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

[Fact Checking]

Not massive volume, but contrary to what we would expect today, no? Maybe the MaxPain isn't what we think?

Since yesterday no new all-time-high was set, I would expect low volumes in early trading (all other things equal), and the relevance of any early price action is thus lower as well. I'd expect it to broadly follow macro indices.

Yesterday's price action (walk-back from spikes in either direction) was pretty much in favor of MM's most of the day, with the exception of that impressive +$25 spike from $557 to $582.

But who knows what happens today - fundamental news can break MM price action.

 

[LN1_Casey]

Volkswagen CEO Confident He Can Catch Tesla in Electric Car Race

“2020 for the auto industry will be a very difficult year,“ Diess said.

They say unironically as their ID3 sits in a parking lot, degrading batteries, waiting on an software patch that may take much longer than 2021.

 

[LN1_Casey]

Since yesterday no new all-time-high was set.

Lord Fact Checking, wasn’t the close an all time high for a close price?

 

[Fact Checking]

Not massive volume, but contrary to what we would expect today, no? Maybe the MaxPain isn't what we think?

BTW., this is today's options positions (as of yesterday's close, rounded to $10 boundaries):

 PUT $390:   1,801                     ,   CALL $390:     278                
 PUT $400:   8,348 ##                  ,   CALL $400:     434                
 PUT $410:   3,445 #                   ,   CALL $410:     341                
 PUT $420:   1,928                     ,   CALL $420:     784                
 PUT $430:   3,234 #                   ,   CALL $430:     672                
 PUT $440:   3,161 #                   ,   CALL $440:     655                
 PUT $450:   6,177 ##                  ,   CALL $450:     649                
 PUT $460:   2,328                     ,   CALL $460:   1,095                
 PUT $470:   6,243 ##                  ,   CALL $470:   1,144                
 PUT $480:   5,815 ##                  ,   CALL $480:   1,307                
 PUT $490:   4,691 #                   ,   CALL $490:     906                
 PUT $500:  14,119 ####                ,   CALL $500:   4,447 #              
 PUT $510:   7,390 ##                  ,   CALL $510:   2,140                
 PUT $520:   8,683 ###                 ,   CALL $520:   4,400 #              
 PUT $530:  10,227 ###                 ,   CALL $530:   3,823 #              
 PUT $540:   9,428 ###                 ,   CALL $540:   4,332 #              
 PUT $550:  13,385 ####                ,   CALL $550:  13,687 ####          
 PUT $560:   9,581 ###                 ,   CALL $560:   8,819 ###            
 PUT $570:  12,723 ####                ,   CALL $570:   7,493 ##            
 PUT $580:   6,338 ##                  ,   CALL $580:  12,465 ####          
 PUT $590:   2,383                     ,   CALL $590:   9,004 ###            
 PUT $600:   1,029                     ,   CALL $600:  15,564 #####          
 PUT $610:     319                     ,   CALL $610:   7,421 ##            
 PUT $620:     237                     ,   CALL $620:   5,551 ##            
 PUT $630:     106                     ,   CALL $630:   5,103 #              
 PUT $640:      54                     ,   CALL $640:   3,596 #              
 PUT $650:      72                     ,   CALL $650:   4,275 #              
 PUT $660:       9                     ,   CALL $660:   1,907                
 PUT $670:      12                     ,   CALL $670:   2,254                
 PUT $680:      14                     ,   CALL $680:   1,909                
 PUT $690:       3                     ,   CALL $690:   1,600                
 PUT $700:       3                     ,   CALL $700:   3,510 #       

2020/Jan/24:  PUTs:   165,893 ; CALLs:   153,408

I'd say max pain is around $560-$580, where most PUTs expire worthless but the $580-$650 calls are excluded too.

If the price breaks through $580 and especially $600 I'd expect volatility, because that would trigger a lot of additional delta hedging and I'm not sure most options MMs can afford discretionary shorting into such a spike (which would be prop trading in essence) - they'll just have to flow with it, which means more buying. Yesterday's +$25 spike might have been such (automated) delta hedging and the resulting feedback loop volatility.

Over 319,000 options contracts this week, that's 31.9m shares-equivalent - with 208,000 of them in the $500-$650 range - that's again a significant delta hedging risk.

If a large hedge fund is feeling particularly mischievous today they could attempt to replicate yesterday's +$25 spike today and use the delta-captured market makers as a vehicle to break through $600, but usually this doesn't happen.

 

[RobStark]

You thought GF Shanghai was built fast?

Coronavirus outbreak: Hospital to be built in five days as death toll rises in China

 

[replicant]

You thought GF Shanghai was built fast?

Coronavirus outbreak: Hospital to be built in five days as death toll rises in China

Yet, no tent?

 

[ReflexFunds]

My guess is that all of Tesla's new production lines are designed for 28 cars per hour or 4.7k per week on three 56 hour shifts.
It makes sense to have a standardised design and get economies of scale in their production line equipment manufacturing.
However, so far I guess Tesla have only ordered supplier parts for 3.4k per week or two 60 hours shifts.
The second shift is reportedly starting at GF3 in mid February.
They likely will increase orders and move to 3 shifts once they have built demand (via word of mouth marketing) to the necessary level.
Model Y should be built in the separate building currently under construction, but may possibly share some parts of the line such as paint shop and stamping. I expect Model Y line will be the same design specs, however they may put in initial orders for ~5k per week supplier parts and aim to rapidly move to 3 shifts for Model Y. MIC Y is likely running around 1 year behind MIC Model 3 production timeline.

This 28 cars per hour design capacity might have been the same design capacity for much of the Fremont Model 3 line (at least for the body line, the most capital expensive part). At Fremont they pushed this equipment past design specs on to 7k per week, so they may be hoping they can push the GF3 lines past their design capacity on to 7k per week eventually too.

So I think Fremont Y line, GF3 3 line, GF3 Y line, GF4 Y line & GF4 3 line may all be 4.7k per week design spec.

However for GF3 Model 3 they are targeting 2 shifts and ~3k per week.
For GF3 Y they are targeting 3 shifts and ~5k per week.
For Fremont Y they are initially hitting 2 shifts and ~3k per week before Paint expansion is complete. As quickly as possible after that (likely within 2020) they will aim to add the 3rd shift and reach ~5k per week and after that they will more slowly push the line past design specs on to ~7k per week.

I'll add that once lines are ramped past design capacity, Tesla can potentially produce ~5k cars on each line on just two shifts, and this might be the real aim for GF3.

For Model 3 at Fremont, I would hope North America, Europe plus Asia (non China) demand can reach ~350k for the next two years and use the max Fremont production capacity. (Assuming LR Model 3s are also soon made in China). After Europe Model 3 line ramps in early 2022, likely 350k Model 3s is too much for North America alone (and Asia production will likely all be from GF3 by then) so shifts could be reduced to 2 and production reduced to ~5k per week and 250k cars per year. But if Tesla delivers continued progress on self driving, maybe this shift cut won't be necessary.

It is also possible however that Tesla does cut Model 3 at Fremont to two shifts this year. Its not guaranteed that US/EU/other Asia demand can make up for the lost China sales (due to localised production), or that Model Y will not cannibalise 3.
If Tesla is battery constrained at Fremont this year, it could make sense to cut Model 3 to two shifts and ~5k cars per week to divert battery packs to a faster ramp of the far higher margin Model Y. There is similar logic to temporarily cutting Model 3 production for Model Y if there is a temporary bottleneck in the Paintshop (before this is expanded or ramped).
It is also possible that one Model 3 shift could be moved to the Model Y line so the new line can be ramped with experienced staff who already know how to work together. If this is the case there could be a temporary reduction in Model 3 output in 1H20 before new hiring ramps up to refill the 3rd shift.

Reducing three shifts and 7-7.5k/week production to 2 shift ~5k production will increase depreciation per car and so slightly reduce gross margin, but it shouldn't significantly change cash generation per car (assuming that most supplier components are shared with Y and MIC so that Tesla never reduces supplier orders and so doesn't have to pay higher prices due to lower economies of scale).

In 2022, I think Tesla is likely aiming for producing 350k Model Y per year on 3 shifts at Fremont, GF3 and GF4 for a total 1,050k production. I think it is likely aiming for producing 250k Model 3 per year on 2 shifts at Fremont, GF3 and GF4, for a total 750k production. But with flexibility to scale Model 3 production to 1,050k on these lines if Robotaxi demand takes off. CyberTruck line will be a very different design, but I wouldn't be surprised to see ~500k installed production capacity. Semi may be 50k capacity initially. Roadster 10k. S&X 90k.

 

[NicoV]

They say unironically as their ID3 sits in a parking lot, degrading batteries, waiting on an software patch that may take much longer than 2021.

Apparently VW is buying software companies, that will help! NOT!
Germany’s biggest software company is SAP. Some say this stands for ‘Stress, Angst und Panik’. Enough said.

 

[avoigt]

More are joining the $1 Trillion Club

 

[Tslynk67]

BTW., this is today's options positions (as of yesterday's close, rounded to $10 boundaries):

 PUT $390:   1,801                     ,   CALL $390:     278               
 PUT $400:   8,348 ##                  ,   CALL $400:     434               
 PUT $410:   3,445 #                   ,   CALL $410:     341               
 PUT $420:   1,928                     ,   CALL $420:     784               
 PUT $430:   3,234 #                   ,   CALL $430:     672               
 PUT $440:   3,161 #                   ,   CALL $440:     655               
 PUT $450:   6,177 ##                  ,   CALL $450:     649               
 PUT $460:   2,328                     ,   CALL $460:   1,095               
 PUT $470:   6,243 ##                  ,   CALL $470:   1,144               
 PUT $480:   5,815 ##                  ,   CALL $480:   1,307               
 PUT $490:   4,691 #                   ,   CALL $490:     906               
 PUT $500:  14,119 ####                ,   CALL $500:   4,447 #             
 PUT $510:   7,390 ##                  ,   CALL $510:   2,140               
 PUT $520:   8,683 ###                 ,   CALL $520:   4,400 #             
 PUT $530:  10,227 ###                 ,   CALL $530:   3,823 #             
 PUT $540:   9,428 ###                 ,   CALL $540:   4,332 #             
 PUT $550:  13,385 ####                ,   CALL $550:  13,687 ####         
 PUT $560:   9,581 ###                 ,   CALL $560:   8,819 ###           
 PUT $570:  12,723 ####                ,   CALL $570:   7,493 ##           
 PUT $580:   6,338 ##                  ,   CALL $580:  12,465 ####         
 PUT $590:   2,383                     ,   CALL $590:   9,004 ###           
 PUT $600:   1,029                     ,   CALL $600:  15,564 #####         
 PUT $610:     319                     ,   CALL $610:   7,421 ##           
 PUT $620:     237                     ,   CALL $620:   5,551 ##           
 PUT $630:     106                     ,   CALL $630:   5,103 #             
 PUT $640:      54                     ,   CALL $640:   3,596 #             
 PUT $650:      72                     ,   CALL $650:   4,275 #             
 PUT $660:       9                     ,   CALL $660:   1,907               
 PUT $670:      12                     ,   CALL $670:   2,254               
 PUT $680:      14                     ,   CALL $680:   1,909               
 PUT $690:       3                     ,   CALL $690:   1,600               
 PUT $700:       3                     ,   CALL $700:   3,510 #      

2020/Jan/24:  PUTs:   165,893 ; CALLs:   153,408

I'd say max pain is around $560-$580, where most PUTs expire worthless but the $580-$650 calls are excluded too.

If the price breaks through $580 and especially $600 I'd expect volatility, because that would trigger a lot of additional delta hedging and I'm not sure most options MMs can afford discretionary shorting into such a spike (which would be prop trading in essence) - they'll just have to flow with it, which means more buying. Yesterday's +$25 spike might have been such (automated) delta hedging and the resulting feedback loop volatility.

Over 319,000 options contracts this week, that's 31.9m shares-equivalent - with 208,000 of them in the $500-$650 range - that's again a significant delta hedging risk.

If a large hedge fund is feeling particularly mischievous today they could attempt to replicate yesterday's +$25 spike today and use the delta-captured market makers as a vehicle to break through $600, but usually this doesn't happen.

For noobs, “delta hedging” is a fancy term for buying/selling calls/puts/stocks in such a way to minimise losses from price movements. Right @FC?

 

[SageBrush]

For noobs, “delta hedging” is a fancy term for buying/selling calls/puts/stocks in such a way to minimise losses from price movements. Right @FC?

I can chime in, Grand Noob that I am.

I ignore the 'delta' prop and thing about the hedge. A hedge is a contrary wager meant to deleverage the overall wager.

I think. Any corrections ?

 

[jw934]

Tiny Tesla's soaring value highlights chronic Detroit weakness - Detroit News
In addition to sunken cost and stranded assets, this article points out other factors holding back profit for Detroit automakers - union corruption, strikes, pension.

 

[SageBrush]

The countdown has started, from
"Tesla is too small to take seriously"
to
"We need political action to reign in Tesla. It is too big and powerful."

 

[Unpilot]

The countdown has started, from
"Tesla is too small to take seriously"
to
"We need political action to reign in Tesla. It is too big and powerful."

Man I wish this wasn't true...but I know it is.

 

[Tslynk67]

Nice to see pre-market edging up, nasdaq futures are 0.30% too

This matters...

 

[SageBrush]

Is TSLA still in the 500's ?


Sheeeeeit

 

[KarenRei]

Might need to rephrase to specify that there seems to be gaps in communication with service centers/between departments and also issues with service tickets languishing without follow up, leading to frustrating customer experiences. I think that’s pretty much the service issue right now, so far as I’ve seen.

This. Please don't say "service" when you mean "communications". If you say "service", Elon will talk about parts and the number of service centres / mobile vans and the like.

I can chime in, Grand Noob that I am.

I ignore the 'delta' prop and thing about the hedge. A hedge is a contrary wager meant to deleverage the overall wager.

I think. Any corrections ?

Delta is how much an option moves (per share; options are 100 shares per contract) in response to a movement in the underlying security (such as TSLA stock); delta can be any value from 0 to 1. To fully delta-hedge, a call seller can buy 100 * Delta shares, and a put seller can sell 100 * Delta shares. For a MM that does a huge amount of selling of both calls and puts in the same security, a large portion of the delta for calls and puts cancels itself out, limiting how many shares need to be purchased / sold in order to hedge.

Way-OTM options are very low delta, while way-ITM options are very high delta. Delta changes along a sigmoid curve, changing fastest when options are somewhat ITM, but not deep ITM. So in addition to needing to adjust their delta-hedging as people buy and sell options, MMs also need to adjust it based on how the delta on their open contracts' delta has changed, and thus adjustment means buying or selling more shares. As the rate of change of delta (aka gamma) declines significantly as an option goes deeper ITM, the "force" driving it further ITM declines. A consequence of this is Max Pain - although it's also argued that Max Pain additionally involves deliberate attempts to shift the share price wherein the cost to the MMs for doing so is worth the amount that they save in payouts.

 

[jbcarioca]

Apparently VW is buying software companies, that will help! NOT!
Germany’s biggest software company is SAP. Some say this stands for ‘Stress, Angst und Panik’. Enough said.

Having helped install SAP at several otherwise capable institutions I can readily attest to the appropriateness of the acronym.
In context: The Stress is for the decisionmakers who chose it, the Angst for everyone involved and the Panic especially for those idiots who said "...of course we know SAP and can install it smoothly in less than a year".
The proof of VAG trouble with id3 might well have begun when they decided they should build the software internally. After all:
Volkswagen Drives Productivity And Profitability With SAP
I defy any human to imagine how an entity that uses SAP for productivity and workflow can possibly master even the most basic elements of BEV software, much less do OTA updating.
The very complexity and comprehensiveness of SAP guarantees inflexibility, in turn producing update and change times measured in year, at best in quarters.

For anyone who doubts the competitive advantages of Tesla I suggest they begin by comparing process design, control and management. Those three at Tesla and SpaceX allow for design iteration and testing in days.

For VAG, Toyota and Boeing they can take years. Toyota was once eulogized as the fastest developer of new vehicles, with 'new' models taking as little as three years. 'New' meaning an update of, say, a Corolla. Toyota had lightning speed when they introduced the Lexus LX-400 only six years after Honda introduced the first Acura.

For the naysayers the thing they really do not understand is the pace of change:
Now just over 20 years ago, in November 1999 X.com was formed. Elon coded route planning for the first time.
Boeing began the X-37 that same year, which morphed into the SLS in 2011. More than $15 Billion later Boeing finally has delivered a first example for testing. During that time SpaceX, Tesla, The Boring Company, Starlink and much more has actually been delivered. Nearly 100% commercially.

The only thing we need to worry about is how much longevity Elon has remaining, and how soon his successors will be ready to continue the innovation.

Is it not ridiculous to worry about quarterly GAAP, much less monthly or daily stock prices? We all obsess, but when we do we miss the most wondrous forest while we are examining a single leaf on a single branch of a single tree.

 

[lascavarian]

Interesting parallel coming up on CNBC this morning.

How does BA hold at about 320 as this stream of condemning news pours out over months? This morning it was finally discussed that the 737 Max might not come back and there will just be a bailout.

This strikes me as a model that will be used for the auto industry. Faulty design decisions be it ICE propulsion or air frame decisions can be forgiven if the economic impact is significant enough. Once one gov't does it then others may follow.

Part of the problem is that consolidations of competitors over decades diminishes the ability of competitor buyouts when there are only a very few left.

 

[lklundin]

Apparently VW is buying software companies, that will help! NOT!
Germany’s biggest software company is SAP. Some say this stands for ‘Stress, Angst und Panik’. Enough said.

Right. See also:
The Mythical Man-Month - Wikipedia