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

[SOULPEDL]

This must make one recognize the lack of demand and financial distress Tesla must be under ?

I see you're already working on tomorrow's headline. Tesla's just fine $ wise.

Sometimes I think he did this for the planet mission, more driving data, and product awareness with same number of battery cells. Could also be a hedge against potential reduced sales from going online 100% - TBD.

Then he'll come back to these same folks and sell them software anyway, especially after seeing some real Summons and FSD.

Turns out my LR RWD version has some impressive specs now. It was already the most fuel efficient as I recall, extended battery warranty (120K mi), and now it even drives the furthest.

 

[Carl Raymond]

I believe Tesla pulled the plug on the SR and on the aggressive price reductions for the following reasons:

• The various recession and tariff war risks have gotten significantly lower in the past month, and especially one of Tesla's biggest growth markets (China) probably won't see punitive tariffs anymore. China tariffs were the worst for Tesla, as they were double-trouble: they increased both parts costs of goods, but also increased end customer prices and depressed Chinese demand. The effective tariff cost for Tesla's sold in China was around 65% in December, now it could be back to 15% after an agreement between China and the U.S.
  
• Tesla probably had two plans for two scenarios:
  • "global recession hunker-down", in which they'd do 7k/week Model 3's and high margin S/X's to generate cash and use existing demand even in a recession,
  • "global recovery/growth", in which they'd introduce the SR and grow aggressively, as the $35k version possibly doubles the addressable market. Price reductions increase the addressable market non-linearly, and a $35k price point could in principle capture more than 50% of all sedan automotive revenue in any particular market. (!) We are talking about Tesla products becoming readily affordable to an addressable market of over 10 million units per year, every single year, even without any EV incentives. Very lucrative.
• There's various hints for this in existing communications, for example Elon explained it during the conference call that their 2019 demand expectations strongly depended on whether there's a global recession:
  • Elon Musk:
    
    "Okay. And we expect that exponential to continue. So with the deliveries this year being - even in the face of - if there's a global recession - even if there's a global recession, we're expecting deliveries this year to be about 50% higher than last year. And this - it could be a lot more than that. But even with tough economic times, to see 50% growth is pretty nutty."
  • [...]
    "Yes. Maybe in the order of 350,000 to 500,000 Model 3s, something like that this year."
• And the "no global recession" outcome seems to be materializing, which allowed them to pull the plug on the hyper-growth variant and the SR version which is at +40% higher production levels than the conservative baseline.
  
• Yesterday Elon also reiterated the guidance they gave in the conference call: 350k-500k Model 3's and 70k-100k S/X's, which are a production of 420k-600k - with a possible maximum combined production rate at the end of 2019 of nearly 12k+2k=14k units/week (!). This is almost the double of the very cautious, conservative guidance of 6k/week+1.5k=7.5k units/week in their Q4 shareholder letter.
• There's a lot of added benefits as well: all competing EV products pricing structures are in disarray, plus $35k puts a hard cap even on ICE (sedan) sales. There could be a lot of organic demand growth.

But bootstrapping this growth and expansion plan will probably turn Q1 GAAP profits/EPS red:

• there's one-time restructuring costs,
• plus probable fixed capital costs from the SR production line (the new, football field sized 'Grohmann machine' at the Gigafactory that is probably making the SR battery packs) will be distributed among just ~1 months of SR units, not ~3 months,
• there's also the fact that both Europe and China deliveries required a bootstrapping/ramp-up, so neither Q1 revenue nor cash flow will be (close to) 100% of what it could be in steady state,
• there could be higher opex from service and Supercharger expansion, which would be leading the revenue and income growth by a couple of months.

Anyway, if most of these expectations materialize and Fremont is able to keep up with production and there's no major macroeconomic or Tesla specific negative surprise, then Q2 could be something special...

Yesterday's changes has turned Q1 and Q2 modeling and estimates into a really difficult job. Again. Elon is certainly not the patient type. I'm curious what @ReflexFunds thinks about the income and cash flow impacts of these changes.

Also, the FUD will continue, which might delay recognition of these outcomes in the stock price until investors will start stumbling over the actual evidence, in a few months.

Does a Q1 loss impact timeline for S&P inclusion? TIA

 

[Fact Checking]

Service center? What's that?

"Service centers" were centralized places of worship, which were targets of so-called "gascar owner" pilgrimage every couple of months. These "gascars" used complex Ruby Goldberg machines consisting of thousands of moving parts (!!) - unlike anything you can see today, and these so-called "engines" were frequent targets of prayers, to keep them working, especially near the end of their very short life time. According to archeological records these "service centers" were shrouded by a cloud of burning hydrocarbon incense smoke, which had an intense smell and which probably had deep religious meaning to humans of the Modern Neolithic, which were not space-faring societies yet.

Kids today know nothing.

 

[Fact Checking]

Does a Q1 loss impact timeline for S&P inclusion? TIA

It makes Q2 (i.e. August/September-ish) inclusion much more probable and Q1 (June) inclusion a low probability event, which would require $360m+ Q1 profits, which very likely won't happen.

I have to eat crow for my "90%+ May/June S&P 500 inclusion" expectation a couple of months ago.

 

[SOULPEDL]

It's almost a year old for me, and it's still getting newer!

Nightmare for the auto industry... as if they weren't serious yet. Maybe not with all the truck focus still. The way I see it, $TSLA is the safest stock bet in the auto industry. Maybe we need to learn how to Short the others is my thought. A Camry or a Tesla, are you kidding me?

 

[RobStark]

Yes, I was making a point about prior to today's announcement. Today's announcement brought a lot of surprises such as pano for the SR.

If MR purchasers knew pano was going to come with the SR as standard, I bet a few might just end up waiting.

The one item I am glad to see added to Standard Interior is console cover/armrest. Previously, Tesla said the center storage would be uncovered and the two front seat occupants would not have an armrest.

A Honda Accord LX or Camry LE have an armrest standard. That was just not acceptable in a $35k car.

 

[lklundin]

Am I the only one who sees a mountain of slightly used Model 3's from people with no intention of keeping the car?

Could such cars be using for leasing?

(The typical buyer will likely be blown away by the car and not return it).

 

[RobStark]

Could such cars be using for leasing?

(The typical buyer will likely be blown away by the car and not return it).

It can be leased as a used car not a new car.

 

[Fact Checking]

We know they just relieved a big bottleneck at the Gigafactory, but they must also have a plan for getting Fremont over 7K/week Model 3s if they're talking 350K-500K Model 3s in 2019.

I believe they did a 7k stress-test Model 3 production week in December without straining overly.

SR should help reduce assembly complexity:

• RWD only (half the drive train to install)
  
• simpler audio
• simpler interior in general

I'd expect the paint shop to be the main bottleneck at Fremont - and the last leak from Vicky (paint shop manager) before she got herself fired for repeatedly violating her NDA was that they had some sort of quality and throughput break-through at the paint shop.

So I'm cautiously optimistic about the ability of Fremont to scale up, with emphasis on the "cautiously".

 

[Fact Checking]

Frankly, the $35K promise turned out to be a moving target due to inflation. I think Tesla will raise prices with inflation as soon as they can credibly get away with it (i.e. after all reservation holders have gotten their chance to buy the $35K car).

On the other hand keeping it at $35k will allow inflation to steadily expand the addressable market, especially as per household disposable income is growing beyond the rate of inflation in the U.S.:

Real disposable income was below $39,000 in 213 and has now grown to $44,000 in constant 2012 dollars, which is a +13% increase in inflation-adjusted dollars, i.e. it's a +20% increase in gross disposable income, almost three times the inflation of about 7% in that time span.

So Tesla can actually stealthily put pressure on the pricing plans of ICE carmakers and dealerships by holding the $35k entry price constant. They can manage margins by limiting certain features like white seats or AWD to higher value trims only.

ASP will steadily improve as both Autopilot and FSD become near irresistible features for commuters.

 

[gringotuanis]

Does a Q1 loss impact timeline for S&P inclusion? TIA

Yes

 

[CorneliusXX]

So you’ll lock up $40k in Tesla, wait another 2 months to get it refunded just to be malicious? While I can see Mark Spiegal doing it, him getting in one might even change his mind. Shorts just need to own their car for a week in order to see the light. I can see this move converting a lot of shorts. Just look at Kramer’s face after he drove the Model S. Says it all.

I agree, there shouldn’t be unlimited returns. A second purchase should be non refundable.

That would be the most wonderful outcome. Short selling dramatically reduced once shorts bother to test the product. Imagine the amount of contrition on Twitter.

 

[gringotuanis]

from Popular Mechanics: "The Shelburne Police Department tells Popular Mechanics that the owner of the vehicle took their Tesla onto the ice to go fishing, and that at some point during the expedition the car hit a rock. The car started making unusual noises, and shortly after that caught fire. No one was hurt."

Seriously, he drove the Tesla onto the ice to go fishing. Oh my god. OK.

You must not be from a cold climate. This is a common practice in northern US and quite safe. Many ppl take full size pick ups onto lakes in Minnesota etc.

 

[Fact Checking]

You seem to know your stuff. Can you help us with an amicus brief to the court? This situation is bizarre and I think the Court should be told what's really going on. I figure even if the judge refulses to take the amicus brief it'll wake her up...

It is not obvious to me how an Amicus could help the court determine whether the tweet was one that should have been preapproved.

I believe the recognized standard for "material nonpublic information" includes what a "reasonable investor would expect to" term - and an amicus brief could document that many Tesla investors were indeed not surprised by the 500k tweet, as it was well within the guidance range they already saw from the conference call, and because the "about" qualifier made its forward looking and uncertain nature abundantly clear.

But I admit that it would probably only be marginally useful in a legal sense, and that the court would likely not be able to make use of it (all of the claims by investors being hearsay without being cross-examined), but it would at least try to counter-act the well organized lobbying campaign against Elon's character.

There's a reason the former SEC head is on TV with his mouth foaming, and there's a reason the SEC is citing in their memorandum derogatory comments Elon made about the SEC. There's a non-verbal, non-legal character attack going on, and it would be naive to think that such negative campaigns cannot have effects on judges...

It is also unclear to me to what extent the judge will inform herself about all things Tesla, and she might not be aware of various oddities surrounding the SEC's action:

• The immense harm the SEC's "enforcement" actions have inflicted on Tesla investors.
• The oddly selective enforcement the SEC appears to be doing, seemingly prosecuting only things that are harmful to Tesla investors and helpful to Tesla anti-investors.
  
• The chilling effect Tesla investors observe the SEC's actions have on Elon's speech: around the SEC complaints he stopped tweeting for almost three days. If his actions were indeed legal and 100% above board then the SEC's action de facto restrained Elon's speech. This might help Tesla's First Amendment defense.
• The well-documented short-and-distort schemes against Tesla that the SEC oddly appears to be unwilling to prosecute.
• etc. there's a long list of anomalies ...

In my experience federal judges have an over-sized sense of justice and many of them love their jobs and regard it a life-long calling. Putting all these (and other!) issues in the consciousness of the judge would be immensely helpful in ensuring that there's a fair ruling, even if no part of the amicus brief could be relied on legally.

 

[SPadival]

and closure of Tesla gallery's (which bulls always compared to Apple stores and gave nice exposure to the Tesla brand)

It is actually the other way around. From the Tesla blog:

Over the next few months, we will be winding down many of our stores, with a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers.

 

[Thekiwi]

As of now the Standard Range is 2-4 weeks delivery, every other Model 3 (including the SR+) are showing “within 2 weeks”

WIll be interesting to see how those delivery ranges change.

 

[CorneliusXX]

This makes the 360-400k 2019 total deliveries guidance in the shareholder letter look a bit ridiculous. Not even an overlap with this new 420-600k production suggestion. I presume and hope the guidance on this media call today has been approved by the Tesla comms team, though it doesn't necessarily contradict what was said on the Q4 call.

420k Model 3s would be equivalent to c.8k cars per week for 9M19, followed by c.11k per week in Q4 with GF3 ramping immediately to capacity from September, all with 1 week downtime per quarter. I think getting to 500k Model 3s would likely require more significant capex in Fremont.

It only makes sense if the decision to launch the 35k version early has been made since the Q4 letter was released or the certainty around the GF3 ramp has increased. Either of those two options are enough to revise guidance up.

 

[Tslynk67]

They seem to have bolloxed-up the pricing in Europe - XP100DL is €70k cheaper than yesterday...

 

[Pezpunk]

It would be a very capital intensive way of doing it. You would need to pay the money for the whole car upfront and I don't think you can treat the car like a rental car (i.e. trash it) or there would be fees associated with that. Then I could imagine that the full-refund would take time to be processed etc. I fully expect some black-lists etc. when they suspect abuse of the offer. E.g. Amazon does not deliver to people that send too many items back... So yes, I can image that a few people will try. But I can't imagine this to be a problem which can't be solved.

it'd be capital-intensive, yes, and ridiculously time consuming for the trolls as well. i mean Tesla makes buying a car as easy as possible, but you still have to secure a loan (or pay off the whole thing), register it with the state, insure it, and so on before taking ownership on your "joy ride". i really don't think this is something an appreciable number of people are going to bother doing.

 

[AcesDealt]

I have zero worries about abusing the return policy. Too much actual effort. When you run the math on the likely percentage and the harm it's probably trivial. The far larger effect is the obvious one: that everybody is used to driving a car and getting flattered by a human being before making a commitment (and sometimes flattered into a more expensive one than they can afford).