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

[Dreadnought]

I (sometimes) miss the endless tsunami of data available on one's desktop Bloomberg & Reuters machines. You could get a year's worth of work-not-getting-done in just a morning!
But, as long as you're there.......'tho mayhap not till Monday morning? - could you hit that sort button to show the list by Position rather than by Change? And include down at least as far as it takes to show where ARK Investment is? Asking for a prurient friend.

Tesla, Inc. Common Stock (TSLA) Institutional Holdings only shows holdings as of 9/30/19 (anybody knows when to expect next update?) but ARK is there listed as #14, still on the first page.

 

[dc_h]

Short-Sellers Took on Elon Musk and Tesla in 2019 and Lost

Sorry if this was posted, but it’s a pretty informative look at short selling and their current state.
I’m excited to see how Q4 earnings turn out for father and son Corp.
“I put on a small short condition [Wednesday] that for an investment firm my sons and I run,” Brad Cornell, emeritus professor of finance at UCLA and managing director at global consulting firm BRG, tells Fortune. “We thought at $488 it was so wildly overvalued, how long could it go on?”

Hopefully it’s an expensive lesson

A finance professor who doesn’t understand the volatility of a company growing 60% for 7+ years? People read crap about subjects they are experts in and forget everything they know. A lot of people have made money shorting Tesla and walking away, not many have made money shorting Tesla on principle. I’ve been buy and hold for about 5 years now, adding after we started declining last year. My only regret is not shifting resources to buy under 200. Stock performance for Tesla should not be about current performance, except as a barometer of expected future performance. Current execution with expected growth is crazy. If Tesla develops another platform out of China and can announce GF5 sometime this year, there is a solid path to 3 million cars by 2023. This year Tesla will be building phase 3 at Shanghai for Y assembly (phase 2 being battery pack assembly) and Germany phase 1 as well as expanding Fremont for the Y and building semi pilot and Roadster somewhere. Once cash flow is evident in Q2 or Q3 I would expect GF5 and maybe GF6 announcements for 2021 start dates.

 

[EinSV]

Tesla, Inc. Common Stock (TSLA) Institutional Holdings only shows holdings as of 9/30/19 (anybody knows when to expect next update?) but ARK is there listed as #14, still on the first page.

A few will trickle in earlier but the deadline is 45 days after the end of the quarter, so Valentine's Day. Important Filing Dates

 

[AudubonB]

Firstly, a correction, I misremembered the GAAP profit @luvb2b is estimating for Q4: it's +$295m.

Secondly, Q3 was arguably an outlier, it was profitable despite a 10% increase in production and an only 1.8% increase in deliveries and price reductions, because:

• a significant improvement in efficiencies: my guess is that the primary driving factor was that Tesla re-negotiated the battery purchase contract and its pricing formula in particular with Panasonic, to better tie cell prices to the (dropping) world market prices of key raw materials,
  
• this can be suspected from the fact how 'storage' margins improved from near zero to 20% in a single quarter,
  
• excellent opex control - historical weak area of Tesla under Deepak as a CFO - Zachary seems much better at this,
  
• there was a ~$100m GAAP income from foreign exchange shifts - it's real income but almost impossible to model due to how it shifts randomly between quarters.

Neither of which could be reliably modeled. If just two of those factors were included (storage margin improvement and FX effects), his model would have shown a small profit for Q3....

Musings directed at FC and the rest of this community:

First, semantics clarification. "Neither" depends from two choices. Am I missing something in that final paragraph, or, as I suspect, did you mean to write "None (of the above four bullet points)"?

Second, input prices. To an extent far greater than many realize, raw and semi-manufactured materials prices end up as so small a portion of final product cost that their effect ranges from the really small to minuscule to the almost-noncalculable. The greater the sophistication of the end-product, the smaller that effect. Now, for Tesla, we have a combination of a highly sophisticated product as well as one which does indeed have the literal mass of a more traditional heavy-equipment good. But - and here is where the "musing" portion of today's stream-of-drivel comes in - As Tesla continues to refine its manufacturing processes, the cost of labor per unit of output diminishes and, while this is commendable and highly to be desired, at the same time it perforce increases the relative importance of those materials costs. Highly counterintuitive, if so, but amusing to consider.

Third, OpEx control. Am I to understand that Tesla's CFO is more than a (very) glorified accountant, straightening out financial statements so as to satisfy Price Waterhouse and Wall St, but rather, is the one who cracks the whip wrt purchasing contracts and so forth? I'm not challenging this, just trying to learn something...but if this so I suspect I'm not the only one here to be surprised.

Fourth, ForEx control (last posted on this in 2013. I do take a break from flogging moribund equines). I was schooled in the importance of having a manufacturing or service business keeping exposure to FX changes as isolated from its business as possible...and that through the appropriate use of currency hedging, "possible" means just about exactly 100%. THIS type of use of options contracts is, in my world, the justification for such options. Were I sitting on Tesla's Board of Directors, I most implacably would be pressing Mr Kirkhorn to pursue this to the nth degree. I lied in this paragraph's first sentence, of course: I do like flogging my distaste for derivative products within the investment world but it's a nice Saturday and I'm not going to pursue that further on this occasion.

 

[The Accountant]

Maybe if you're talking only about Model 3s.

Fremont will probably make in the lower-90s thousand Model 3s, give or take. Depends on how much more improvement can be done in the line without heavy investment, or whether it's tapped out. Of these, I expect somewhat of an inventory rebuild (it was unusual to be able to drain inventory so low), so upper 80s thousand delivered. Assuming China remains relatively inventory-stable (including the ~1000 cars made by GF3 last quarter, which is pessimistic), GF3 deliveries will equal GF3 production in Q1. Maybe somewhere in the 5k-20k range. Total ballpark, ~97k Model 3 deliveries seems reasonable. Add to that, say, ~17k S+X, to ~114k total deliveries.

I could certainly be wrong. But I really doubt I am.

But then factor in seasonality, ships stuck at sea and the fact that Feb only has 29 days instead of 30 and we get back to 83,420 for Q1

 

[dc_h]

A finance professor who doesn’t understand the volatility of a company growing 60% for 7+ years? People read crap about subjects they are experts in and forget everything they know. A lot of people have made money shorting Tesla and walking away, not many have made money shorting Tesla on principle. I’ve been buy and hold for about 5 years now, adding after we started declining last year. My only regret is not shifting resources to buy under 200. Stock performance for Tesla should not be about current performance, except as a barometer of expected future performance. Current execution with expected growth is crazy. If Tesla develops another platform out of China and can announce GF5 sometime this year, there is a solid path to 3 million cars by 2023. This year Tesla will be building phase 3 at Shanghai for Y assembly (phase 2 being battery pack assembly) and Germany phase 1 as well as expanding Fremont for the Y and building semi pilot and Roadster somewhere. Once cash flow is evident in Q2 or Q3 I would expect GF5 and maybe GF6 announcements for 2021 start dates.

I read the profs analysis. He doesn’t seem to understand the market. VW is the only major western brand with a plan. GM has a get a toe in the water plan and no dealer support. Even at 1 million cars a year Tesla can start approaching Porsche margins and has only internal execution as a limit on the timing to get to 5 million cars a year. I think the X has worked out, but in retrospect, a simpler SUV could have gotten to this place a year earlier and avoided some of the short shenanigans. On the bright side, I added shares and will benefit more in the long run.

 

[TradingInvest]

I (sometimes) miss the endless tsunami of data available on one's desktop Bloomberg & Reuters machines. You could get a year's worth of work-not-getting-done in just a morning!
But, as long as you're there.......'tho mayhap not till Monday morning? - could you hit that sort button to show the list by Position rather than by Change? And include down at least as far as it takes to show where ARK Investment is? Asking for a prurient friend.

A while back I saw the pictures somewhere and saved them. Wish I could sort them differently.

 

[EVNow]

Elon just tweeted that feature-complete FSD will be released soon.

Buff Mage on Twitter

Important thing is it was a reply to a question. Not an announcement.

 

[jerry33]

So I’ve been tracking what people have been saying about smart summon as a way to measure FSD progress.

reddit post yesterday most people say Smart summon is still nothing more than a party trick

That's a poor way to track FSD progress because only the old non-optimized-for-HW3 software is being used. And on places such as Reddit, most people often means people who don't actually have real life experience but are just repeating what they've read elsewhere.

 

[AudubonB]

Tesla, Inc. Common Stock (TSLA) Institutional Holdings only shows holdings as of 9/30/19 (anybody knows when to expect next update?) but ARK is there listed as #14, still on the first page.

There we are - thanks.
#3: "Public Investment Fund"? Now, there's an innovative name! I wonder who that really is....or whether it's Norge, Japan, New York City, and all others agglomerated???? Surely not.

 

[EVNow]

Troy is a demand-sider, despite how consistently this hypothesis has been proven false. Tesla is not, and has not been, demand-limited, except for occasionally on S/X due to cannibalization by self-competition with the 3. Tesla will sell every single Model 3 they can make, within the bounds of small inventory shifts (probably adverse this quarter due to how great of a job they did draining inventory last time).

When we talk about demand/supply - one thing that always needs to be specified is the price.

In Q1 '19 with the prices they had and lack of SR, hey were probably not supply constrained. In Q1 '20, who knows.

I think the best indications are price adjustments and delivery estimates / ship count. We ignored these signals in Q1 '19 and paid a heavy price. So far so good this quarter - but its really only a week old.

I'd actually be ok with 97k (my own assumption is 95k). That would still be a 50% improvement over Q1 '19.

 

[jerry33]

I read the profs analysis. He doesn’t seem to understand the market. VW is the only major western brand with a plan. GM has a get a toe in the water plan and no dealer support. Even at 1 million cars a year Tesla can start approaching Porsche margins and has only internal execution as a limit on the timing to get to 5 million cars a year. I think the X has worked out, but in retrospect, a simpler SUV could have gotten to this place a year earlier and avoided some of the short shenanigans. On the bright side, I added shares and will benefit more in the long run.

It could have, but would it have generated as much press coverage? The shorts would have been there regardless of what was produced.

 

[AudubonB]

I only have a data set of 1 so please know it is biased. But I have been so impressed with that person that I feel inclined to comment. TMC has a very distinguished Professor Emeritus as a long-time member, and he has been an unwavering TSLA Bull with a more sustainable vision for the planet guiding his investments. @Intl Professor has been, and continues to be one of my absolute favorite TMC posters. He joined TMC when I was just lurking after our first investments in TSLA in 2013, and he was one of the catalysts for me to eventually join later simply to be able to converse with him and others here. TMC has helped improve the timing of our investments over the years, for which we are very grateful. I would like to recognize here that was in part due to @Intl Professor 's enthusiasm bringing me closer into the circle. And I would also like to recognize how important it is to embrace and hang on to that vision for a more sustainable Planet that @Intl Professor shares to help ride out the FUD and the manipulation, for each TSLA Long - no matter how small their investment - is helping to make the Planet a better place for future generations.

Cheers @Intl Professor - may our paths cross for some very enjoyable conversations over suds at a Round Table somewhere soon. And may we raise a toast to all of the rest of the wonderful people here on TMC when that long-overdue day finally comes.

Quasi-serious question: Were I to set aside a few days this summer at our Lodge to host such a gathering, any show of hands of who to some probability of reality would like to attend and could make the trip? If you ever have wanted to get to Alaska (again, for some of you), maybe this could create the right incentive. So far, the only member we've hosted has been @gene.
Time's short here, as our book fills fast and we've precious few multi-day blocks where we've good availability remaining.

PS: Very nice post about a very nice person.

 

[Tim S]

There we are - thanks.
#3: "Public Investment Fund"? Now, there's an innovative name! I wonder who that really is....or whether it's Norge, Japan, New York City, and all others agglomerated???? Surely not.

According to Google, that's Saudi Arabia.

 

[Fact Checking]

First, semantics clarification. "Neither" depends from two choices. Am I missing something in that final paragraph, or, as I suspect, did you mean to write "None (of the above four bullet points)"?

Indeed, initially I only listed two factors, but then added two more and forgot to change the 'neither' to 'none'. A kind soul with moderator editing powers could perhaps fix that typo and also change the '-$168m' to '+$168m' in the table?

Second, input prices. To an extent far greater than many realize, raw and semi-manufactured materials prices end up as so small a portion of final product cost that their effect ranges from the really small to minuscule to the almost-noncalculable. The greater the sophistication of the end-product, the smaller that effect. Now, for Tesla, we have a combination of a highly sophisticated product as well as one which does indeed have the literal mass of a more traditional heavy-equipment good. But - and here is where the "musing" portion of today's stream-of-drivel comes in - As Tesla continues to refine its manufacturing processes, the cost of labor per unit of output diminishes and, while this is commendable and highly to be desired, at the same time it perforce increases the relative importance of those materials costs. Highly counterintuitive, if so, but amusing to consider.

There was a highly redacted SEC filing that disclosed the general outlines of the pricing formula, and 'world metal spot prices' with a 12-month trailing average were major parameters.

Since li-ion cells are dense and heavy, I'd expect the raw materials to play a major role in the price of the product.

Third, OpEx control. Am I to understand that Tesla's CFO is more than a (very) glorified accountant, straightening out financial statements so as to satisfy Price Waterhouse and Wall St, but rather, is the one who cracks the whip wrt purchasing contracts and so forth? I'm not challenging this, just trying to learn something...but if this so I suspect I'm not the only one here to be surprised.

Since Tesla's management hierarchy is flat and Elon prefers people to jump the chain of command in both directions, I'd very much expect the CFO to have the ability and tools to 'crack the whip' - if he has the inclination. I think the difference between Deepak and Zachary is the inclination - but that's just a feeling based on listening to both CFOs on conference calls. Zach gave me the impression of a highly competent CFO who means business and who knows the stakes. He is young, but he was an excellent pick IMHO.

There's a lot that a CFO and his staff can do by just going through all the major and minor sources of expenses, and overseeing that kind of high level cost optimization approach is what I'd expect from a good CFO. The CFO is the one who has the complete high level picture about the company, of all the usually highly secret financial aspects of it - and he is far more than "just" an accountant who prepares and files quarterly reports.

Maybe @The Accountant can give some insight about whether a CFO of a Tesla-sized manufacturing company would get involved in tracking down sources of expenses and help optimize opex?

Fourth, ForEx control (last posted on this in 2013. I do take a break from flogging moribund equines). I was schooled in the importance of having a manufacturing or service business keeping exposure to FX changes as isolated from its business as possible...and that through the appropriate use of currency hedging, "possible" means just about exactly 100%. THIS type of use of options contracts is, in my world, the justification for such options. Were I sitting on Tesla's Board of Directors, I most implacably would be pressing Mr Kirkhorn to pursue this to the nth degree. I lied in this paragraph's first sentence, of course: I do like flogging my distaste for derivative products within the investment world but it's a nice Saturday and I'm not going to pursue that further on this occasion.

In one of the conference calls it was Zach I think who said that Tesla consciously does not hedge FX exposure.

I agree: FX hedges can have significant costs, and over the long run a business will be exposed to the shifts in FX ratios between currencies anyway. Many manufacturing companies have long-term contracted prices and fixed expenses that are crossing currency regions, so they pretty much have to hedge FX risks for the duration of the contracts.

But Tesla is able to adjust customer prices very quickly and does so frequently, because they are both manufacturer and dealer and have no middlemen in the chain of sales and have only short term purchase contracts for the duration of the transport of the car.

Another factor is that Tesla is basically a consumer electronics firm with its thick 20-30% gross margins, which is far less sensitive to changes in currencies compared to other manufacturing companies that operate in the low-margin world of mass production in commoditized markets. The reason Tesla is fighting for GAAP profitability isn't because their margins are low, but because it's financing so much growth both directly (capex, R&D) and indirectly (through high-rate growth inefficiencies in production).

In view of their gross margins of beyond $1b per quarter, a $90m shift due to FX is not a big factor. To a company that expects to earn $200m in a quarter on similar revenue, it's a big deal, so they have to hedge FX risks to gain stability of income.

This kind of vertical integration allows them to assume FX risks and reduce overall FX transaction costs that way.

 

[Paracelsus]

Quasi-serious question: Were I to set aside a few days this summer at our Lodge to host such a gathering, any show of hands at who to some probability of reality would like to attend and could make the trip? If you ever have wanted to get to Alaska (again, for some of you), maybe this could create the right incentive. So far, the only member we've hosted has been @gene.
Time's short here, as our book fills fast and we've precious few multi-day blocks where we've good availability remaining.

PS: Very nice post about a very nice person.

This is an extremely generous and exciting offer, @AudubonB ! Please add my wife and I to the list of people that would commit to attending and helping in any way possible. We would be glad to plan on sleeping in our Sprinter van or in our tent if we take the motorcycle to make as much Lodge space available for others. I will likely be working in Prince William Sound on and off through the year but look forward to locking in dates on the calendar for much more important activities.

 

[NakedLong]

Since Tesla's management hierarchy is flat and Elon prefers people to jump the chain of command in both directions, I'd very much expect the CFO to have the ability and tools to 'crack the whip' - if he has the inclination. I think the difference between Deepak and Zachary is the inclination - but that's just a feeling.

There's a lot that a CFO and his staff can do by just going through all the major and minor sources of expenses, and overseeing that kind of high level cost optimization approach is what I'd expect from a good CFO. The CFO is the one who has the complete high level picture about the company, of all the usually highly secret financial aspects of it - and he is far more than "just" an accountant who prepares and files quarterly reports.

Maybe @The Accountant can give some insight about whether a CFO of a Tesla-sized manufacturing company would get involved in tracking down sources of expenses and help optimize opex?

Didn't they say that CFO&CEO would be signing off every expense to cut costs in an earnings call a while back? It sounds to me that at Tesla, ZK is very involved in cost savings...

 

[Driver Dave]

https://www.washingtonpost.com/technology/2020/01/10/tesla-battery-range/

"But car industry experts also say the company has taken more risks than traditional automakers, making its batteries ever-denser and out of different materials than competitors. Some point to a handful of spontaneous battery fires under investigation by federal regulators as potential fallout."

“My belief is that Tesla is more willing to risk their battery not lasting 8 to 10 years and just dealing with the consequences on the back-end,” said Michael Ramsey.


The FUD out there is getting desperate for something... anything...


They are trying to spin Tesla batteries being years ahead as a "bad thing". Crazy.

 

[gerebgraus]

Indeed, initially I only listed two factors, but then added two more and forgot to change the 'neither' to 'none'. A kind soul with moderator editing powers could perhaps fix that typo and also change the '-$168m' to '+$168m' in the table?



There was a highly redacted SEC filing that disclosed the general outlines of the pricing formula, and 'world metal spot prices' with a 12-month trailing average were major parameters.

Since li-ion cells are dense and heavy, I'd expect the raw materials to play a major role in the price of the product.



Since Tesla's management hierarchy is flat and Elon prefers people to jump the chain of command in both directions, I'd very much expect the CFO to have the ability and tools to 'crack the whip' - if he has the inclination. I think the difference between Deepak and Zachary is the inclination - but that's just a feeling based on listening to both CFOs on conference calls. Zach gave me the impression of a highly competent CFO who means business and who knows the stakes. He is young, but he was an excellent pick IMHO.

There's a lot that a CFO and his staff can do by just going through all the major and minor sources of expenses, and overseeing that kind of high level cost optimization approach is what I'd expect from a good CFO. The CFO is the one who has the complete high level picture about the company, of all the usually highly secret financial aspects of it - and he is far more than "just" an accountant who prepares and files quarterly reports.

Maybe @The Accountant can give some insight about whether a CFO of a Tesla-sized manufacturing company would get involved in tracking down sources of expenses and help optimize opex?



In one of the conference calls it was Zach I think who said that Tesla consciously does not hedge FX exposure.

I agree: FX hedges can have significant costs, and over the long run a business will be exposed to the shifts in FX ratios between currencies anyway. Many manufacturing companies have long-term contracted prices and fixed expenses that are crossing currency regions, so they pretty much have to hedge FX risks for the duration of the contracts.

But Tesla is able to adjust customer prices very quickly and does so frequently, because they are both manufacturer and dealer and have no middlemen in the chain of sales and have only short term purchase contracts for the duration of the transport of the car.

Another factor is that Tesla is basically a consumer electronics firm with its thick 20-30% gross margins, which is far less sensitive to changes in currencies compared to other manufacturing companies that operate in the low-margin world of mass production in commoditized markets. The reason Tesla is fighting for GAAP profitability isn't because their margins are low, but because it's financing so much growth both directly (capex, R&D) and indirectly (through high-rate growth inefficiencies in production).

In view of their gross margins of beyond $1b per quarter, a $90m shift due to FX is not a big factor. To a company that expects to earn $200m in a quarter on similar revenue, it's a big deal, so they have to hedge FX risks to gain stability of income.

This kind of vertical integration allows them to assume FX risks and reduce overall FX transaction costs that way.

My impression from ER calls was that Deepak was Elon's highly respected assistant CFO. On the other hand Zach is treated as the CFO, and sometimes Elon even referential to him. Zach does not only have the whip to control costs inside, but he also increases income. Tesla has raised prices many times lately to reflect supply-demand they raised Model 3 prices. They introduced connectivity charges and increased supercharger rates in a move towards eliminating losses on these services.

 

[Pezpunk]

Quasi-serious question: Were I to set aside a few days this summer at our Lodge to host such a gathering, any show of hands at who to some probability of reality would like to attend and could make the trip? If you ever have wanted to get to Alaska (again, for some of you), maybe this could create the right incentive. So far, the only member we've hosted has been @gene.
Time's short here, as our book fills fast and we've precious few multi-day blocks where we've good availability remaining.

PS: Very nice post about a very nice person.

I’d be excited for a meetup, but could it be somewhere a bit more central, and warm?