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

[StealthP3D]

I feel like the Truck is over engineered and would have trouble hitting volume production like the Model X. Desire and demand will be there, deliveries will suffer is my guess for a good while.

The truck that we have not even seen specs of or a picture of is over-engineered?

Haha! That's a good one!

Does it at least have a comfortable ride and nice seats?

 

[HG Wells]

I feel like the Truck is over engineered and would have trouble hitting volume production like the Model X. Desire and demand will be there, deliveries will suffer is my guess for a good while.

But I do know Elon always ask himself the question of "can this be mass produced easily?". He even said this about neurolink needing to be a simple installation like Lasik. But my little brain can't wrap around a "futuristic APC that will blow my mind" while being also simple enough to mass produce easily.

Yes it is over engineered.
The bullet proof glass and depleted uranium cladding is overkill.

 

[Singuy]

The truck that we have not even seen specs of or a picture of is over-engineered?

Haha! That's a good one!

Does it at least have a comfortable ride and nice seats?

Were you surprised during the Model Y reveal? Elon dropped enough hints about the Y, just like the Truck. We knew that the Y is a volume product that will share a lot of similarities to the 3.

Elon's hint on the truck is

1. Probably a niche product.."you may like it, you may not, it's not for everyone"
2. "it's like nothing you have ever seen on the road before, people would be like WHOA"
3. "It's like a truck from blade runner or a futuristic APC"
4. "It's the best product I think Tesla have ever made"
5. Kimble "it will blow your mind".

Yeah that all sounds like it's going to be a potato on wheels Tesla can crank out 100k the first year it starts production.

The fact that "I think this is the best product Tesla have ever made" screams over engineering because it's not like their Roaster 2.0 or their Model X with self-presenting doors were some half assed intern projects.

 

[keydiver]

Well, he has given them a little more time than China: Model Y production to begin in 2021. That could be anywhere from 14 to 25 months.

 

[printf42]

Were you surprised during the Model Y reveal? Elon dropped enough hints about the Y, just like the Truck. We knew that the Y is a volume product that will share a lot of similarities to the 3.

Elon's hint on the truck is

1. Probably a niche product.."you may like it, you may not"
2. "it's like nothing you have ever seen on the road before, people would be like WHOA"
3. "It's like a truck from blade runner or a futuristic APC"
4. "It's the best product I think Tesla have ever made"
5. Kimble "it will blow your mind".

Yeah that all sounds like it's going to be a potato on wheels Tesla can crank out 100k the first year it starts production.

X was delayed mainly because a vendor dropped the ball, 3 was delayed because...again a vendor dropped the ball.
Tesla won’t repeat that mistake on pickup, or... will they?

 

[Singuy]

X was delayed mainly because a vendor dropped the ball, 3 was delayed because...again a vendor dropped the ball.
Tesla won’t repeat that mistake on pickup, or... will they?

The only project that is ahead of schedule from Tesla is the model Y that is truly very similar to the 3 which production is doing really well. The Model X if shared 70%+ parts with the S would have been in a similar situation.

The Truck seems like it shares the drive train and that's about it.

 

[MP3Mike]

Yes it is over engineered.
The bullet proof glass and depleted uranium cladding is overkill.

Maybe for where you drive...

 

[keydiver]

spot on
i even became uncomfortable watching

I didn't take it that way. It appeared to me that Elon just had a crick in his neck, maybe slept wrong on the plane, and was trying to work out the kink. I'm sure the media will twist it though.

 

[TradingInvest]

Given this is such a powerful driver of Tesla stock price, I thought it worth trying to quantify all of these options delta hedging and short stock feedback mechanisms. The result is larger than i expected. I believe a +$10 increase in share price would require the purchase of 4.7 million Tesla shares worth $1.6bn. I think much of all stock volume every day is delta hedging related.

Full detail on all Tesla options value and delta exposure from calls, puts and converts below. These are approximations, but I think close enough.

Tesla Calls open interest:
There are call options on 69 million shares outstanding.
The current market value of all call options is $3.3bn with $0.8bn expiring this week and $2.1bn expiring within the next 3 months. $2.8bn of the calls are in the money and $0.5bn out of the money.
It will be interesting to see what call holders do with their profits. Take profit, buy stock or buy OTM calls?
Delta hedge requirement for these call options is 38 million Tesla shares, worth $13bn. So if all Tesla call were sold by market makers (most likely were) and are 100% delta hedged (market makers should be), then 38 million shares would have to be held to hedge the option position. In reality some of this is cancelled by Put options.

Tesla Puts:
There are put options on 144 million shares outstanding.
These have collapsed in price and current market value of all put options is now only $0.4bn with $0.1bn expiring within the next 3 months.
Delta hedge requirement for these put options is 5.5 million Tesla shares sold short, worth $1.9bn.

Convert hedges owned by Tesla:
Tesla bought call options and sold warrants to limit potential dilution from its 2021, 2022 and 2024 convert issuance. The value of the Tesla calls Tesla owns are currently worth $1.4bn and the Warrants it sold worth $0.6bn. For banks to delta hedge their net option exposure to Tesla from the calls & warrants would require purchasing 4 million Tesla shares.

Net delta exposure from options market.
The gross delta exposure from Calls, Puts and Convert Hedges can all be netted out – they are all likely held by the same market makers. So this is 38 million long from Call open interest, 5.5 million short from Put open interest and 4 million long from Tesla’s convert hedging transactions. This nets out at 36.6 million Tesla share long, currently worth $12.6bn.
Note that while individual market makers can delta hedge with other options rather than shares (but they mostly do shares), this is only passing on delta exposure to a different exposure. So this 37 million shares overall options market delta exposure is what is needed if everybody is 100% delta hedged. Some calls will be sold unhedged by people like Mark Spiegel etc, and some puts likely sold by Tesla retail longs, but I expect the vast majority of the market is delta hedged most of the time. So these means delta hedging accounts for ownership of towards 37 million Tesla shares currently. This is relative to 212 million total Tesla shares (180 million real shares outstanding, 32 million virtual/duplicated shares sold by shorts). Many of these market makers likely loan their long shares to shorts so they may not disclose ownership anywhere close to their real economic ownership of stock.

Convertible bonds:
Most convertible bonds will be held by funds who will delta hedge their exposure to Tesla equity. At current prices this would require selling 8.7 million Tesla shares short. So this is a large chunk of the 30 million Tesla short interest. These are held by different investors to the options open interest so can not be netted out.

Outright short equity:
Short interest is currently 32 million shares sold short or c.$11bn. About 23 million of these shares of c.$8bn are likely sold by real shorts and not from convert hedging. These 32 million short shares are shares that are now owned by 2 different long investors. The short borrowed a share from one long, promised to give it back eventually, then sold it to a new long. Two different long investors now have economic ownership of the same share so in effect the share has been duplicated, with a virtual share or repayment obligation now also trading in the market. This means there are now really 180 million real shares outstanding plus 32 million virtual shares owned by Tesla longs, or a total of 212 million shares.

What is the exposure of all of these positions to a +$10 move in Tesla share price?
For +$10 the net change in delta hedging requirement from the whole options market and from the convertible notes hedging is + 4.0 million shares or $1.4bn of Tesla stock purchases. This is an incredibly powerful feedback mechanism to drive the stock higher.
For +$10 share price the size of the Tesla short owned by real shorts will increase in $ terms. To maintain the same $ size of position Tesla short will have to buy Tesla shares to reduce the number of shares short. For $10 this would have to be 0.7 million shares.
So between the two, this is buying pressure for 4.7 million shares due to a $10 increase in share price.

What is the exposure of all of these positions to a -$10 move in Tesla share price?
For $10 the net change in delta hedging requirement from the whole options market and from the convertible notes hedging is - 4.7 million shares or $1.6bn of Tesla stock sales. This is again a powerful feedback mechanism to drive the stock lower. At the moment the mechanism is slightly more powerful in the downward direction – this is because the recent price increase has moved so many Tesla calls into the money and delta to its maximum of 1. There is more room for changing in delta with downward movements currently. This will likely even out as calls mature and people roll calls into more out of the money strikes.
For -$10 share price the size of the Tesla short owned by real shorts will reduced in $ terms. To maintain the same $ value, Tesla shorts will sell a further 0.7 million shares short.
So between the two, this is selling pressure for 5.4 million shares from a -$10 move in stock price.

Note: All these numbers are approximations and use a $345 share price and a fixed 45% volatility for all options/strikes/maturities. I don’t have a data source with volatility or option price for every option matched to open interest, and these approximations makes it much easier to make quick options pricing calculations.

@Fact Checking @hacer @Zhelko Dimic @EVNow @MFranc123 @Doggydogworld

"Convertible bonds:
Most convertible bonds will be held by funds who will delta hedge their exposure to Tesla equity. "

This part may not be true. Tesla's convertible bonds are most attractive to two groups of market participants.

Group A: those investors who like the potential large upside of the stock but are worried about volatility. Social Capital falls into this group. They used to own a lot of the convertibles which were paid off in March. I wouldn't be surprised if majority of the $310 convertibles are owned by this type of investors. If some of them really worry about bankruptcy, the sensible thing to do is to buy CDS at peaceful time, which costs very little. Only GS and MS have been issuing TSLA CDS. I don't know what do they do after they issue the CDS. I guess the most profitable approach is to sell a lot of shares, give terrible price targets, drive down stock, then accumulate Calls, accumulate shares, in the end screw the CDS buyers, screw Put buyers, screw the Call sellers, make a lot of profit.

Group B: those swing traders who use the converts as a protection, they can short a lot of shares at a perfect time (the large amount of selling usually can push the stock lower), they can buy back at a lower price. Then repeat the operation later. TSLA used to have a strong resistance at $360, I think this is part of the reason ($359.87 convertible bonds). This group don't need to cover their short positions. They are overall neutral in case the stock runs sky high.

My point is the need to buy shares from converts holders is smaller than your estimates.

On the bright side, as stock goes up, existing investors and new investors will be buying shares and Calls. It's a positive feedback loop. This combined with short covering makes it difficult to stop the move.

 

[anthonyj]

The only way I see this happening (TSLA to $700 by next week) is if there's a mother of a short-squeeze and/or mind-blowing news.



I didn't see that @anthonyj attributed his prediction to the truck reveal. Did I miss something?

No, next week's $700 PT is attributed to Tesla selling drivetrains/batteries/software to VW. And VW revealing that they've built a massive stake. Remember, VW was willing to help Tesla go private last year. They need tech. Why not sell batteries/motors, derisk the auto business since building and delivering 80M electric cars a year will be very hard for Tesla to do alone. I don't see how legacy automakers survive without Tesla's aid

 

[MC3OZ]

Were you surprised during the Model Y reveal? Elon dropped enough hints about the Y, just like the Truck. We knew that the Y is a volume product that will share a lot of similarities to the 3.

Elon's hint on the truck is

1. Probably a niche product.."you may like it, you may not, it's not for everyone"
2. "it's like nothing you have ever seen on the road before, people would be like WHOA"
3. "It's like a truck from blade runner or a futuristic APC"
4. "It's the best product I think Tesla have ever made"
5. Kimble "it will blow your mind".

Yeah that all sounds like it's going to be a potato on wheels Tesla can crank out 100k the first year it starts production.

The fact that "I think this is the best product Tesla have ever made" screams over engineering because it's not like their Roaster 2.0 or their Model X with self-presenting doors were some half assed intern projects.

I think you can read anything you like into the the hints so far.

My best guess is "form follows function", if is a functional efficient workhorse, that looks slightly unusual.
I think Franz probably tried hard to tone down the design while retaining the function, but Elon and Kimbal are all in on the function and the specs and prepared to compromise on the the aesthetics...

People who assume it can be ugly, with poor specs and limited functionality are wide of the mark IMO, it is more likely to be great looking, very functional and have specs well in excess of the ICE competition.

The only compromise I'm expecting is, great range and great towing will cost a lot more than the base price.

In terms of moving the market, I expect it to have minimal impact, media reports will ignore the positives while exaggerating the negatives. No one will have any clue about demand... unless Tesla accepts reservations/deposits and makes those numbers public.

 

[dc_h]

Interesting tidbit: the plot of land was once eyed by BMW for a new factory.

This is an aerial shot of the industrial area. It looks like the plot in front is the only one big enough to house a Gigafactory.


View attachment 476326

They only have to get rid of - how symbolic - the gas station in the middle of it.

View attachment 476328

Does it have to be in that quadrant? There is room on the other side of the road with much more space.

 

[M3Rider]

The only way I see this happening (TSLA to $700 by next week) is if there's a mother of a short-squeeze and/or mind-blowing news.

I didn't see that @anthonyj attributed his prediction to the truck reveal. Did I miss something?

It's the same type of thing. Future news without profit today does not affect SP.

 

[S3XY]

It's not giving anything away. It's a near 100% margin product plus service. Whatever they can do to get it to as many customers as possible, they should do.

The only possibility of this happening is if they have to be on the Tesla Network. Then they are expanding the goose's nest.

 

[Mike Smith]

The only possibility of this happening is if they have to be on the Tesla Network. Then they are expanding the goose's nest.

Yes, FSD would have to be on the Tesla Network. Tesla can only make so many cars. Only offering this in Tesla vehicles would only be addressing a tiny percentage of the addressable market. It would make no sense.

 

[TradingInvest]

I think you can read anything you like into the the hints so far.

My best guess is "form follows function", if is a functional efficient workhorse, that looks slightly unusual.
I think Franz probably tried hard to tone down the design while retaining the function, but Elon and Kimbal are all in on the function and the specs and prepared to compromise on the the aesthetics...

People who assume it can be ugly, with poor specs and limited functionality are wide of the mark IMO, it is more likely to be great looking, very functional and have specs well in excess of the ICE competition.

The only compromise I'm expecting is, great range and great towing will cost a lot more than the base price.

In terms of moving the market, I expect it to have minimal impact, media reports will ignore the positives while exaggerating the negatives. No one will have any clue about demand... unless Tesla accepts reservations/deposits and makes those numbers public.

Elon said "My heart stopped beating when I saw the truck", which tells me he didn't know what the truck would look like before hand. Franz and his team are not bad at designing vehicles. I don't worry about the demand for this truck. When can they produce it, that's the question.

 

[StealthP3D]

Were you surprised during the Model Y reveal? Elon dropped enough hints about the Y, just like the Truck. We knew that the Y is a volume product that will share a lot of similarities to the 3.

Elon's hint on the truck is

1. Probably a niche product.."you may like it, you may not, it's not for everyone"
2. "it's like nothing you have ever seen on the road before, people would be like WHOA"
3. "It's like a truck from blade runner or a futuristic APC"
4. "It's the best product I think Tesla have ever made"
5. Kimble "it will blow your mind".

Yeah that all sounds like it's going to be a potato on wheels Tesla can crank out 100k the first year it starts production.

The fact that "I think this is the best product Tesla have ever made" screams over engineering because it's not like their Roaster 2.0 or their Model X with self-presenting doors were some half assed intern projects.

The best product, by definition, is not over-engineered! Over-engineered describes a product that is not ideal due to complexity, etc. I think Tesla learned their lesson on the Model X's falcon-wing doors. They won't make that mistake again. In fact, none of the 5 hints from Elon you listed imply that it's over-engineered.

 

[RFernatt]

The only possibility of this happening is if they have to be on the Tesla Network. Then they are expanding the goose's nest.

And Tesla retains sole access to all the data.

 

[StealthP3D]

X was delayed mainly because a vendor dropped the ball, 3 was delayed because...again a vendor dropped the ball.
Tesla won’t repeat that mistake on pickup, or... will they?

It's not possible to avoid 100% of vendor problems but there are other ways to deal with it. Musk has made the company financially stronger and a new product delay or two is not going to threaten their very existence in the way it almost did in the past.

 

[StealthP3D]

Does it have to be in that quadrant? There is room on the other side of the road with much more space.
View attachment 476402

No! Not there!

Then he would have to change his name from "Treelon" to "Treegone"!