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

[Doggydogworld]

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....

Umm, aren't you forgetting about the 6.7 billion in convertible bonds Tesla issued that are responsible for a big chunk of the short position? Tesla definitely got that capital.

 

[Dwdnjck]

Much like the fascination with pre 1974 muscle cars.

 

[ReflexFunds]

Umm, aren't you forgetting about the 6.7 billion in convertible bonds Tesla issued that are responsible for a big chunk of the short position? Tesla definitely got that capital.

There are only $4.8bn converts outstanding, but the maximum shares this can be converted into are worth much less at current prices, I haven't got the numbers to hand but i'd guess $3.5bn or so.
But not all convert holders delta hedge their positions. Some investors buy converts because they like to hold full exposure to both the bond and option features.
Convert holders that do hedge out with short equity positions have to scale the size of their short relative to how far the stock price is from the conversion prices. As the stock gets closer to the conversion price they need to short more shares for the hedge.

At current share prices I doubt the size of the convert related short is anywhere close to the maximum fully hedged $3.5bn or so.

 

[UncaNed]

What if: instead of attaching lifetime free SuperCharging to just the car, or even to Car + Owner, they attached it to only the Owner? One of the main reasons that I wouldn't upgrade my 2015 70D is because (until today) I would have lost my free SC. IMO, it would actually encourage present S/X owners to upgrade, knowing they can keep their free SuperCharging. It would be a nice perk for present owners.

But then there'd be no value in included free charging ever again on that owner's future Tesla s.

 

[StealthP3D]

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?

I'm not following you here. It's impossible to "run out" of TSLA shares. There is always a bid and ask price. If demand is higher than supply, a rising price fixes that. That's how TSLA got to $380/share before there was any revenue from Model 3. Next time it might go to $800/share but we will not "run out" of shares.

 

[jerry33]

But then there'd be no value in included free charging ever again on that owner's future Tesla s.

Considering it would a lot towards keeping owners in the Tesla family, I'd say there was plenary of value.

 

[Doggydogworld]

There are only $4.8bn converts outstanding,...

Oops, I mistakenly included the 1.8b of straight bonds due in 2025. Thanks.

My point stands, though. The OP presented a black/white view in which Tesla gets no cash from short sellers. Reality is more nuanced and Tesla plays this market as well, issuing just under 5 billion of convertible bonds primarily to convert arb shops who short the stock. In fact, it's their single largest source of borrowed cash.

I never said convert arbs were the only TSLA shorts, or even the majority. I'm just talking about how much cash Tesla has raised from investors who short the stock.

 

[UncaNed]

I'm not following you here. It's impossible to "run out" of TSLA shares. There is always a bid and ask price. If demand is higher than supply, a rising price fixes that. That's how TSLA got to $380/share before there was any revenue from Model 3. Next time it might go to $800/share but we will not "run out" of shares.

Exactly.

I was wondering what parallel universe this discussion was taking place in until your post.

 

[UncaNed]

Considering it would a lot towards keeping owners in the Tesla family, I'd say there was plenary of value.

Little advantage when we're already so faithful already.

 

[madodel]

Pull 2 million pounds of F-150s.

Drag race between a Tesla pickup and a Ford F150 with the Tesla towing a trailer holding an F150. Ala the Model X racing an Alfa Romeo 4C. Instant torque acceleration baby!

 

[SpaceCash]

The New Vegas Supercharger is looking pretty today

 

[jbcarioca]

Firstly, I was quibbling with this originally:



Estimating model CoGs based on supplier prices is possible - but none of that is buried in disclosures AFAIK...

Secondly, I don't see how actual real CoGs can be guessed accurately: manufacturers do not disclose the take
...

First, disclosures of major components are frequently made by the suppliers, for example, and other sources exist too, including import duties, and others. Disclosures there are, interpreting them correct is not easy, but always possible.

As for option take rates anybody with access to ASP by model ,financings did leasing data can rapidly find actual option take rates and model sub-model mix.

I understand that many of us want the Tesla-style blunt disclosures. That will not happen anytime soon. In the meantime some of us make nice profits from doing lots of homework.

As for BMW dropping 1, 2 series or more that is most unlikely, not least because high specification versions of those models use major components also used in larger models. It is more likely that they’ll drop some sedan versions in some markets. As with most manufacturers the model mix has major differences market by market. Announced changes in a single market are often misunderstood as being global changes. Many press reports are in error in this way.

 

[S3XY]

So Tesla is pushing out 28.2 now, reported to contain the Dog Mode bug fix. This is only a couple of days since the bug was reported so (providing it works) it's a great illustration of Tesla's responsiveness to customer issues. Also a demonstration of how they can respond faster than any of the competition.

Meanwhile, I think an interesting thing that isn't all that obvious is that Tesla possibly has the data to target the release, making sure that it goes first to actual users of Dog Mode. Of course that means that one day they can juice earnings by selling such data to dog food companies, or using it for targeted advertising in the car. Good thing we're just talking about possibilities here!

Just curious as to which companies you think the users of Emissions Testing Mode will be marketed to.

 

[PhaseWhite]

Umm, aren't you forgetting about the 6.7 billion in convertible bonds Tesla issued that are responsible for a big chunk of the short position? Tesla definitely got that capital.

No, that's a good point. I think they should have done straight equity along with a strategic partner. A ton of money has been invested in EVs and self driving car startups and Tesla has barely gotten any of it.

Some, including Elon point out that they aren't really constrained in their growth by their capital but now we also hear them talking about how there's no point in launching new products until they have the cell capacity lined up and they are hinting they want to produce their own cells. I'm thinking that will take significant capital. Sure they might be able to fund things more slowly through their own cash flows but they could see their market lead eroded in that time if other better capitalized players solve the cell supply/production issues first.

 

[Curt Renz]

The People’s Bank of China has devalued its national currency, the yuan. That has pushed US stock index futures downward about 1%. This action appears to have been one of the countermeasures that the Chinese promised to impose in response to President Trump’s escalation of the tariff war on Thursday.

 

[Antares Nebula]

Oh Beltalowda, de comin' to take ya air n' ya wuta tomoro!

 

[Singer3000]

It does this by lowering its production costs faster than the drop in unit ASP. Tesla has already demonstrated it can do this with the Model 3 in 2019Q2. ASP declined, yet GM per vehicle increased because their costs to produce new Model 3s fell even faster than the drop in unit price.

Your post made me re-read the Q2 update letter and it has left me confused:

"During the quarter, a majority of orders continued to be for a long-range battery option and the Model 3 average selling price (ASP) was stable at approximately $50,000. At the same time, manufacturing costs continued to decline".​

Versus Page 3:

"Excluding regulatory credit revenue, automotive gross margin improved by ~200bp (compared to a decrease of 125bp on a GAAP basis). This was in spite of a reduction in ASP as the Model 3 Standard Range Plus was fully introduced in all markets"​

And then on the call:

"Zach: And we saw an ASP adjustment, net reduction in Model 3 from Q1 to Q2"​

Versus:

"Generally, on ASP, as we noted in the letter, it was roughly -- even over the course of the quarter, stabilized around $50,000"​

Does the word "stabilised" mean something different in American English?

 

[Artful Dodger]

Let's look back 3 years to get some perspective on the BIG PICTURE:

"What really matters to accelerate a sustainable future is being able to scale up production volume as quickly as possible. That is why Tesla engineering has transitioned to focus heavily on designing the machine that makes the machine -- turning the factory itself into a product.

"A first principles physics analysis of automotive production suggests that somewhere between a 5 to 10 fold improvement is achievable by version 3 on a roughly 2 year iteration cycle. The first Model 3 factory machine should be thought of as version 0.5, with version 1.0 probably in 2018."

E.Musk -- from M/P pt2, July 20, 2016​

I'd say Fremont GA4 (aka 'the Tent') was v0.9 and that GF3/Shanghai will be v1.0 of the machine that builds the machine. So two more generations to go until we reach 10x speed. With GF4/EU coming next, that's a lock as v2.0 but can it be ready by 2022?

Then what product will be produced with v3.0 at GF5? Will it be the Tesla Pickup, or the Semi, or both? Will Roadster 2 be a side-product at that plant, or will it be tucked away in some lonely corner at Fremont? Will Fremont be upgraded to v1.0 manufacturing tech wilth Model Y, or will Model 3 AND Y be buildable on the same lines, so Tesla can easily balance demand for Model 3 vs Model Y both during the roll-out and initial surge of orders, and long term as consumer demand preferrences become clear?

What about a 2nd Tesla factory in China after GF3 is complete in all phases? Elon said it might be good to build cars in another city in China as well as Shanghai. Could that be the Model 2 in 2025?

Meta-question: Could Tesla physically grow any faster if they had unlimited capital? Is capital in fact their bounding limitation, or is it Executive attention? How long does Panasonic stay separate at GF1? That seems to me an obvious capital issue.

Cheers!

 

[mongo]

Your post made me re-read the Q2 update letter and it has left me confused:

"During the quarter, a majority of orders continued to be for a long-range battery option and the Model 3 average selling price (ASP) was stable at approximately $50,000. At the same time, manufacturing costs continued to decline".​

Versus Page 3:

"Excluding regulatory credit revenue, automotive gross margin improved by ~200bp (compared to a decrease of 125bp on a GAAP basis). This was in spite of a reduction in ASP as the Model 3 Standard Range Plus was fully introduced in all markets"​

And then on the call:

"Zach: And we saw an ASP adjustment, net reduction in Model 3 from Q1 to Q2"​

Versus:

"Generally, on ASP, as we noted in the letter, it was roughly -- even over the course of the quarter, stabilized around $50,000"​

Does the word "stabilised" mean something different in American English?

The ASP during Q2 was stable at $50k. This value was less (fewer?) than the previous ASP of Q1.

 

[Artful Dodger]

Your post made me re-read the Q2 update letter and it has left me confused:

"During the quarter, a majority of orders continued to be for a long-range battery option and the Model 3 average selling price (ASP) was stable at approximately $50,000. At the same time, manufacturing costs continued to decline".​

Versus Page 3:

"Excluding regulatory credit revenue, automotive gross margin improved by ~200bp (compared to a decrease of 125bp on a GAAP basis). This was in spite of a reduction in ASP as the Model 3 Standard Range Plus was fully introduced in all markets"​

And then on the call:

"Zach: And we saw an ASP adjustment, net reduction in Model 3 from Q1 to Q2"​

Versus:

"Generally, on ASP, as we noted in the letter, it was roughly -- even over the course of the quarter, stabilized around $50,000"​

Does the word "stabilised" mean something different in American English?

I think there was a rush of orders for the Model 3 SR+ as soon as it became available in each market, but now the order mix has stabilized near what is likely to be the long-term mix of SR/LR/AWD/P models. Obviously, Tesla continues to tweek the mix with recent price adjustments on the P, since that model mostly likely has higher margins with its software-enabled features.

The forest in the trees is that Model 3 costs are going down faster than the ASP. That's another nail in the TSLAQ coffin. Higher volume, higher profits. Bad news in shortsville.

Cheers!