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

[Artful Dodger]

Not sure if this has been posted. Tesla got another 5B RMB (about $700m) loan from China Merchants Bank according to SEC filing.

From the SEC filing:

"On September 26, 2019, Tesla Automobile (Beijing) Co., Ltd. (“Tesla Beijing”), a subsidiary of Tesla, Inc. (“Tesla”), entered into a Facility Agreement and a related Statement Letter (together, the “China In-Transit Financing Facility”) with China Merchants Bank Co., Ltd., Beijing Branch (“CMB”) for an unsecured 12-month revolving facility of up to RMB 5.0 billion to finance vehicles in-transit to China."​

So Tesla is accessing more revolving (90 day) loan money to deliver buckets full of Chinese-made Models 3. That's roughly enough money to finance 14K Model 3s at a time.

Further, if Tesla can simple maintain its existing 18 day's of inventory benchmark within its operations in China, then the above is also a big enough revolving loan for approx. 270K cars per year. So that syncs up well with initial production targets for GF3 Phase 1 of 5K/wk or 250K/yr achieved sometime in 2020.

I think I just heard the mike drop.

Cheers!

 

[Fact Checking]

Well technically it isn't a loan, it is a line of credit to be used to cover vehicles in transit from Fremont to China. It just allows them to get "paid" before the cars are actually delivered. (Or at least that is how I am reading it.)

I believe these kinds of credit lines are typically used to pay suppliers for cost of goods, before customers pay. Also, since it's RMB denominated, I'd rather think it's GF3 related, to pay Chinese suppliers in RMB. It's much cheaper to finance in-transit GF3 vehicles this way than to exchange dollars to RMB and then back.

70% of the 328k¥ base price is 230k¥, so the
5 billion RMB credit line would allow the financing of up to 21,000 Model 3's in transit. That's more than enough - at 3k/week that's 7 weeks of GF3 production plus any payables delay.

 

[Fact Checking]

From the SEC filing:

"On September 26, 2019, Tesla Automobile (Beijing) Co., Ltd. (“Tesla Beijing”), a subsidiary of Tesla, Inc. (“Tesla”), entered into a Facility Agreement and a related Statement Letter (together, the “China In-Transit Financing Facility”) with China Merchants Bank Co., Ltd., Beijing Branch (“CMB”) for an unsecured 12-month revolving facility of up to RMB 5.0 billion to finance vehicles in-transit to China."​

So Tesla is accessing more revolving (90 day) loan money to deliver buckets full of Chinese-made Models 3. That's roughly enough money to finance 14K Model 3s at a time.

Further, if Tesla can simple maintain its existing 18 day's of inventory benchmark within its operations in China, then the above is also a big enough revolving loan for approx. 270K cars per year. So that syncs up will with initial production targets for GF3 Phase 1 at 5K/wk or 250K/yr achieved sometime in 2020.

I think I just heard the mike drop.

Cheers!

CoGs loans are usually for about ~70% of the vehicle price (230k¥) - so it's about ~21,000 vehicles.

Plus Tesla gets about 60 days of payables delay for Fremont production. If they get similar terms from Chinese suppliers then this credit line should be more than enough to scale up GF3 quickly.

 

[Singer3000]

I would love to see Tesla release an up-to-date estimate of the GHG (greenhouse gas) footprint associated with the production of each vehicle it sells, with a direct comparison to the emissions associated with driving semi-comparable gasoline vehicles, say, 50,000 miles. They could also show the GHG emissions associated with driving a Tesla the same distance, depending on location and use of rooftop solar.

Of course, having a slick presentation of this data on tesla.com would be best. The goal would be to help market the cars to environmentally-minded people. Recently, I gave a talk on EVs to a local environmental group and I sort of regret that I didn't provide more crisp details as to just how environmentally superior Teslas are. (The talk went well overall, thankfully, and I got lots of interest and questions.) So many people make bad assumptions about how "terrible" battery manufacturing supposedly is, and how "wasteful" it might be to produce a new EV when their existing gasoline car still works fine.

The Singapore government has quite famously been saying that EVs are overall worse for the environment than ICE, when you include construction / battery and hence there is close to zero penetration here (you see a few BYD taxis). Very smart and wealthy Singaporeans believe what the government says. I really wish there was a dedicated unit at Tesla to counter bad info, not just in the media but among policy makers around the world. It’s not just about the stock price...

 

[Fact Checking]

BS.. There is nothing magical in the water in silicon valley that means them better programmers. Although I have met more than my share who think they are Superior because of where they live.

Nothing to do with water. Its where a lot of programmers end up - because there are a lot of software jobs in SV.

Silicon Valley is to programmers and other high-tech specialists what Wall Street is to the financial industry or Germany is to the automotive industry - the global center of the industry, the pinnacle of a career.

Silicon Valley also has the additional allure of being the incubator of many successful high-tech startups, with risk-happy venture capital living nearby. Disruption and growth is much easier in the software space due to much lower capital costs and very high profit margins: the "only" serious capital a software startup needs is good programmers, so the best ones are paid very, very well.

Somewhat ironically the only place that can compete with Silicon Valley software developer salaries is Wall Street - but even Wall Street cannot compete with the Silicon Valley IPO lottery for exceptional programmers.

That's what is in the water of SV: money and opportunity, and all year around good weather doesn't hurt either.

 

[CorneliusXX]

Misleading question. Ask how much more scale up is required. Output from the capacity that has been built but isn’t yet running ought to do it.

Current capacity likely will increase, which all else being equal, would likely lead to profitability. However Tesla is not making a GAAP profit today, and has historically increased their spending on expansion faster than can sustain a profit. The question was focused on what they would have to give up in terms of growth % expectations to sustain profitability. Every company has a sustainable growth rate (i.e. a natural rate of internal growth capacity without raising additional capital). I was interested in FC's thoughts on how much slower they would need to grow to sustaining GAAP profitability, and the practical implications of that reduction.

The question isn't misleading, it's one of many scenarios investors should think about when forecasting what the company will look like in the future. How fast can it sustainably grow? is the risk of growing faster than that rate worth the reward? well y,ou only know that if you know what the company looks like if the first question is answered.

 

[CorneliusXX]

I'm glad you asked. There are two main differences:

1. X3 is 9" taller (66" vs. 57")
2. X3 has the SUV/CUV look (aka two-box shape)​

Ride height/seating position is important, but the look is what really matters. A look that conveys strength (aka safety) and rugged adventurism is paramount. All the other things people claim motivate SUV/CUV purchases - passenger seating, cargo space, handling, ease of ingress/egress, price, fuel economy and safety - are just rationalizations. Otherwise they'd buy minivans, which win by a landslide on all counts while offering the same ride height/seating position advantage.

So, let's estimate Model Y's market impact using my wildly popular Market Impact Score metric. SUV wannabes can score a maximum of 10 points on ride height and 20 points on rugged SUV look.

BMW X3 - 25 points. 10 for ride height + 15 for look (good 2-box shape, but more streamlined than rugged)
BMW 3 Series Hatchback - 2 points. Only 2 inches taller and looks almost identical to the base sedan
Tesla Model Y- 5 points. It's 5 inches taller, but also looks almost identical to the base sedan

So there you have it, scientific proof that Model Y's market impact will be a bit more than BMW's Series 3 Hatchback but much, much less than the X3

I like the look of the Y. You must be using a doubly blind study.

 

[transpondster]

New orders taken in during the month were 110,000 with 97,000 vehicles delivered. Some of the delivered autos came from the 110,000 new orders while others from prior backlog. In the end, backlog has grown 13,000 units (110k-97k=13k). In my opinion, this is a sign that demand is exceed Tesla's ability to produce (production constraint) and will change with production in China this Qtr. IIRC, one analyst commented that he thought Tesla held back production because orders were slowing but that's FUD.

I blame Karen on that she made order and won't be receiving her neither in Q3 or Q4 and it lets Tesla brag about increased orders

 

[Beltsbear]

He said the number was more than 10, less than 100. And that was before the currently known and planned optimizations. There's a reason there are no shovels in the dirt at GF1 Sparks right now: Tesla can continue to expand bty production there without increasing the building's footprint.

Actually it is well known that GF1 is out of space. The problem there is the labor market is also tapped out there too.

 

[Artful Dodger]

So now does anyone doubt that Tesla is planning to make their own cells to augment, if not replace Panasonic?

They bought a company with all the equipment and automation experience to make full cell production lines, i.e. Hibar. And they bought Maxwell for the DBE technology. Combine those two with Jeff Dahn's research and they should be able to make some killer cells.

The question is just when will it all start? Hibar already has production factories in China...

Indeed. The question is, does anyone still doubt that we have the best Germans?

"Hibar Systems was founded in the early 1970s by German-Canadian engineer Heinz Barall as a leader in precision-making of small cell batteries through a highly mechanized pump injection system."​

Cheers!

 

[hobbes]

I believe these kinds of credit lines are typically used to pay suppliers for cost of goods, before customers pay. Also, since it's RMB denominated, I'd rather think it's GF3 related, to pay Chinese suppliers in RMB. It's much cheaper to finance in-transit GF3 vehicles this way than to exchange dollars to RMB and then back.

From the SEC filing:

"On September 26, 2019, Tesla Automobile (Beijing) Co., Ltd. (“Tesla Beijing”), a subsidiary of Tesla, Inc. (“Tesla”), entered into a Facility Agreement and a related Statement Letter (together, the “China In-Transit Financing Facility”) with China Merchants Bank Co., Ltd., Beijing Branch (“CMB”) for an unsecured 12-month revolving facility of up to RMB 5.0 billion to finance vehicles in-transit to China."​

So Tesla is accessing more revolving (90 day) loan money to deliver buckets full of Chinese-made Models 3. That's roughly enough money to finance 14K Model 3s at a time.

Why do you both assume the loan is for Chinese-made Model 3 when the SEC filing talks about "vehicles in-transit to China"? Am I reading this wrong - IMHO "to China" should mean the cars are coming from outside of China?!

If I read it right, the question arises why they set up a loan for importing Model 3 when they are just about to start production at GF 3.

 

[KarenRei]

Indeed. The question is, does anyone still doubt that we have the best Germans?

"Hibar Systems was founded in the early 1970s by German-Canadian engineer Heinz Barall as a leader in precision-making of small cell batteries through a highly mechanized pump injection system."​

Cheers!

A popular myth, but the reality is that by and large the Soviets only got the "scraps" left behind by Operation Paperclip, and they shut them out of their rocketry programme pretty quickly. None of what the Germans in the USSR worked on ever became part of an operational system and Germans were shut out of the rocketry programme there entirely by 1951.

I think a lot of people simply had trouble coming to terms with the notion that those "turnip farmers" in Russia were capable of achieving great technological feats. Much easier to just assert that, no actually, it was Germans in Russia who did it all Especially as the US had to increasingly rely on figures like von Braun to salvage their flailing rocketry programme.

 

[Fact Checking]

Why do you both assume the loan is for Chinese-made Model 3 when the SEC filing talks about "vehicles in-transit to China"? Am I reading this wrong - IMHO "to China" should mean the cars are coming from outside of China?!

If I read it right, the question arises why they set up a loan for importing Model 3 when they are just about to start production at GF 3.

You could be right. Even after GF3 they intend to sell higher trim versions of the Model 3, and the S/X.

It makes sense to have an RMB loan facility if some suppliers would prefer to be paid in RMB instead of USD. That way Tesla can optimize the working capital flow related to imported vehicles:

• Before: Tesla exchanges China ¥ income to USD or draws on USD warehouse credit line, supplier exchanges USD to ¥, Tesla exchanges ¥ income to USD to settle the short term loan
• After: Tesla draws on ¥ credit line, pays supplier in ¥, settles the short term credit with ¥ income.

With the new loan facility Tesla avoids FX transaction overhead and FX risk: in Q2 they had higher FX related losses, possibly due to the weakening of the RMB and the Euro. U.S. banks expect USD payments of the original USD amount, even if your ¥ income became lower.

 

[ReflexFunds]

Tesla acquires Canadian battery specialist, Hibar Systems | Electric Autonomy Canada

Did Tesla aquire Hibar Systems?
"Hibar Systems is a leading North American manufacturer of high technology automated liquid dispensing and filling systems.
Hibar manufactures:

• Complex high-speed integrated battery assembly lines,
• Advanced dispensing pumps and filling systems,
• High-performance custom engineered packaging systems,
• Automated assembly systems for a wide variety of industries.

Among Hibar's latest technology offerings are its advanced Automated Vacuum Filling Systems for Lithium-ion battery applications for use in Hybrid Electric Vehicles, computer notebooks and similar products.

Hibar provides complete design, engineering and manufacturing automation expertise, including special equipment design and development in an integrated offering."

Tesla acquires Canadian battery specialist, Hibar Systems | Electric Autonomy Canada

In April 2015 Hibar had 140 employees
It looks like their battery manufacturing equipment expertise is focussed on electrolyte filling of cells, but they also have some additional expertise in the cell manufacturing process.
Seems like another Grohmann style acquisition to me (Grohmann also made cell manufacturing equipment btw). Hibar's focus on vertical integration also looks like a good fit for Elon.
“So, being vertically integrated means that we have every-thing from the pre-order, conceptualization, mechanical engineering design and electrical engineering design. We have our own integral machine shops where we make the parts for the machines right here in-house. We assemble them; we wire them; we program them, test and commission them – all essentially under one roof.”

The Hibar Electrolyte Vacuum Filling Machine for Lithium Ion Batteries features a compact rotary dial table design and incorporates many automatic functions and features required to process high capacity Li-ion cells. Hibar's patented pre-fill system enables the system to efficiently fill cells with accurate amounts of electrolyte. The system also minimizes the required amount of dry room space and its robust design also means low maintenance and high production efficiency. The Standard Vacuum Filling System includes the following features:

• Available Models for 30, 60, and 120 cells/minute throughput.
• Versatile design makes it easy to change over to difference cell size.
• Manual or Automatic Cell Loading and Unloading into Carrier Boats.
• Automatic transfer of cells to and from the Vacuum Fill Module.
• Automatic weighing of cells prior to filling and after filling for 100% verification of electrolyte fill weights.
• Automatic Vacuum Filling using programmable Vacuum-Fill sequence.
• Automatic Cell Unloading and Rejection of any non-conforming cells.
• Servo Motor controlled Sealless Ceramic Metering Pumps make electrolyte compatibility and salting issues a thing of the past.

Additional Systems available from Hibar Systems for the production of Cylindrical Lithium Ion Cells include the following:

• Bench Top Filling Equipment for Laboratory Development
• Beading Module
• Tab Sensing and Welding Module
• Sealant Application Module
• Tab Welding and Seal Placing Module
• Die Crimping Module
• Jelly Roll Insertion Module

.

 

[RobStark]

Any family that buys as Max Plaid Model S has at least one member that wants to drive fast, possibly around a track.

So it is a "family sedan" for that kind of family

Rolls Royces and Bentley are family sedans in Saudi Arabia.

Because among the House of Saud ~3000 princes they own ~2000 Rolls and Bentley.

So that is their family sedan.

 

[KarenRei]

In April 2015 Hibar had 140 employees
It looks like their battery manufacturing equipment expertise is focussed on electrolyte filling of cells, but they may have other expertise in the cell manufacturing process.
Looks like another Grohmann style acquisition to me. Hibar's focus on vertical integration also looks like a good fit for Elon.
“So, being vertically integrated means that we have every-thing from the pre-order, conceptualization, mechanical engineering design and electrical engineering design. We have our own integral machine shops where we make the parts for the machines right here in-house. We assemble them; we wire them; we program them, test and commission them – all essentially under one roof.”

These sort of acquisitions make it obvious why "Battery Investor Day" isn't this year. Would have been pretty ridiculous to host it when there were still acquisitions to complete. I wonder how many more might be in the pipeline.

 

[RobStark]

Sure it will. Let's revisit when they're selling in volume.

It sure will and we shall.

BTW You do know the car is being produced in China in a new factory by a subsidiary of Geely?

This isn't Nio or Faraday Future.

 

[KarenRei]

Rolls Royces and Bentley are family sedans in Saudi Arabia.

Because among the House of Saud ~3000 princes they own ~2000 Rolls and Bentley.

So that is their family sedan.

Speaking of that, didn't Tesla negotiate access to the Saudi market last year? Haven't heard more about that since. That's a ~1M vehicles per year auto market with a high ASP.

 

[KarenRei]

Can Greta claim a scalp?

Okay, sorry, but now I can't help but imagine Greta as the head of some post-apocalyptic Mad Max clan, with the scalp of Rick Perry mounted on her solar-powered War Rig.

 

[RobStark]

Speaking of that, didn't Tesla negotiate access to the Saudi market last year? Haven't heard more about that since. That's a ~1M vehicles per year auto market with a high ASP.

Maybe that market access died when Saudi sovereign wealth fund decided to buy a very large portion of Lucid Motors and cut investment in Tesla.