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

[KarenRei]

Tesla Shanghai Gigafactory February 05th 2019. 特斯拉上海超級工廠 via 42HOW. Credit: 哲伦班长 $TSLA #Tesla #China #TeslaChina #GF3

Video: https://youtu.be/1Kr52-huOIA

Vincent on Twitter

New concrete pad? The start of foundation pouring?

Can't wait until there's a massive foundation across that land The sight of extensive concrete, with steel frameworks rising out of it in various phases of construction, aided by an army of tower cranes, will really make a big visual impact.

 

[Earlian]

And the first Model 3 delivery in Germany (M3 from glovis Captain) is scheduled for Feb, 16th!

Google Übersetzer

 

[Huskyf]

Markets is close today ? Normally not I checked on calendar.

No data on CNBC - NASDAQ ect...

UPDATE 12:20 - It's working now...

 

[gora321]

?

Tesla LiOn on Twitter

 

[Fact Checking]

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View attachment 374635
Tesla LiOn on Twitter

I believe Mercedes and BMW cannot meaningfully drop the price of their cash cow products, without hurting margins and cash flow - which cash they absolutely need to execute the EV transition successfully while winding down their ICE business.

If they try to price their ICE luxury/premium sedans via a fair comparison to the Model 3 then they already lost, the Model 3 is that much better of a sedan in basically every regard, including "effective range when driven dynamically".

They might be forced to drop prices though - but probably only after the introduction of the €35k Model 3.

Until then the damage from the Model 3 should be limited to specific lines of high performance sports sedans, for which there are no reliable, fine-grained sales statistics nor "delivery reports" like Tesla does, so Mercedes and BMW will be able to hide or mislead about a drop in market share for a long time I believe. (If you check the financial reports of Daimler AG, VW and BMW you'll see how awfully secretive they are about model specific sales performance...)

Also, the Model 3 so far has low market penetration in the two largest car markets of the EU, Germany and France:

Tesla Model 3: Europa Bestellungen/Europe Orders​

Only ~41 and ~18 Model 3 orders per a population of 1 million - while in countries like Norway, the Netherlands, Switzerland and Austria it's much higher at 971, 226, 171 and 91. And IMO it's not related to just GDP per capita: the Netherlands has similar per capita GDP levels to Germany, yet Model 3 market penetration is 5.5x higher.

So IMHO there's much more room for Model 3 demand to grow in Europe.

 

[Fact Checking]

Also (wait for it...):

“We push out our forecast of a $2.5bn equity capital raise to 3Q19.”

Tesla in its 10+ years of corporate history has issued equity in form of secondary stock sales slightly above $5b, which caused significant dilution.

By 3Q19 Tesla will have had 5 quarters of almost 1 billion dollars of free cash flow and $1.2-$1.5b operating cash flow.

I.e. by 3Q19 Tesla will have generated about $6-7.5b of cash internally, much more than the ~$5b of equity raises they did in their full 13 years of corporate history. Every quarter they are going to generate around as much cash as their largest equity raise was in history.

Tesla has been generating as much cash in each in their last two quarters as their biggest equity raises were, with no dilution whatsoever, and they are guiding to keep that cash generation rate up in 2019 as well.

No dilution, no "roadshow", no "investor prospectus", no expansive disclosures about future plans to keep big investors interested, no dinner parties with important Wall Street people to convince them to invest into Tesla. Just reliable execution and cash generation, quarter after quarter.

If Morgan Stanley analyst Adam Jonas was financial responsible for the losses he caused his clients who'd rely on his Tesla predictions, he'd be bankrupt by today. Analysts with permanent failed predictions and an unwillingness to face reality should be disbarred from working in the securities industry for a lifetime, for professional malfeasance.

 

[KarenRei]

By 3Q19 Tesla will have had 5 quarters of almost 1 billion dollars of free cash flow and $1.2-$1.5b operating cash flow.

Q1 FCF will be lucky to be positive. But otherwise I agree with this.

If Morgan Stanley analyst Adam Jones was financial responsible for the losses he caused his clients who'd rely on his Tesla predictions, he'd be bankrupt by today. Analysts with permanent failed predictions and an unwillingness to face reality should be disbarred from working in the securities industry for a lifetime for professional malfeasance.

I'm not sure what's the right solution, but clearly there's a problem where people who've been consistently wrong keep getting as much (or more) publicity as people who've been consistently right. I think maybe if the business press would simply adopt as standard policy printing the analyst's tipranks score next to their name, it'd all work itself out. E.g.: "Adam Jonas (52% accuracy) reiterated... " or "Jeff Osborne (42% accuracy) has revised....". Let people know when a given analyst's reliability is no better than flipping a coin - or worse.

Or maybe one should use average rates of return? E.g.: "David Tamberrino (-7,9% return) stated..." Then there's the issue, should you report the analyst's general performance, or just for that stock? Maybe they could just standardize on "Name (A/B% | C/D%)" where A and B are accuracy and return, respectively, for the analyst in general, and C and D are their accuracy and return on that stock. An analyst should have to have given at least, say, five ratings in order to get an "accuracy score". So given that....

Of recent ratings, here's the majorly bullish analysts:

Joseph Osha (60/+6,4% | */+6,3%)
Colin Rusch (49/+9,4% | 53/+69,9%)
Ben Kallo (57/+7,4% | 64/+23,6%)

Here's the majorly bearish analysts:

Jeff Osborne (42/-2,4% | 31/-22,3%)
David Tamberrino (49/-7,9% | 42/-3,2%)
Colin Langan (61/+9,5% | 30/-16,5%)
John Murphy (44/-1,6% | 31/-11,5%)
Brian Johnson (53/-3,7% | 32/-14,3%)

Which group's analysis would you trust if you could see the numbers after their names?

 

[Fact Checking]

Also, the Model 3 so far has low market penetration in the two largest car markets of the EU, Germany and France:

Tesla Model 3: Europa Bestellungen/Europe Orders
Only ~41 and ~18 Model 3 orders per a population of 1 million - while in countries like Norway, the Netherlands, Switzerland and Austria it's much higher at 971, 226, 171 and 91. And IMO it's not related to just GDP per capita: the Netherlands has similar per capita GDP levels to Germany, yet Model 3 market penetration is 5.5x higher.

So IMHO there's much more room for Model 3 demand to grow in Europe.

So it turns out Eurostat has the right kind of statistics required to judge buying power, median per capita disposable income of EU member countries:

Eurostat - Tables, Graphs and Maps Interface (TGM) table

Netherlands: €24,696
France:      €25,022
Austria:     €26,730
Germany:     €28,473
Norway:      €28,653
Switzerland: €29,540

(Note that this controls for different levels of income taxation, but doesn't control for different VAT levels, nor for car registration fees, incentives and annual taxation and various fees.)

These were pretty surprising results to me, with three big outliers:

• Norway has very high per capita GDP, but also very high levels of taxation, real disposable income is actually at the same levels as Germany.
  • So the spreading of EVs in Norway can almost exclusively be credited to the EV friendly incentives and regulation in Norway.
• Germany has actually higher per capita disposable income than the Netherlands - yet Model 3 penetration is much lower.
  • VAT of 19% is actually one of the lowest among these countries. The Model 3 should be very affordable to Germans - yet Germany has one of the lowest market penetrations.
    
  • I believe part of the picture must be the existential threat the German auto press is feeling about Tesla's impact on the German car industry and on the generous ad revenues from that industry. Much of the German press/media is also pretty concentrated under the control of just a few wealthy families, and is well aligned with the car industry.
    
  • Even today it's almost impossible to read an article about Tesla in the mainstream German auto and business press without some piece of FUD or a negative note about Tesla's future (or past) being present as well. Because "balance" and "skepticism" is very easy when you are not biting a feeding hand.
• France actually has more disposable income than citizens of the Netherlands, yet Model 3 market penetration is only 18 there, while 226 in the Netherlands - a 12.5x factor. (!)
  • Is the French auto and business press saturated with Tesla FUD, or do French carmakers have undue influence over Tesla's communications and marketing channels? This is a really curious result to me. (Maybe someone with a better understanding of the French car market (@bhtooefr?) knows the answer. Are car sales down in France due to social friction? Brexit fears? Or are French EVs good enough to take away Model 3 demand?)

 

[Fact Checking]

Q1 FCF will be lucky to be positive. But otherwise I agree with this.

Tesla guided for 'tiny profits' in Q1, but I believe that constraint necessarily results in free cash flow north of $500m, even if they make a small GAAP loss.

They guided for 10,000 vehicles in transit. In Q1 2018 they had 4,060 S+X vehicles in transit, so if in Q1'19 S+X in-transit levels are roughly similar, this means that there are going to about 6,000 extra Model 3's in transit, about 1,000 in the U.S. similar to Q4, and about 5,000 high ASP configurations en route to Europe and China - about ~2 GLOVIS ships worth of Model 3's.

So the differential increase in inventory in Q1 is going to be about 5,000 high-ASP cars: at an ASP of $60k that's about $300m reduction in revenue and an about $100m-$150m reduction in profits (hence the 'tiny profits' guidance).

But the impact to free cash flow should be similar: at most $300m of cash income "missing", all other things equal. Q3 and Q4 had FCF of $881m and $910m, so Q1 would map to $580-$610m of FCF, very roughly estimated.

Lower FCF would only be possible if other parts of the business are shrinking in an unexpected fashion, or if there's some unexpected delay in European and Chinese Model 3 deliveries, increasing "vehicles in transit" to well beyond 10k units. More than 20k undelivered units would be required to wipe out all FCF I believe.

Also, if Tesla slows down production in March then there might be a further 'accounts payable' compression effect from January and the first couple of weeks of February payments becoming due before end of Q1. This shouldn't go beyond $200m-$300m even in the worst case I believe.

(Maybe @ReflexFunds can point out which assumptions are correct or false.)

 

[KarenRei]

Tesla guided for 'tiny profits' in Q1, but I believe that constraint necessarily results in free cash flow north of $500m, even if they make a small GAAP loss.

They guided for 10,000 vehicles in transit. In Q1 2018 they had 4,060 S+X vehicles in transit, so if in Q1'19 S+X in-transit levels are roughly similar, this means that there are going to about 6,000 extra Model 3's in transit, about 1,000 in the U.S. similar to Q4, and about 5,000 high ASP configurations en route to Europe and China - about ~2 GLOVIS ships worth of Model 3's.

So the differential increase in inventory in Q1 is going to be about 5,000 high-ASP cars: at an ASP of $60k that's about $300m reduction in revenue and an about $100m-$150m reduction in profits (hence the 'tiny profits' guidance).

But the impact to free cash flow should be similar: at most $300m of cash income "missing", all other things equal. Q3 and Q4 had FCF of $881m and $910m, so Q1 would map to $580-$610m of FCF, very roughly estimated.

Lower FCF would only be possible if other parts of the business are shrinking in an unexpected fashion, or if there's some unexpected delay in European and Chinese Model 3 deliveries, increasing "vehicles in transit" to well beyond 10k units. More than 20k undelivered units would be required to wipe out all FCF I believe.

Also, if Tesla slows down production in March then there might be a further 'accounts payable' compression effect from January and the first couple of weeks of February payments becoming due before end of Q1. This shouldn't go beyond $200m-$300m even in the worst case I believe.

(Maybe @ReflexFunds can point out which assumptions are correct or false.)

How do you account for the March convertibles? Does repaying them not count under FCF?

 

[Fact Checking]

Vincent's latest progress report about the Shanghai Gigafactory:

Vincent on Twitter

They seem to have poured the concrete for either a big parking lot, or for utility buildings/containers that would help construction, and there's progress on the road system. The pile drivers are gone, so they possibly already finished their stabilization work.

 

[KarenRei]

Some daring drone flying. If he crashes it in there, he's not getting it back

 

[Fact Checking]

How do you account for the March convertibles? Does repaying them not count under FCF?

I don't think the March $920m convertible notes debt repayments are going to reduce Q1 free cash flow (only the interest payments do) - they do reduce overall cash flow and cash position, i.e. the "cash and cash equivalents" line on the balance sheet.

Note how Tesla described it in the Q4 update letter:

"Free cash flow (operating cash flow less capital expenditures) also improved sequentially in Q4 to $910 million. In the second half of 2018, our cash position improved by $1.45 billion despite the scheduled repayment of a $230 million convertible bond in Q4. We have sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019."​

If we parse this:

• Free cash flow is defined as "operating cash flow less capital expenditures", and taking debt and repaying debt doesn't increase or decrease operating cash flow.
• Also note that Tesla only mentions the convertibles in context of their "cash position", i.e. "cash and cash equivalents" (which are really dominantly money market funds I believe), not in the context of free cash flow.
• I believe this paragraph about the cash repayment of the $230m convertibles was inserted intentionally into the update letter, with the intention of offering a reassuring "test run" of how the $920m debt payment will be treated, for any investors/analysts who might not be 100% certain about it.

So it seems pretty unambiguous to me - @ReflexFunds and @brian45011 might want to chime in if I got it wrong.

 

[anthonyj]

Morgan Stanley downgrade $283

 

[FS_FRA]

Tesla Shanghai Gigafactory February 05th 2019. 特斯拉上海超級工廠 via 42HOW. Credit: 哲伦班长 $TSLA #Tesla #China #TeslaChina #GF3

Video: https://youtu.be/1Kr52-huOIA

Vincent on Twitter

Looks like housing for labourers. Great!

 

[Fact Checking]

Some daring drone flying. If he crashes it in there, he's not getting it back

Depends on how chill the security folks are I guess, if he wasn't really doing anything outrageous like obviously trying to zoom in on windows of office buildings or come dangerously close to and endanger people doing work I'm sure he'd get it back in exchange for a bit of compensation for the bother of going out into the mud. So chances are he'd be getting it back ... in pieces: crashes from such heights are usually rather destructive to drones.

These drone updates are helpful, if Tesla really disapproved of such drone footage they could prevent it ...

 

[gora321]

Kurt Hellyn‏ @KurtHellyn


@teslamodel3fan @Model3Owners @karlvhilst @DMC_Ryan @rrosenbl @TeslaClubBE first are model s waiting for some more pictures

 

[jhm]

I

I believe Mercedes and BMW cannot meaningfully drop the price of their cash cow products, without hurting margins and cash flow - which cash they absolutely need to execute the EV transition successfully while winding down their ICE business.

If they try to price their ICE luxury/premium sedans via a fair comparison to the Model 3 then they already lost, the Model 3 is that much better of a sedan in basically every regard, including "effective range when driven dynamically".

They might be forced to drop prices though - but probably only after the introduction of the €35k Model 3.

Until then the damage from the Model 3 should be limited to specific lines of high performance sports sedans, for which there are no reliable, fine-grained sales statistics nor "delivery reports" like Tesla does, so Mercedes and BMW will be able to hide or mislead about a drop in market share for a long time I believe. (If you check the financial reports of Daimler AG, VW and BMW you'll see how awfully secretive they are about model specific sales performance...)

Also, the Model 3 so far has low market penetration in the two largest car markets of the EU, Germany and France:

Tesla Model 3: Europa Bestellungen/Europe Orders​

Only ~41 and ~18 Model 3 orders per a population of 1 million - while in countries like Norway, the Netherlands, Switzerland and Austria it's much higher at 971, 226, 171 and 91. And IMO it's not related to just GDP per capita: the Netherlands has similar per capita GDP levels to Germany, yet Model 3 market penetration is 5.5x higher.

So IMHO there's much more room for Model 3 demand to grow in Europe.

I suspect they need to prepare to move down market. They'll need to trim cost out of their product so that they can cut price and sustain cash flow. They've got a strong legacy brand to monetize as they go down market. I've my hunch is correct, this movement could become a problem for Toyota, Nissan, VW, and GM as luxury brands push into their value segments.

 

[EVMeister]

Morgan Stanley downgrade $283

Yeah. Based on the fact the company is doing better than when those clueless fools last downgraded. I feel sorry for the suckers who trade based on this "analysis".

 

[cheshire cat]

Morgan Stanley downgrade $283

Must see if I can scrape the bottom of the dry powder barrel