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

[MarcusMaximus]

My earnings call question:
Will Model 3s (and future Model Ys) built in Gigafactory Shanghai completely avoid tariff? Will they be eligible for Chinese EV subsidies? (If yes, the demand will quadruple or even could be ten times bigger.)
Say

View attachment 371933

Not that I personally know the answer, but I think this is one we could answer ourselves with a little investigation.

 

[Buckminster]

I feel as though you missed the point of my post. Or else you purposely don’t care about our feelings, which can not go unpunished.

 

[winfield100]

I don’t have the capacity to understand

 

[Hogfighter]

Analysis/paralysis here going into ER/CC. I have trimmed my leverage substantially but can't decide whether to sell off some stock/go to cash or buy lotto protective puts and hold the shares.

Never a dull moment in TSLA investing world. Aside: I like dull sometimes

Al, I’m loaded up. The SP has fallen quite a bit, and IMO it’s largely due to the uncertainty around the S. They’re going to let us know during the CC the reasoning behind discontinuing the 75, which is surely not lack of demand.

We’ll know in a week, but I feel good about it. NOT an advise

 

[MarcusMaximus]

I want even less from the call. Just demonstrate how Tesla will not need additional capital. Project cash flow needs and sources throughout 2019. If that case is made VERY convincingly, it is a game changer.

I’m getting less and less convinced that the whole “we don’t need and won’t take additional capital” thing is a good idea. They need to grow fast. They need at least one more factory in the US, and one in Europe. Right now the production growth estimates have gone WAY down from where they were a year ago, and I blame a lot of that on trying to self-fund. I feel like they’re putting short-term stock boosts ahead of long term results unnecessarily.

 

[oneday]

I’m getting less and less convinced that the whole “we don’t need and won’t take additional capital” thing is a good idea. They need to grow fast. They need at least one more factory in the US, and one in Europe. Right now the production growth estimates have gone WAY down from where they were a year ago, and I blame a lot of that on trying to self-fund. I feel like they’re putting short-term stock boosts ahead of long term results unnecessarily.

I honestly think Elon would go for one last equity raise if the share price aligned more with his idea of fair value (i.e.- $420). At these prices (<$300) I think it’s completely off the table. I also think the optics of issuing a bond before the current one is payed off would be seen as a negative. It’s also very likely that my thinking is wrong on this.

Perhaps, the, cash is not the limiting factor of Tesla growth and expansion is indeed correct.

 

[Curt Renz]

Wall Street Journal - yesterday:

 

[gora321]

#Tesla registered 116 new #Model3 VINs. ~30% estimated to be dual motor. ~30% estimated to be International. Highest VIN is 265476.
Model 3 VINs on Twitter

 

[ReflexFunds]

New claims on reddit from a Tesla supplier that S&X production is being cut in half. Their posting history seems relatively credible.

"Tesla's mass layoffs and reduced car production have Wall Street 'waking up from the dream' by hauserd in r/technews

catalina1992
13 points 3 hours ago

Yup they are cutting production of the model s and x by half to concentrate on the model 3.

Source: I sell polymer solutions for* them for the x and the s and I found out this week my sales are gonna be cut in half. Between this and the raising prices because of the tariffs 2019 is gonna he rough."


This obviously aligns with the removal of the 75D options which were c.55% of sales in 2018. The comment suggests the production cut could be long term rather than temporary, but I'm sure Tesla could ramp back up relatively quickly later this year if they launch new battery options or a refresh.

Tesla's decision to remove the 75D makes very little sense to me if they don't have a near term replacement plan. I don't think it likely that Tesla's decision could increase profit or aid its mission.


I still expect new battery options, refresh and production ramp back up at some stage this year, but below I've tried estimating the gross profit impact if S/X volume is just 50k this year:

The 55k 75D sales generated around $1.1bn gross profit in 2018 on my model (vs total S/X gross profit of $2.6bn before GHG credits). Lets say tax credit reduction in US, changes to incentives in Holland and China economic slowdown would have reduced 75D and 100D demand c.5k each in 2019. So Tesla might have been looking at 50k 75D sales and 40k 100D sales if they had not discontinued the 75D. If Tesla now target 50k production this year, this suggests they expect c.10k prior 75D buyers to trade up to 100D. This would add c.$355m gross profit on my numbers. If 15k 75D buyers trade down to a Model 3 AWD P, then this will add c.$360m to gross profit. The $2.5k 100D price cut would then be a $125m impact.

So overall we have $2.6bn 2018 gross profit - $265m demand - $1bn 75D sales + $355m 100D trade up sales - $125m 100D price cuts + $360m 3P trade down sales. This takes us to 2019 gross profit of $1.9bn, down $675m yoy. This all assumes no production cost savings - for every $1k saving per car profit will increase $50m.
If Tesla hadn't removed 75D then gross profit would instead have fallen: -$265m demand - $100m 100D price cuts - $50m 75D price cuts = - $415m. For Tesla's discontinuation of the 75D to have a neutral profit impact then another 11k 75D buyers would have to change to Model 3 P. So this would be 50k 75D buyers become 26k 3 P buyers and 10k 100D buyers while 14k customers are lost.

 

[EinSV]

I’m getting less and less convinced that the whole “we don’t need and won’t take additional capital” thing is a good idea. They need to grow fast. They need at least one more factory in the US, and one in Europe. Right now the production growth estimates have gone WAY down from where they were a year ago, and I blame a lot of that on trying to self-fund. I feel like they’re putting short-term stock boosts ahead of long term results unnecessarily.

Tesla generated $1.4B in operating cash flow in Q3 2018. We will get the Q4 report next week but operating cash flow in the range of $1.5B or higher is again in the cards.

That is about a $6B/year rate of operating cash flow. It might be a bit lower in Q1 and then should bounce back in Q2 and beyond.

In the Q3 10Q Tesla projected capex for 2019 and 2020 at $2.5-$3B per year. So it is likely that in Q3/Q4 they were already generating cash at DOUBLE the rate they need to for their capex needs.

They can use the rest to pay down debt, bolster cash reserves and, if they choose, accelerate their already extremely ambitious plans. Without being dependent on Wall Street and subject to its whims and games.

 

[jbih]

Just to remember want we went through already.

Shorts will invent a new lie at ER. Be prepared.

ValueAnalyst on Twitter

I think ValueAnalyst just screenshotted what Fact Checking wrote here on TMC.

Edit: Here is the link to Fact Checkings post:
Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable

 

[sundaymorning]

Al, I’m loaded up. The SP has fallen quite a bit, and IMO it’s largely due to the uncertainty around the S. They’re going to let us know during the CC the reasoning behind discontinuing the 75, which is surely not lack of demand.

We’ll know in a week, but I feel good about it. NOT an advise

Im in the camp that thinks Tesla will have a good answer for discontinuing the 75D. My interpretation comes from the recent remark about “efficiency improvements” released after the SP fell, it was a much needed letter to clear investors of further worries. Which is why we are back to being close to $300. This indicates to me that Tesla is defending the SP, and will provide good context during the earnings call. A “small profit” is exactly what we need moving forward, once Model Y is revealed and China GF is up and running Tesla will open itself to a larger market share than presently. A $69k Ipace simply cannot compete with the Midel X, let alone a $45k Model Y. March can’t come soon enough. I’m excited to see what lies ahead.

 

[bobinfla]

Giving a third party the ability to log into my account sounds like maybe not a good thing to do. That's just me.

Me too. As soon as I hit that step I decided I didn't need to play in this game.

 

[SebastianR]

Maybe they'll pay them triple-time. I'll work any day for triple time...

I discussed this with a Chinese friend of mine today who had no idea that Tesla was building a factory in China. He did not believe they would work through Chinese New Year and said it would take at least 5x the pay for him to even consider.

I don’t think we understand how big of a deal this is.

 

[gora321]

Which ones do you think won't be saved by their governments ? Only the smaller ones - which will be taken over by the big ones.

All large legacy auto manufacturers are too big to fail. They will all be rescued by the governments. In some form or another all ICE producers will make it to the EVs only stage.

The big wild card is FSD. If only a fraction of today's market exists 30 years from now - auto companies won't be the big employers that they are today. There won't be enough revenue for VW to employ 640,000 people.

That was true in USA during last crisis. I think that this time it is going to be different. Detroit already started to axe capacity. I'm awaiting the same in Europe. China is decreasing too.

Even if governments help with money I think that will not matter much. You have to reorganize pretty much everything in ICE world with low chance for success (risky). You have a choice now and in few years the choice will increase.
Would be similar as supporting oil and coal. No chance for a success.

 

[azaz]

New claims on reddit from a Tesla supplier that S&X production is being cut in half. Their posting history seems relatively credible.

"Tesla's mass layoffs and reduced car production have Wall Street 'waking up from the dream' by hauserd in r/technews

catalina1992
13 points 3 hours ago

Yup they are cutting production of the model s and x by half to concentrate on the model 3.

Source: I sell polymer solutions for* them for the x and the s and I found out this week my sales are gonna be cut in half. Between this and the raising prices because of the tariffs 2019 is gonna he rough."


This obviously aligns with the removal of the 75D options which were c.55% of sales in 2018. The comment suggests the production cut could be long term rather than temporary, but I'm sure Tesla could ramp back up relatively quickly later this year if they launch new battery options or a refresh.

Tesla's decision to remove the 75D makes very little sense to me if they don't have a near term replacement plan. I don't think it likely that Tesla's decision could increase profit or aid its mission.


I still expect new battery options, refresh and production ramp back up at some stage this year, but below I've tried estimating the gross profit impact if S/X volume is just 50k this year:

The 55k 75D sales generated around $1.1bn gross profit in 2018 on my model (vs total S/X gross profit of $2.6bn before GHG credits). Lets say tax credit reduction in US, changes to incentives in Holland and China economic slowdown would have reduced 75D and 100D demand c.5k each in 2019. So Tesla might have been looking at 50k 75D sales and 40k 100D sales if they had not discontinued the 75D. If Tesla now target 50k production this year, this suggests they expect c.10k prior 75D buyers to trade up to 100D. This would add c.$355m gross profit on my numbers. If 15k 75D buyers trade down to a Model 3 AWD P, then this will add c.$360m to gross profit. The $2.5k 100D price cut would then be a $125m impact.

So overall we have $2.6bn 2018 gross profit - $265m demand - $1bn 75D sales + $355m 100D trade up sales - $125m 100D price cuts + $360m 3P trade down sales. This takes us to 2019 gross profit of $1.9bn, down $675m yoy. This all assumes no production cost savings - for every $1k saving per car profit will increase $50m.
If Tesla hadn't removed 75D then gross profit would instead have fallen: -$265m demand - $100m 100D price cuts - $50m 75D price cuts = - $415m. For Tesla's discontinuation of the 75D to have a neutral profit impact then another 11k 75D buyers would have to change to Model 3 P. So this would be 50k 75D buyers become 26k 3 P buyers and 10k 100D buyers while 14k customers are lost.

very concerning, would wanna understand the rationale for this on the ER.

 

[DrKenneth]

Me, I think they are thinking bigger. What is needed is the Tesla Semi, which will pull a trailer outfitted as a mobile service center that includes a lift (or two?) and a full stock of tools and parts. They won't need to build as many service centers or schedule inconvenient visits fifty miles away. But there are many problems to be solved, money has to be spent, and they'll have to scale the effort. But the result will be fast, flexible, and convenient. Not to mention awesome. Another business disrupted.

Terrible idea. Worst of both worlds. You obviously couldn't go to the customer with such a large vehicle so customers would still have to come to you. It would be difficult to offer rentals. The cost of such a truck with the all the R&D that would go with it would probably be higher than a basic SC. Whatever work you would start would have to be finished the same day. Can't do anything in poor weather or "real" winter. So on so forth...

 

[EVNow]

Would be similar as supporting oil and coal. No chance for a success.

Not a good analogy. There are no coal companies making PV or wind turbines (that I know of) - but most legacy OEMs are making EVs. Infact many of them were making EVs a hundred years ago ! There is a lot of overlap in making EVs and ICE.

BTW, I expect all oil majors to evolve and survive. Just like IBM evolved from making scales & time recorders to computers to software solutions.

 

[EVNow]

Yup they are cutting production of the model s and x by half to concentrate on the model 3.

Source: I sell polymer solutions for* them for the x and the s and I found out this week my sales are gonna be cut in half. Between this and the raising prices because of the tariffs 2019 is gonna he rough."

Interesting. Unless they are seeing large amount of demand for S&X evaporating, they wouldn't do this.

Its possible they are getting this polymer solution from another supplier - would be just part of the strategy to not rely on a single supplier for anything.

 

[Joe F]

I don’t have the capacity to understand

To be more direct, you’re not phased by it at all.