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

[Krugerrand]

If Fremont is not open and churning out cars by the bucketload in two weeks (two weeks before the latest Bay Area lock-down ends), I'll eat my words. Trust me, Elon knows EXACTLY what he's doing and he's a master at it. Watch and see.

Question: Will those be real words or replicas of someone else’s words?

 

[Right_Said_Fred]

The longer the factory is shut the more cash that's burned, they can make cutbacks but they still need to pay suppliers for all the parts they've used. Accounts payable is $4 billion and $2 billion is tied up in China so even if they burn $1 billion they are very close to the line. Remember companies don't just wait to cash goes to $0 to raise they need to have a decent cushion which is why I think they raise within weeks.

Excuse me if I take your alarmist messages with a grain of salt.

On 23 March (when TSLA had a low of 410) you wrote:

We are in unique times, I think Tesla is a great company, I'm just warning that we won't simply bounce back in 2 weeks as if nothing happened. The Fed is in panic mode trying to keep the market from cratering.

Tesla will be less than $100 by summer. The obvious move is to liquidate now and buy back when things look better.

 

[FrankSG]

Nope, it means they are about to raise again. With Fremont closed till June they'll burn through billions. Demand could also drop over next 3-4 Q's leading to a cash crunch

I actually think there'd have to be a prolonged 40-50% reduction in demand for autos on par with the 2008 financial crisis for Tesla to be meaningfully impacted by it:

• Model Y. Demand for the Model Y is likely on the order of a million vehicles, perhaps more, per year. Even if this somehow dropped to 500k/year due to a recession, there is still no way the MY is going to be impacted whatsoever by demand constraints.
• Model 3 Shanghai. According to @DaveT most luxury brands sell about twice as many vehicles in China as they do in the US. The M3 sells about 45k per quarter in the US, so that'd be 90k per quarter in China. Early signs for demand in China are also extremely strong, and Tesla has plenty of room in margins to lower prices if necessary. The M3 could be sold for less in China than in the US. Tesla is currently building out capacity for 65k M3 per quarter in China, so assuming there is demand for ~90k per quarter in China, there'd have to be a 30%+ reduction in demand for Tesla to see any type of impact to its China business, and a 40-50% reduction for Tesla to see any meaningful impact.
• Model 3 Fremont. In the Q1'20 ER, Tesla stated that planned total capacity for 3+Y in Fremont is 500k per year, and that some production processes of the Y are shared with the 3. It sounds like that means the M3 production capacity will be reduced from 350k per year to 250k per year, with perhaps further flexibility if need be. Although this 350k/year used to include China, Tesla was also supply constrained. If these two more or less even each other out, Tesla would have to see a 30%+ reduction in non-China demand for the Model 3 to see any impact to its business. If there's more flexibility to produce MY instead of M3 at Fremont, it's even possible that a 50% reduction in demand would not impact this part of the business.
• Model S+X. These are the only vehicles that will be significantly impacted by a reduction in demand from a recession. However, S+X now make up such a small portion of Tesla's overall business, that they don't matter all that much in the grand scheme of things.

In conclusion, Tesla is more supply constrained than it's ever been, and this is going to remain unchanged for years to come.

 

[Nocturnal]

In case anyone needs to hear it, a factory closure for a month or so doesn't cost billions of dollars.

What happens to the FCA credit's when FCA goes bankwrupt?

Good morning all...you folks remind me of a large dysfunctional family.
Except we don't have the awkward seating arrangement's

So who here is the creepy uncle?

 

[dl003]

Excuse me if I take your alarmist messages with a grain of salt.

On 23 March (when TSLA had a low of 410) you wrote:

 

[dgodfrey]

The longer the factory is shut the more cash that's burned, they can make cutbacks but they still need to pay suppliers for all the parts they've used. Accounts payable is $4 billion and $2 billion is tied up in China so even if they burn $1 billion they are very close to the line. Remember companies don't just wait to cash goes to $0 to raise they need to have a decent cushion which is why I think they raise within weeks.

It seems to me that if they used the parts, they would deliver the cars. Are there some hard cost overhead parts you're referring to?

 

[Prunesquallor]

I'm not sure if the credits will increase if FCA sells less. That would be true if FCA sells less EVs, but they were hardly selling any up to now. If they sell less ICEs, which will certainly be the case in Q2, they will have less need for compensation through Tesla's EVs. Or is there a flaw in my reasoning?

It depends on the exact nature of the FCA-Tesla deal, which no one has been able to crack (as far as I know). The assumption I would make is that as long as FCA Is selling cars, they are accruing emissions penalties and Tesla is being payed some fraction of that fine to offset them. In the extreme, if FCA sales tank and Tesla's EU sales are strong, the penalty would eventually go to zero and FCA wouldn’t need Tesla any more for the year.

But, I expect Tesla EU sales will be terrible in Q2 and maybe Q3, depending on Tesla's Model 3 priorities when Fremont reopens (US vs EU).

I am (thank goodness) really busy with "paying" work this week, but this weekend I’ll try to dig up FCA's Q1 sales numbers and run my model on a quarterly basis to see if we can back out what the per-vehicle payment to Tesla looks like.

 

[JohnnyEnglish]

The longer the factory is shut the more cash that's burned, they can make cutbacks but they still need to pay suppliers for all the parts they've used. Accounts payable is $4 billion and $2 billion is tied up in China so even if they burn $1 billion they are very close to the line. Remember companies don't just wait to cash goes to $0 to raise they need to have a decent cushion which is why I think they raise within weeks.

We seem to be getting into the same type of qualitative discussion that lead many to have a negative feeling about the Q1 results that we can now see were unfounded. Q1 was not as good as it would have been without CV but it was not a disaster.

If we assume 13 weeks of production in GF Shanghai at 3.5k vehicles per week plus 6 weeks of production in Fremont we can then add say 15k sales of inventory vehicles from Q1. That would give total sales of 108k vehicles in Q2. That is getting very close to Q4 19 sales levels. Reducing the number of weeks of production in Fremont to only 4 weeks still gets close to the sales volume of Q3 19. Neither of these scenarios would appear to generate significant cash burn unless I am missing something significant.

 

[ByeByeJohnny]

Those are still on the balance sheet. They are proceeds from credits sold to FCA in 2019.

Yes, I believe the Q4'19 10-K also said they would be recognized within the next 12 months. Q2'19 seems as good a time as any. That could mean as much as $500M in revenue from credits sales in Q2, and combined with the temporary halt of stock-based compensation and 10-30% reduction in salaries and furloughs, this is making S&P 500 inclusion after Q2 seem more and more likely.

We don't really know how much, if at all, Elon cares about S&P500. I think he said at one point a year or so ago that it's not a factor or something similar.

However, I'm pretty sure that, once they figured it was possible, the goal for Q1 was to show a profit. Since the $140 million wouldn't be enough to make S&P500 possible already after Q1 anyway it was not that much beneficial to make the profit $156 million compared to the benefit of Q2 also showing a profit. It makes perfect sense saving all of that for Q2.

This makes it $140 million more likely to make a profit in Q2 than if it had been used in Q1. So S&P may matter or not for Tesla but this will help for achieving inclusion. If they are within that $140 million of a profit they will use it for sure. Maybe not for S&P, that would be a nice benefit for stockholders, but for the strength it would show.

The big unknown is how the FCA deal is constructed. Is it solely based on how many credits FCA needs every quarter? Seems unlikely. You don't write a $2 billion deal without minimums included. Is that minimum for each quarter $100 million? $200 million? $300 million?

Edit: I so feel like I'm dissing JohnnyEnglish when my post ends up under his. Had to check I was registered first. At least I don't go by something like factcheckingsucks or similar.

 

[InDaClub]

Nope, it means they are about to raise again. With Fremont closed till June they'll burn through billions. Demand could also drop over next 3-4 Q's leading to a cash crunch

Tell us how you really feel about Tesla.

 

[Krugerrand]

The thing that gives me pause is I just don't think Americans have the same "collective good" reasoning that people in china do. And people would just say "**** wearing this mask and I deserve to go the the bar with my friends after work" where people in china just wouldn't do that. I say this as a Midwestern born american living in the SF area after living a decade in china. Americans are just culturally to selfish to handle this with the same care as Chinese Nationals.

So I agree with the concept you are disagreeing with, but I don't trust my fellow citizens to enough to believe in the benefits of the outcome.

I just had someone say to me yesterday; ‘I’m not afraid to die. I know where I’m going and I’d rather be there than live locked up in my house unable to have dinner at Chili’s.’

This from someone who’s business hasn’t been affected a whole lot and who’s continued to leave their home pretty much every day.

So, yeah. Imagine how people who can’t work, can’t get any unemployment money because that’s broken too, are seeing their businesses implode, and can’t even make toast are feeling right about now.

People are angry because they are afraid. Even people who claim not to be afraid, are afraid. Even Elon is fearful.

 

[dl003]

This will be my last post, either as an original or as a reply to someone else, on the "fascist" comment:
Nothing to be worried about. People's attitude changes with times, especially if times get harder. See, Elon can't lose. If Alameda opens up quickly, that'll kind of validate his rant. If not, people will become more desperate and more jobs will be lost. Those initially in disagreement will eventually switch side as they feel their life slowly falling apart.

 

[Artful Dodger]

We don't really know how much, if at all, Elon cares about S&P500. I think he said at one point a year or so ago that it's not a factor or something similar.

However, I'm pretty sure that, once they figured it was possible, the goal for Q1 was to show a profit. Since the $140 million wouldn't be enough to make S&P500 possible already after Q1 anyway it was not that much beneficial to make the profit $156 million compared to the benefit of Q2 also showing a profit. It makes perfect sense saving all of that for Q2.

This makes it $140 million more likely to make a profit in Q2 than if it had been used in Q1. So S&P may matter or not for Tesla but this will help for achieving inclusion. If they are within that $140 million of a profit they will use it for sure. Maybe not for S&P, that would be a nice benefit for stockholders, but for the strength it would show.

The big unknown is how the FCA deal is constructed. Is it solely based on how many credits FCA needs every quarter? Seems unlikely. You don't write a $2 billion deal without minimums included. Is that minimum for each quarter $100 million? $200 million? $300 million?

S&P 500 inclusion matters for Tesla since future Cap raises at $2K per share produce much more cash / lower dilution than the last 1 did at $767

P.S. The Upper-BB was $900.39 at the Open. PROGRESS!

 

[Krugerrand]

On Monday I went out for a drive without fascist police pulling me over asking what am I doing.

That’s because yesterday they were out my way in full force with their radar guns. Never have I seen that many and they spent the entire day out too.

 

[Nocturnal]

LOLOL CCN really trying to cater to the low information crowd.

 

[LN1_Casey]

Wow, check out that entry volume. 2.8 mil as I type this.

 

[ZachF]

Question: Will those be real words or replicas of someone else’s words?

Maybe a bowl of Spaghettios?

 

[EinSV]

Reading between the lines, I think Tesla's current US vehicle/battery factory plan is:

GF Nevada: Battery Storage and Batteries for Fremont
Fremont: Models S3X, plus Model Y for North America West
GF or TF Texas: Cybertruck, Semi, Model Y for North America East and Batteries

I don't think they'll do a stand-alone battery factory, as this is contrary to statements made yesterday about future factories being highly vertically integrated, and statements over the years that all future GFs would have both vehicle and battery manufacturing.

 

[Reductionist]

LOLOL CCN really trying to cater to the low information crowd.

View attachment 537424

Sadly seems to work for them :/

 

[Ellec]

I actually think there'd have to be a prolonged 40-50% reduction in demand for autos on par with the 2008 financial crisis for Tesla to be meaningfully impacted by it:

• Model Y. Demand for the Model Y is likely on the order of a million vehicles, perhaps more, per year. Even if this somehow dropped to 500k/year due to a recession, there is still no way the MY is going to be impacted whatsoever by demand constraints.
• Model 3 Shanghai. According to @DaveT most luxury brands sell about twice as many vehicles in China as they do in the US. The M3 sells about 45k per quarter in the US, so that'd be 90k per quarter in China. Early signs for demand in China are also extremely strong, and Tesla has plenty of room in margins to lower prices if necessary. The M3 could be sold for less in China than in the US. Tesla is currently building out capacity for 65k M3 per quarter in China, so assuming there is demand for ~90k per quarter in China, there'd have to be a 30%+ reduction in demand for Tesla to see any type of impact to its China business, and a 40-50% reduction for Tesla to see any meaningful impact.
• Model 3 Fremont. In the Q1'20 ER, Tesla stated that planned total capacity for 3+Y in Fremont is 500k per year, and that some production processes of the Y are shared with the 3. It sounds like that means the M3 production capacity will be reduced from 350k per year to 250k per year, with perhaps further flexibility if need be. Although this 350k/year used to include China, Tesla was also supply constrained. If these two more or less even each other out, Tesla would have to see a 30%+ reduction in non-China demand for the Model 3 to see any impact to its business. If there's more flexibility to produce MY instead of M3 at Fremont, it's even possible that a 50% reduction in demand would not impact this part of the business.
• Model S+X. These are the only vehicles that will be significantly impacted by a reduction in demand from a recession. However, S+X now make up such a small portion of Tesla's overall business, that they don't matter all that much in the grand scheme of things.

In conclusion, Tesla is more supply constrained than it's ever been, and this is going to remain unchanged for years to come.

This is 10x worse than 2018 im afraid. Look at unemployment numbers. Tesla just scraped a profit in Q1 which was largely before Covid struck and mainly due to credits and that was with full demand. It's doubtful they will make another profit until things return to normal which which is probably 2022.