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

[mrwuffles]

Why dont they offer leasing? That should create lots of demand for the more expensive model 3 versions.

Leasing is expensive. I'm no expert, but I'd think they would have to carry the full cost of the car and the sale would only hit their balance sheet in increments over a number of quarters. I know they lease S and X but 3 is lower margin, and they might be worried more about resale value, which they have to estimate well to not be left holding the bag on depreciation.

 

[avoigt]

Awesome!


Russ Mitchell‏ @russ1mitchell
BREAKING. Tesla spokesman: “We have received European vehicle type approval for Model 3.”
Russ Mitchell on Twitter

Homologation chatter is over.

 

[avoigt]

1. 
   12m12 minutes ago
   $TSLA short interest is $7.53 billion, 24.9 million shares shorted, 19.9% of the float. Shorts up $1.12 billion in mark-to-market profits today on #Tesla's 13% price drop, and are now up $783 million for the year.
   
   
   
   
   2 replies4 retweets9 likes
   Ihor Dusaniwsky on Twitter
   

 

[neroden]

They let go of 9% last June, yet employment increased by 30% last year.

This is called getting rid of poor performers.

Or *reallocating resources*. They can have too many people on the Model S production line and not enough in the Omaha service center.

 

[homer214]

Cathie Wood buying a silly amount of shares. She knows where to buy from what I’ve seen
View attachment 369893

I’m with Cathie - at a much lower level, of course.

 

[neroden]

Isn't it still the case that S and X have individual body lines, but share a final assembly line?

Yes. The X body line was supposed to also make the S body, but that changeover never happened. If they've (a) figured out how to do that, and (b) the total production possible by doing that is somewhat lower than for two body lines, but more than half, then they might have finally done that.

 

[Buckminster]

A bit of light relief from today's stresses:
Major Tesla event(s) Q1

 

[Fact Checking]

Can't sell to Europe until homologation.

So I'm 100% sure you are now relieved that European homologation for the Model 3 has been received today, that mechanic's liens were a blown-up nothingburger and that Tesla's negative GAAP working capital enabled profitability, right?

Any other concern trolling topics I forgot about?

Are you still worried about the fake cranes in Shanghai perhaps?

 

[neroden]

I think the main thing the market doesn’t like or understand from the letter was,

“This quarter [Q1] as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.”

Layoffs could of been shrugged off, even might of sent the stock up. Q4 not as good as Q3, some minor selling. Why, though, great difficulty, effort and luck for (maybe) a tiny profit this quarter?

Billion dollars in inventory on ships. I know manufacturing is breakeven from a GAAP perspective, but it means a bunch of the manufacturing in Q1 doesn't translate to deliveries, whereas nearly all of the manufacturing in Q3/Q4 did translate to deliveries. So much lower deliveries, therefore much lower profits.

 

[Driver Dave]

Amazing to see the overreaction compared to the basic reality:

Product still amazing.
Long term Tesla future in EV, Energy, AI still very bright.
ICE manufactures still way behind.
Dealers still stink.

Not much, if anything, has changed.

Time to buy.

 

[neroden]

I'm wondering how to reconcile:
"This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit."
and
"However, starting around May, we will need to deliver at least the mid-range Model 3 variant in all markets, as we need to reach more customers who can afford our vehicles."

So, he's saying there's about 4 months(2019) worth of overseas demand for high-trim configurations.

That seems plausible. Actually slightly higher than I expected.

 

[Fact Checking]

Amazing to see the overreaction compared to the basic reality:

I'm still curious how much of today's drop was magnified artificially by the 60+ million shares-equivalent short PUTs which expired today, and which probably created a fair amount of delta hedging short sales, combined with inventory sales of the 30 million shares-equivalent calls.

Such delta hedging by market makers would be exempt from the uptick rule.

 

[Curt Renz]

Awesome!


Russ Mitchell‏ @russ1mitchell
BREAKING. Tesla spokesman: “We have received European vehicle type approval for Model 3.”
Russ Mitchell on Twitter

Homologation chatter is over.

We can see from Mitchell's article today about the Tesla layoffs that short-selling mini-hedge fund manager Mark Spiegel continues to count on the LA Times to quote him as an authority on Tesla.

 

[Singuy]

As an owner of a Model 3, and a major car enthusiast, I know that Tesla has created one of the world's great automobiles. The Model 3 is a technological marvel while being an absolute blast to drive. I own a few cars, and since getting the Model 3, they do not get driven other than for me driving them around the block to ensure they do to sit too long.

Today's reaction was ridiculous. It might take awhile for things to settle down. But, for those with a long-term approach to owning this stock, today should be a non-event.

I said the same thing to my wife today when I was driving as I lost 20k in Tesla equity..lol.
The product is just so damn good. This is coming from my previous car, a Jaguar XF supercharge. It's really magic how precise the car is. The driving experience is just so refined as if they have been doing this for hundreds of years.

 

[Fact Checking]

So much lower deliveries, therefore much lower profits.

I think they can address this problem to a large degree in Q1:

Note that this argument is making the implicit assumption that they'll be shipping cars to the EU and China up until the end of the quarter.

Instead they could be redirecting the final month's Model 3 production to the U.S. again.

So basically Tesla can allocate Q1 Model 3 production the following way:

• In January and February Fremont is making mostly EU and Chinese versions: AWD and Performance trims.
• In March Fremont is switched back to U.S. and Canada production - it will work down the backlog it accumulated in the first 2 months plus March demand as well.
• Delivery delays to Florida are down to only 11 days - so more than 2 weeks of production can be made for the east coast and Texas.
  
• At the end of March Fremont will produce cars for west coast deliveries.
• On the final 1-2 days they do Bay Area same-day deliveries.

This strategy gives about 60% of the quarter's production for EU and China, and leaving the remaining ~35% for North America.

This way they could achieve similar results to Q3 - with the difference that cash flow will be burdened by the $920m repayment.

 

[avoigt]

Billion dollars in inventory on ships. I know manufacturing is breakeven from a GAAP perspective, but it means a bunch of the manufacturing in Q1 doesn't translate to deliveries, whereas nearly all of the manufacturing in Q3/Q4 did translate to deliveries. So much lower deliveries, therefore much lower profits.

It will in my opinion be if at all a one time effect. All depends how they schedule global delivery and shipments. They could if they want to manage it in a way that inventory in transit is as high as before (Q3/Q4). But that creates efforts too and its fair if they just take those for granted and factor it in.

One of the effects you have scaling up a global delivery organization with goods you have to ship over the sea.

Most of this ramping up production and delivery effects are not understood from the market because Tesla grows that fast that they have not seen something similar ever. Its noise in one quarter but shorts, bears and people never been close to those processes will come to wrong conclusions and make wrong decisions.

 

[neroden]

2. Switching from "no overseas deliveries at the end of Q to cut on inventory in transit" model to "there is a constant flow of cars to overseas destinations, so more are in transit at the end of Q". One time hit to fill the logistics chain. This seems like a major/unlikely move, since it was not the case in the past.

It kind of has to happen *sometime*, though. I know automakers do this "earnings massage" swinging of inventory, but it's really inefficient and a drag on long-term cash flow and profits. (You have to size the entire delivery pipeline, including store employees and storage lots, for *peak* operations rather than *steady state* operations.)

 

[BaneBeater]

Tesla has over a billion autopilot miles.

As I said in a previous post,

I'll wait for the DMV reports that come out this February.

I don't think Tesla drove 100 autonomous miles in 2018, according to the legal definitions of autonomous driving.

Driving on highways is much, much easier than driving on normal, ordinary roads.

 

[neroden]

Leasing is expensive. I'm no expert, but I'd think they would have to carry the full cost of the car and the sale would only hit their balance sheet in increments over a number of quarters. I know they lease S and X but 3 is lower margin, and they might be worried more about resale value, which they have to estimate well to not be left holding the bag on depreciation.

Not only is leasing bad for GAAP profit reports, it's abysmal for cash flow, unless it's done through outside leasing partners who handle 100% of the financing.

 

[Fact Checking]

Here's the fine-grained options open interest for today's expiry, rounded to $10 levels to make the histograms easier to interpret:

 PUT $010: 36,730 ##################  ,   CALL $010:      0             
 PUT $020: 23,437 ###########         ,   CALL $020:      3             
 PUT $030: 14,444 #######             ,   CALL $030:      0             
 PUT $040:  8,369 ####                ,   CALL $040:     10             
 PUT $050: 87,055 ###################+,   CALL $050:     16             
 PUT $060:  9,252 ####                ,   CALL $060:      3             
 PUT $070: 12,874 ######              ,   CALL $070:      6             
 PUT $080: 17,956 #########           ,   CALL $080:    300             
 PUT $090:  9,813 #####               ,   CALL $090:    515             
 PUT $100: 62,246 ###################+,   CALL $100:  1,962 #           
 PUT $110:  5,547 ###                 ,   CALL $110:    460             
 PUT $120: 15,912 ########            ,   CALL $120:    112             
 PUT $130:  5,043 ##                  ,   CALL $130:    358             
 PUT $140:  5,600 ###                 ,   CALL $140:     44             
 PUT $150: 26,701 #############       ,   CALL $150:    858             
 PUT $160:  3,456 #                   ,   CALL $160:    249             
 PUT $170:  5,830 ###                 ,   CALL $170:    626             
 PUT $180:  7,837 ####                ,   CALL $180:    558             
 PUT $190:  3,235 #                   ,   CALL $190:  1,774 #           
 PUT $200: 31,528 ################    ,   CALL $200:  2,131 #           
 PUT $210:  8,166 ####                ,   CALL $210:  1,209             
 PUT $220:  7,924 ####                ,   CALL $220:    860             
 PUT $230: 17,596 #########           ,   CALL $230:  1,637 #           
 PUT $240: 14,060 #######             ,   CALL $240:  1,473             
 PUT $250: 15,450 #######             ,   CALL $250:  1,873 #           
 PUT $260:  6,641 ###                 ,   CALL $260:  1,678 #           
 PUT $270: 12,649 ######              ,   CALL $270:  1,546 #           
 PUT $280: 19,099 #########           ,   CALL $280:  1,636 #           
 PUT $290:  6,986 ###                 ,   CALL $290:  3,408 #           
 PUT $300: 26,168 #############       ,   CALL $300:  9,233 ####       
 PUT $310:  7,854 ####                ,   CALL $310:  4,338 ##         
 PUT $320: 11,289 #####               ,   CALL $320:  5,816 ###         
 PUT $330: 13,905 #######             ,   CALL $330: 11,381 #####       
 PUT $340: 25,686 #############       ,   CALL $340: 10,725 #####       
 PUT $350: 15,424 #######             ,   CALL $350: 23,385 ########### 
 PUT $360:  7,495 ###                 ,   CALL $360: 16,116 ########   
 PUT $370:  3,697 ##                  ,   CALL $370: 10,349 #####       
 PUT $380:  2,553 #                   ,   CALL $380: 11,253 #####       
 PUT $390:    830                     ,   CALL $390:  7,326 ###         
 PUT $400:  2,449 #                   ,   CALL $400: 22,742 ########### 
 PUT $410:    371                     ,   CALL $410:  5,090 ##         
 PUT $420:    580                     ,   CALL $420:  8,672 ####       
 PUT $430:    257                     ,   CALL $430:  3,162 #           
 PUT $440:      4                     ,   CALL $440:  4,985 ##         
 PUT $450:    146                     ,   CALL $450:  4,982 ##         
 PUT $460:      0                     ,   CALL $460:  2,223 #           
 PUT $470:      0                     ,   CALL $470:  1,946 #           
 PUT $480:     27                     ,   CALL $480:  2,414 #           
 PUT $490:      5                     ,   CALL $490:  1,281             
 PUT $500:  1,763 #                   ,   CALL $500: 12,374 ######     
 PUT $510:      0                     ,   CALL $510:    580             
 PUT $520:      0                     ,   CALL $520:  1,345             
 PUT $530:      0                     ,   CALL $530:    582             
 PUT $540:      0                     ,   CALL $540:    470             
 PUT $550:    191                     ,   CALL $550:  3,903 ##         
 PUT $560:      0                     ,   CALL $560:  1,136             
 PUT $570:      0                     ,   CALL $570:    323             
 PUT $580:     50                     ,   CALL $580:  1,936 #           
 PUT $590:      0                     ,   CALL $590:    831             
 PUT $600:    323                     ,   CALL $600: 24,540 ############
 PUT $610:      0                     ,   CALL $610:  3,602 ##         
 PUT $620:      0                     ,   CALL $620:  1,400             
 PUT $630:      0                     ,   CALL $630:    440             
 PUT $640:      0                     ,   CALL $640:    474             
 PUT $650:      5                     ,   CALL $650:  3,075 #           
 PUT $660:      0                     ,   CALL $660:    552             
 PUT $670:      0                     ,   CALL $670:    834             
 PUT $680:      1                     ,   CALL $680: 14,886 #######     
 PUT $690:      0                     ,   CALL $690:    640

(Each options contract represents 100 $TSLA shares - so multiply the numbers with 100 to get an idea about the notional stock-equivalent value of those positions.)

The biggest features of the distribution of options are:

• the huge number of 'bankwuptcy puts' in the $50-$250 range
• the usual short peak of more recent put contract purchases, centered around $340
• the usual long peak of more recent call contract purchases, centered around $350
• a pretty large number of 'short squeeze calls' in the $400-$700

The bankwuptcy and short-squeeze extremes will most likely expire worthless and will probably have limited delta hedging effects today (they are far away from the SP with only ~6.5 trading hours left for them to come into play), and the short and long consensus is pretty close to each other in the $340-$350 range.

Of course sometimes the max pain consensus will be violated if one of the big bets, either short or long, is an entity with a lot of trading power of a million shares or more, who can set the closing price with authority - and who is stronger than all the other market participants willing and able to set the closing price today. We never know this in advance, but with two hundred thousand near-the-money options 'wasting' a million shares on setting the closing price can still be wildly profitable - especially if the flow during closing is the same direction you want to perform anyway (accumulation or distribution of shares).

Just two examples:

• if T-Rowe thinks they are overexposed $TSLA and want to shed 1 million shares, they could have temporary PUT options and time the sales of those 1 million shares to improve their effectively selling price by a couple of dollars or more. Then next week they could start accumulating again.
• Or if ARK thinks they want to bet even bigger on TSLA this year and are fine with buying another million of shares, they might have a few CALLs above $350 and might be willing to expend 1 million shares of dry powder at the end of the day to make it happen. Worst-case they'll get enough liquidity to buy 1 million shares below $350.

I.e. it's not unusual to have short-long or long-short bets of different direction, effectively playing volatility.

Anyway, the consensus range might explain this week's trading and might foreshadow the closing price - all other things equal, which they not be.

A quick Options Friday update: the good news is that despite the large drop to $302.26 today, 85% of the bankwuptcy bet PUTs still expired worthless today, and this means that about 56% of all short puts have expired for this year - which should reduce derivatives related volatility significantly.