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

[JRP3]

Unintended Acceleration

And Unintended Donuts

 

[copyhacker]

In 2016, Jonas predicted Tesla would only make 170,000 total cars in 2019. The actual figure was 367,000. More than twice as many as predicted.

Looking at the chart, it’s pretty clear that Jonas is making the obvious mistake: he assumed linear growth, ignoring all Elon’s remarks that Tesla was shooting for exponential.

Maybe if he’d started his chart earlier than 2015, he’d have seen the trend better?

Spoiler

Nah.

[edit: had to learn how to use the spoiler tag]

 

[Fact Checking]

If there was no Shanghai factory, a good estimate for Model 3 deliveries in China in Q1 would be 7700 units. Assuming 69% of those would be LR AWD/P, that means 7700*0.69= 5300 would be Model 3 LR AWD or P. The price of LR AWD/ P has not changed in Q1 compared to Q4 and these models don't qualify for government incentives and Tesla's China website shows that only the SR version will be made in China (at least for now). Therefore there is no reason to think that LR AWD/P sales will be any different than it was in the last few quarters. Therefore 5300 LR AWD/P looks like a good estimate to me.

To make this easier, the second table below shows what we know so far about Q4.

Firstly, an observation: I think it should be natural to expect some Osborning of LR AWD by the MIC Model 3: ¥299,000 base price of MIC Model 3 versus the ¥439,000 base price for the LR AWD is a +46% premium, which is tough to rationalize now that the MIC Model 3's are actually shipping and the Chinese Supercharger network is expanding.

I'm pretty sure the significant price drop of the MIC Model 3 has impacted LR AWD Model 3 demand, and as a result Tesla might preemptively ship fewer Model 3's to China. 5,300 Model 3 deliveries look optimistic to me.

Secondly, a question: I see you adjusted the split based on the delivery report. I'm wondering what the data basis is behind reducing Model 3 deliveries from 41.8k to 40.1k in the U.S., while increasing Canada deliveries from 5.1k to 5.7k.

Is this shift in the North American split driven primarily by the trends you can observe in the community survey?

 

[dc_h]

Jordan John Szeliga was arrested on Jan 8 for reckless driving while test-driving a Tesla in Troy (Photo: Oakland County Jail)

"A Lake Orion man is facing multiple charges after allegedly going 130 mph while test-driving a Tesla."
"As they searched for the vehicle, police received more calls that the Tesla was racing down Big Beaver Road in Troy and doing doughnuts in a parking lot located at 755 W. Big Beaver Road, according to WDIV."
Lake Orion man arrested after taking Tesla on 130-mph test drive on I-75

Posted just because the picture is funny.

The sales team probably should t have let the naked man take the car for a test drive.

 

[Fact Checking]

The day buffet begin to invest in Tesla, is the day I seriously consider taking profit and slowly getting out.

Should Buffett invest in Tesla I'd nevertheless suggest waiting a few months for that epic secondary short squeeze to play out though.

 

[MartinAustin]

While Tesla is fixing a software flaw it can say “here’s Disney plus also. Enjoy.” Now the story is disney plus and your car is better.

Yes in fact Tesla has probably fixed dozens of flaws that it doesn't have to mention/identify/explain while introducing some new feature that gets tons of positive publicity

 

[Ameliorate]

So, some lousy shorts can write headlines that move the stock 5B. I'll never be worth that much, maybe I can take one for the team. By the time I'm outta jail TSLA would be in the thousands!

Tesla and SpaceX mining division bringing cobalt meteoroid home.

Elon and the Boring co. unveil underground Gigafactory 5 as completion nears.

Tesla to acquire AAPL at 340/share.

Musk and Buffet now following each other on twitter.
Obviously none of the above is true to my knowledge, all in jest.


The hilarious part is most of these could be plausible in the future with Elon's enterprises working together. Maybe not likely but plausible.

 

[Chickenlittle]

This is getting out of hand, and I am hoping a moderator (@ggr) would help.

There is Electroman the wise - that is me

And then there is <lightning symbol>ELECTROMAN<lightning symbol>. People often don't realize that and I get tagged incorrectly. Worse, I got banned once mistakenly.

I don't even know how this forum software allows one to create handles with some crazy symbols like that?. Not sure if I should change my handle, or if the moderator would remove such crazy characters in the handle and force the other person to change..

In-post Mod comment: Looking into this will be occurring

You should grab an account with the name “ggr.”

 

[Tim S]

As an inexperienced options trader, I'd like to confirm for others that what I expected to happen to my DITM call that expired yesterday, did happen.

I got an alert from ETrade at 7:04 AM EST today that my $285 call was exercised. I now have another 100 shares dated 01/17/2020, and $28,500 less cash. The "price paid" is $299.xx per share which includes the price I paid for the call ($14.xx) back in May 2019.

Now if I hold these shares until 01/17/2021 I will have a long term capital gain.

If I had closed the call yesterday I would have had a short term capital gain of $21,xxx.

 

[Zaxxon]

The weird thing is it was 500,000 cars suddenly accelerating at the same time.

Fleet learning.

 

[Fact Checking]

Yes if they choose to pay in new shares they will both eliminate the debt and increase their cash balance.

For example, for the Mar 2021 bonds, if the stock price is at $450 in March 2021, convert holders will choose to convert their $1,380m bond into 3.8 million shares worth $1,725m. Tesla's call option hedge will be worth $345m and the warrant it sold would be worth 0.
Tesla can either choose to pay the bondholders $1,725m in cash or it can issue them 3.8m new shares. If it issues them 3.8m new shares, it will eliminate $1,380m debt off its balance sheet and also close its call options to raise $345m new cash on balance sheet. Alternatively it can choose to pay cash, here it will sell the calls and eliminate the debt and give the bondholders $1,725m, but cash balance would be depleted by $1,380m. Here it is quite likely they issue normal bonds to fund the $1,380m.

Alternatively, if the stock price is $600 in March 2021, the convert holders 3.8m shares will be worth $2,300m and Tesla's call option hedge worth $920m. The $561m strike warrants will also be in the money and Tesla will be required to issue 3.8m shares to the warrant holders at a share issue price of $561.
So here if Tesla chooses to repay the convert in cash. It will sell the calls, pay the convert holders $2,300m and deplete cash balance by $1,380m. It will then issue 3.8m new shares to warrant holders and receive $2,132m cash in return. So overall it will have eliminated $1,380m debt and increased cash balance by $752m while diluting stock by 3.8m new shares.
It can also choose double dilution and repay both the convert holders and warrant holders in new shares. In this case it will see 7.6m dilution, eliminate $1,380m debt and raise $920m + $2,132m = $3,052m cash.

(Shout-out to @The Accountant, @EVNow, @KarenRei and @Doggydogworld and anyone else interested in arcane accounting details.)

BTW., I'm wondering about the following scenario: right now the March 2021 $360 calls are worth $187/share, while $560 strike calls are worth $80/share.

There's a nice $107/share profit on those hedges already, worth about $406m at the moment.

Tesla has basically bought a "bull spread" with a $360-$560 range - and is near the maximum profit point already.

Tesla could, with a simple board decision, decide to sell and close these hedges and earn $406m right now, instead of going for the maximum benefit of $763m next March if the share price is above $561.

Tesla might also, in principle, sell just the calls and not buy the warrants back, for $710m. They can meet those warrants anytime, by issuing new shares.

How would the resulting income be accounted?

Is it "Other Income", increasing GAAP net income, or is it a cash flow item only?

They are already accounting for interest rate swaps as "Other Income", as described in the Q3 10-Q:

"Interest Rate Swaps"

"We enter into fixed-for-floating interest rate swap agreements to swap variable interest payments on certain debt for fixed interest payments, as required by certain of our lenders. We do not designate our interest rate swaps as hedging instruments. Accordingly, our interest rate swaps are recorded at fair value on the consolidated balance sheets within other assets or other long-term liabilities, with any changes in their fair values recognized as other income (expense), net, in the consolidated statements of operations and with any cash flows recognized as investing activities in the consolidated statements of cash flows."​

If Tesla recognized income from selling hedges as "Other Income", that would have rather explosive consequences.

But right now they have to have the calls and warrants, because they promised shareholders certain dilution-hedging measured when they sold the convertibles to begin with.

Eventually it might make sense to divest them, especially once the share price moves well beyond the $561 upper range for the 2021 warrants - in that case the benefit to Tesla will not increase any further, and they could maximize income by selling time value sooner than expiry.

The 2024 hedges and warrants arranged in May 2019 are particularly interesting: the long-call strike is $309, the short-put strike is $607, and it's for 6 million shares - i.e. a monster 60,000 contracts bull spread. We are at the upper end of that call spread already, but time value is insanely high due to the very long expiry of 2024.

The value of the lower leg of this bull spread is significant: I believe the per share value of 2024 $309 calls is currently at around $300 (!). If Tesla sold back those calls they could earn up to 1.8 billion dollars...

Could someone double check my math on this?

 

[Artful Dodger]

I can't figure out any reasonable way to estimate Robotaxis

And yet 'analysts' recently revised their estimate for WAYMO to a more 'reasonable' $105B (slightly more than all of VWAG):

"Morgan Stanley slashed its estimate of how much Alphabet Inc.’s Waymo driverless car business is worth, saying the technology is taking longer to develop than previously expected.

"Waymo is worth about US$105 billion, Morgan Stanley analyst Brian Nowak said in a note to clients. That’s down from the US$175 billion valuation he pegged the unit at just a year ago."​

Waymo valuation slashed on autonomous vehicle tech delays - BNN Bloomberg

No, analysts clearly can do an estimate, they just don't want to. Ask yourself that question. Why won't they do it?

 

[Sudre]

So, some lousy shorts can write headlines that move the stock 5B. I'll never be worth that much, maybe I can take one for the team. By the time I'm outta jail TSLA would be in the thousands!

Tesla and SpaceX mining division bringing cobalt meteoroid home.

Elon and the Boring co. unveil underground Gigafactory 5 as completion nears.

Tesla to acquire AAPL at 340/share.

Musk and Buffet now following each other on twitter.
Obviously none of the above is true to my knowledge, all in jest.


The hilarious part is most of these could be plausible in the future with Elon's enterprises working together. Maybe not likely but plausible.

AH but the Shorts are ready to counter those head lines.

Space Force is investigating Tesla for the lack of toilet paper on the unmanned space ship.

The mining union has filed official complaint with labor relations on the lack on sunshine for the Boring employees.

Tesla buys Apple just before bankruptcy after failed FSD.... Tesla next?

Musk in need of finical advice follows Buffet on twitter.

 

[jerry33]

Waymo valuation slashed on autonomous vehicle tech delays - BNN Bloomberg

No, analysts clearly can do an estimate, they just don't want to. Ask yourself that question. Why won't they do it?

It's work, for one thing. More importantly Wall Street thrives on churn so buy and hold accounts are not really welcomed. Then there's always the conspiracies (which aren't all someone's paranoia).

 

[Sancho]

Apologies for the erroneous SP forecast. It seems the crystal ball needs calibration due to the move and being in a new time zone.

Working on that now.

Carry on with weekend OT.

Making predictions a week out is speculative enough, but yesterday you ventured into the realm of day traders. At least you didn’t invoke TA voodoo to support your prediction.

I’m not sure where investment crosses the line into pure gambling, but the random noise that can distort the short term makes most bets under 30 days indistinguishable from rolling the dice.

 

[Electroman]

Price reduced, or am I imagining?

Model Y price change?

 

[The Martian]

LR/P are also showing Q2 2020

That’s really good news. Could mean all Fremont Q1 production capacity has been sold out. Since LR/P is high margin car, could also mean Tesla is not worry about Q1 profitability.

 

[Fact Checking]

The 2024 hedges and warrants arranged in May 2019 are particularly interesting: the long-call strike is $309, the short-put strike is $607, and it's for 6 million shares - i.e. a monster 60,000 contracts bull spread. We are at the upper end of that call spread already, but time value is insanely high due to the very long expiry of 2024.

The value of the lower leg of this bull spread is significant: I believe the per share value of 2024 $309 calls is currently at around $300 (!). If Tesla sold back those calls they could earn up to 1.8 billion dollars...

Could someone double check my math on this?

(Cc: @ReflexFunds, @The Accountant, @EVNow, @KarenRei and @Doggydogworld.)

So let me attempt to quantify the value of Tesla's 60,000 contracts large $309-$606 bull spread. The hedging transaction Tesla entered into is:

• buy 60,000x 2024/May calls at $309,
• sell 60,000x 2024/May calls at $607.

If we take yesterday's closing price of $510 and the 2021 March 19 LEAPs at $310 which are trading for $225, we can calibrate the rough Black-Scholes options pricing parameters:

https://goodcalculators.com/black-scholes-calculator/

Spot Price: $510
Strike Price: $310
Time to expiration: 425 days
volatility: 49%
risk-free interest rate: 2%​

Which gives $224.9 in the calculator - close enough.

Now we can estimate the market value of the 60,000 May 1 2024 calls at $309 that Tesla owns: time to expiration increases to 1,565 days, which gives a per share option value of $289, and a market value of $1.74b of the lower leg of this bull spread.

Even if we reduce IV a bit, this is still insanely high, and that's just one of Tesla's three bull spreads.

Am I missing anything? Has Elon managed to hide the short squeeze of the century in plain sight?

 

[sparcs]

Price reduced, or am I imagining?

Model Y price change?

When did you order? I believe there were changes after the initial reveal. Around the time Pearl White became the default color? However after that FSD went up by $1k, so be careful clicking around.

 

[Singuy]

Am I missing anything? Has Elon managed to hide the short squeeze of the century in plain sight?

Can you please elaborate this in layman's because what you wrote is way too technical for us noobs.