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

[Fact Checking]

They're letting go of a lot of people as a result of the financials and of what they can see in terms of outlook. This is not great news no matter how you look at it, and it doesn't help to be too positive in these circumstances.

Note another factor: current profits are burdened by $500m per quarter of depreciation/amortization drag plus $170m in interest. The first one is invested into future growth, the second one is a cost of fast growth as well which will become small once Tesla grows. I.e. their current corporate wide margins are artificially lower by a very aggressive ~10% reinvestment cycle that more established companies do not have to do, and which Tesla won't have to do either in the longer term future.

I.e. their EBITDA earnings are ~$700m higher than the GAAP income - so the $300m in Q3 was in reality ~$1b EBITDA and say $100m in Q4 will be ~$800m EBITDA.

I don't see that as a company in trouble.

 

[shlokavica22]

I do not see any reason why Tesla should go over 350 again in the coming 6 months. This was it. This one letter killed it.

Don't be a drama queen. Size your play carefully (especially when playing TSLA).
It can go both ways. Don't forget that many shorts were betting on bankruptcy. Q4 call will re-confirm the opposite. They will push the stock down for some time and will cover at least part of the bet (related to bankruptcy thesis).
If the Q4 doesn't surprise in either direction (more than what we already know from today's letter), then we still have Model Y reveal, GF3 progress, Model 3 sales in EU that can pick up more than expected (many people in the EU are not aware at all what's going on with the EV market and TSLA), etc. In TSLA terms 6 months is a long time.

 

[KarenRei]

Except that when that statement was made before the end of Q3, it wasn't accompanied by a big layoff.

That's because the big layoff was in Q2.

Also, how would you think about a CEO that decides to lay off 7% of the company's workforce just to maximise profit?

Exactly why he needs to present this to employees in as dire of terms as possible.

Elon is fine with firing one or two incompetent employees, but he's not fine laying off thousands in one fell swoop.

Are we talking about the same Elon here? You know that just a week ago SpaceX laid off 10% of its workforce? And on that subject, they were criticized for how it was done, with just a "We're trimming, go home at the end of the day, we'll send you an email this weekend if you were laid off". Here Musk tried to be kind and lay out justifications to employees, but that gets him damned too (this time by us)

 

[mrdoubleb]

Profit declining two quarters in a row while rolling out Model 3 in all markets. That's not a good look. The need to make MR available to all markets by May can only be read as SR being delayed longer than most anticipated, maybe not even in Q3. Admission that the fed credits disappearing do indeed hurt demand also a negative. Finally, getting relief from Q4 numbers in the shareholder letter is less likely now since guidance is probably not going to be in very hard numbers.

There is a $9k gap between the base SR and base LR RWD Model 3. I think keeping the MR available is a good thing - there could be plenty of people who need a little more range than SR, even if just to get over their own range anxiety, but for whom LR, especially now that AWD is mandatory, is out of reach.

 

[Fact Checking]

Are we talking about the same Elon here? You know that just a week ago SpaceX laid off 10% of its workforce?

BTW., I see this a change in strategy: in the past Elon was willing to use leveraged debt to bridge opex costs, to keep the reinvestment cycle and to keep employees on.

I believe the near-death experience with Tesla taught him that the answer to opex overruns is to cut opex - and labor costs are a big part of that, because not doing that risks a 100% workforce reduction... Even with the cuts Tesla's workforce has still grown over 20% over the last 12 months.

 

[anthonyj]

What is everyone’s play today? Buy the dip, or anyone think it will bleed into ER? I will slowly nibble at $30x

 

[secondstage]

Lets think positive. Q4 with less profit was clear for all of us. In Q3 the averaged M3 sales price increased to 60k (from 54).
Lets wait for AP3, Q4 profit, Supercharger and Model Y

 

[Pezpunk]

thank you Elon, i'd been looking for my opportunity to buy back in.

 

[KarenRei]

thank you Elon, i'd been looking for my opportunity to buy back in.

They always come around, don't they?

 

[Chocochip]

I do not see any reason why Tesla should go over 350 again in the coming 6 months. This was it. This one letter killed it.

So you see a CEO that manages to eke out a profit after running a company for 15 years in an industry where most people with common sense agreed newcomers cannot survive, who then decides not to relax at having achieved that but instead mash the go pedal and try to keep getting a profit every subsequent quarter while at the same time optimising production and introducing multiple new products, and who is not afraid to take tough decisions in order to grow the company as fast and efficiently as possible, and your conclusion is they're screwed? Gotcha...

I understand you're upset because of your losses today, and I appreciate you are probably a more experienced investor than me, but one thing I know about investing is you have to check your emotions at the door.

 

[SteveG3]

What is everyone’s play today? Buy the dip, or anyone think it will bleed into ER? I will slowly nibble at $30x

I dropped some nets in the water from $318.93 down to $298.93.

 

[elasalle]

Random thoughts.
.So Tesla has enough cash in hand to pay off March Convertibles. Else they could have waited one more month till March, since with macros, and +ve earnings we would surely have been over 360 by March 1st.
.Wording in email might have to do with showing more empathy for those losing their positions.
.Workforce grew by 30% and then got cut by 7%, i.e. ~ 21% workforce growth in 2018
.To meet EOY numbers etc, they might have hired aggressively and once again they are reducing the numbers.
.This should not affect production numbers
. Workforce (full time/contractors) is also growing in China .. for next 5-6 mths all sunk costs

.Looks like Tesla likes to give news on Fridays(Options expiry) and mess with MM's.

.Thoughts and best wishes for all Tesla employees. ~ Cheers!!

 

[KarenRei]

What is everyone’s play today? Buy the dip, or anyone think it will bleed into ER? I will slowly nibble at $30x

Swap some stock for options and hope that either we get an ER date before 15 Feb or some higher prices (say, macro related) at some point soon to roll existing options affordably.

 

[Analyst007]

Lets sum up all the facts:

- Q4 will have less profit than Q3.
- With a lot of luck, hard work, Tesla will hopefully have some tiny porfit in Q1 2019.
- They are still miles away from being able to make the cheap model 3 version.
- Demand (outlook) is weak as the tax credit expired. Demand in China is weak as well.
- Tesla is laying off thousands of employees to cut down costs.
- There was no word about production figures - they likely will fall as demand is met with less than 4'000 M3 weekly.

 

[Fact Checking]

What is everyone’s play today? Buy the dip, or anyone think it will bleed into ER? I will slowly nibble at $30x

So there's a chance that options delta hedging will create a big spike down on the open. That would trigger the short selling circuit and we could observe what genuine bearish investors think is the price bottom is.

The question is how 2019 expectations shifted due to these (mostly negative) news, and whether the shortz feel like ratcheting up the FUD machinery, and how cooperative MSM is on that.

"Less profits in Q4 than in Q3 while EBDITA is still in the billion dollar range!!!" doesn't sound like a very efficient punchline to me.

But as always it's a tough call to make predictions.

In other words another day in $TSLA land.

 

[Sancho]

Elon has previously and clearly laid out Tesla’s central near-term challenge: bring down the costs of M3 to enable sufficient margin for the 35k car, which needs to be introduced to keep demand strong enough.

To the extent they fail to meet this challenge, there is still a risk they will need to raise capital next year. To me this new letter immaterially change the likelihood of that risk. And I believe that when the Q4 numbers are released, that show the extent of the cash flow, the bears who are exaggerating the risk are going to need to adjust.

Trying to predict SP this year will continue to be a challenge. The value of Tesla is clearly unrelated to this year’s profits, which will be small. It’s all based on future years. If you look at the ARK analysis, the future looks very bright because the cost curve continues to drop and demand increases. Tesla remains greatly positioned for TWO global transformations of transport: electrification and autonomous driving.

Today’s letter causes me to very slightly increase the risk discount of dilution this year. It’s not a meaningful change to the overall outlook.

As for the SP this year, it’s still all about fear VS greed. The greed is fueled by the long term prospects, which haven’t changed. The fear is fueled by cash flow concerns. Q4 ER may reduce that fear.

 

[Right_Said_Fred]

Lets sum up all the facts:

- Q4 will have less profit than Q3.
- With a lot of luck, hard work, Tesla will hopefully have some tiny porfit in Q1 2019.
- They are still miles away from being able to make the cheap model 3 version.
- Demand (outlook) is weak as the tax credit expired. Demand in China is weak as well.
- Tesla is laying off thousands of employees to cut down costs.
- There was no word about production figures - they likely will fall as demand is met with less than 4'000 M3 weekly.

Facts? Half of what you wrote is your reasoning. There is no word on weak US demand. No word on weak China demand. No word on falling production figures.

 

[Fact Checking]

Swap some stock for options

So the problem with options trading today is that implied volatility will shoot up big time for most of the day, due to the high numeric drop, but also due to the added uncertainty and changed expectations.

The longer the expiry of the options is, the more time it will take for a drop to be realized in their pricing.

So what @shlokavica22 suggested makes sense: if you are otherwise bullish then you can profit from the high IV by writing PUT contracts and backing them with cash from shares sold.

Buying options will carry that high IV for some time.

OTOH if IV is only artificially high due to the very high open interest for today's expiry then it might still make sense to buy them.

I'll only be able to make good predictions about what the best trading strategy would have been today tomorrow.

 

[SteveG3]

Elon has previously and clearly laid out Tesla’s central near-term challenge: bring down the costs of M3 to enable sufficient margin for the 35k car, which needs to be introduced to keep demand strong enough.

To the extent they fail to meet this challenge, there is still a risk they will need to raise capital next year. To me this new letter immaterially change the likelihood of that risk. And I believe that when the Q4 numbers are released, that show the extent of the cash flow, the bears who are exaggerating the risk are going to need to adjust.

Trying to predict SP this year will continue to be a challenge. The value of Tesla is clearly unrelated to this year’s profits, which will be small. It’s all based on future years. If you look at the ARK analysis, the future looks very bright because the cost curve continues to drop and demand increases. Tesla remains greatly positioned for TWO global transformations of transport: electrification and autonomous driving.

Today’s letter causes me to very slightly increase the risk discount of dilution this year. It’s not a meaningful change to the overall outlook.

As for the SP this year, it’s still all about fear VS greed. The greed is fueled by the long term prospects, which haven’t changed. The fear is fueled by cash flow concerns. Q4 ER may reduce that fear.

Interesting that you mention a cap raise. It may be that in year’s past we’d have had a release about a cap raise rather than these layoffs, but Elon has little interest in working with WS, and even less in proving their take about a raise being needed was more accurate than his.

 

[Fact Checking]

No word on weak China demand.

In fact it would be reasonable to expect a significant inrush of new orders from China in Q1 from the reduction of 40% tariffs to 15%. There was weaker sales in Q3 in China, and because the 15% tariffs will go back up to 40% in March some of the Q2 demand might move forward as well.

So 'weak China demand' borders on falsehood.