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

[SageBrush]

@RobStark,
Nice graph.
Norway is good news from another perspective as well: they are down to 20% marketshare for ICE+diesel.
HEV+PHEV+BEV is now 80% of sales. I estimate, based on 1x oil consumption for an ICE (multiplied by current marketshare):
0.75x HEV *2
0.50x PHEV *2
0x BEV * 4
1x ICE/D * 2

Then transport related oil consumption is down ~ 55% from the days of all ICE/D. They really are on a believable path towards clean transport by 2025.

 

[davecolene0606]

What I know about Susquehanna...

Yea something doesn’t smell right.

Fire Away!
(It’s the batteries, Stupid!)

 

[SageBrush]

Odd miss on their part since Hibar, for example is based in the GTA, quite close to them.

GTA, as in Toronto ?
That would place them close to Buffalo, AKA Tesla-2

 

[generalenthu]

I was inspired by @ReflexFunds to see the impact from option hedging. This is the raw impact from all the open exchange traded puts and calls . Will look to update this frequently.

Using 770.0 price, 90.0 imp vol, 20.0 point move:
Hedge impact from a 20.0 point move
Down: -2,198,948
Up  :  2,102,330


Using 770.0 price, 90.0 imp vol, 50.0 point move:
Hedge impact from a 50.0 point move
Down: -5,691,039
Up  :  5,084,858

Using 770.0 price, 90.0 imp vol, 100.0 point move:
Hedge impact from a 100.0 point move
Down: -12,085,881
Up  :  9,626,198

EDIT:Hedge impact indicates how many shares have to be bought (or sold) by the market makers to become delta neutral. Assumes 100% of the market makers are hedged. this is certainly lower than mid last week, but higher than the Monday or Friday before that where a gamma squeeze got us to almost 970.

Monday's trading added to the option chain gamma and sensitivity is a bit higher. results from the latest run are below. Keep in mind that option holders getting in now are paying through the nose, and are going to be ultra weak hands. They are likely to cover on relatively small moves, especially for expiries that are close by. Need to observe a couple of weeks to get the intra-week seasonality.

Using 770.0 price, 90.0 imp vol, 20.0 point move:
Hedge impact from a 20.0 point move
Down: -2,476,046
Up  :  2,370,046

Using 770.0 price, 90.0 imp vol, 50.0 point move:
Hedge impact from a 50.0 point move
Down: -6,398,555
Up  :  5,735,338

Using 770.0 price, 90.0 imp vol, 100.0 point move:
Hedge impact from a 100.0 point move
Down: -13,537,982
Up  :  10,865,346

 

[SageBrush]

Not a problem, because they haven’t actually made any.

VW mostly trades in vaporware; Nikola trades in nice sketches

 

[AlexS]

Bernstein worries that Tesla's Model Y may cannibalize some Model 3 sales

market perform, but price target 325? is he thinking that market will tank more than 50%?

 

[gerebgraus]

It's a shame that Exxon et al don't do more with their Intellectual capital. They've likely been hiring some of the best chemists and scientists for decades. E.g. their scientists could relatively accurately predict global warming the best part of half a century ago.

They have hired also some of the best lawyers. Indeed their scientists fairly accurately predicted global warming and this will lead them to the same type of legal liabilities as big tobacco had.

 

[LJS22]

Sometimes I hate premarket...someone is trying to start the day off in the red. I don’t think it holds

 

[Tslynk67]

market perform, but price target 325? is he thinking that market will tank more than 50%?

Well he's really sticking his neck out there...

 

[Subhuman]

Bernstein worries that Tesla's Model Y may cannibalize some Model 3 sales

Oh no, Tesla may cannibalize sales with a higher margin vehicle! Oh, the horror!

 

[Green46]

The Susq hedge fund exposure is very informative.
It puts a damper on speculative call options, and could suggest that they are prepping for another bear raid.

I look forward to more analysis and exposure

How do people view and react to the ease with which big players move the SP up / down?

I find that it really dampens my wish to increase my exposure to this rigged game. And yet many of us here are active with all sorts of financial products being traded, most of the time successfully because the price is up, but we pay so much attention to it, while in fact we are only at the mercy of bigger entities. How do you all remove yourselves from such filth? I'm only asking because I'm honestly struggling with the picture painted, even if my investment is up.

 

[Tslynk67]

How do people view and react to the ease with which big players move the SP up / down?

I find that it really dampens my wish to increase my exposure to this rigged game. And yet many of us here are active with all sorts of financial products being traded, most of the time successfully because the price is up, but we pay so much attention to it, while in fact we are only at the mercy of bigger entities. How do you all remove yourselves from such filth? I'm only asking because I'm honestly struggling with the picture painted, even if my investment is up.

Hold a long core position and sell calls and puts for fun.

 

[ReflexFunds]

With so much focus on short term profits lately, I thought I'd take a step back to look at the bigger picture. That is: 1) the $3trn EV transition is essential and at this stage almost inevitable, 2) Traditional ICE OEMs incumbents have significant handicaps to leading the race, and 3) Tesla is currently leading and we have many reasons to think it will continue to lead.

Why EVs will take over

• EVs are 70%+ cheaper to fuel
• EVs should be 70%+ cheaper to maintain (due to significantly less moving parts) once EV service networks reach economies of scale.
• Due to experience curves for key components, EVs upfront price should be less than an equivalent ICE car within 0-5 years, varying by market and segment. (Model 3 is already better value than all $44k+ ICE sedans).
• EVs should last 2-3x longer than an ICE car in terms of miles (0.5-1 million).
• EVs depreciation per year should be significantly less than ICE cars due to their longer lifespans, cheaper cost of ownership and fears of ICE car bans.
• Consumers are not stupid, and when EVs are cheaper, they will buy them.
• ICE cars kill 4m+ people per year from pollution.
• ICE cars will lead to 2 billion + people losing their homes from global warming.
• EVs are significantly safer to drive due to front crumple zone, lower center of gravity (limiting rollovers) and lower combustion risk.
• Over time, this should drive significantly cheaper insurance vs ICE cars.
• All self driving cars will be electric because after stripping out driver costs, an EV taxi service will make 2-4x more profit than an ICE taxi service due to lower fuel, maintenance & depreciation.
• Regulations are supportive of the EV transition, particularly in China, and as the EV transition gains momentum it becomes a much easier political decision to ban ICE cars.
• EVs are faster to accelerate and brake and are quieter and more fun to drive.
• Leaving a car to charge overnight at home or during the day at work is significantly more convenient than regular trips to the gas station.
• Fuel independence from Russia, Africa and the Middle East is a major advantage for national defence for countries such as China and much of Europe.
• The EV transition will massively accelerate the experience curve for batteries which will make building solar/wind + battery storage cheaper than continuing to operate existing fossil fuel power plants. This will rapidly transition global electricity to renewables and ensure cars are charged by clean sources.

Why ICE OEMs are handicapped relative to pure EV startups

• Most car components and most of the production process is outsourced. This reduces share of the value chain and reduces profit per car. It also makes the company much less agile to rapid changes in technology.
• EVs only share 10%-20% of components and production process with ICEs.
• EVs will be lower margin products for ICE OEMS for several years. EV product launches will heavily cannibalize a brands equivalent higher margin ICE car creating a large disincentive for high quality EV launches.
• Sales channel is outsourced to dealerships which is not incentivized to sell EVs. Dealerships make a majority of their profits from maintenance revenue, which is much lower for EVs and requires different expertise.
• Key IP and barrier to entry has been engine design and lack of funding for car startups. Engines are now redundant and Tesla has proved the investment case for investing in EV disruptors.
• ICE OEMs have a 50 year+ culture of working towards minimal annual incremental improvements rather than rapid innovation. Not suited to the rapid change needed to follow the EV/battery & motor experience curves.
• Unionized and inflexible to automation and modernization.
• Significant historic pension and other liabilities built over 50+ years.
• Own $trns of legacy ICE assets which they will have to be written down as part of the EV transition.
• Mostly trying to fit EVs into their old production lines and existing designs, EV companies have flexibility to design from scratch and make full use of the potential safety and ease of manufacturing improvements.
• Own a short term loan portfolio of ICE leases and auto loans which needs to be refinanced continuously, but the underlying assets will depreciate rapidly with the EV transition
• Shareholders value short term profits, dividends and share buybacks and are not supportive of short term pain for a long term vision, or investing heavily in the future.
• Traditional brands are tarnished with a history of killing 4 million + people per year from pollution, in many cases deliberately killing more people than their legal mandate to save costs and R&D.

Why Tesla is best positioned to lead in the $3trn EV market and $2-3trn stationary storage market.

• Tesla started the EV revolution, they are still leading the revolution 10 years later, they are the company most incentivised to make it happen, they have a business model tailor made for it and all they need is 5% market share generate $40-$50bn+ EBITDA from car sales alone.
• Tesla is leading in technology for all key EV components; it has developed the leading battery pack, motor, inverter, cooling system and auto electronics and co-developed the leading battery cells.
• Tesla has the leading market share for EVs in terms of volume and generates the vast majority of all gross profit in the global EV industry.
• Tesla has the quickest design to mass production cycle time in the industry by a significant margin. This means that not only does it have the leading R&D in the lab, but it gets this R&D into its products significantly quicker.
• Tesla has a massive level of vertical integration which will allow it to make higher margins, while selling at lower prices and allowing significant agility to continuously upgrade its technology.
• Tesla has a culture of rapid iteration and rapid progress perfectly suited to take advantage of the experience curves for EV components.
• Elon has the best track record for disruption and rapid innovation of anyone in the world.
• What Musk has already achieved at both Spacex and Tesla is significantly more difficult that what he's got left to do to reach his goals. The breakthroughs to get from 0 to 1% are a lot less visible to the general population than getting from 1% to 100%, but once you are at 1% it gets easier as you have proved technological viability and have momentum on experience curves.
• Tesla owns its sales channel and is 100% incentivised to sell EVs.
• Tesla has the most capital to invest in the EV transition (yes, this is true). Tesla does not have to waste its cash flow on ICE R&D, capex and redundancies or dividends or share buybacks. Tesla’s cash flow available for expansion capex is currently running at c.$4bn per year and will grow rapidly with new products. Its shareholders would also be willing to invest more equity to accelerate growth.
• Tesla and Elon’s reputation mean it has the greatest choice of engineering talent. Over 500k people applied for jobs at Tesla in 2017.
• Tesla has a vision that its employees, customers and investors believe in and are willing to work towards.
• Tesla has the most data and the best track record for battery degradation. Many new EV programs are likely to face significant brand damage when they meet degradation or quality issues.
• Tesla has the leading vehicle safety in the market, both for accident avoidance technology and for lower probability of injury once in an accident.
• Tesla is debatably the leader in autonomous driving and has by far the largest real world data set to train its AI algorithms. Achieving self-driving could lead to almost unlimited demand for Tesla cars, appreciating second hand car prices and $50-150k profit per car per year to Tesla for every AP2/3 car it has ever sold.

A lot has changed perception and valuation wise in the past year, and Tesla has made continuous progress on production and most quarterly earnings line items, but really the bigger picture is unchanged from when I posted this last January and the future for Tesla looks just as positive as ever.

I'll update the sections of this prior post this week with a bit of extra detail, starting with the general EV transtion below:
Let me know if anything I missed here, I feel like there are several things I've forgotten.


Why BEVs will reach >90% of global new car sales much sooner than you expect

Cheaper Product

• Electricity cost are 70-75% cheaper per mile than petrol or diesel.
• EVs should be 70%+ cheaper to maintain (due to significantly fewer moving parts, no damaging combustion engine, regenerative breaking saving brake wear etc) once EV service networks reach economies of scale.
• EVs can be built to last 2-3x longer than an ICE car (0.5-1 million miles). Tesla’s powertrain is designed to last 1 million miles. Batteries currently last ~0.3 million miles (and can be easily replaced) but Tesla is likely close to releasing its million-mile battery.
• EV depreciation per year should be significantly less than ICE cars due to their far longer lifespans, cheaper cost of ownership and fears of ICE car bans (which will accelerate ICE depreciation rates).
• All of this leads to a total cost of ownership significantly lower than comparable ICE cars despite still significant EV upfront production cost handicap due to battery costs.
• Consumers are not stupid, and when they are made aware that EVs are already cheaper than ICEs on a total cost of ownership basis, most will buy them.
• But most EV components are following rapid technology cost experience curves (Wright’s Law) and EVs are rapidly approaching upfront cost parity too (Model 3 and Model Y are already at cost parity for comparable spec ICE cars despite being significantly higher margin). Upfront price parity will vary by market and segment, but most are likely to be reached in the next 5 years.
• EVs are significantly safer to drive due to front crumple zone (no engine in front of the driver), lower centre of gravity (limiting rollovers) and lower combustion risk (so far ~10x less per mile because EVs do not contain a huge tank of highly flammable fuel)..
• Over time, this should drive significantly cheaper insurance vs ICE cars.

Better Product

• EVs are faster to accelerate and brake, while the low centres of gravity and low polar moments of inertia give superior driving dynamics.
• EVs are much quieter which leads to both a more enjoyable drive and less noise pollution on city streets.
• Leaving a car to charge overnight at home or during the day at work is significantly more convenient than regular trips to the gas station. 99% of charging will take place at home and only rarely for long trips will you need to visit a supercharger. But a supercharge can already add 75 miles in 5 minutes or 180 miles in 15 minutes to a Model 3.
• Many different interests are aligned to roll out the necessary EV charging infrastructure: EV manufacturers, EV charger start-ups, Electricity utilities wanting to open up a new demand stream, governments working on advancing clean energy etc

Government and consumer support due to health, envirnmental and strategic benefits.

• Regulations are increasingly supportive of the EV transition, particularly in Europe and China, and as the EV transition gains momentum it becomes increasingly obvious we can transition the global economy to Clean Energy while delivering increased economic growth which makes it a much easier political decision to ban ICE cars.
• Current studies suggest ICE cars kill 1m+ people per year from air pollution and there is growing awareness of the issue. Both politicians and consumers are increasingly aware of the need to make a change.
• ICE car CO2 emissions are a key contributor to global warming which is likely to lead to huge economic damage and wealth destruction, 1 billion + people losing their homes and an unprecedented wave of climate refugees. Awareness of the urgency of addressing CO2 emissions to avoid the risk of the worst outcomes is increasing rapidly.
• EVs already emit significantly less CO2 than ICE cars even if they are powered by 100% coal power. However, coal is rapidly dying (it is not economic), and electricity grids are getting cleaner every year.
• The EV transition will massively accelerate the experience curve for batteries which will make building solar/wind + battery storage cheaper than continuing to operate existing fossil fuel power plants. Without this reduction in battery costs it is very difficult to get renewable energy >~30% of electricity due to issues with intermittency, but EV growth will make stationary storage cheap enough to solve intermittency and will rapidly transition global electricity to renewables and ensure cars are charged fully by clean sources.
  
• Fuel independence from Russia, Africa and the Middle East is a major advantage for national defence for countries such as China and much of Europe

Negative Feedback loops for ICE cars

• ICE production costs are increasing due to more strict emissions limits requiring more expensive tech.
• ICE OEMs are forced to start to sell EVs to avoid emissions fines, which means they will have to raise consumer awareness of the many advantages of EVs (and fight all the disinforamtion).
• ICE car sales will likely collapse faster than EV capacity can be built, accelerating the EV penetration in % terms. Few people will want to buy ICE in 5 years as it will be clear they will soon be obsolete and will face rapid depreciation (and even local or national bans).
• Falling ICE car sales reduces fixed cost leverage and increases production costs, putting them at a further disadvantage vs EVs.

Robotaxi wildcard

• All self-driving cars will be electric because after stripping out driver costs, an EV taxi service will make 3-4x more profit than an ICE taxi service due to lower fuel, maintenance & depreciation. Succedding with Robotaxis is a black swan (from the markets perspective that gives it ~0% probability) that will massively accelerate the EV transition (both in quantity of cars built and even further in terms of EV miles driven per year)

 

[jerry33]

How do people view and react to the ease with which big players move the SP up / down?

I find that it really dampens my wish to increase my exposure to this rigged game. And yet many of us here are active with all sorts of financial products being traded, most of the time successfully because the price is up, but we pay so much attention to it, while in fact we are only at the mercy of bigger entities. How do you all remove yourselves from such filth? I'm only asking because I'm honestly struggling with the picture painted, even if my investment is up.

Actually, it's pretty easy. If you believe there is a large upside then the short term plays from the Market Makers will not affect you in the long run because the underlying value will increase over time. Wall Street thrives on churn. Don't be part of the churn.

 

[avoigt]

More insights about the MY casting structure that is IMO a game changer for costs, production speed, reliability, safety and other.

 

[gerebgraus]

Bernstein worries that Tesla's Model Y may cannibalize some Model 3 sales

Model Y cannibalizing Model 3 is a bizarre statement. I have never heard companies whining about their customers switching from a budget item to a high-profit margin product.

 

[SageBrush]

How do people view and react to the ease with which big players move the SP up / down?

I find that it really dampens my wish to increase my exposure to this rigged game. And yet many of us here are active with all sorts of financial products being traded, most of the time successfully because the price is up, but we pay so much attention to it, while in fact we are only at the mercy of bigger entities. How do you all remove yourselves from such filth? I'm only asking because I'm honestly struggling with the picture painted, even if my investment is up.

I am not a player, but your answer is
Rock, Paper, Scissors
This is a zero sum game, and every manipulation has its weakness. If you know the manipulation ahead of time you are well armed. From what I can see, the preferred strategy around here is to grow one's LONG pile on engineered dips.

 

[Prunesquallor]

Nikola has lots of vaporware.

NZT is their dune buggy/ all terrain vehicle vaporware.

Badger is their full size truck vaporware.

They have American Semi Vaporware.

They have European Lorry Vaporware.

They even have Nikola Jet Ski Vaporware.

Whats next? Nikola Starship Vaporware?

Vaping Vaporware? OTOH, they might have enough batteries for a few of these.

 

[Singuy]

Bernstein worries that Tesla's Model Y may cannibalize some Model 3 sales

So based on this logic, it was wrong for German luxury auto makers to have SUV models? Like what the F is this guy trying to say? The Porsche Cayanne is their cash cow and the F-pace Practically saved jaguar but what do I know. I'm not an auto analysis.

 

[Silentk]

More insights about the MY casting structure that is IMO a game changer for costs, production speed, reliability, safety and other.

Thanks. Very interesting for those of us unfamiliar with production techniques. Need an option to play at 2x speed though