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

[T3slaOwner]

Oh my god, how can they be lying time and time again and get away with it?

Tesla Stock Is Sinking on Disappointing Deliveries. Here’s What Wall Street Is Saying.

The company said Wednesday evening that it delivered fewer vehicles than expected based on FactSet’s consensus expectation, though more than it reported in the second quarter.

Where did Tesla say they delivered fewer vehicles than expected?

Here’s what Tesla actually said:

In the third quarter, we achieved record production of 96,155 vehicles and record deliveries of approximately 97,000 vehicles. In addition, we achieved record net orders in Q3 and are entering Q4 with an increase in our order backlog.

This is right-out criminal. Scumbags!

Seriously, you just aren't reading it correctly. Unless the report uses quotes around the text, you have to cut them some slack. They are saying Tesla reported numbers that were less than what FactSet expected. There's a difference between what you have written above and

The company said Wednesday evening that it "delivered fewer vehicles than expected based on FactSet’s consensus expectation", though more than it reported in the second quarter.

Nobody's a scumbag... well, not because of this issue.

 

[T3slaOwner]

Had the number come in at 100k or slightly higher the stock probably would have hung in there until the earning's announcement where the focus would have been on GM's. If in fact order backlog is up, missing the number by 2k or 3k isn't a big deal and the focus on the call will be did the GM stabilIze or go up, and can Tesla sell cars at a profit.

Hung in there??? It would have jumped big time.

You guys use way too many abbreviations.

 

[Captkerosene]

Wow, out of a hundred thousand or so smart summons made on the first weekend alone, not all of them went perfect, including a person who had another car drive into them), their owners shared videos or stills, and they went viral. Someone call the waaaaaambulance.

Am I the only person on this planet who cares about actual statistical incidence rates over anecdotes? It sometimes feels that way.

110k orders in a 97k quarter, with production growth of 10% during that quarter.

Strewth. I would call that “priced to bloody perfection”.

They really need to break down the new orders into categories. Without knowing where and for what car new orders are originating, I don't know how anybody can interpret the data.

 

[CyberDutchie]

Seriously, you just aren't reading it correctly. Unless the report uses quotes around the text, you have to cut them some slack. They are saying Tesla reported numbers that were less than what FactSet expected. There's a difference between what you have written above and

Nobody's a scumbag... well, not because of this issue.

You’re wrong, because of the words “the company said”.

If the sentence was: Tesla delivered fewer vehicles than expected based on FactSet’s consensus expectation, I would have had no problem with their statement.

I will cut them no slack, and you know damn well that they are constructing the sentence to deliberately mislead people.

Also, conveniently leaving out the word “record” that the company used four times. See how ridiculous the first sentence of the article would read if they had include that word:

Shares of Tesla fell Thursday after the electric auto maker disappointed investors with its release of record third-quarter delivery and record production numbers after the market’s close Wednesday.

 

[KarenRei]

Reasonable, but the devil is in the details. Also very likely is a drop in model 3 sales as the Y fills backlog orders doubling up your hump effect. That could easily put the company back into the RED.

I fully expect Model 3 sales to drop with the Model Y rampup (unless there's some sort of major market expansion at the same time, such as moving into a country like India or new tax credits in the US). But I simultaneously fully expect total volume to continue to climb. And Model Y to yield higher margins than Model 3 to boot.

 

[Curt Renz]

Two considerations:

1. Shared cost efficiencies.
2. Manufacturing lessons learned.

Thoughts?

Indeed those are significant factors regarding the likely excellent profit outlook for the Model Y. For now, few auto analysts are considering the potentials for the Model Y or the Tesla pickup truck. They are used to analyzing automakers based on data already reported. In college they were not taught how to consider future significant changes in the product mix or the effects of revolutionary technologies. And few of them have the intuitive capacity to envision the potentials from an innovative disrupter of a long established industry.

In any event, if the analysts want to keep their jobs, they need to justify to their bosses their predictions with hard figures and not crystal balls. The JMP analyst on CNBC essentially admitted that is exactly how his thinking had to be constrained.

 

[larmor]

Just heard a couple people interviewed about Tesla on CNBC. Phil LeBeau was actually very positive and tried hard not to say too many good things about the China giga factory in Shanghai and was almost surprised himself at the amount of funding that Tesla achieve from the Beijing Bank. Then the analyst from JMP came on and was being asked to defend his downgrade and he just couldn’t come up with it other than he did some numbers and that was his only explanation. The interviewer from CNBC was after him on almost every point trying to feed him negative talking points but he was unable to defend any negative talking points and basically said we just downgraded it because we wanted to. Even the interviewer from CNBC admitted that missing deliveries by a couple hundred cars was not a big deal and not really a miss.

Both interviewees we’re excited about the Tesla pick up announcement coming and I think when that comes at least for the optics portion of market action will be a huge plus because residual US auto manufacturers are based on pick up sales...

 

[anthonyj]

Seriously, you just aren't reading it correctly. Unless the report uses quotes around the text, you have to cut them some slack. They are saying Tesla reported numbers that were less than what FactSet expected. There's a difference between what you have written above and

Nobody's a scumbag... well, not because of this issue.

Agreed. Monstrous demand problems

 

[larmor]

Just heard a couple people interviewed about Tesla on CNBC. Phil LeBeau was actually very positive and tried hard not to say too many good things about the China giga factory in Shanghai and was almost surprised himself at the amount of funding that Tesla achieve from the Beijing Bank. Then the analyst from JMP came on and was being asked to defend his downgrade and he just couldn’t come up with it other than he did some numbers and that was his only explanation. The interviewer from CNBC was after him on almost every point trying to feed him negative talking points but he was unable to defend any negative talking points and basically said we just downgraded it because we wanted to. Even the interviewer from CNBC admitted that missing deliveries by a couple hundred cars was not a big deal and not really a miss.

Both interviewees we’re excited about the Tesla pick up announcement coming and I think when that comes at least for the optics portion of market action will be a huge plus because residual US auto manufacturers are based on pick up sales...

They were also trying to feed the demand commentary to JMP analyst and he was sort of buying into that. I guess that’s all they have left to hang onto. Really still amazed that Phil lebaeu didn’t even mention demand issues

 

[anthonyj]

They were also trying to feed the demand commentary to JMP analyst and he was sort of buying into that. I guess that’s all they have left to hang onto. Really still amazed that fillable didn’t even mention demand issues and was looking forward to the model whI guess that’s all they have left to hang onto. Really still amazed that phil Lebeau didn’t even mention demand issues.,,

They are trying to steal shares from dumb shorts and weak longs. That’s what analysts do. At the top, we will get upgrades and crazy PT

 

[StarFoxisDown!]

I fully expect Model 3 sales to drop with the Model Y rampup (unless there's some sort of major market expansion at the same time, such as moving into a country like India or new tax credits in the US). But I simultaneously fully expect total volume to continue to climb. And Model Y to yield higher margins than Model 3 to boot.

Still wish they would have priced the Y about 2-3k more per model trim. That way there was more separation between the 3 and Y in pricing and could have made some people settle for the 3 because of that price difference. They when they had the Y ramped, the could lower the price of both the 3 and Y so that they Y is the price it's currently being listed at and the 3 drops by another 2-3k and thus, enters the "below" 35k market which we all know is absolutely huge.

Edit: Btw, I do expect them to drop the price of the 3 again when they are ready to do sustained 10k/week rate(so when Giga 3 is up to 2-3k/week). Not much, but like 1-2k, maybe 2.5k as we get close to volume Model Y production

 

[Curt Renz]

They were also trying to feed the demand commentary to JMP analyst and he was sort of buying into that. I guess that’s all they have left to hang onto. Really still amazed that Phil lebaeu didn’t even mention demand issues

The demand levers can be pulled at any time with product or optional equipment announcements, and as a last resort: advertising. Tesla likely has not been saying much about the Model Y so as not to "osborne" the Model 3 before the Model Y production can be ramped. A Tesla pickup truck would not compete with either of those. Eventual news that the Model Y or pickup truck will soon be available could potentially unleash torrents of demand.

 

[Remus]

Sold
50 shares yesterday at 243, missed the low today.

Buy them back now or wait a week to see what the shorts can do?

 

[Webeevdrivers]

I fully expect Model 3 sales to drop with the Model Y rampup (unless there's some sort of major market expansion at the same time, such as moving into a country like India or new tax credits in the US). But I simultaneously fully expect total volume to continue to climb. And Model Y to yield higher margins than Model 3 to boot.

Agreed. I wouldn’t be surprised to see steady state model 3 sales to be half of what they are now. I also wouldn’t be surprised to see model y steady state sales to be double what present model 3 sales are now. That would probably bode well for total Fremont factory output of around 10,000 cars per week.

Now the pickup. Not a clue where that will be built. But that’s down the road a ways.

 

[kbM3]

I agree, but only to a point. Here's what's going on broadly with regard to when we will see more profitability/recognition and appreciation:

Many years ago Musk saw that the declining cost curves of batteries and associated components was going to intersect and pass the cost curves of ICE cars but that no ICE manufacturer was going to be prepared to hit the ground running with EV's (for numerous reasons). Not only would this be bad for AGW, but it also spelled opportunity. So Tesla has now positioned itself exceedingly well and the cost curves are just now starting to come into line.

However, Musk was a little too optimistic with regard to the kind of production efficiency he could achieve with the Model 3. The fact that they spent extra money making the car extra good didn't help. Specifically, the super safe and highly engineered chassis, the glass roof that improves safety, interior volume and aerodynamics (as well as making the cabin feel light and airy), the responsive suspension and electric steering with redundant power feeds, the low rolling friction Brembo brakes, the spun-cast and roll-forged 18" wheels, the durable, comfy seats engineered and produced in-house, the the durable and highly reliable powertrain, the high-tech silicon carbide power inverters, etc., etc. etc. It's really too "nice", too well equipped with high-quality components and too durable and long-lasting for a true mass-market car. But they knew they were going to disrupt some of the richest and most powerful people in the world so they couldn't show up to a gunfight with only a knife. The FUD was going to be running thick and strong and they needed to be ready for it. They needed a car beyond reproach. I think they made the safe choice although it definitely delayed the milestone of large and sustained profitability.

But remember the declining cost curves of BEV's. It's just a matter of time. And Tesla's position in the BEV space is basically beyond reproach based on the strength of its products to date. As long as Tesla keeps its development efforts of its core technologies and software ahead of the game and continues to increase manufacturing volumes and efficiencies, they will be able to offer more compelling BEV's than the competition which will make them untouchable for the foreseeable future. The declining cost curves will drop Tesla into a very enviable position. It didn't happen with Model 3 because Tesla played the safe side of the cost/quality curve because they knew their products would be under a microscope.

Wall Steet wants to see the money, not next year, right now. That's all they care about. They have no vision and no soul. They think EV's are just electric motors hooked up to a bunch of batteries (everyone knows the red wire goes to "+" and the black wire goes to "-"). How hard can it be, right? Didn't everyone play with electric motors as a kid?

So, I agree, no one knows exactly when the future value of Tesla will be fully recognized in the share price but you can bet it's a lot closer than it was in 2014. It's completely normal for speculative stocks like TSLA to not appreciate steadily and gradually but instead to do it in fits and spurts of 5 or 10 years, especially when you are not selling the latest fashions or the coolest new widget but, are building a global heavy manufacturing capability to take on established multi-billion dollar companies and deeply entrenched oil and gas interests. What Amazon has done is incredible. This is orders of magnitude more difficult. The really difficult part has been accomplished (technological lead and volume manufacturing with good gross margins). It's really just a matter of continuing to expand, release new models and watching the battery/motor/controller cost curve continue to decline. Wall Street won't come around until it's so obvious even Homer Simpson can see it.

Wonderful post. An additional “overdesign” Elon mentioned during Autonomy Day is that every Tesla since Model 3 launch, has been built with full redundancy for the control systems.

 

[T3slaOwner]

Not that good. New car inventory is a key driver of OCF:
-640m OCF in Q1, inventory +14.1k cars
+864m OCF in Q2, inventory -8.3k cars

The other key driver is net profit/loss, which improved ~300m from Q1 to Q2. The other OCF drivers are smaller and often cancel each other out. In Q3 they reduced inventory by roughly 1k S/X and should improve net loss by another ~100m, so look for positive OCF in the 400-600m range

By net profit improving you mean the loss was less, yes, that is true. It was still very significant with no clear explanation of why it was such a surprise. There clearly should have been a warning to expect losses in 2019 before 2018 had ended.

Almost certainly not. I thought they might try to recognize a ton of emissions credits as in Q1 and deferred EAP/FSD revenue thanks to Smart Summons. With ~102k deliveries and a low lease percentage that would push them to a non-GAAP profit and possibly a GAAP profit. But with 97k deliveries and high lease percentage I think they'll keep the emissions credits and deferred revenue in the cookie jar.


That's not how it works. They don't count these expenses until they begin production of actual customer cars. Even then, they depreciate the upfront cost of the land, building, equipment and tooling over many years. Barring another production hell, the effect of these capital expenses on profit/loss is small. Some of these items will show up in on the cash flow statement under "Cash Flows from Investing Activities", but in the case of GF3 I believe most will not.

I don't believe that is correct. Depreciation of capital starts as soon as it is acquired. You don't have to claim it on your taxes, but the depreciation happens anyway. That is, according to my tax adviser. Your mileage may vary.

Just to be clear, depreciation is a paper expense. The money has already been spent, but the spending is just transferring wealth from currency to a hard form, like real estate or equipment, so no net loss of wealth and no deduction from taxes. At the time the capital is bought t does come out of cash however... unless it is borrowed money.

So spending borrowed money has no downside to a company until the money has to be paid back.


Also keep in mind that expenses ramp up ahead of production. Workers are hired ahead of time to train and get the line working. Salary is not a trivial expense, so expect that to have already started in Q3 for Q4 production lite. Like with the model 3 production it will be key when we see Chinese production heavy.

 

[wipster]

I got a lot of "likes" on this, so I’ll expand further.

My old energy plan was provider's-choice for source at $0.096/kWhr energy charge. The new plan is all renewable: solar days (0600-2100) at $0.163/kWe and wind nights at $0.00. When all the transmission charges were taken into account, I would break even if my night/day usage ratio was 35/65 or higher.

I don't drive much - maybe 600 mi/month. But with the new plan I’m still saving 10-35% (determined mostly by how much the home AC is running during the day) over the old plan (as long as I still charge at home every night). But an interesting observation is that even if I started driving a lot, an 11 kW charging rate could still completely recharge a 75 kWhr EV battery in the 9 hr window of free energy. So if I started driving 300 mi/day instead of 20 my electric bill would not change!

This seems to show the potential for an excellent synergy between abundant wind power and electric vehicles. Since there is (currently) no good grid storage for excess wind energy during off-peak use, the EV batteries serve that role. The energy provider charges a higher rate during peak hours (essentially getting some income from this otherwise spilled power) and the consumer potentially still saves money (depending on usage patterns).

This will all change if 1) there are enough EVs charging at night to significantly change the demand curve and/or 2) grid-scale energy storage comes online.

So excuse my ignorance here, but with a Powerwall (or 2), could you load up enough at night with wind rates to power the home during the time you're awake to basically pay nothing for your power? And that's without solar panels or solar roof, correct? With the amount of miles you drive you'd only need the power to change the EV once or twice a week right?

Just curious...

 

[StealthP3D]

Two considerations:

1. Shared cost efficiencies.
2. Manufacturing lessons learned.

Thoughts?

Those two considerations should be HUGE in getting the Model Y profits to kick in earlier in the ramp.

Consideration 3:

CUV's can sell at higher margins (at least in the U.S.).
Tesla has already let it be known that the incremental cost to build the Y over the 3 is close to zero.

Consideration 4:

The Y offers a high margin variant not possible with the 3: third-row seating for children.

These two considerations will raise margins over the entire life cycle of the Model Y (vs. the Model 3).

 

[StarFoxisDown!]

Agreed. I wouldn’t be surprised to see steady state model 3 sales to be half of what they are now. I also wouldn’t be surprised to see model y steady state sales to be double what present model 3 sales are now. That would probably bode well for total Fremont factory output of around 10,000 cars per week.

Now the pickup. Not a clue where that will be built. But that’s down the road a ways.

Model 3 hasn't even hit all markets yet. And Model Y will only be hitting certain markets as production ramps. So Europe might not even see Model Y production until the end of 2020 or early 2021. At 10k week or higher production for Model 3, they could probably afford to lower the trims for the 3 by 2k or so. If they make good on their breakthrough for battery cell production and efficiencies in battery pack production, that could shave another 2k off of the price of all trim levels of the 3. Once the SR+ gets in the neighborhood of 35k, I have no doubt they'll be able to maintain demand of 400-500k/year.

 

[MTL_HABS1909]

Agreed. My wild guess is that we bottom out in the next half hour or so and start a slow climb for the rest of the day back to $232-233 by the end of the day.

I rated this post “funny” this morning because it seemed like there was no way it would happen. However, it turns out you were spot on. Good call. Cheers!