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

[Singuy]

Just saw this:

Tesla Delaying Deliveries of Standard Range Model 3

The horror of "bait and switch"! You clicked a few buttons and they sent you a txt saying it's delayed! My GOD the amount of time you have wasted! Almost like Tesla is a sleazy timeshare sales man locking you in a room for 6 hours so you can redeem a free steak dinner.....

 

[anthonyj]

Nope. We are living in upside down town. If Tesla sells 100,000 cars and shows a profit the stock will drop 12 bucks.

Just sayin.

Deliveries won’t boost the SP even if they report 100k. Bears will say they lost money. Now if they post a profit then the stock is going back to the upper $300’s, quickly. Smart people will sell and short at the top as FUD brings it back to $250.

 

[SPadival]

Nice try Cheryl@SEC - Now, how are you going to introduce "new" evidence without an evidentiary hearing

Just in, from Morgan Stanley:

Tesla Not Legally Prevented from Raising Equity Capital

In response to many investors asking if Tesla had been sent a Wells notice by the SEC, we called IR whose response was that Tesla is not under a Wells notice and is not legally prevented from issuing equity.

Separately, shortly after market close, Reuters reported that a federal judge in the State of California “dismisses securities fraud case over Tesla Model 3 production claims.” Tesla has not yet commented on or confirmed the report.

Thanks. This provides a nice segue - why is Elon not raising fresh capital?

My theory is that his "throwing egg on the face of Wall st" strategy is still active - he wants to avoid paying fees to Wall St banks, especially Morgan Stanley and Goldman Sachs until it is absolutely necessary. Note how Adam Jonas became bearish and almost obsessive about a cap raise as soon as he realised a cap raise was not forthcoming.

Any other theories?

 

[MABO]

Technically, they aren't fabricating the chips themselves, but it should still be no more than low end double digits dollars per chip vs buying for triple digits from NVidia. IIRC they're fabricated at Samsung, but instead of having fabrication margin (NVidia doesn't own it's own foundry, either) on top of NVidia margin, there's just the fab margin (which is must closer to cost than what NVidia charges it's customers, obviously). The rest of the supply chain for the finished boards will be much the same (Tesla surely has the PCBs made somewhere in China, the components populated and soldered there too, etc), but swapping NVidia for Samsung is a no-brainer.

Tesla also could in theory take the design elsewhere (i.e. TSMC or GF) and get it fabricated there, though it would require probably a few million dollars worth of design rework for the different process and new masks and so on. Still an upside if they ever need it as it means that they can't be permanently cut off for any reason (AP1/MobilEye), or "blackmailed" (due to no other choice but to pay them) into higher prices (which I wouldn't put past NVidia to try, they have quite an abusive relationship with their GPU board partners ...), etc.

TL;DR:

1. This is likely a wash (or close) from a COGS/GM perspective
2. It adds more to the R&D line than it could possibly save with any small cost advantages purchasing directly from a foundry.
3. The above won't matter because HW3 will enable incredibly valuable functionality.

You are correct that both Nvidia and Tesla are using wafer foundries. But Nvidia has MUCH higher volumes. They are the #3 or #4 (if memory serves) consumer of wafers at TSMC. Even with Nvidia margin stacking, Tesla won't save much in COGS by doing their own chip. They will pay significantly more in wafer cost and in wafer sort (test) cost. IMO, it's quite likely a wash (or close enough) from a COGS / GM perspective. Also, they have to support a higher R&D burden, with IC designers, Apps engineers, Test engineers (who generally show up 'below the line') if they are not yield/process guys). Add on the costs of tool licenses from Synopsis and/or Cadence and several million dollars in mask costs, and you have something that, in the short term, will lower overall operating margin (by a tiny amount).

Having said all of that, the benefit going forward is huge. With this move they are just hammering the legacy guys and likely forcing Waymo to get special work from the Google TPU folks (that's just a guess) to keep pace. The legacy ICE manufacturers simply can't do this. It will allow faster inference, but the execution of much higher capacity models.

I hope to have one rolling around in a Model X in a few weeks. I'll let you know how I like it.

 

[Carl Raymond]

Just saw this:

Tesla Delaying Deliveries of Standard Range Model 3

No better, no worse than paying to reserve an aisle seat, or “would you like fries with that”. The upsell is standard business practice.

So long as they do actually have hamburgers without fries if such is on the menu.

 

[EinSV]

My theory is that his "throwing egg on the face of Wall st" strategy is still active - he wants to avoid paying fees to Wall St banks, especially Morgan Stanley and Goldman Sachs until it is absolutely necessary. Note how Adam Jonas became bearish and almost obsessive about a cap raise as soon as he realised a cap raise was not forthcoming.

Any other theories?

1. They don't need the $. In the second half of 2018, they generated operating cash flow at a rate of $5.2B per year and anticipate needing only $2.5B in 2019 for capex. Despite all the FUD, Tesla will likely continue to generate significant cash flow in 2019.
2. Switching from a "start-up" model of constantly needing infusions of cash to an Amazon model of generating ever increasing amounts of cash that can be used to fund growth is healthier in the long run.

 

[Singuy]

View attachment 390330

Nice try Cheryl@SEC - Now, how are you going to introduce "new" evidence without an evidentiary hearing




Thanks. This provides a nice segue - why is Elon not raising fresh capital?

My theory is that his "throwing egg on the face of Wall st" strategy is still active - he wants to avoid paying fees to Wall St banks, especially Morgan Stanley and Goldman Sachs until it is absolutely necessary. Note how Adam Jonas became bearish and almost obsessive about a cap raise as soon as he realised a cap raise was not forthcoming.

Any other theories?

How about the fact that it's already chaotic as is. The company is still learning the ropes of manufacturing so many cars. All hell break loose if he raises capital and build 4 gig factories at the same time, pumping out 2-3 million cars out a year.

Cars are just more complex than software or electronics. Charging stations, service centers, managing millions and millions of parts, delivery hell, global logistics. Just not the same as hyper scaling an app or an electronic device like a phone.

 

[MXWing]

So if the SEC wants to investigate fraud - here’s one claim for them to look into.

 

[ls7corvete]

1. They don't need the $. In the second half of 2018, they generated operating cash flow at a rate of $5.2B per year and anticipate needing only $2.5B in 2019 for capex. Despite all the FUD, Tesla will likely continue to generate significant cash flow in 2019.
2. Switching from a "start-up" model of constantly needing infusions of cash to an Amazon model of generating ever increasing amounts of cash that can be used to fund growth is healthier in the long run.

TSLA is likely in a place where additional cash infusions would not accelerate their current plans. China GF is already under construction 24/7. Only so many hours in a day.

 

[DFibRL8R]

So if the SEC wants to investigate fraud - here’s one claim for them to look into.

Fine print at the bottom says "Based on cumulative sales data Dec 2010 to Oct 2018".

 

[Remus]

Just saw this:

Tesla Delaying Deliveries of Standard Range Model 3

It doesn't often get better than this. Often we only get this kind of good news from bulls. Now some of the bears volunteered to verify our view that Tesla has too much demand.

 

[EinSV]

TSLA is likely in a place where additional cash infusions would not accelerate their current plans. China GF is already under construction 24/7. Only so many hours in a day.

Yep. And if they overspend on capex it is harder to generate cash and profits. The discipline of only spending cash they generate themselves seems promising so far. If they can make 2-4X more Model Ys than Model 3s per dollar of capex, as Elon has predicted, that would be very impressive.

 

[Todd Burch]

Fine print at the bottom says "Based on cumulative sales data Dec 2010 to Oct 2018".

I was going to say...why would they suddenly stop at October of 2018? Hmmm....

 

[Sudre]

Fine print at the bottom says "Based on cumulative sales data Dec 2010 to Oct 2018".

Then in my opinion it is still fraud. It should say, "What WAS......". But the marketing world has let that go in every corner on commercial world.

 

[Webeevdrivers]

Deliveries won’t boost the SP even if they report 100k. Bears will say they lost money. Now if they post a profit then the stock is going back to the upper $300’s, quickly. Smart people will sell and short at the top as FUD brings it back to $250.

I’ve got a loonie, a toonie and a nickel in my pocket. I’m willing to bet all of it that you are wrong. Yes I’ll put it in an envelope and mail it to you. Of course if you lose you have to do the same....in whatever the currency of your country is.

 

[MABO]

Probably a lot easier to vin count when they are delivering to US and Canada. Now they’re delivering to six different countries/regions makes sense that vin counting won’t be as accurate.

I agree completely. I thought I could circumvent that problem by using FCs rule of .85 * VIN registration by simply applying it for North America registrations, then add estimates from the ship tracking spreadsheet to come up with a decent guess. But that ends up being way too bullish. Here's what I came up with.

73,753 * 0.85 + 38K * .75 = 91190 M3 total production.

Fact:
There were 73,753 VINs registered in NA according to the M3 VIN site.

Assumptions:
0.85 FC ratio based on recent history. I like this, it's simple and why would Tesla change the behavior now?
38K total on the 16 ships to Europe and Asia. It looks to me like they loaded about 1000 cars/day when the ships were in Pier 80. That's a gross assumption based on scant data, but I've seen other estimates on this site that were close. So I went with it.
.75 : A total (stupid) guess that 3 out of every 4 cars are M3s (vs. S/X).

You end up with a number that requires an average of 7K M3s/week. So the estimate is likely way high. That's what you get with 1 fact and 3 assumptions

But I'm starting to believe that >= 80KU is a good guess.

FWIW.

 

[MABO]

How about the fact that it's already chaotic as is. The company is still learning the ropes of manufacturing so many cars. All hell break loose if he raises capital and build 4 gig factories at the same time, pumping out 2-3 million cars out a year.

Cars are just more complex than software or electronics. Charging stations, service centers, managing millions and millions of parts, delivery hell, global logistics. Just not the same as hyper scaling an app or an electronic device like a phone.

THIS!

They have all the growth they can handle now. I see this short thesis all the time. It goes something like this:

1. Tesla is a high growth company.
2. High growth companies need to raise capital to keep their parabolic growth going.
3. Failure to do so, results in much lower growth, so not you must value it based on fundamentals.

The same clowns yelled years before that they would never stop raising capital and 'just make money'.

What all this nonsense misses is what you point out. It would be very dangerous to take on even more expansion at this point. I believe they are pushing as hard as they can and still be stable.

I hope this is all correct, cuz otherwise, this is gonna be expensive

 

[EinSV]

THIS!

They have all the growth they can handle now. I see this short thesis all the time. It goes something like this:

1. Tesla is a high growth company.
2. High growth companies need to raise capital to keep their parabolic growth going.
3. Failure to do so, results in much lower growth, so not you must value it based on fundamentals.

To maintain high growth -- in Tesla's case 50%+ per year -- they could raise more capital. Or they could find ways of using less money to generate the same amount of growth. Tesla is doing the latter.

They are NOT slowing down growth. In fact, in the Ark interview Elon discussed a target of 1.5M vehicles per year in 2021 and 3M per year in 2023.

We don't hear much about the "machine that builds the machine," except from Elon (he mentioned the concept again in the Model Y reveal). Tesla is still laser focused on figuring out how to make a better Gigafactory product that is much more productive for the same cost. It may not look like an Alien Dreadnaught (at least not yet), but the goal is the same.

 

[TNEVol]

As I expected there will be no evidentiary hearing. There is now way I would have requested one. What will now be interesting is whether there will be an oral argument with lawyers for each party arguing over the law and affidavits and exhibits submitted. Or it could now be just wait and see for a ruling. For those unfamiliar there is no deadline. Again I see this as very narrowly dealing with whether EM violated the agreement. The most optimistic result would be a findng that he did not and some criticism of the SEC for its position. There is almost no chance of0 sanctions against the SEC or its lawyers even though I agree they have been less than professional. No one has pointed out to me where the EM lawyers have asked for damages or sanctions. I continue use to think it is a win for the good guys if there is a finding of no contempt or a minor technical misunderstanding understanding about the Consent Decree. Just my old guy two cents

 

[smorgasbord]

What I see is people complaining about SR white. I don't see many complaints about people not getting their LR AWD or Performance in the US. If you have links, I'd appreciate them, as a large number of complaints would indeed start to drill holes in my theory that demand for non-SRs in the US has dropped off more than would be expected simply by the tax credit pull-forward.

Enjoy.

So, a thread that wasn't started until early March with less than a dozen people waiting and within a couple of weeks they started getting their cars is evidence of a suitable large number of complaints that points to high demand for LR Model 3?

Really? We've seen a drop-off of over 19K cars per month!

Look, I've been driving Teslas, owning Tesla stock, and participating on TMC longer than most here today. I'm not a short - I still have shares I purchased in 2011. I never worried about Model S steady state demand previously. But, I am now worried about Model 3 LR (including Perf) demand in the US.

If we look at Q4's deliveries (all US), and then look at Jan/Feb, there's a big falloff. And Feb was less than Jan! If the Jan/Feb sales are not indicative of the steady state demand for Model 3 LR variants because of pull forward demand, then Q4 is also not indicative on the other side. Somewhere between 25K cars/month and 6K cars/month (Dec and Feb) is probably the number. What steady state number would you pick? Pick a number and then it's easy to calculate the pull-forward and payback.

And to be clear, I'm NOT worried about Model 3 SR demand anywhere. But, if almost all the demand is for SR variants, then Tesla is in for a bunch of short term pain as that's not a profitable enough car for them to making right now when they need cash to fund things like Model Y factories.