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

[NicoV]

You mean we're all going to be riding around in Xaomi, Huawei, and Oppo Pods powered by CATL batteries fed by Ming Yang wind turbines and Trina solar cells?

Quote/ ... Beijing has spent an estimated $58.8bn subsidising its electric car industry over the past decade, according to the US-based Center for Strategic and International Studies, creating the world’s largest market for electric cars as well as a dominant position in batteries— surpassing Japan and South Korea. Subsidies have also helped propel Chinese solar makers into the ranks of the world’s largest producers, overtaking competitors in the US and Europe. ... /Unquote, Source [yesterday]
Subscribe to read | Financial Times

No, I didn’t mean that, but that’s an interesting thought.

 

[KarenRei]

$302,03 premarket :Þ Of course, that's inline with the bloodbath in Nasdaq futures.

 

[Fact Checking]

Great, you all set to unveil the "conservative" Q4 cash flow number
Hmm... wasn't aware that Troy's survey can show ASP, and it only dropped $2.3k - quite a surprise considering the MR effect and his sheet showed AWD% dropped 23% (46%@q4 vs 69%@q3).

(I have edited it to "only dropped $2.3k", which I suspect you meant to say?)

The smaller than expected ASP drop in Q3 was predicted by some of us.

The logic goes like this:

• While a price drop allows some customers to spend less at Tesla, but it also frees up some customers to spend differently at Tesla: in particular with the MR configuration they can fork out $5k for EAP and $3k for future-proofing their Tesla for HW3. Those are 100% margin options, while batteries have much lower margins - so somewhat counter-intuitively introducing the MR might have further improved Model 3 margins. MR buyers might also have more of a budget left to finance that nice color, or a white interior, or sportier wheels - which have higher margins as well than a base config.
  
• There's also the 'low base price effect': many people go into a dealership for the $19,999 advert and leave with a $25k-$30k car. Getting people in the door is half the battle of securing a sale - a good product will do the rest, and Tesla has good products.

In terms of Tesla Q4 revenue, the estimates are pretty simple:

• From Troy's sheet or from the Q3 results we can use a ballpark figure of Model 3 ASP of $55k-$58k for Q4. I'll go with $55k to make it conservative, and because Troy's data is under-sampling walk-in sales. Let's make Model S/X combined ASP $90k (ex GHG) - again this is conservative as X ASP was closer to $100k in Q3.
  
• Gross margin was 20.5% in Q3, and this very likely improved in Q4 - but let's assume it stayed constant, to make the estimate conservative.
• Model 3 deliveries: 63,150. Lower bound for 3 revenue (ex GHG): $3,473m.
• Model S/X deliveries: 27,550. Lower bound for S/X revenue (ex GHG): $2,479m.
• GHG income per unit is $1.7k per unit per @ReflexFunds (and these are predictable income regulatory credits), with 90,700 units that's GHG revenue of $154m.
• ZEV income is uncertain, it could be $0-$400m - let's go with $50m which is the Q3 figure. (Historically Tesla has been selling their accumulated ZEV credits by the end of the year - but they might be breaking that this year and stockpile them.)

@ReflexFunds has done these numbers and his results are:

I.e. record revenues.

Profits are:

That's a record as well.

Cash flow sheet:

2 billion dollars operating cash flow and over 1 billion dollars free cash flow. Record and record.

Note that this is a pretty conservative estimate, extrapolating from Q3 margins. There's a number of potential upsides that could further improve these numbers:

• Tesla exited December with a very strong production rate and parts vendors might have allowed Tesla to expand their payables. This ramp-up effect, from which every other carmaker is benefiting from already, Tesla has yet to take full advantage of. When they do it might create several hundred million dollars of additional cash flow, improving the end of Q4 cash balance significantly.
• Tesla exited Q3 on a weekend with about $200m in cash 'tied up' at a major commercial bank. The revenue was booked in Q3, but the cash flow will improve Q4. That quarter ended on a Monday, with a lot fewer customers checks uncleared.
  
• ZEV credits are a wildcard: ZEV has fewer loopholes this year and California requires 7% instead of 4%, which might increase the value of ZEV credits. If ICE OEMs are not willing to recognize that value due to the Trump EPA uncertainty Tesla might have decided to sell only a baseline number of ZEV credits and is saving the rest up as a potential rainy day fund. If they did manage to do a good deal with an ICE OEM then that could add up to $400m of revenue, income and cash flow to the bottom line.
• EAP and FSD take rates are a wildcard, and we don't know the rate of post-delivery EAP activation. EAP v9 had really good reception, so the tens of thousands of Tesla owners who don't have EAP activated yet might have decided in Q4 to take the plunge and buy it for $5k, before the price goes up further in 2019.
• Deferred revenue: Tesla has almost a billion dollars of deferred revenue they can recognize if they meet EAP and FSD milestones. Since those milestones are self-defined that gives them quite a bit of latitude to time the release of those revenues. Releasing $100m-$300m due to v9 completion would be entirely justified.
  
• Storage is a Q4 dark horse as @KarenRei mentioned it recently. There were credible reports in 2018 of Tesla quoting new industrial scale storage contracts with 9+ months delivery times (!). Now that Panasonic has increased 2170 cell production by 50% in Q4 there's a lot of potential Powerpack sales in the order backlog that Tesla could have delivered in Q4 - even though the seasonal cycle is usually lower levels of winter solar and storage sales.

Now that the Q4 deliveries are in there's very few downsides and headwinds I can think of: China tariffs are a known cost and there's very few probabilistic elements of the earnings report left. There might be a bit more opex and capex than guided - but they have a heck of a high income level to finance it from.

Tesla's debt schedule in Q4 was a Term Loan of $157m which they might have decided to pay in cash and not renew, plus they had $222m in convertibles in November. Those will improve the balance sheet metrics and reduce loan financing costs and risks.

TL;DR: S&P 500 addition of Tesla in 4 months (May 2019) secured.

 

[Tslynk67]

I am talking investors selling/buying shares, not Apple buying Tesla!

Apologies, misunderstood you there. Indeed, $TSLA is a very attractive investment right now, but all those AAPL shareholders don't know this, they're too busy reading the FUD on the web.

Just to add on a bit, the success of Q1 rely mostly on good Model 3 deliveries to Europe and China. So logically Tesla has to put most (if not all) January Model 3 production capacity for Europe and China, otherwise these cars can't make delivery in Feb/Mar. So it's the right move to keep 5k Model 3 common configuration on inventory to satisfy new US orders in Jan. Tesla is doing the right thing for the business long term.

Very acute observation.

304.87 premarket. Looks like we want to test lows again today.

Thanks, Apple. :Þ

Pre-market volume is very low today, which also might be the uptick keeping the shorts away.

Always amazes me why Apple having problems should impact other stocks. Herd-mentality, I suppose.

Fortunately, many of us here are cats and cats cannot be herded...

 

[mongo]

Remember folks, up tick rule in effect, shorts can't drive TSLA down today, only longs can. AAPL may also hit the 10% trigger.

I expect accumulation based levelness until any capping volume is overwhelmed (but I'm an optimist)

 

[jhm]

Not likely to happen anytime soon since the S&X aren't current supply/production constrained, it wouldn't matter if they only charged $0.01 they couldn't sell any more of them. Then of course there is the issue that they weren't designed for mass production. Tesla is going too be busy with the Y, Pickup, Semi, and Roadster to worry about increasing production of the S&X.

Of course, they would sell more in a lower price range. Just look at Norway. Roughly a $5k reduction could double the addressable market. If you want to Express doubt, arguing for a $10k reduction would be respectable. But suggesting giving them away at $0.01 is just absurd.

 

[KarenRei]

Of course, they would sell more in a lower price range.

The problem is that you can't sell something you don't have.

Tesla can make about 100k S+X per year, and that's it. End of story. If they want more, they have to either build a new 18650 plant - which neither they nor Panasonic have any interest in - or redesign the vehicle to use 2170s, and increase the 2170 supply (which would mean throwing away the capital invested in 18650 production as a sunk cost). And beyond batteries, they then would need to build new lines (that they don't have room for at Fremont) for increasing the production volumes of everything else needed.

S&X are a big sunk cost that now earns them cash. They don't want to sink any more unnecessary capital into them; their focus is elsewhere. When S&X no longer earn them cash (and low-cost updates won't do the trick), they'll only then kill them off and either replace them with a newer, more profitable S/X platform, or just not replace them. Only then, and not before.

 

[mongo]

The benefit is just as much for GM dealers.

Now they have to sell Bolts with $3750 Fed Credit against Kona EV,Ioniq EVs, Niro et al with $7500 Federal Credit.

Most GM dealers never really wanted to sell Bolts anyway.

If it were in the dealer's best interest, then there would be no need for the originally proposed OEM line stoppage/ shipment embargo. Tesla managed to move the trigger while producing cars.

However, if dealers think a sale in this quarter is worth more than the potential of two the next or a sale to them is better than sale to another dealer that still has inventory...

(Cue prisoner dilemma discussions elsewhere)

 

[jhm]

Jesus, 24 pages already? I'm not catching up this time.

I'm very sick so I may disappear if I go into the hospital. But anyway...

...I thought the delivery report was great. It was on the high side of my expectations.

The price cut was a mild surprise, but to me it indicates improving margins. I'm guessing those improving margins are mostly on elements present in the base model, so that's $2000 of the $3000 they were trying to cut out of the cost of the base model -- the rest will probably come with the new battery pack design.

Wall street is reacting like complete idiots, as if this extremely good delivery report was a negative. I will probably do some cash shufflin' to make sure I can execute my options.

@neroden, we need you to stay well. All the best.

 

[Fact Checking]

increase the 2170 supply (which would mean throwing away the capital invested in 18650 production as a sunk cost).

It's actually worse than Tesla throwing away sunk cost: if Tesla decided to not use the 18,650 cells made in Panasonic's factories in Japan, Panasonic could sell the output to another carmaker - for example to some EV startup that would be more than happy with a ~10 GWh/year supply of proven, reliable, high energy density cells...

 

[JollyRoger]

Uptick rule clarification please...

If the uptick rule is in force and no one can drive down the stock how long does this last? Could there be a significant drive down once the uptick rule expires? Im curious as i have freed up some cash and am wondering to buy start of play or hold untill it reaches bottem, I'm predicting 300 will be strong support.

 

[lascavarian]

What the hell is Gene Munster talking here, about a 10% miss on deliveries? Is he on drugs or what?

Go to the video and listen to what Munster says:

Tesla shares tumble 10% as company misses Wall Street vehicle delivery estimates, cuts prices

It is about a simplistic number- vehicles. I tend to think Tesla is battery constrained. If true then the vehicle number will swing 5% or so based on the configuration of orders due to LR vs MR packs. I think we would learn more from a number like pack cells or range miles in addition to vehicles.

Now the second more interesting question is how the pack cells or range miles produced tracks with revenue as a predictor. We may not have enough data for confidence but maybe soon. I tend to see Tesla as a SW and battery company at this point. It is about the range miles produced not the number of tires.

 

[Zaxxon]

Of course, they would sell more in a lower price range. Just look at Norway. Roughly a $5k reduction could double the addressable market. If you want to Express doubt, arguing for a $10k reduction would be respectable. But suggesting giving them away at $0.01 is just absurd.

Indeed. Our other car is a Volvo XC90 that we got because the X configured as we needed it was just too rich. The plan is to eventually replace it with a Y, but I can tell you that I'd replace it tomorrow with an X for a whole lot more than $0.01. I'm certain I'm not alone. If the X100D received any sort of significant price cut (say, $10k), demand would skyrocket.

OT:

Finally got my IRA funds available. MMD, don't fail me now!

 

[Buckminster]

Tesla surprisingly increases range of the Model 3 with Mid-Range battery

 

[Analyst007]

I will buy 200 shares @ 270

 

[jhm]

The problem is that you can't sell something you don't have.

Tesla can make about 100k S+X per year, and that's it. End of story. If they want more, they have to either build a new 18650 plant - which neither they nor Panasonic have any interest in - or redesign the vehicle to use 2170s, and increase the 2170 supply (which would mean throwing away the capital invested in 18650 production as a sunk cost). And beyond batteries, they then would need to build new lines (that they don't have room for at Fremont) for increasing the production volumes of everything else needed.

S&X are a big sunk cost that now earns them cash. They don't want to sink any more unnecessary capital into them; their focus is elsewhere. When S&X no longer earn them cash (and low-cost updates won't do the trick), they'll only then kill them off and either replace them with a newer, more profitable S/X platform, or just not replace them. Only then, and not before.

Did you read the post I was reacting to? The presumption was that they were not production constrained, which is what makes the $0.01 comment absurd. But if you all go back to my original post, I was clearly pointing to GF3 as expansion of capacity.

So yes, Tesla will eventually redesign the pack for better batteries, and yes, Tesla has opportunities to build S and X on other continents. The only question in my mind is when. Do you really think they should wait until after 2030 to do this? Waiting until they are cash negative is absurd.

 

[KarenRei]

Did you read the post I was reacting to? ... So yes, Tesla will eventually redesign the pack for better batteries

No, did you read the post you replied to? Because I very clearly spelled out why they're not going to do this until absolutely forced to. And may possibly just kill off the line rather than redesigning it, depending on market needs at the time.

Tesla's capital focus is on much bigger fish: Model Y, new gigafactories for M3 and MY, Pickup, Semi, etc - and as for the high end, Roadster. Plus Tesla Energy expansion, superchargers, megachargers, leasing, and so many other things. They have massive capital needs, and the last thing they need to be doing is throwing away previous capital investments to make new capital investments that are unnecessary.

S/X are a cash source, and will continue to be used as a cash source - not a sink - until they're no longer useful, wherein they'll be replaced or killed. Don't just take my word for it, take Tesla's. They've made it more than clear that they have no plans to make any significant changes to S&X any time soon, that neither they nor Panasonic have interest in making more 18650s, that S&X won't be built in upcoming GFs (only 3 and Y), that there's no more room at Fremont, that they don't see the S/X limit as changing from 100k, and on and on.

They have no interest in sinking more money into S&X. That's not a priority, and it's been quite clear for a long time that it's not a priority. There will be incremental updates (a more "Model-3-like" interior appears to be in the works for mid-2019, for example), but don't expect any expensive, radical changes.

 

[traxila]

Can the 18650s be used for Tesla Energy products such as powerwalls?

It seems Tesla will be hampering it’s own innovation, which Musk has repeatedly said is the end all, if its flagship vehicles do not utilize the best batteries it has available.

 

[KarenRei]

I will buy 200 shares @ 270

Who wouldn't? If you know someone who's selling shares at $270, let me know

 

[Analyst007]

Who wouldn't? If you know someone who's selling shares at $270, let me know

There will be 20 million shares traded at 270 soon