717m Q2'18
  • +311m Q3'18
+$317m is required for Q4+Q2, and Q1 profitability, for S&P 500 inclusion.

What we know:
  • Q4 is unclear "smaller than $311m" could mean $250m, $150m, but also $30m.
  • I wouldn't read too much into "tiny Q1".

@ReflexFunds projects $177m income which is about $1 EPS - current street expectations.

That leaves +$140m for Q1, which should be more than doable with high margin EU and China sales

There is always the possibility for a significant negative development though.

It will be much clearer in two weeks.

It would seem like Tesla has some dry powder they could use in the form of EV Credits in order to fill in the gap if needed for S&P inclusion.
Even if we assume a valuation of $1-1.5k per credit, they are generating about 90M-135M in ZEV credits per quarter.

I've seen some opinions that Tesla might be holding on to these because of uncertainty under the Trump administration but with more automakers getting into the EV business wouldn't it make sense to sell them now instead of later? They might be worth even less in a years time. I'd love to hear from someone with more detailed knowledge regarding TSLA's ZEV strategy.
 
Elon has stated something to the effect that he would repay the debt with funds from operations not refinance it. Tesla has had multiple WH facilities and increases in the ABL commitments with no mention of origination expense in the MD&A about the Income Statement. IIRC, the convertibles have some arcane bifurcation accounting to impute a higher rate than the coupon that results in non-cash interest expense.
Thanks for describing some more of the details for Tesla's specific situation this quarter. I asked my question because it's been stated here many times, in ways that make it sound like an accounting axiom, that any repayment of debt will not affect the Operations Statement. I suspect (but don't know for certain since I'm not an accountant) that that's not true for many, many (other) business which routinely rollover debt. So I ask: if a business does pay an origination fee to roll over debt, doesn't that affect (negatively) the Operations Statement?
 
How well suited are those surplus NVidia boards for crypto coin mining?
After all Elon has been promising lots of free coins for years now.

Wouldn't it be interesting. Another thought, the boards are liquid cooled. It would be interesting if in anticipation of charging when the battery is cold, that the board could do useful/profitable work for an hour or so while preheating the battery for charging. I don't think it would be bitcoin mining but it might be something useful. I would love to be able to use the GPU abilities in support of a gaming platform or VR or Neural Lace development when not driving. My thoughts run toward maidsafe.net as well but that is down the road a bit.
 
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Thus, Tesla-sponsored leasing is a sign of maturity and nothing more. It is not higher risk unless leasing is made to create sales to poorer or reluctant buyers.
The question is not whether Tesla should lease cars or not. It is - who should finance the lease. Afterall, lease is a type of finance. Tesla uses banks to do traditional financing of cars - why should they use their own cash to lease cars ? It made sense in the old days when Tesla was new and large leasing companies wouldn't touch Tesla. But now I'm sure they can find large 3rd party leasers willing to do decent leases. As long as the customer service is good and the process is smooth, it is absolutely better to have 3rd party leases than Tesla use its own cash and at a much later date sell the leases.
 
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I look forward to learning about the multiple companies worth tens of billions of dollars that you've been CEO of. ;)

So in your view, before Tesla got their lines to be efficient (and not need as much labour per vehicle), they should have... what then?
By that measure, only 4 people in the world should be able to criticize Trump.

Hire temps - not FTEs - if you think the positions are temporary.
 
Elon came up with the $35k Model 3 price many years ago. He could simply state that things have gone up since then, meaning normal inflation. The car of $35k 3 years ago, now has to be $37,500. Any sane person would understand this.
Tesla is the only company that can never raise prices from model year to model year. Inflation or no, Tesla is only allowed to lower prices. Of course I kid, but it's kinda true.

I get your point but doing the math, the base model 3 is not profitable so Elon is not technically fibbing. But in reality, no one is going to but a 35k Tesla. Delivery fees and pain and wheels mate the real starting price closer to $37k on average already. Could Tesla save with 16" steal wheels with caps to push more upgrades? Doubt it but maybe. The real ASP for the SR considering some will choose PUP, AWD and EAP would be more like $40k+. That is the real Target and that is marginally doable in Q2, due in part to highly automated pack machines from grohmann. To offset that, you need to sell 1:4 highly optioned AWD/P models world wide. I wouldn't expect the cheaper version outside the US until 2020 and I'm actually kind of surprised they haven't announced an East coast or European gigafactory at this point. The reason is demand is going to dictate many factories at $37k because at that price it's competitive with a base Camry.

Tesla will come out with model 3 when two things happen. Demand for $50k cars goes down and production ramps North of 8k/w. Mid 2019 seems about right. Production would need to ramp from there to 10k very quickly to make those cars profitable to the buttom line given the mix.

It will be rushed out sooner if there is a real demand problem. Which thete isn't. NA should easily support 4k/w forever but with a small dip to 3k/w this qtr and the next, barring a recession. The rest must come from ROW which will be a challenge given logistics. Expect large numbers in transit.
 
By that measure, only 4 people in the world should be able to criticize Trump.

Hire temps - not FTEs - if you think the positions are temporary.

What, orange people? ;)

I think anyone looking objectively at Musk's history (outside of Shortsville) would agree that he's had a staggeringly good record. Mistakes, yes, but overall an incredible record of building value in rapid periods of time. So yes, I do agree that his business acumen in this regard is good.

You don't know in advance who you're going to need indefinitely vs. whose jobs are going to be eliminated. Temps and contractors where jobs are known to be temporary? Yes, Tesla uses them. But when you're growing this fast in such a rapidly changing environment, there's know way to know in advance how long a person is going to be needed, and whether even if their job will eventually be eliminated if another job matching their skillset will open up. Also, as mentioned previously, these layoffs serve as a chance to "clean house" of poorer performers. It's far easier to lay off 3000 people collectively than individually.