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

[UncaNed]

Tesla has lowered Model 3 prices by another $1,100.

• Mid Range: $42,900
• Long Range Dual Motor: $49,900
• Long Range Dual Motor Performance: $60,900

“Primarily as a result of ending the referral program, which cost far more than we realized, Tesla is able to lower the price of Model 3 by $1,100.”

I can't understand why they didn't just lower the cost of the referral program rewards significantly, say by 90%. Many dedicated owners would still have appreciated the gesture of a small referral reward. My favorite would have been extending my warranty an extra month or two for each referral or something like that.

 

[Singuy]

How could they not realize how much it was costing them? From the second I saw it I thought it was too rich.

It wasn't costing them much. I believe most people will end up with one referral if they are lucky. I mean 1100 dollars extrapolate to 60k cars/quarter is 66 million. I seriously doubt they were giving away 66 million dollars in prizes a quarter.

All those special rewards are pretty much for Tesla youtubers that pushed hard on the products. Also lets not forget that the referral program didn't apply to the Model 3 until Q3 so it was only around for 2.5 Qs, which generated a bunch of excitements for those who got a roaster(most people posted a video about them winning a roadster which is probably worth more than the roadster themselves as an advertisement).

 

[StarFoxisDown!]

People using much more supercharging than estimated ? Did they also have free wheel upgrade ? Ofcourse, then the cost associated with the administration of the program itself.

Still, there is zero reason to reduce the price.

Unless, this was the plan all along. They will keep some kind of incentive going - or reduce the price.

People using much more supercharging than estimated ? Did they also have free wheel upgrade ? Ofcourse, then the cost associated with the administration of the program itself.

Still, there is zero reason to reduce the price.

Unless, this was the plan all along. They will keep some kind of incentive going - or reduce the price.

I do get frustrated with Tesla/Elon in situations like these. As you said, there should be no reason to reduce the price during Q1 when most production is going to orders overseas. There shouldn't be any issues selling a month's worth of cars in the US(for March). They're giving away 20-30 million in profit this quarter for seemingly no reason after they stated that they'll have to execute well and be lucky to post a profit for Q1. It's frustrating as an investor. The other aspect as I mentioned is that we all know how this is going to be played in the media tomorrow and I would not be surprised to see the stock down anywhere from 2-5%

 

[Singuy]

I can't understand why they didn't just lower the cost of the referral program rewards significantly, say by 90%. Many dedicated owners would still have appreciated the gesture of a small referral reward. My favorite would have been extending my warranty an extra month or two for each referral or something like that.

Probably because lowering the cost by 1100 generates significantly more sales than referrals. I mean now with after tax credit Teslas are under 40k. The difference between 50k and 35k is a 5 fold in demand(or 5 fold in customer base).

 

[Singuy]

I do get frustrated with Tesla/Elon in situations like these. As you said, there should be no reason to reduce the price during Q1 when most production is going to orders overseas. There shouldn't be any issues selling a month's worth of cars in the US(for March). They're giving away 20-30 million in profit this quarter for seemingly no reason after they stated that they'll have to execute well and be lucky to post a profit for Q1. It's frustrating as an investor. The other aspect as I mentioned is that we all know how this is going to be played in the media tomorrow and I would not be surprised to see the stock down anywhere from 2-5%

By that logic Tesla stock will tank whenever the 35k version rolls out if every price drop tanks the stock on a car that was PROMISED to be 35k to begin with.

 

[bdy0627]

Are these % of the investible funds ? So, this time when the stock went from 350 to below 385, what did you do … that's just barely 18% ?

Or, are you taking the recent High of 379 as the high point ?

The standard advice has been to split up the investment in to equal chunks and buy over time. This seems to be some variation of that.

This is definitely a good strategy when the ER is likely to be not that good (as in Q4 and Q1). Infact it might be a good idea to buy calls a few days before the ER and sell it on the day of ER, capitalizing on the high IV.​

I've used different volatility filters between 12 - 20%. I'm currently using an 18% volatility filter and tracking highs and lows on the daily chart. This resulted in the most recent local high being $352, with the dip coming down from there. We dipped 20.7% to $279. Unfortunately, that means I did not get to add at -21%, so at least according to the rules, I only added 10% leverage at $288. My non-Spock side intervened though and added when we were down around 15% and again around 18%. That side usually hurts me rather than helps. The more I follow the rules, the better I do. I have met the enemy (it's definitely not shorts with this strategy) and he looks awfully familiar.

Anyway, I sold 10% of my shares and bought J20 $400 LEAPS and June $320 calls with the proceeds. Historically, once TSLA has dropped 18%, the smallest climb over the last 4 years has been 18.2%, which means I anticipate reducing leverage around $329, or at least being ready to, if the stock looks like it's run out of steam. When deciding to sell, I also look for areas of probable resistance based on TA. I don't sell it all at once but sell into strength starting around that 18% climb level.

Here's a spreadsheet that I use to track the dips and climbs based upon an 18% volatility filter. It actually goes back to 2014, but this portion of the spreadsheet starts on 6/27/16. I track the number of days from the various dip levels to the actual bottom to help me with which calls to pick.

 

[StarFoxisDown!]

By that logic Tesla stock will tank whenever the 35k version rolls out if every price drop tanks the stock on a car that was PROMISED to be 35k to begin with.

Not my point at all. This is specific to Q1. Elon himself said most production will go to already spoken for overseas orders for Q1. They should have plenty of demand for a month of Q1, in March for US deliveries. And again....Tesla and Elon guided to barely profitable for Q1.

There's a difference between forecasting that say 35k Model 3 will be released in Q2 or Q3 once we hit our target margin....and just doing a random price drop after you just stated profit is going to be tight for the current quarter

I don't personally believe it's a bad thing to pass on the savings and drop the price. I don't really care about them being slightly profitable or slightly in the red for Q1. But the media will make a mountain out of this small mound of dirt. Again, based on how the stock traded around this news before, be prepared for a sizable drop in the stock price tomorrow.

 

[Navin]

I do get frustrated with Tesla/Elon in situations like these. As you said, there should be no reason to reduce the price during Q1 when most production is going to orders overseas. There shouldn't be any issues selling a month's worth of cars in the US(for March). They're giving away 20-30 million in profit this quarter for seemingly no reason after they stated that they'll have to execute well and be lucky to post a profit for Q1. It's frustrating as an investor. The other aspect as I mentioned is that we all know how this is going to be played in the media tomorrow and I would not be surprised to see the stock down anywhere from 2-5%

Out of curiosity - is starfox ever up?

 

[StarFoxisDown!]

Out of curiosity - is starfox ever up?

Lol despite my criticism of Tesla and Elon's choices lately, I'm a very firm believe in Tesla and how their long term strategy will transform not just transportation but energy storage and utilities, etc...

If I seem frustrated or down lately it's just because Tesla can't seem to get out of it's own way sometimes in their messaging. As a very long term stock holder(4-5 years at this point), 2018 was a very trying year for shareholders....beginning with "funding secured "

 

[eloder]

This decrease definitely makes no sense at this point in time. There is a huge backlog overseas, right? They could have just kept the free advertising of a scaled back referral program in place of a flat price decrease. I highly doubt we'll see a profit in Q1 and two rapid decreases like this will likely add significant (valid) fuel for the shorts.

 

[Singuy]

Not my point at all. This is specific to Q1. Elon himself said most production will go to already spoken for overseas orders for Q1. They should have plenty of demand for a month of Q1, in March for US deliveries. And again....Tesla and Elon guided to barely profitable for Q1.

There's a difference between forecasting that say 35k Model 3 will be released in Q2 or Q3 once we hit our target margin....and just doing a random price drop after you just stated profit is going to be tight for the current quarter

I don't personally believe it's a bad thing to pass on the savings and drop the price. I don't really care about them being slightly profitable or slightly in the red for Q1. But the media will make a mountain out of this small mound of dirt. Again, based on how the stock traded around this news before, be prepared for a sizable drop in the stock price tomorrow.

It's 66 million in a quarter which they were potentially spending on their referral program anyways. So with the staff cuts plus other efficiencies, this 66 million Tesla could have just pocketed will be make up with a blink of an eye. Their operating cash flow is like 1.2 billion and that's all that matters. 66 million of additional profit will not make or break them. If Elon wants the quarter to be profitable, he'll make it profitable because he can just scale some small project down or hold off on some purchases for Capex to hit profitability.

But running away with "no demand" is a possibility but then again every price drop(and there will be plenty) will tank the stock.

 

[winfield100]

What Black Swan events were in Tesla's past?

1) John Broder NYT article
2) the very first accident when it hit a fallen off trailer hitch, notified driver pull over exit, then burned up after it was safe to. (For The exited passenger)
3) 11/30/2016 Speigel bottom
4) 10cent “oh, by the way, we bought 5% of TSLA”
For 4 I think are them.

 

[jhm]

The growth of population should not directly/immediately translate into car purchases as in most cases the babies won't need a new car. Some immigrants will.

Just a note, population growth is births - deaths + net immigration. So it actually is impacted by people of all ages. Moreover, new parents often find new motivation to get an additional vehicle or to upgrade a vehicle. For example, take public transit becomes more difficult when one has small children to care for. So even new born babies have mobility needs and motivate vehicle purchases.

 

[Carl Raymond]

Not my point at all. This is specific to Q1. Elon himself said most production will go to already spoken for overseas orders for Q1. They should have plenty of demand for a month of Q1, in March for US deliveries. And again....Tesla and Elon guided to barely profitable for Q1.

There's a difference between forecasting that say 35k Model 3 will be released in Q2 or Q3 once we hit our target margin....and just doing a random price drop after you just stated profit is going to be tight for the current quarter

I don't personally believe it's a bad thing to pass on the savings and drop the price. I don't really care about them being slightly profitable or slightly in the red for Q1. But the media will make a mountain out of this small mound of dirt. Again, based on how the stock traded around this news before, be prepared for a sizable drop in the stock price tomorrow.

Hmm. I spy a conflict.

Shareholders seeking increased share price in the short term will want Tesla to report a growing profit figure each quarter.

The goal however is not to max profit, but to max growth rate. Profit figure will be random and small, with every positive profit dollar seen by Musk as a dollar which might have funded some growth somewhere. It’s the Amazon strategy.

The very word ‘profitable’ needs to go. All it does is focus attention on an almost irrelevant number. Is it positive, and thus qualifying for S&P inclusion? Tick that box.

 

[EVNow]

The goal however is not to max profit, but to max growth rate. Profit figure will be random and small, with every positive profit dollar seen by Musk as a dollar which might have funded some growth somewhere. It’s the Amazon strategy.

The very word ‘profitable’ needs to go. All it does is focus attention on an almost irrelevant number. Is it positive, and thus qualifying for S&P inclusion? Tick that box.

Yes - Musk should set that expectation - clearly showing Amazon as an example. Otherwise we'll have this weird post ER drops.

They should have a goal of some 50M profit and manage finances to hit that.

 

[reddit_tl]

Not my point at all. This is specific to Q1. Elon himself said most production will go to already spoken for overseas orders for Q1. They should have plenty of demand for a month of Q1, in March for US deliveries. And again....Tesla and Elon guided to barely profitable for Q1.

There's a difference between forecasting that say 35k Model 3 will be released in Q2 or Q3 once we hit our target margin....and just doing a random price drop after you just stated profit is going to be tight for the current quarter

I don't personally believe it's a bad thing to pass on the savings and drop the price. I don't really care about them being slightly profitable or slightly in the red for Q1. But the media will make a mountain out of this small mound of dirt. Again, based on how the stock traded around this news before, be prepared for a sizable drop in the stock price tomorrow.

Why do you think Elon and gang don't know the negative side of the effects of reducing the price?

If I can venture to guess, this is what is happening. The path to 35K is making progress nicely. Tesla have comfortable margin and can maintain that with the price reduction and it increases the addressable market. I say it's a calculated decision.

If this is right, it also means the battery production is finally catching up.

 

[Singuy]

Hmm. I spy a conflict.

Shareholders seeking increased share price in the short term will want Tesla to report a growing profit figure each quarter.

The goal however is not to max profit, but to max growth rate. Profit figure will be random and small, with every positive profit dollar seen by Musk as a dollar which might have funded some growth somewhere. It’s the Amazon strategy.

The very word ‘profitable’ needs to go. All it does is focus attention on an almost irrelevant number. Is it positive, and thus qualifying for S&P inclusion? Tick that box.

Yeah operating cash flow judges a growth company's current profitability, not GAAP profitability. The company is still profitable with a negative GAAP but highly positive operating cash flow. I don't know what Musk is trying to prove, but perhaps trying to weather the storm in case of a recession.

 

[StarFoxisDown!]

It's 66 million in a quarter which they were potentially spending on their referral program anyways. So with the staff cuts plus other efficiencies, this 66 million Tesla could have just pocketed will be make up with a blink of an eye. Their operating cash flow is like 1.2 billion and that's all that matters. 66 million of additional profit will not make or break them. If Elon wants the quarter to be profitable, he'll make it profitable because he can just scale some small project down or hold off on some purchases for Capex to hit profitability.

But running away with "no demand" is a possibility but then again every price drop(and there will be plenty) will tank the stock.

Just to be clear, I'm not disagreeing with you about the fact that a tiny profit or no profit matters or that Q1 in the long term won't matter. I just feel bad for investors that bought calls, are on margin, or bought options. Tesla could have easily waited until after Q1 earnings to do this since there isn't any demand issue forcing them to.

Also pretty sure the price drop is only for US and since I expect them to only sell 25-30k in the US for Q1, the cost to Tesla is more like 28-33 million. Someone can correct me if I'm wrong though about it being only for US.

 

[EVNow]

If I can venture to guess, this is what is happening. The path to 35K is making progress nicely. Tesla have comfortable margin and can maintain that with the price reduction and it increases the addressable market. I say it's a calculated decision.

Could be. If this is so, Tesla should give this as the reason. Basically, after Q4 ER, looks like we can't catch breath
- Deepak Retires
- Maxwell
- 1,100 price reduction

I mean, give it a break ! Yes, all of the above are non issues - but they depress SP all the same.

 

[juanmedina]

Just to be clear, I'm not disagreeing with you about the fact that a tiny profit or no profit matters or that Q1 in the long term won't matter. I just feel bad for investors that bought calls, are on margin, or bought options. Tesla could have easily waited until after Q1 earnings to do this since there isn't any demand issue forcing them to.

Also pretty sure the price drop is only for US and since I expect them to only sell 25-30k in the US for Q1, the cost to Tesla is more like 28-33 million. Someone can correct me if I'm wrong though about it being only for US.

They lowered the prices in the Canada as well