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

[lklundin]

Still no destination set on the ship. Will be interesting to see where it goes.

Glovis Cosmos will head for Panama, ETA there is one week after the previous Tesla shipment on Glovis Captain,
GLOVIS COSMOS Current position (Vehicles Carrier, IMO 9707027) - VesselFinder

 

[vigleik]

At least outside of the trading hours, I would like you to feel free to continue providing insightful analysis of complex situations that can impact the TSLA SP.

And I prefer posts to be posted in the thread they belong, regardless of what time it is. So please, tell us about Brexit. In the Brexit thread. TIA.

 

[KarenRei]

Glovis Cosmos will head for Panama, ETA there is one week after the previous Tesla shipment on Glovis Captain,
GLOVIS COSMOS Current position (Vehicles Carrier, IMO 9707027) - VesselFinder

Beat me to it, was just on my way to mention this.

Draught is 0,5 meters lower than it was when it arrived.

 

[jbcarioca]

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.

It is worrisome to me when people I respect make casual generalizations like this. Truthfully, leasing is one specific area where “...it all depends”.

If leasing is used to provide for business and corporate users who can use the payments as business deductions as well as for professional people (e.g. doctors, dentists, sole practitioners of professional services), then leasing adds profitable volume, frequently with higher margins than non-lease. This applies also to an absolute majority of luxury volumes in such countries as the U.K. as well as in many US States and elsewhere.

If leasing is used to reduce payments for people whose credit is weak and who are ill-equipped to evaluate the difference between ‘cost’ and ‘payment’ then leasing is a very expensive and fraught sales tactic.

If leasing is used to pump sales volume to fleet sales that otherwise would not happen then leasing is delaying poor sales results. (See recent Nissan, FCA and GM sedan sales, as well as Ford prior to last quarter).

If leasing to fleet entities is used to facilitate tax management for lessees it normally is GM neutral, but can be positive depending of fleet makeup. Examples include even sales to car rental firms such as Sixt, Hertz, Avis and others that have high demand for premium vehicles.

These four points are crucial distinctions. From GM and profit terms leasing is neither good nor bad, just different than cash sales. FWIW, credit financing also has many of the same factors as does leasing.

In the specific Tesla case avoiding the contingent liability for residual value guarantees is quite desirable, despite the fact that they have not actually had material charges against such reserve thus far. Given typical industry practices those contingent liabilities will certainly grow despite high probability that actual material expenses are rather improbable. Still, from Tesla’s perspective avoiding any direct leasing when huge cash sale backlogs are in place is simpler.

Thus, Tesla-sponsored leasing is a sign of maturity and nothing more. It is not higher risk unless leasing is made to create sales to poorer or reluctant buyers.

 

[lklundin]

Beat me to it, was just on my way to mention this.

Draught is 0,5 meters lower than it was when it arrived.

Well, with a Shorty Air Farce we need something else, maybe the TSLA LRRP (Long Range Reconnaissance Patrol), with eyes on target, counting trucks:
Still trying to get to the cool table. on Twitter

PS. Glovis Cosmos is also being unloaded, so conclusions are non-trivial to draw from changes in draught.

 

[ReflexFunds]

Now, that creates some cognitive dissonance.

An early $TSLA ER is bullish and hints at good results, as was the argument of many when early Q3 results were announced.

But we were just told Q4 is less than Q3 and something unknown is to happen in Q1 to wipe out profits. That last part is worrying me in the sense that it can negatively affect the sentiment going into Q4 ER and after. Can something nice be said about Q1?

There isn't necessarily anything unknown in Q1:

• Normal S/X volume seasonality makes Q1 profit around $150m lower than Q4.
• We know there have been c.$2k price cuts which is another c.$150m impact vs Q4 if not offset by production cost/ supplier savings
• We know Europe & Asia Model 3 cars make c.$2k less per car due to lack of GHG credits which could be c.$60m impact vs Q4.
• We know SG&A and R&D are likely to continue to increase for new expansion projects which could be $30-50m impact vs Q4.
• This restructuring program could have a c.$50m one off restructuring cost impact.
• We know SR pack isn't ready so Tesla likely isn't ready to ramp production from c.5k to c.7k per week.

These impacts will be partially offset by further QoQ Model 3 production cost savings (maybe $2-3k for a base car), better Model 3 mix on Europe & Asia deliveries and some growth in Energy division gross profit.

If the close to 0 Q1 profit is going to rely on ZEV credit sales, then maybe there's a more significant issue with demand in Q1.
But assuming assuming 0 ZEV credits in Q1, guidance implies 60-67k Model 3s and 21-22k S/X. So no significant drop off in S/X demand vs 1Q18 despite US and Holland EV tax incentive reductions, and new competition from I-Pace etc. 60-65k 3s might imply c.30k 3s in US despite the EV rebate cut and Tesla exhausting the US reservation list for high price options in Q4.

If Q1 profit is going to be significantly impacted by large inventory in shipment to Europe, or due to launch of 3 lease sales in the US (which don't generate upfront profits when sold through the in house lease program), then underlying Q1 results and car volume may actually be significantly better than Q4.

As people have mentioned here before, net profit isn't particularly relevant to whether Tesla is sustainably self financing.
From 0 net profit add $500-520m depreciation, $75m non cash interest, $220m stock comp, c.$150m deferred revenue build, c.$110m warranty build. Subtract c.$50m solar purchases, c.$100-150m non cash lease revenue, $100m-200m maintenance capex.

So assuming flat working capital, $0 net profit still leaves around $900m quarterly cash flow available for expansion capex and debt reduction.

 

[DrKenneth]

I sold my Tesla shares on Thursday. That has to be my best timing ever. I bought them in October with an average cost of roughly 265 with the plan of selling at 350. Tesla has been very reliable with moving between 250-350 and I didn't see any fundamental reason or risk at the time that it would go lower. As tends to happen, it went up to 350 but I got greedy. "What if it breaks out this time?" So initially I didn't sell like planned.

However, I've been burned before by not sticking to the plan. That and the fact that my intuition was telling me that things are not going well enough for me to justify breaking my plan so I finally sold. Just in time.

The TMC forums are always super optimistic and time is no exception. The update was pretty bad. The layoffs themselves are not that bad, although just 6 months ago they did something similar and said at the time that "we are doing this now so that we don't have to do later". Well, they still did it later. This is while there are clearly significant recruitment needs for the service department.

What made the update so bad for me was the tone and guidance for q4/q1. q3 was the first quater where production really hit it's potential and cars started flying out. Like most (I think) I though decrease in the demand for the most expensive versions of Model 3 would be replaced with lower production costs. It seems like that won't entirely be the case. At least for good while. If Tesla cannot match the profitability of q3 in q4/q1 then I don't see what would be the catalyst for that to change in the near future. The demand for the expensive models is not going to improve.

I think some of you jumped the gun with buying. Tesla has been lower for a lot less reasons. If Tesla hits 260 I might start considering buying again. We will see.

 

[avoigt]

Worldwide demand for $55,000 cars = 3M
Worldwide demand for $35,000 cars = 15M

This is why they want to introduce SR asap.

Great interview and very insightful analysis. Like that.

Interestingly all analysts I did read from or listen to since the letter was released are positive about the move to layoff 7% and improve productivity. So I do see a fair evaluation of the situation from most. Thats great.

What investors miss though is that Tesla already today has with the M3 at about § $ 55k a car that is sold with a very healthy profit but no other car manufacturer has yet a profit like that or they even accept a loss per EV. Thats outstanding as such and although there is an initial order wave Tesla has worked through in the US and will in EU and China for the premium models a stable demand for this will be visible in the quarters to come and continue.

The 3 attracts a log of consumers after driving it the first time from other and lower budgets and that will continue. Tesla may got a sense about the demand for the premium model going forward in the US but they do not know about EU and China and I predict the high cost model will be very popular here. So we can expect a high continues sale of the high priced 3s beyond $50k for the years to come.

The important factor now is that although Tesla is alone in that price segment with profitability they now shift gears and cuts costs even further to be able to bring the MR as well as the SR to market for a profit and by doing that as a side effect also improve the profitability of the LR further. That last part I heard nobody talking about and that is completely overlooked. Is another profit lever that will help to exceed results.

Also we heard that the Supercharger costs go up globally in my understanding to get cost under control and enable funding for expansion of SC out of the charging rates. Thats very good an another measure to get cost down. Analysts BTW evaluate a spin off from the SC network with a market cap of $30bn today.

With the plan to double that SC net in 2019 we are end of the year at $60 bn market cap for that sub unit of Tesla alone which is how Tesla is evaluated today! That should give everybody a good understanding how tremendous undervalued the company is today at Wall Street. Its like as of today with the usual 12 months evaluation period the market is considering all cars, AP, batteries and solar Tesla does produce including all GF to be valued a 0 USD!

The letter yesterday triggered some investors to believe Tesla is in severe trouble but the fact is that they are moving on the next level leaving all other EV manufacturers even more behind. Remember Tesla could say we stay where we are produce the + 50k 3s for EU and China now too build maybe 500k EVs a year and have a nice profit. But want they do is tighten the belt and move ahead as an example what is possible.

The sentiment in the market is that Tesla is fighting for survival again and they are not out of the woods as thought. The reality is Tesla has a stable profitable business they could just continue with but they are more ambitious and want to bring EVs for people with smaller budgets for a profit too.

What we have seen yesterday with that dramatic SP drop is panic sell because people had a difficult time to really understand what Elon did express in that letter. Analysts did to my surprise a much better job than in the past and I applaud that.

I predict that both Q4 and Q1 and Q2 will surprise positively and with the low expectations we have today it could set the scene for a more steady upward trend of the stock hopefully breaking out of the ATH this year.

 

[mrdoubleb]

Now added to the official Dutch government database.
Model 3 has just been added to the official RDW database. https://t.co/eFpoKzfBSJ Model 3 VINs on Twitter

 

[KarenRei]

Accelerated hiring followed by deep cuts followed by another round of frenzied hiring/deep cuts is not the preferred method to run a company.

I look forward to learning about the multiple companies worth tens of billions of dollars that you've been CEO of.

So in your view, before Tesla got their lines to be efficient (and not need as much labour per vehicle), they should have... what then? Just not made cars until their lines were running as efficiently and low-labour as physically possible? Regardless of the fact that said lines were still strongly gross-margin positive? Simply because you'd have to hire some people and then later fire them when your lines become efficient and said people were no longer needed?

I sure hope you're not in charge of managing operations for a business.

If this is just about the "feeling bad for them" aspect - first off, I've been laid off before, I know how much it sucks. But there's a big difference between being laid off in a good job market (today) vs. in an poor job market. They'll find other jobs. And if they didn't? If they weren't chosen for performance reasons (mass layoffs are often an easy way to get rid of many poor-performers at once) - they may well get hired again by Tesla once it grows again to the point of needing more labour.

 

[ReflexFunds]

These four points are crucial distinctions. From GM and profit terms leasing is neither good nor bad, just different than cash sales. FWIW, credit financing also has many of the same factors as does leasing.

In the specific Tesla case avoiding the contingent liability for residual value guarantees is quite desirable, despite the fact that they have not actually had material charges against such reserve thus far. Given typical industry practices those contingent liabilities will certainly grow despite high probability that actual material expenses are rather improbable. Still, from Tesla’s perspective avoiding any direct leasing when huge cash sale backlogs are in place is simpler.

I think Neroden's point here is purely regarding short term profit and cash flow implications not long term business returns.

In the short term if Tesla suddenly sold 100% of Model 3 volume through in-house leases, they would have to fund the production costs themselves which comes directly out of free cash flow, which could be a c.$2bn+ quarterly impact. They also wouldn't register upfront profit on these sales, so auto business quarterly gross profit would reduce by c.$600m. This would partially be offset by larger gross profits in the leasing business, but these profits will instead be spread over 2-3 years of lease payments and residual profit in second hand cars sales post lease.

So in the long term (2-3 years) leasing is neither good nor bad, but in the short term it is a very significant hit to cash flow and profit and significantly increases external on balance sheet debt financing needs through warehouse lines and ABS.

 

[Fact Checking]

Have we discussed that the S&P inclusion would use GAAP earnings? Q2 2018 was -$4.19. We got $1.75 in Q3 so Q4 and Q1 need to average $1.23 each. That probably is still possible but it all depends on what Elon means by a tiny Q1 profit.

From Lift off thread - anyone want to confirm?

This is the track record so far:

• -$717m Q2'18
• +311m Q3'18

+$317m<==Mod edit: $406mm, as corrected below-thread & acknowledged by poster is required for Q4+Q2, and Q1 profitability, for S&P 500 inclusion.

What we know:

• Q4 is unclear "smaller than $311m" could mean $250m, $150m, but also $30m.
• I wouldn't read too much into "tiny Q1".

@ReflexFunds projects $177m income which is about $1 EPS - current street expectations.

That leaves +$140m for Q1, which should be more than doable with high margin EU and China sales

There is always the possibility for a significant negative development though.

It will be much clearer in two weeks.

 

[Fact Checking]

Draught is 0,5 meters lower than it was when it arrived.

Cue in the shortz launching Draught Gate: proof that the Glovis Cosmos is only carrying 500 Model 3's, not 2,000!!!

 

[hacer]

Repayment of debt does not affect the Operating Statement (profits & losses) just the Balance Sheet and Cash Flow Statement.

Not that Tesla would do this in the near term, but many businesses roll over loans rather than repay them and pay an origination fee for the new loan. Wouldn't that (origination fee payment) affect the Operating Statement?

 

[brian45011]

Antonio Gracias sold a bunch of shares. Not sure if it is one of those preplanned sells but damn good timing at $348

View attachment 369999

Per 10B5 plan filed 11/5/18. Exercised DITM NQSOs that expire in June 2019

 

[ReflexFunds]

Did you want to say "Unless" instead of "If"?

I did mean If.

Current rough guidance for Q1 is around $0m net profit. On my model this is consitent with 60-67k Models 3s and 21-22k S/X delivered.

If in-transit is 10-15k model 3s at the end of Q1, then Q1 would have a $100-150m profit impact just from ship timing, but excluding this timing impact Q1 profit would be $100-150m. This means model 3 customer purchases may actually be 70-80k in Q1, but 10-15k didn't arrive in time to be booked as revenue.

Similarly for in-house leasing. If 10-15k Model 3s are going to be sold on in-house leases in Q1, then the different accounting treatment of leases vs cash sales might have had another $100-150m profit impact. If this is the case, Q1 net profit of 0 is more consistent with 70-80k Model 3 deliveries.

So all together, it is still possible Q1 guidance is consistent with 80-95k model 3 customer orders with $2-3k reduction in production cost. Which i would consider strong progress with the underlying business.

 

[brian45011]

Not that Tesla would do this in the near term, but many businesses roll over loans rather than repay them and pay an origination fee for the new loan. Wouldn't that (origination fee payment) affect the Operating Statement?

Elon has stated something to the effect that he would repay the debt with funds from operations not refinance it. Tesla has had multiple WH facilities and increases in the ABL commitments with no mention of origination expense in the MD&A about the Income Statement. IIRC, the convertibles have some arcane bifurcation accounting to impute a higher rate than the coupon that results in non-cash interest expense.

 

[heltok]

How much cost savings are we expecting from HW3? How much higher ASP after FSD release?

 

[lklundin]

Glovis Cosmos will head for Panama, ETA there is one week after the previous Tesla shipment on Glovis Captain,
GLOVIS COSMOS Current position (Vehicles Carrier, IMO 9707027) - VesselFinder

The Glovis Cosmos has left Pier 80, ETA Panama is Jan 27, 09:00 (UTC).

 

[Fact Checking]

How much cost savings are we expecting from HW3? How much higher ASP after FSD release?

"Depends":

• Elon said the HW3 module is roughly break-even with the Nvidia GPU based module, which is not bad at all from a 10x performance upgrade - but won't save costs. (And this doesn't include the upfront R&D and capex expenses.)
• HW3 might be introduced separately from FSD release - although I'd expect them to coincide roughly.
• There's going to be beta testing, several weeks at minimum. Maybe months. Many bulls expect it to take years.
• But once FSD is released as a $7,000 option, and if reception is positive and it works well for a majority of owners, there's two takes:
  • The bearish take: "To teh Moon!"
  • The bullish take: (sorry, there's no words for the bullish version.)

So no savings expected per se, and some service costs from installing it existing vehicles that bought the FSD option.