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

[Fact Checking]

I don't like this price action at all and haven't for a while. So much odd buying in the markets, a bit overbought in many growth areas (from what was clearly oversold back in Dec) but almost everything has rallied over the 50 day at least (the majority of stocks) if not also their 200 day - and yet TSLA has gone nowhere.

Also note that significant drop in volume and volatility. Part of it is that the ridiculously high options open interest dropped in half in January, with the worthless expiry of over 80% of the bankwuptcy puts. This reduced any delta hedging related volatility.

I don't like that so many funds sold large positions last Q4/18,

Correct - I think there's several main factors to that price action and overall market sentiment:

• Many Tesla-long institutional investors playing volatility have deleveraged after successfully profiting from the dip to $250 just ~4 months ago.
• The Q1 "tiny profit" and revenue warning from Elon dropped the price from ~$350 to $300 and it's unclear whether it's all priced in already. The Q1 tiny profits will necessarily bring a quarter-to-quarter decrease in revenue: current estimates are somewhere between $6.0-$6.5b revenue, measurably down from the $7.2b in Q4. The shortz and carebears are going to have a field day projecting gloom-and-doom for Tesla's growth prospects come Q1 earnings report early May.
• Tesla investor communications has switched from optimistic hype of a growth startup in the 2016-2017 time-frame, to a fighting-crisis mode of forced-optimistic communications in the first half of 2018, to that of a cautious, conservative, somewhat disinterested communicator of a cash generator company who self-finances its own growth, at the end of 2018. Since there's no more dilutive equity rounds planned, why would Tesla guide for anything but the most conservative baseline figures? This makes it really hard to anchor Tesla guidance for 2019-2020 relative to past guidance, and I'm sure the growth and valuation models of many bullish investors are showing a lower share price target as a result.
• I think the easiest way to estimate Tesla growth is through their profit margin guidance: they are sticking to the 25% target. I.e. ~20%-25% from every mature product made is pure cash that will be re-invested into the company immediately. That's a nice exponential growth curve defined in plain sight.
  
• Somewhat ironically, I think what has kept $TSLA in the $300 range was the gradual exit of about half of the shorts, short interest is down from the peak of ~40m shares to ~20m shares. Short interest is still very high, but that was a quite nice 20 million shares gradual support for Tesla's stock price. Not the violent short squeeze I too expected, but no prices below $200 either and a rather big ride from $250 to $370 just two months ago which I'm sure was short squeeze amplified that has hurt many shorts.

So I think Tesla is undervalued even by bullish institutional investors currently, just like Amazon and Apple was undervalued during much of its history, until they eventually catapulted to a trillion dollars of market cap that is.

and I don't like the looks of opening up leasing in the USA soon. MAYBE it's just employees at the moment, but if it broadens its a negative.

From past experience, the company will have to finance this directly - and then finance that out externally at a cost of capital (much higher than debt). OR, they will have to put in a guarantee on residuals to whomever is the external lender. Either way, it's a balance sheet and or operating capital hit as well as and income statement hit.

Firstly, the financial effects of leasing have little to do with 'past experience' - when a car company offers captive financing leasing they provide the capital to make the car (which reduces free cash flow and burdens the balance sheet), and they also distribute the profits from the lease payments and the subsequent used car sale over a period of 2-3 years, which decreases upfront profits. (See @ReflexFunds's posts about this topic.)

This is what absolutely every other carmaker is doing: no external financial institution is willing to do this without a significant haircut to those profits. It's still very much worth doing it, because half of the new car profits come from financing: GM I think generates a third of their profits through GM Finance ...

Secondly, that Q1 deliveries are going to show seasonal weaknesses and tax credit reduction after effects was expected from early 2018, I remember @luvb2b modeling it in mid-2018 Q1'19 estimates.

BTW., here's some new data showing that Model 3 U.S. demand is stronger than expected:

"Tesla Delivered More Vehicles in January than Reports Suggest"

"Given what we’ve observed from delivery data in January, Tesla is seeing strong domestic demand for the Model 3. We think that 30k+ US deliveries for Q1 is a reasonable prediction given what we’ve seen so far."
​

This is from AlphaHat, who have been correctly estimating Tesla quarterly deliveries for the past 2 years using cell phone GPS data, with a historic accuracy of ~3% and 1% accuracy for Q4 deliveries.

Here's a car company that sold everything they made for 10+ years, with inventory always below 1 month of production. No "special promotion $3,000 off if you buy this week", no write-downs or fire sale of old inventory worth speaking of. A car company that does no mass advertising whatsoever. A car company that regularly engaged in anti-selling of their own products, because they couldn't make enough of them.

All the while none of the much hyped Tesla killer competitors are coming even close to competing effectively with Tesla's latest offerings: neither the E-Tron, the I-Pace, or the Taycan - not to mention that all of these will be made in low unit counts in 2019 and 2020 that are worth maybe one month of Tesla production.

Here's one of the Tesla killers:

"Watch Out, Tesla, Audi's e-Tron Is Coming"​

Please check the timestamp of that Wired article, to get a feel for what a real case of missed predictions, missed guidance and failure to ramp up production looks like:

Spoiler: Original Audi E-Tron guidance.

The Wired article is from 2009 (!) and they promised that the E-Tron might start shipping in 2012 (!!).

​

Meanwhile Tesla is still reaping the benefits of its rapidly growing natural monopoly in the premium and luxury EVs markets.

So the fretting about short term Tesla demand is somewhat ridiculous.

 

[shlokavica22]

So the fretting about short term Tesla demand is somewhat ridiculous.

It's not ridiculous when you consider the fact many of the anti-TSLA propagators have significant positions in companies disrupted by TSLA. They try not necessary to convince the retail investment community to short TSLA, but rather to stay long on the positions they themselves hold (and probably try to unload with the time).
They try to paint TSLA's demand as a hot chick entering a gay bar. Many uninformed retail investors probably fail for that propaganda. Investors living in states/countries with massive TSLA growth know better (after all they see the demand with their own eyes). They know the hot chick is entering in fact a military academy.

 

[Fact Checking]

It's not ridiculous when you consider the fact many of the anti-TSLA propagators have significant positions in companies disrupted by TSLA. They try not necessary to convince the retail investment community to short TSLA, but rather to stay long on the positions they themselves hold (and probably try to unload with the time).

Yeah, short term Tesla demand is definitely a favorite false narrative from the paid propagandist point of view: I mean the main mechanism to cast doubt about a disruptor is to attack the notion how fast the disruption is going to happen.

On social media the one EV topic that will get the most ferocious attacks from all the trolls and doubters is when you document how ICE demand might collapse in an uncontrolled fashion and how that might magnify the EV transition. I.e. what is happening in China right now: -20% drop in ICE sales levels, EV share of sales near 10% of all sales already...

But short term demand is not sensible to fret about too much for Tesla supporters, IMHO. Whether it's 60k or 80k deliveries doesn't really matter in the medium and long run, it will generate almost a billion dollars of ~20% cash margin again, which will be re-invested into the company. We do know that Tesla's cash break-even point is at very low levels: at around ~25k Model 3 deliveries only. Everything beyond that is "cash for growth".

 

[Buckminster]

Talking about demand - I started a thread today to discuss which demand levers Elon will pull and when.
M3 Demand Levers
I wouldn't think he needs to pull them all in the next 18 months.

 

[homer214]

CNBC - this morning:

Thanks for sharing. She is a sharp thinker and more than held her own in a hostile environment. I was struck by the talking heads’ use of weasel words/vague claims.

 

[lascavarian]

OMG, Ben Sullins is such an idiot - IMO! His latest fetish video on Facebook as a model for Tesla is so wrong in so many ways. The banner for the YouTube is a Sandberg's silhouette floating in a sea of dollar signs and it goes down from there. He should just go to work for FB and get it over with. Free the dollars!

FB -> Using humans in service to a business model
Tesla -> Using a business model in service to humans

How is this supposed to mix without combustion? I can give Sandberg a lot of credit for her success but it has come at a price and the final chapter of FB has yet to be written.

On a larger view we have the struggle between Engineering as a management model vs Salespeople. It is a proper discussion with wide implications. I have worked for several companies with quite different ideas about engineering and it makes a difference.

The struggle is what works best with Tesla. Wall street would really like to have a comforting figure at the helm but the reality is that a relentless driven engineer is what is required for long term success when disruption is one of the primary goals. It is not about comforting figures, it is about disruptive figures IMO.

Likewise we have traders here and also investors of sometimes different and conflicting interests and the stock movement reflects those conflicting goals.

 

[elasalle]

Regarding lease ..
How much capital needs to be set aside to finance say(10K) cars?
Also how quickly could the individual loans, be bundled together and sold as ABS to third party?

 

[Oldman]

They know the hot chick is entering in fact a military academy.

You believe the members of the military academy are not gay ?

 

[lklundin]

You believe the members of the military academy are not gay ?

Yes, there is some stereotyping in there. A second oversight is that most gay men are in fact bisexual. One once phrased it to me as: "I cannot afford to be picky".

 

[Chickenlittle]

There are two types of car shoppers in China:

1. Ones who buy the strongest car in the market so they can drive it recklessly.
2. Ones who buys the cheapest one because it’s still much safer then their electric scooter.

Unfortunately most of the local brands target the later group.

Funny post. Did you have to think a long time to come up with it? How about responsible people who want a status symbol? How about those for who safety is important enough to buy a luxury car? How about those who want comfort? What data are you relying on?

 

[Chickenlittle]

2018 California Brand Market Share

Total Units 2,001,995

Toyota.........16.7%
Honda.........12.4%
Ford.............8.8%
Chevrolet.....7.9%
Nissan.........6.3%
Mercedes.....4.0%
Subaru.........3.9%
BMW............3.5%
Tesla...........3.5%
Jeep.............3.3%
Kia................3.3%
Lexus...........3.1%
Hyundai........3.0%
Mazda..........2.3%
VW Brand....2.3%
Audi.............2.1%
Ram.............2.0%
Dodge..........1.7%
GMC.............1.7%
Acura............1.2%
Infiniti............0.9%
Land Rover....0.9%
Chrysler........0.7%
Porsche........0.7%
Volvo.............0.6%
Cadillac........0.6%
Buick............0.5%
Mini..............0.4%
Mitsubishi.....0.4%
Alfa Romeo...0.3%
Jaguar..........0.3%
Lincoln..........0.3%
Genesis........0.1%
Maserati........0.1%

BTW Tesla ended up 409 units behind BMW.

BTW II Much more detailed California Market Info in US Market Situation Thread.

https://www.cncda.org/wp-content/uploads/Cal-Covering-4Q-18.pdf

Data for the whole year with significant model3 production in the last six months of the year. Points out the problem of historic data. Why not look at market share for the last 5 years and show an even wider margin?

 

[Unpilot]

Yes, there is some stereotyping in there. A second oversight is that most gay men are in fact bisexual. One once phrased it to me as: "I cannot afford to be picky".

This might be considered OT.

 

[Webeevdrivers]

I am stunned at the amount of headlines re the 400K/500K tweet. Elon is a Genius but man what an idiot.

(Sorry Elon, really I still love you)

 

[Reciprocity]

Data for the whole year with significant model3 production in the last six months of the year. Points out the problem of historic data. Why not look at market share for the last 5 years and show an even wider margin?

Aside from BMW, where about 25% of ours units are mini Coopers and 20+ models?, Tesla is doing pretty good with just 3. Granted most are going to Europe and China now but also consider demand for SR will be off the charts, so much so I don't think they can fulfill the demand and many will eventually stretch for an MR

 

[EinSV]

Data for the whole year with significant model3 production in the last six months of the year. Points out the problem of historic data. Why not look at market share for the last 5 years and show an even wider margin?

According to the same report (p.5), Tesla rose to number 6 in California in Q4, ahead of Mercedes, BMW and all other premium brands, and behind only Toyota, Honda, Ford, Chevy and Nissan.

Pretty impressive considering they only sold 3 models (S3X) with the least expensive starting at $46K.

https://www.cncda.org/wp-content/uploads/Cal-Covering-4Q-18.pdf

 

[bdy0627]

The bears are clearly having a more difficult time shoving TSLA down these days. In the past, there's no way TSLA would be holding this well after reversing from a climb. The down days are very mild compared with historical standards. I don't know where we will bottom but TSLA does not seem particularly vulnerable to me, nor should it be. Just because the Nasdaq has been on fire doesn't at all mean that TSLA would follow it up, since it tends to follow its own beat.

 

[Wnuk]

Yesterday and today, TSLA seems to have found solid support at $300. See if it holds.

 

[KarenRei]

VW being held hostage by their cell manufacturer (LG):

Volkswagen: LG Chem torpediert Batteriefabriken mit SK Innovation

LG is threatening an immediate termination of all cell deliveries if VW takes any step to build their own Gigafactories. Auto-translation:

--------
The plan was there. Volkswagen AG wanted to manufacture battery cells together with the Korean SK Innovation group and invest billions of euros in joint plants. The matter was to be decided before Christmas, and the Supervisory Board was in joyful anticipation.

The works councils were already dreaming of three gigafabriken in Germany alone; Emden perhaps, Salzgitter, and a place somewhere between Zwickau and Ingolstadt, all close to future electric car plants. It was to be the big one - and the only one in Germany so far.

While colleagues Dieter Zetsche (65; Daimler) and Harald Krüger (53; BMW) shy away from multi-billion investments, Volkswagen boss Herbert Diess (60) thinks differently. He wants to secure his spectacular electrification program. Diess wants to build up to three million electric cars in 2025, for which VW alone would need significantly more cells than are currently produced worldwide. And for 2030 VW even calculates a possible doubling to six million electric cars.

It is unthinkable that this will fail because there is a lack of battery cells - or because overpowering suppliers are raising prices. Before it becomes dependent, Diess prefers to produce itself, especially if - so the hope - the state helps with proper subsidies for the construction of the plants.

But however beautiful and big the plan may be, it is unexpectedly hitting reality hard. The existing suppliers want to chain their biggest customers to themselves. They defend themselves.

LG Chem in particular reacted annoyingly to the Wolfsburg independence movement. The Koreans threatened to stop supplying if VW enters production with SK Innovation. And possibly from now on. This is what managers who are familiar with the negotiations say. LG Chem commented that VW is an important customer, "independent of some rumors and other factors".

A delivery stop would be fatal. Over the next few years, the Koreans are to cover almost the entire cell demand of the car manufacturer, at least outside China. There is no readily available alternative.

Now the negotiations are being renegotiated. Every two weeks, Stefan Sommer (56), Chief Purchasing Officer, is currently in Korea. Talk to LG, talk to SK Innovation; appease, discuss alternatives.

The matter is urgent. Critics are already reporting to Volkswagen that cell production is too expensive for them. Sommer must deliver now. At least that's how Herbert Diess sees it.
---------

HT: Tom

 

[UncaNed]

Yesterday and today, TSLA seems to have found solid support at $300. See if it holds.

It did not.

 

[tivoboy]

Also note that significant drop in volume and volatility. Part of it is that the ridiculously high options open interest dropped in half in January, with the worthless expiry of over 80% of the bankwuptcy puts. This reduced any delta hedging related volatility.



Correct - I think there's several main factors to that price action and overall market sentiment:

• Many Tesla-long institutional investors playing volatility have deleveraged after successfully profiting from the dip to $250 just ~4 months ago.
• The Q1 "tiny profit" and revenue warning from Elon dropped the price from ~$350 to $300 and it's unclear whether it's all priced in already. The Q1 tiny profits will necessarily bring a quarter-to-quarter decrease in revenue: current estimates are somewhere between $6.0-$6.5b revenue, measurably down from the $7.2b in Q4. The shortz and carebears are going to have a field day projecting gloom-and-doom for Tesla's growth prospects come Q1 earnings report early May.
• Tesla investor communications has switched from optimistic hype of a growth startup in the 2016-2017 time-frame, to a fighting-crisis mode of forced-optimistic communications in the first half of 2018, to that of a cautious, conservative, somewhat disinterested communicator of a cash generator company who self-finances its own growth, at the end of 2018. Since there's no more dilutive equity rounds planned, why would Tesla guide for anything but the most conservative baseline figures? This makes it really hard to anchor Tesla guidance for 2019-2020 relative to past guidance, and I'm sure the growth and valuation models of many bullish investors are showing a lower share price target as a result.
• I think the easiest way to estimate Tesla growth is through their profit margin guidance: they are sticking to the 25% target. I.e. ~20%-25% from every mature product made is pure cash that will be re-invested into the company immediately. That's a nice exponential growth curve defined in plain sight.
  
• Somewhat ironically, I think what has kept $TSLA in the $300 range was the gradual exit of about half of the shorts, short interest is down from the peak of ~40m shares to ~20m shares. Short interest is still very high, but that was a quite nice 20 million shares gradual support for Tesla's stock price. Not the violent short squeeze I too expected, but no prices below $200 either and a rather big ride from $250 to $370 just two months ago which I'm sure was short squeeze amplified that has hurt many shorts.

So I think Tesla is undervalued even by bullish institutional investors currently, just like Amazon and Apple was undervalued during much of its history, until they eventually catapulted to a trillion dollars of market cap that is.



Firstly, the financial effects of leasing have little to do with 'past experience' - when a car company offers captive financing leasing they provide the capital to make the car (which reduces free cash flow and burdens the balance sheet), and they also distribute the profits from the lease payments and the subsequent used car sale over a period of 2-3 years, which decreases upfront profits. (See @ReflexFunds's posts about this topic.)

This is what absolutely every other carmaker is doing: no external financial institution is willing to do this without a significant haircut to those profits. It's still very much worth doing it, because half of the new car profits come from financing: GM I think generates a third of their profits through GM Finance ...

Secondly, that Q1 deliveries are going to show seasonal weaknesses and tax credit reduction after effects was expected from early 2018, I remember @luvb2b modeling it in mid-2018 Q1'19 estimates.

BTW., here's some new data showing that Model 3 U.S. demand is stronger than expected:

"Tesla Delivered More Vehicles in January than Reports Suggest"

"Given what we’ve observed from delivery data in January, Tesla is seeing strong domestic demand for the Model 3. We think that 30k+ US deliveries for Q1 is a reasonable prediction given what we’ve seen so far."
​

This is from AlphaHat, who have been correctly estimating Tesla quarterly deliveries for the past 2 years using cell phone GPS data, with a historic accuracy of ~3% and 1% accuracy for Q4 deliveries.

Here's a car company that sold everything they made for 10+ years, with inventory always below 1 month of production. No "special promotion $3,000 off if you buy this week", no write-downs or fire sale of old inventory worth speaking of. A car company that does no mass advertising whatsoever. A car company that regularly engaged in anti-selling of their own products, because they couldn't make enough of them.

All the while none of the much hyped Tesla killer competitors are coming even close to competing effectively with Tesla's latest offerings: neither the E-Tron, the I-Pace, or the Taycan - not to mention that all of these will be made in low unit counts in 2019 and 2020 that are worth maybe one month of Tesla production.

Here's one of the Tesla killers:

"Watch Out, Tesla, Audi's e-Tron Is Coming"​

Please check the timestamp of that Wired article, to get a feel for what a real case of missed predictions, missed guidance and failure to ramp up production looks like:

Spoiler: Original Audi E-Tron guidance.

The Wired article is from 2009 (!) and they promised that the E-Tron might start shipping in 2012 (!!).

​

Meanwhile Tesla is still reaping the benefits of its rapidly growing natural monopoly in the premium and luxury EVs markets.

So the fretting about short term Tesla demand is somewhat ridiculous.

Had I had the morning I couldn’t have said it better myself. Nice summary and analysis.