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

[Hock1]

Weekend thought (well, actually a thought that has been bugging me for some time):

I’ve been accumulating shares and do not plan to sell any until they are worth at least ten times as much (and probably not even then). I know many of us on this board are in the same position. And we know of other people who get to know Tesla, see its huge potential and also buy shares as a long term investment. With Tesla selling 100,000 cars per quarter, mostly to first time Tesla owners this group is expanding. Which brings me to my question: will we run out of shares?

Many of the 175+ million shares are in the hands of Elon, Larry, Tencent, the Saudi’s and large institutional investors. Even though there was some selling, the total number of shares in the hands of big investors doesn’t seem to be going down. With the number of private long term investors growing daily, will there eventually be a shortage of shares?

Every day between 5 and 10 million shares change hands, but I believe that is mostly trading by daytraders, trading programs, shorts, marketmakers, etc.). I think many of those shares are traded multiple times a day.

Does anyone see any signs that the supply of shares may be drying up due to more and more stocks ending up in the hands of long term holders?

I believe your question is based on a view that the market is a zero-sum game, and it is not. The lending and re-lending of shares to short; the ability of market makers (i.e. GS and others) to sell shares that have not been identified nor borrowed). The ability to short on downticks (previous to 2007, all short positions had to be initiated on neutral-ticks or upticks); the ability for manipulating short-sellers to avoid actually delivering shares---all contribute to a free-for-all in any endeavor to evaluate a stock supply analysis. (BTW, all this was a problem prior to 2007, when the uptick rule was in force see: https://www.sec.gov/comments/s7-08-08/s70808-318.pdf). It is much worse now.

IMO, the only way to "reset" a clear picture of the ownership of TSLA stock, is for all short shares to be called and returned to the original owners. The only way for that to happen is for TSLA to issue new securities say, in the form of a spinoff, e.g., to the 180M +/- shares outstanding.

 

[MP3Mike]

They now only need to order 75% the number of parts from external suppliers - will they get the same terms at reduced volumes? probably not from all suppliers. Do their internal lines for making S&X seats, falcon wing doors, etc still work at an optimal capacity?

Or maybe they can still order/produce the same number of parts and we won't have people complaining about waiting months and months to get parts to repair their Tesla.

 

[jerry33]

Does anyone see any signs that the supply of shares may be drying up due to more and more stocks ending up in the hands of long term holders?

Wouldn't the sign be that short percentage goes way down? Because if a long term holder purchase a share that has been borrowed, the shorter would have to purchase a real share to be delivered if the supply was limited.

 

[Green Pete]

I wonder what it would take to get buffet interested in Tesla with some of berkshire Hathaway 122 billion in cash

 

[AlMc]

Weekend thought (well, actually a thought that has been bugging me for some time):

I’ve been accumulating shares and do not plan to sell any until they are worth at least ten times as much (and probably not even then). I know many of us on this board are in the same position. And we know of other people who get to know Tesla, see its huge potential and also buy shares as a long term investment. With Tesla selling 100,000 cars per quarter, mostly to first time Tesla owners this group is expanding. Which brings me to my question: will we run out of shares?

Many of the 175+ million shares are in the hands of Elon, Larry, Tencent, the Saudi’s and large institutional investors. Even though there was some selling, the total number of shares in the hands of big investors doesn’t seem to be going down. With the number of private long term investors growing daily, will there eventually be a shortage of shares?

Every day between 5 and 10 million shares change hands, but I believe that is mostly trading by daytraders, trading programs, shorts, marketmakers, etc.). I think many of those shares are traded multiple times a day.

Does anyone see any signs that the supply of shares may be drying up due to more and more stocks ending up in the hands of long term holders?

Simple answer: No. Institutional investors still control the lion's share of buying/selling and can still make a good deal of money on the volatility. While I have no precise data to back this up I would note TRPrice and fidelity have had no problem buying/selling large amounts of shares.

 

[KarenRei]

I wonder what it would take to get buffet interested in Tesla with some of berkshire Hathaway 122 billion in cash

Buffet doesn't do growth companies. He looks for stable, rent-seeking companies that you can invest a large fortune in to turn it into a slightly larger fortune.

 

[Remus]

Weekend thought (well, actually a thought that has been bugging me for some time):

I’ve been accumulating shares and do not plan to sell any until they are worth at least ten times as much (and probably not even then). I know many of us on this board are in the same position. And we know of other people who get to know Tesla, see its huge potential and also buy shares as a long term investment. With Tesla selling 100,000 cars per quarter, mostly to first time Tesla owners this group is expanding. Which brings me to my question: will we run out of shares?

Many of the 175+ million shares are in the hands of Elon, Larry, Tencent, the Saudi’s and large institutional investors. Even though there was some selling, the total number of shares in the hands of big investors doesn’t seem to be going down. With the number of private long term investors growing daily, will there eventually be a shortage of shares?

Every day between 5 and 10 million shares change hands, but I believe that is mostly trading by daytraders, trading programs, shorts, marketmakers, etc.). I think many of those shares are traded multiple times a day.

Does anyone see any signs that the supply of shares may be drying up due to more and more stocks ending up in the hands of long term holders?

Plenty of Tesla owners in Bay area stay away from the stock. Not everyone can take the wild ride

 

[HG Wells]

I wonder what it would take to get buffet interested in Tesla with some of berkshire Hathaway 122 billion in cash

I think he already looked at it. Liked what he saw, and bought BYD instead.

 

[jbcarioca]

Nice and informative comment, but I'd like to quibble with this one: I tried to find per model line profitability disclosures in VW, BMW and Daimler financial disclosures, but couldn't find anything beyond worthless non-numeric characterizations and way too coarse multi-model summaries. I stand by my comment that per car model EBITDA cash margins are not disclosed. I'll change this understanding if falsified with contrary evidence.

(Shout out to @ReflexFunds, @brian45011, @schonelucht and @EVNow.)

I am also not quite sure to what extent I'd trust conventional wisdom within the auto industry: for example their understanding of EVs is terminally broken or fundamentally dishonest.

Also, please note that the leak was limited to BMW, Audi and Mercedes: for all we know the 20k-40k price segment might be generating little if any EBITDA for them, because Volkswagen's non-Audi and the other non-premium carmakers are dominating that segment.

I appreciate your skepticism.

However, during more than two decades of working with major auto companies on, among other things, pricing, we never had much problem uncovering the within-model pricing vs GM’s. It is most definitely not so simple as just looking at normal financial reporting. However, excellent sources do exist from Tier one and two supplier pricing plus quite accurate inferences from fabrication and assembly costs. The least accurate cost component is in design capex.

The reasons why doing this type of analysis is profitable business is precisely because the data is not easily derived from publicly disclosed financial data. That said the typical margin by sub-models is factual. I cannot disclose details due to NDAs.

 

[Artful Dodger]

Many of the 175+ million shares

To that count, you have to add the Short Interest, which was at about 41.4 M shares as of July 31st:

Tesla, Inc. (TSLA) Short Interest

That's the fundamental way Wall St. breaks the law of supply and demand for price discovery on TSLA. Since many of the large institutional shareholders you mention are infact brokerages, they lend out their shares to shortsellers.

Indeed, the same share can be lent out multiple times creating a bubble and only propped up by the massively larger capitalization of these brokerages. They are gaming TSLA, at the expense of small shareholders.

I hope the new LTSE takes action to limit the anti-competetive nature of short-selling by large institutions.

 

[AudubonB]

And, in the US, the standards are even stricter, as pickups are rated to the SAE J2807 standard.

• The vehicle and maximum weight trailer must be able to launch from a stop up a 12% grade and go 5 m (16 ft). It must do this five times in a row within 5 minutes.
• The 12% grade launch test is then repeated in reverse. (This is easy for an EV, because reverse is just as easy as forward.)
• The vehicle must accelerate from 0-30 MPH with the trailer on level ground in 12 seconds for single rear wheel, 14 seconds for dual rear wheel.
• It must accelerate from 0-60 MPH with the trailer on level ground in 30 s for SRW, 35 s for DRW.
• It must accelerate from 40-60 MPH with the trailer on level ground in 18 s for SRW, 21 s for DRW.
• The vehicle and trailer must be able to climb the Davis Dam Grade on Arizona State Route 68 for 11.4 miles at a minimum (not minimum average, absolute minimum) speed of 40 MPH for SRW, 35 MPH for DRW. Ambient temperature must be at least 100 °F, air conditioning must be set for maximum cold, outside air selected, max blower speed selected. No component failures are allowed, no warnings to the driver are allowed, and no coolant may be lost. This is an interesting one, because... does power limiting count as a warning? If so, an EV may need a massively oversized cooling system to do well at it.
• 0 degrees per g understeer with 0% front axle load restoration and a 0.4 g or less lateral acceleration with a fifth wheel hitch
• 0 degrees per g understeer with 50% FALR and a 0.4 g or less lateral acceleration
• 0 degrees per g understeer with 100% FALR and a 0.3 g or less lateral aceleration
• Trailer sway damping ratio of 0.1 at 100 km/h (62 MPH)
• Combination stopping distance of 80 feet or less from 20 MPH with a trailer over 3000 lbs, and trailer and truck must stay within 3.5 m (11.5 ft) lane during test
• Parking brake must hold truck and trailer on a 12% grade, both directions, at maximum weights for both

Some of these are really hard, especially that Davis Dam test...

Source, FWIW: SAE J2807 Tow Tests - The Standard

One of the failures of the SAE standards is that this Go/NoGo rating applies only when the test vehicle is a brand new shiny creature right off the assembly line. I can absodamlutely guarantee that none of my F350s or F250s have been able to come close to passing most of those criteria after a small number of miles down the road - the understeer testing I’ve no knowledge of but all of the performance criteria I most certainly am.

So the failure of work trucks to live up to marketing hoo-ha after a criminally low number of miles is not limited only to emissions and fuel economy standards, but also to these performance criteria.

SO WHY IS IT that so many work truck owners have their vehicles’ engines altered - and illegally altered, I should elaborate? It is NOT so they can roll coal - those cretins are a different population entirely. It is so that the vehicles can perform as advertised.

====>AND THIS suggests a very, very worthwhile marketing tactic Tesla should pursue. What vehicle can perform as advertised after 30K or 50K or 100K or 200K miles? Hint: it is not the Chevy 3500 or the Ram 3500 or the F-350.<====

 

[Fred42]

I ordered Model 3 Performance. Figured I’d snag one before Tesla files for bankruptcy later this month ya know. White on White with FSD
View attachment 437631

I don't know where you are in NJ. I've never seen the Devon, PA store lot as full as it is now, almost all 3's. Maybe they have a match to your order.

 

[Papafox]

Weekend thought (well, actually a thought that has been bugging me for some time):

I’ve been accumulating shares and do not plan to sell any until they are worth at least ten times as much (and probably not even then). I know many of us on this board are in the same position. And we know of other people who get to know Tesla, see its huge potential and also buy shares as a long term investment. With Tesla selling 100,000 cars per quarter, mostly to first time Tesla owners this group is expanding. Which brings me to my question: will we run out of shares?

Many of the 175+ million shares are in the hands of Elon, Larry, Tencent, the Saudi’s and large institutional investors. Even though there was some selling, the total number of shares in the hands of big investors doesn’t seem to be going down. With the number of private long term investors growing daily, will there eventually be a shortage of shares?

Every day between 5 and 10 million shares change hands, but I believe that is mostly trading by daytraders, trading programs, shorts, marketmakers, etc.). I think many of those shares are traded multiple times a day.

Does anyone see any signs that the supply of shares may be drying up due to more and more stocks ending up in the hands of long term holders?

I see evidence that shares to buy are becoming harder to find. Over the past couple of years, TSLA investors have endured repeated bear attacks which sink the stock price and unnerve many investors. I know because I have relatives who once invested in TSLA but found the stock to be too gut-wrenching to own. They generally bailed at losses despite my protests.

As time goes on, the holders of TSLA have become less vulnerable to nonsense dips because either 1) the weak longs have been weeded out so regularly there are few left, and 2) the current long investors have come to realize this is a stock who's price is frequently manipulated to eliminate weak longs, and 3) since the 2Q19 ER's high delivery numbers (no M3 demand issue) and free cash flow > $600M, they have become more comfortable with the long-term prospects for TSLA. As a result, you see days such as last week when TSLA weathers the macro storms better than other stocks and manipulators such as Adam Jonas and Goldman's Tamberrino can't move the stock price as much any more when they issue dire notes. The proof of the pudding is in lower volumes we've seen seeing in recent months.

Nothing is set in concrete and if a real threat to Tesla can be found, the stock price becomes vulnerable again and volume picks up on down days. Lacking such a threat, the low volume trading suggests that investor steel is getting tempered. An unwillingness to sell on nonsense dips also likely means an unwillingness to sell on small rallies. It seems to me that with high short interest in TSLA and lower volumes in trading, the shorts are moving into a very perilous position.

An exception to the "tempered long-term investor" ownership of TSLA is when TSLA does a long rally, such as the 7 weeks in a row green trading leading into the 2Q19 ER. At such times you see traders move into the stock. They can easily be dispatched with bad news, and I think this why the dip following the 2Q19 ER was so severe. Granted, there were long-term profit implications of the ER that legitimately suggested some dip following the ER, but nothing to justify the extent of the dip when the stock is already low. The approximately half million shares sold by shorts to increase short interest on the day following the ER certainly contributed to the dip's severity as well.

 

[KarenRei]

WHY IS IT that so many work truck owners have their vehicles’ engines altered - and illegally altered, I should elaborate? It is NOT so they can roll coal - those cretins are a different population entirely. It is so that the vehicles can perform as advertised.

To what population do "non-coal-rolling truck drivers who modify their trucks to be loud enough to shatter bone alongside being "fast", so that they can do their best to leave tire marks around the city street, as if they're trying out for the next Fast and the Furious movie"? Got some of those near where I live :Þ

 

[PhaseWhite]

To that count, you have to add the Short Interest, which was at about 41.4 M shares as of July 31st:

Tesla, Inc. (TSLA) Short Interest

That's the fundamental way Wall St. breaks the law of supply and demand for price discovery on TSLA. Since many of the large institutional shareholders you mention are infact brokerages, they lend out their shares to shortsellers.

Indeed, the same share can be lent out multiple times creating a bubble and only propped up by the massively larger capitalization of these brokerages. They are gaming TSLA, at the expense of small shareholders.

I hope the new LTSE takes action to limit the anti-competetive nature of short-selling by large institutions.

To put this in perspective: It's the equivalent to as if Tesla has issued 9.7B in new stock, except the short sellers are the ones creating these new shares and Tesla didn't get that capital. It sucked 10B in capital that could have gone to TSLA out of the market. Granted these shorts have to buy this back at some point but in the mean time they are able to extract a toll by holding put.

It seems like the chances of ever executing the stock warrant scheme for capital raise has gone to 0 now after the latest capital raise. However, I still hope Tesla can think out of the box next time and bypass the large firms and go directly to existing stock holders. F*** those vampire squids.

 

[Unpilot]

To what population do "non-coal-rolling truck drivers who modify their trucks to be loud enough to shatter bone alongside being "fast", so that they can do their best to leave tire marks around the city street, as if they're trying out for the next Fast and the Furious movie"? Got some of those near where I live :Þ

They are of course closely related to the folks that HAVE to have a motorcycle that has a exhaust loud enough to knock birds out of trees.

We have a lot of those where I live.

 

[Fact Checking]

I appreciate your skepticism.

However, during more than two decades of working with major auto companies on, among other things, pricing, we never had much problem uncovering the within-model pricing vs GM’s. It is most definitely not so simple as just looking at normal financial reporting. However, excellent sources do exist from Tier one and two supplier pricing plus quite accurate inferences from fabrication and assembly costs. The least accurate cost component is in design capex.

The reasons why doing this type of analysis is profitable business is precisely because the data is not easily derived from publicly disclosed financial data. That said the typical margin by sub-models is factual. I cannot disclose details due to NDAs.

Firstly, I was quibbling with this originally:

Repeat, none of this is secret. It is buried in detailed disclosures in one place or another but is widely known within the industry.

Estimating model CoGs based on supplier prices is possible - but none of that is buried in disclosures AFAIK: it's market intelligence work to hunt down the price paid for a component by that manufacturer, for each of the thousands of different components that go into a premium ICE car, and combine it with a tear-down list into a CoGs and specific configuration GM estimate.

Secondly, I don't see how actual real CoGs can be guessed accurately: manufacturers do not disclose the take rate of various high margin options either.

So the information in the original article, that BMW is considering to drop all sub-40k models due to unprofitability (1-series, 2-series, cheaper 3-series), is IMO a very significant disclosure if this is true and got leaked by someone at BMW. It means that Tesla probably shouldn't attempt to chase the sub-$40k premium cars market, for the time being.

I also find it extremely unlikely that the highest executive levels of BMW would make a beginner's mistake of adding some corporate wide depreciation expense (which is a non-cash GAAP accounting fiction) to the model profitability equation.

If I had to guess, they'd be interested in three things primarily, when trying to decide whether say the BMW 2-series is a go or a no-go:

• Is it generating cash (EBITDA margin) right now?
• What is the total still outstanding depreciation and amortization value of BMW 2-series specific production equipment, which has to be written off? Any layoffs necessary?
• What are the R&D and capex cash expenses of trying to save that product for the brave new EV world, and what are the expected sales and margins for those new products?

BTW., given how much BMW has messed up the i3, I have serious doubts about their ability to correctly answer the third question.

The "I expect 85% of our cars to still come with an ICE engine in 2030" and the "we have no customer requests for BEVs whatsoever, only regulators want them" genius is still BMW's R&D director...

BMW should mimic one of Tesla's alleged qualities: executive departures.

 

[Fact Checking]

Does anyone see any signs that the supply of shares may be drying up due to more and more stocks ending up in the hands of long term holders?

Simple answer: No. Institutional investors still control the lion's share of buying/selling and can still make a good deal of money on the volatility.

I believe institutional holders are controlling the price of TSLA - but I agree with @Right_Said_Fred and @Papafox that long term holders are sitting tight - and I think this is clearly visible from the latest RobinHood holders chart:

A near record 164,000 Robinhood retail investors are holding TSLA, and in fact the number of TSLA holders increased slightly after the Q2 results:

View attachment 434319

Which I take as a sign that the ~15% price drop after Q2 was primarily created by shorts selling borrowed shares they didn't own.

Retail investors were buying massively during the Q1 fall and mostly ignored the Q2 dip.

This can only happen if shares are removed from the market - and the only thing that creates volatility is record levels of shorting using lower and lower "true" liquidity.

This is obviously not sustainable - or, I should say, should normally not be sustainable, on a normal stock. TSLA is far from normalcy though, the level of polarization within the various investor classes is reaching new levels of insanity.

Depending on the next major catalyst event, whether it's positive or negative, disappointment could be significant. Note that this isn't just about whether there's a short squeeze (for which there's a real chance this year), longs need to be careful too: a disappointing Q3, or unexpected delays at GF3, or some major negative event could create big disappointment.

Not advice.

 

[bhtooefr]

WHY IS IT that so many work truck owners have their vehicles’ engines altered - and illegally altered, I should elaborate? It is NOT so they can roll coal - those cretins are a different population entirely. It is so that the vehicles can perform as advertised.

====>AND THIS suggests a very, very worthwhile marketing tactic Tesla should pursue. What vehicle can perform as advertised after 30K or 50K or 100K or 200K miles? Hint: it is not the Chevy 3500 or the Ram 3500 or the F-350.<====

And of course those modifications increase wear and tear on the driveline,

And, in the diesel market, the emissions controls are so hideously unreliable that, when faced with thousands of dollars of unscheduled repairs a year with heavy use (especially if stop-and-go is involved, but even all-highway has problems), it's almost irrational to keep the vehicle legal, especially when making it illegal makes it more fuel efficient, too.

This stuff's so unreliable that the EPA ended up enacting relaxed emissions regulations for emergency vehicles, because, well, your ambulance or fire truck cannot break down. And even then the reliability isn't there.

This stuff's so unreliable that fleets are switching back to gasoline engines in heavy duty because even with the added fuel costs, the lower maintenance costs make it worth it, especially for something in shorter-distance service.

Note that these problems extend all the way up into the Class 8 space - to the point that an emissions delete is just something you can get at a truck stop service center, often, and the whole thing with gliders (in heavy duty, the engine, not the chassis, carries the emissions certification, so there's a market for new heavy duty trucks without engines, that you put a certified early 1990s engine into, to avoid regulations) that Obama's EPA tried to ban - so this is a competitive advantage for the Semi, too.

 

[AudubonB]

And of course those modifications increase wear and tear on the driveline,

And, in the diesel market, the emissions controls are so hideously unreliable that, when faced with thousands of dollars of unscheduled repairs a year with heavy use (especially if stop-and-go is involved, but even all-highway has problems), it's almost irrational to keep the vehicle legal, especially when making it illegal makes it more fuel efficient, too.

This stuff's so unreliable that the EPA ended up enacting relaxed emissions regulations for emergency vehicles, because, well, your ambulance or fire truck cannot break down. And even then the reliability isn't there.

This stuff's so unreliable that fleets are switching back to gasoline engines in heavy duty because even with the added fuel costs, the lower maintenance costs make it worth it, especially for something in shorter-distance service.

Note that these problems extend all the way up into the Class 8 space - to the point that an emissions delete is just something you can get at a truck stop service center, often, and the whole thing with gliders (in heavy duty, the engine, not the chassis, carries the emissions certification, so there's a market for new heavy duty trucks without engines, that you put a certified early 1990s engine into, to avoid regulations) that Obama's EPA tried to ban - so this is a competitive advantage for the Semi, too.

Agree on every one of your details, as do my Class 8 trucking acquaintances.