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

[AlMc]

looking forward to converting a pile of cash into discounted TSLA shares this morning.

Agree on the general concept that a decent/good buying opportunity for more TSLA is upon us but I may wait later in the day or tomorrow to add on my position.

*While I was looking for another 'add to positions' situation I wish it were because of a different cause.*

 

[Causalien]

Considering the Chinese government turned off power plants during the Beijing Olympics just to have clear blue skies for the world to see, shutting down a city is like meh in the scale of importance and you are reading way too much into this. The government trying to contain a potential serious illness but you are here spreading fear like this is the movie "outbreak". Calm yourself. So far the mortality rate is 4% from a country that doesn't even have ample supply of anti virals AND the Chinese people see a doctor when they are potentially dying because that's our culture. So consider these biases before making your assessments.



Disclaimer: I am Chinese and a health care professional.

I agree with this so far.

So far it looks like the gov is taking the right precaution. It's just ppl are doing what they are made to do, and that is to flee.

Looking purely at the cases outside of China (because we cannot trust China's numbers for now.) It increasingly look like the lack of resources is what is killing ppl.

However, I do believe, the official case does not match a disease that has spread to numerous countries. Moreover, there are now cases where ppl were infected by riding the same plane as the Wuhan escapees.

As the initial wave of irresponsible escapees gets quarantined and the new wave of altruistic ppl take a bullet to help, I believe we can work this out. At most, this disease will die off in the summer. It is worthwhile to observe how it fare in India with its hot climate.

Anyway, I am boarding my flight soon, Taking all the precaution I can.

 

[shootformoon]

Frankly I can't help but laugh at the prediction 2030. It predicts in 2030 MHEV = mild hybrid electric has more (20%) than BEV(18%).

EV sales growing faster than expected

Sales of electrified vehicles — particularly plug-in hybrids and full battery electrics — are growing faster than expected, according to a new study from Boston Consulting Group.

Electrified vehicles — which stand at about 8 percent of global sales — will account for a third of sales by 2025, according to a report released this month, up from the company's previously forecast one-fourth of sales.

Aside from plug-ins and full electric vehicles, the company's definition of electrified includes conventional and mild hybrids.

EV sales are expected to surpass internal-combustion-engine vehicle sales by 2030, taking 51 percent of the market.

 

[FrankSG]

I agree that gross margin on cars produced earlier is less than on the cars produced in Q4 as production costs declined. My consideration was the absolute profit on these cars. I assume that these cars were mostly produced in Q3. As sales price have not decreased, in fact in some cases they increased the gross margins should be comparable to the Q3 gross margins. So the profit on these cars could be in the order of magnitude of $100B.
I think it is an absolute fact that Q4 gross profit will be much higher probably well over 25% and you are right that the gross margin will be lowered by the inventory reduction.

I think you mean $100M?

Even then, I don't think you understand how this inventory is accounted for. Costs of revenues are accounted for on the income statement in the quarter in which the product was delivered, regardless of when Tesla pays for those costs.

For example, because Tesla doesn't have to pay suppliers for 60 days until after it receives raw materials, Tesla will probably not have paid suppliers for the vehicles delivered during the NYE delivery event until some time in January, or even February. Nonetheless, Tesla will have to account for these costs on their income statement in the quarter these vehicles were delivered (Q4'19).

 

[j6Lpi429@3j]

I think any concern (unless you are day trading) about the virus situation here is overblown. I see little evidence that this is going t o *disproportionately* affect Tesla, compared to other stocks. The factory there is not a major driver(yet!) of output.

In these days of social-media exaggeration, fake news, rolling news channel;s and clickbait, ANY situation that has good 'imagery', such as people in masks or bio-hazard suits, will get a completely disproportionate amount of clickbait headlines.

Meanwhile climate change, a threat 10,000x more deadly, gets no coverage because it doesn't have shocking imagery we can run clickbait on...

If the death toll from this virus starts to even get close to the amount of people dying each day from pollution, then maybe it will be 'a thing' in terms of investment scare etc, but right now, its trivial.*

*speaking in investment terms, not in human tragedy terms obvs. its terrible news for those affected.

 

[Prunesquallor]

Frankly I can't help but laugh at the prediction 2030. It predicts in 2030 MHEV = mild hybrid electric has more (20%) than BEV.

I’ve never heard that term. What do they mean by it?

 

[Unpilot]

I’ve never heard that term. What do they mean by it?

They mean " we need to keep our engine and transmission in them"

 

[JRP3]

If the death toll from this virus starts to even get close to the amount of people dying each day from pollution, then maybe it will be 'a thing' in terms of investment scare etc, but right now, its trivial.*

If it impacts the market significantly then it's not trivial, regardless of it's medical effects.

 

[copyhacker]

Tired of your scare tactic posts....inciting fear and panic is irresponsible.

Username checks out.

 

[gerebgraus]

I think you mean $100M?

Even then, I don't think you understand how this inventory is accounted for. Costs of revenues are accounted for on the income statement in the quarter in which the product was delivered, regardless of when Tesla pays for those costs.

For example, because Tesla doesn't have to pay suppliers for 60 days until after it receives raw materials, Tesla will probably not have paid suppliers for the vehicles delivered during the NYE delivery event until some time in January, or even February. Nonetheless, Tesla will have to account for these costs on their income statement in the quarter these vehicles were delivered (Q4'19).

Of course, it is $100M. Geezer mistake. Sorry. Inventory is accounted at cost. Once you sell the car you can book the difference between the cost and sales price as profit. I am pretty sure I understand it correctly.
Incidentally I liked your blog post a lot Tesla's $1.8B Valuation Allowance: Could it mean FY 2019 GAAP profits and immediate S&P 500 inclusion? the best, but I still think, it is conservative.

 

[Artful Dodger]

Given the timing of the reports of moving the first gen Model 3 pack equipment to GF3, I expect it was initially set up in the main building.

Corollary 2 to that expectation: since the Gen-1 Grohmann pack making machine (transplanted from GF1/Sparks) has been described as 'football field sized', that imples there's enough room inside the Phase 1 building for a 2nd GA line. ie: 10k/wk design capacity for Ph. 1, with up to 14k/wk possible given Freemont GA3 demonstrated output.

Twin that with the Model Y building. It looks like the footings are going in right now for a 2nd stamping press bwtn the phase 1 building and the bty workshop. That gives us a timeline for completion of the Model Y bldg, if we look back to when the footing were built for Phase 1.

And that all adds up to 10k/wk capacity by 2021Q1 (or 500k/yr), w. 100% of the supply chain also MIC. Then, 2nd GA lines will be built for 3/Y in 6 mth intervals summing to 20k/wk capacity by 2022Q1 (1M/yr). I like the sounds of that. I Million Made in China Tesla's in 2022.

By then 2023, the China Designed 'World Car' will be ready to be built, and we should expect them to plan for 2M/yr capacity initially (readily expandable in modules). At $25K, demand will be OFF.THE.CHAIN.

Sux 2b AJ.

Cheers!

 

[FrankSG]

Of course, it is $100M. Geezer mistake. Sorry. Inventory is accounted at cost. Once you sell the car you can book the difference between the cost and sales price as profit. I am pretty sure I understand it correctly.
Incidentally I liked your blog post a lot Tesla's $1.8B Valuation Allowance: Could it mean FY 2019 GAAP profits and immediate S&P 500 inclusion? the best, but I still think, it is conservative.

Oh yeah, it sounds like you understand correctly. Reading your post, to me it sounded like you thought inventory vehicles would somehow bring in more profits than non-inventory vehicles, because Tesla already paid for these vehicles in a previous quarter. Maybe I didn't read your post carefully enough

Thanks! I'm glad you enjoyed the post. I hope you're right about my Q4 expectations being too conservative.

 

[StealthP3D]

This news about Cornonavirus couldn't have hit at a better time in the quarterly cycle. Q4 results won't be impacted at all (obviously). It would have been much worse had it happened right after Tesla had given Q1 and 2020 guidance. Now, they can model this extra 7 days of shutdown into forecasts.

I think this is looking more and more like a knockdown early this week followed by the ignition of stage two after Q4 results. Wednesday will probably be a good day in anticipation of results. Lots of people still want in this stock as the run to the $500's was largely a "stealth" run.

 

[Artful Dodger]

I like most of your post, but this part is incorrect. A reduction in inventory means strong cash flows, but does not impact profits in the same way.

No, this is wrong. Vehicles go into inventory on the balance sheet when produced, which btw affects FCF, but not on the P&L Statement. When the vehicle is sold, then that asset is moved from the Balance sheet to P&L, with COGS (less labor which is a fixed expense) go to Expense and the sales becoming Revenue.

Given that Tesla made 21.8% gross margin on vehicles with an ASP around $53k, that's about $11.5 gross profit for every extra vehicle sold, regardless of when it was produced. Then given that Tesla sold 6,100 more vehicles than it produced in Q4, that's an est'd $70M in ADDITIONAL gross profit for 2019Q4 vs just selling the same no. of cars as they produced.

And since we know 2019Q3 was profitable while selling 15,000 fewer vehicles, we have a strong indication that MOST of that extra gross margin in Q4 will flow straight through to bottom line profits. I estimate the effect on profits to be +$172.5m from this alone.

Paging @The Accountant "Is this Accounting 101, or Accounting 301?"

Cheers!

 

[gerebgraus]

By then 2023, the China Designed 'World Car' will be ready to be built, and we should expect them to plan for 2M/yr capacity initially (readily expandable in modules). At $25K, demand will be OFF.THE.CHAIN.

Sux 2b AJ.

Cheers!

The China Designed world car is supposed to be built with the cybertruck tech. That means substantially less capital cost and manufacturing space. so the issue is with the battery, which will be built using the Maxwell tech. i.e. less cost and space. So ultimately the limiting factor is metals like lithium that require a substantial increase in production as their use in batteries is very high compared to other uses.

 

[StealthP3D]

apple now down about the same as tesla today with the recovery from $240. looks like folks were feeling that TSLA was on sale.

TSLA is filling in that pesky gap that was leftover from last Wednesday's gap up. Lovely!

 

[FrankSG]

No, this is wrong. Vehicles go into inventory on the balance sheet when produced, which btw affects FCF, but not on the P&L Statement. When the vehicle is sold, then that asset is moved from the Balance sheet to P&L, with COGS being expenses and the sale being revenues.

Given that Tesla made 21.8% gross margin on vehicles with an ASP around $53k, that's about $11.5 gross profit for every extra vehicle sold, regardless of when it was produced. Then given that Tesla sold 6,100 more vehicles than it produced in Q4, that's an est'd $70M in ADDITIONAL gross profit for 2019Q4 vs just selling the same no. of cars as they produced.

And since we know 2019Q3 was profitable while selling 15,000 fewer vehicles, we have a strong indication that MOST of that extra gross margin in Q4 will flow straight through to bottom line profits. I estimate the effect on profits to be +$172.5m from this alone.

Paging @The Accountant "Is this Accounting 101, or Accounting 301?"

Cheers!

I believe we have the same understanding of things, I'm just too tired right now to explain it in as much detail as you did

I also think I misinterpreted what @gerebgraus meant in his original post.

 

[SOULPEDL]

If it impacts the market significantly then it's not trivial, regardless of it's medical effects.

Yes, but its not real impact to TSLA. How does this affect long term growth - isn't that what the stock represents?
Two outcomes, will be swift... 1) can't fight the virus so it runs its course and we are left with a stronger DNA pool or 2), it gets contained. Either way, stocks return. Viruses are normal, we are the anomaly.
No change here, still long, this han no effect on longs.

 

[MP3Mike]

The China Designed world car is supposed to be built with the cybertruck tech.

Tesla hasn't said that have they?

 

[MP3Mike]

Corollary 2 to that expectation: since the Gen-1 Grohmann pack making machine (transplanted from GF1/Sparks)

The rumor was that the original non-Grohmann pack assembly machine was moved to GF3, not a Grohmann one.