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

[Fact Checking]

They could have just shut down the line to rob them of supply.

Average GM unsold inventory is I think 60 days of production long - that's 66% of a quarter (!). So they'd have to try to control the outcome with a very long lead time and very uncertain execution on the dealership end.

GM probably did shut down the line (they very likely didn't "accidentally" expire the tax credit just near the end of the quarter ...), just got the timing slightly wrong, by a few days.

 

[mongo]

They could have just shut down / slowed down the line to rob them of supply, while keeping track of how much inventory their dealerships had on-hand.

Preventing dealers from selling cars is illegal in Michigan.

445.1574 Prohibited conduct by manufacturer.

Sec. 14.

(1) A manufacturer shall not do any of the following:

(a) Adopt, change, establish, or implement a plan or system for the allocation and distribution of new motor vehicles to new motor vehicle dealers that is arbitrary or capricious or based on unreasonable sales and service standards, or modify an existing plan or system that causes the plan or system to be arbitrary or capricious or based on unreasonable sales and service standards.

(c) Refuse to deliver to a new motor vehicle dealer in reasonable quantities and within a reasonable time after receipt of the dealer's order, any new motor vehicles that are covered by the dealer agreement and specifically publicly advertised in this state by the manufacturer as available for immediate delivery.

 

[MarcusMaximus]

Yep. GM needs congress to renew the credit *this quarter*. Otherwise the Bolt is going to get even more unreasonably priced, and they'll struggle to move them in ZEV states to get the credits that they need. And California's ZEV requirement increases a lot in 2019, from 4,5% to 7%.

No worries, Tesla will have plenty to sell them.

 

[mongo]

While it would be helpful for GM to hit it in Q3, I don’t think they could be that grossly incompetent.

A car counts as sold as soon as it hits the lot of a dealer right? Doesn’t have to go to the end consumer?

The wording of the EV Credit law indeed said that OEMs must report deliveries to retail dealers. However, later guidance said that it was only end consumer sales that counted.

 

[MarcusMaximus]

Fine if you want to argue on that definition. Then so is every product that hasn't worked down the full price/demand curve.

But it still shows they are price-elastic They wouldn't do this unless they expected demand at this level to drop.

And I agree it's fine as long as healthy margins will remain.

Of course there was otherwise going to be a drop in demand right now. If nothing else, there’s a psychological response to having “missed out” on the tax break that’ll hold people back.

 

[ReflexFunds]

Very strong production and deliveries report from Tesla.

This takes my Q4 forecasts to:
Revenue: +5.2% QoQ to $7,178m. Gross Profit: +11.4% QoQ to $1,697m Net Income: +50% QoQ to $382m.

The $2k price cut will be covered by production efficiencies, new module lines, economies of scale and price cuts from Panasonic. I think gross profit per MR and LR AWD is likely to increase in 1Q19 (over 4Q18) despite the price cuts.

My 4Q18 cash flow forecasts are:
Operating Cash Flow: +36% QoQ to $1,894m.
Free Cash Flow: +33% QoQ to $1,169m.

This should support a $103m gross debt reduction, $923m unrestricted cash balance increase to $3,890m and $261m increase to undrawn credit lines to $1,321m

 

[brian45011]

Crocodile Dundee "that's not a troll, here's a Troll"

 

[X Fan]

Indeed, with a 15% increase in Model 3 production in Q4 vs Q3, labor cost per vehicle should go down by a similar percentage (labor cost is fixed; production is variable, so labor cost per vehicle decreases with increasing production).

Given that approx. half the cost of a Model 3 is in labor, then the gross margin per car should also increase by half, roughly 7%.

Then, a 7% increase in gross margin yields roughly a $200M increase in gross profit, (assuming an ASP around $53.5K per each Model 3 in Q4).

So that's yields about 20% more profit in Q4 than in Q3. I think. Please feel free to correct my estimates, @Fact Checking

I think 2018 Q4 financials are going to be huge.

Cheers!

Good SWAG...I'd add that there will probably be an SGA offset of additional headcount plus new infrastructure costs....still, all in all, great profitability plus significant cash flow.

 

[aubreymcfato]

I've just seen this Peugeot commercial on Italian TV:

If this is not fraudolent advertising, I don't know what is.

 

[generalenthu]

My 4Q18 cash flow forecasts are:
Operating Cash Flow: +36% QoQ to $1,894m.
Free Cash Flow: +33% QoQ to $1,169m.

This should support a $103m gross debt reduction, $923m unrestricted cash balance increase to $3,890m and $261m increase to undrawn credit lines to $1,321m

Please use the thread by @luvb2b or better still start a new thread with q4 projections.

What are you assuming for zev and ghg sales in q4

 

[ReflexFunds]

I have GHG at $2.1k per US car, in-line with Q3. Price per car could be a little higher or lower, but GHG is largely predictable.

I have ZEV at $50m, but it could easily be anywhere from $0 to $400m.

 

[X Fan]

Good news for us. It means GM is going to feel more urgency in getting the tax credit renewed / reformed (and they're historically good at legislative pressure in this regard - note how the current tax credit is built around the size of the original Volt's battery pack). And whenever it becomes clear that congress is going to do this, it's going to be great for Tesla's SP.

I agree...there are forces obviously aligned against including the WSJ that just published an editorial knocking down the case for renewal saying it was a rich person handout (and bad policy).

 

[Fact Checking]

If anyone is mad about the whole FactSet "secret info" situation, complain to the SEC:

Tips, Complaints and Referrals Disclaimer Page

It'll take 10-15 minutes of your time.

This is worth repeating.

Also, the part that looks illegal about "FactSet" is the following:

• FactSet coordination is an opaque, non-public data source that the biggest Wall Street firms use to coordinate their reaction to data releases. How does this kind of coordinated action and effectively a pricing cartel help market transparency?
  
• There's a blatant conflict of interest of bearish analysts: they can simply enter an unrealistically high 'expectation' like Alex Jones did - which will (surprise) help create a 'miss' - from which they then profit...
• The same problem exists with bullish analysts as well who can lower FactSet estimates artificially to generate a 'beat' - the problem is that most Wall Street analysts are bearish about Tesla, which distorts the sampling and allows illegal market manipulation.

I.e. for Q4 deliveries the FactSet database was used as a blatant "short and distort" market manipulation scheme, which is deeply illegal even according to the SEC's rather lax securities laws enforcement principles.

 

[Matias]

...I'm not sure how a company, at the center of a global problem such as climate change, goes from 100k -> ~250k cars delivered y-o-y (i.e. 250% improvement)...

Not that it changes your point, but that is 150% increase.

 

[Navin]

Agreed. This is total bs. Too bad there is nothing we can do.

 

[ZachF]

Agreed. This is total bs. Too bad there is nothing we can do.

...Stop bailing them out every time they roll snake eyes and go crying to the government to make them whole....

 

[Curt Renz]

Of course there was otherwise going to be a drop in demand right now. If nothing else, there’s a psychological response to having “missed out” on the tax break that’ll hold people back.

Let's keep in mind that unlike most Model S & X buyers, many potential owners of Model 3's do not earn enough to qualify for a full $7500 tax credit. But most of them do earn enough to qualify for most of the $3750 or $1875 credits. So waiting until this year when their current cars may become old enough or troublesome enough to trade in, may result in the ideal timing for them.

Of course this is not even a consideration for potential buyers outside of the United States. And many Americans are only vaguely aware of Tesla and unaware of the tax credits. Friends getting Teslas will help spread the word and provide inspiration.

 

[RobStark]

How exactly would GM prevent independent dealers from selling cars they have in inventory?

Eliminate cash on hood and subsidized leasing. Promise it will return on Jan 2, 2019.

Might have been a good idea to send all Sept and Oct production to South Korea too, where demand way exceeds supply.

 

[KarenRei]

Preventing dealers from selling cars is illegal in Michigan.

Shutting down a line is perfectly legal. Everywhere. No law, anywhere, makes you keep producing a vehicle you don't want to produce.

GM knows how many Bolts and Volts are available in inventory around the country. If it does not produce its 200.000th EV, its dealers cannot sell their 200.000th EV; they could just have let inventory drain down over the course of this quarter, and thus approach - but not exceed - 200k.

Yes, they could instead overproduce to some extent and play statistics that they wouldn't exceed 200k. And perhaps this is just what GM did.... poorly... and a resultant screwup put them just over 200k rather than under.

 

[Hock1]

This is worth repeating.

Also, the part that looks illegal about "FactSet" is the following:

• FactSet coordination is an opaque, non-public data source that the biggest Wall Street firms use to coordinate their reaction to data releases. How does this kind of coordinated action and effectively a pricing cartel help market transparency?
  
• There's a blatant conflict of interest of bearish analysts: they can simply enter an unrealistically high 'expectation' like Alex Jones did - which will (surprise) help create a 'miss' - from which they then profit...
• The same problem exists with bullish analysts as well who can lower FactSet estimates artificially to generate a 'beat' - the problem is that most Wall Street analysts are bearish about Tesla, which distorts the sampling and allows illegal market manipulation.

I.e. for Q4 deliveries the FactSet database was used as a blatant "short and distort" market manipulation scheme, which is deeply illegal even according to the SEC's rather lax securities laws enforcement principles.

Agreed. Absolutely blatant. The SEC is well aware of "short and distort" schemes. There are 2 major impediments to them doing anything about this particular scheme;
1) The SEC is "owned" by the large Wall Street firms.
2) Given recent history, the SEC is unlikely to come to Tesla's (our) rescue.