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

[Buckminster]

There’s a dangerous tendency on this forum for any questioning of demand to be treated as a thought crime. We know that Tesla are targeting steady state production of 10k a week. And we know there’s a long standing internal assumption that steady state ASP will be $42k. Which means there’s some steady state cap on demand for premium models that is well below 10k per week.

Q4 had an artificially elevated demand curve in North America due to tax credit pull forward, Q1 the opposite effect. European demand for premium models in Q1 (and possible Q2 also) had a pent-up demand effect that that will fade over the coming months. This can be mitigated somewhat by opening up to untapped markets but there will also be a pent up demand effect in those markets too that will fade in time.

It’s perfectly reasonable to speculate that 5k-ish per week is as much demand for LR Model 3s as we’re likely to see.

M3 = perfect worldwide taxi = worldwide domination, even without FSD

 

[neroden]

We can’t have it both ways with 5 & 6. The Leasing demand lever is cash consumptive.

And if production really was throttled due to working capital cash concerns, then we have a problem Houston. Not only have management repeatedly said they don’t need to raise capital, they’ve also said again and again that the cash conversion cycle for model 3 is cash generative (i.e. quarter on quarter growth produces extra cashflow due to payments to suppliers lagging behind time to build and deliver vehicle).

More likely either global demand is peaking for premium Model 3, hence the release of SR/SR+. Or else there are ongoing production challenges that we don’t yet know about. If stafic production really is because cash is too tight to produce more, then I’m out.

I'm betting very strongly on ongoing production challenges we don't fully understand. Switching to Euro spec, then China spec, then to SR+ is actually a lot of production line changes, *and* we were told there was a shortage of Euro-spec parts... these to me hint at production problems. Leaks from the factories, which are getting fewer and fewer, kept indicating production rampup problems. ("machines running until they break", "not consistently reaching 7000", yada yada)

I think release of SR/SR+ was to get ahead of angry reservation holders and bad publicity, and in that I think it largely succeeded.

 

[neroden]

We’ll change our cities, change the layout, change the signage, turn parking meters into chargers etc...

I mean, sure, cities. Cities have money. But do you know how long it takes to retrofit brankrupt rural areas? It basically doesn't happen. There are dirt roads which haven't changed much since the days of horse.

Maybe self-driving cars will just never be self-driving in the poor rural areas.

I could see that. "We're going into the backcountry. We need to find someone who knows how to drive manually, do you still know anyone who got that license?"

 

[Buckminster]

Poll: will Tesla be GAAP profitable over 4 qtrs with Q2 ER?
New poll on profitability.

 

[RobStark]

FCA may need a fair number of credits for European sales.

 

[MarcusMaximus]

Yeah, I can see the bears having a field-day claiming Tesla lives on ZEV-like payment aka subsidies from other car makers.
Lutz and ilk will claim Tesla wouldnt survive without the subsidies paid by main stream manufacturers.

I, for one, am fine with that. Who cares where the money comes from? This is business, not a children’s sport league. We don’t need to play fair, we just need to win.

 

[neroden]

Thanks. I tweeted it to Elon

S Padival on Twitter

I did some extra research. I was wondering how rights issues which are less than 1-for-1 deal with the problem of "We issued the right to buy 1 share for every 50 shares you already owned, but you only owned 20 shares". Apparently a common way is to offer a "step up privilege", which allows a shareholder to round UP... so the 20-share holder would get to buy one whole share at the discount price.

www.iflr.com/pdfs/web-seminars/rights-offerings/full-presentation.pdf
I also found that nontransferrable rights (can't sever them from the stock and sell them) have been more common than transferrable rights for a while. It's probably also possible to make transferrable rights where the step-up right isn't transferrable (i.e. you only get step-up-rights if you buy yourself... not clear on this but it looks likely it's possible). Transferrable rights help compensate stockholders who can't afford to put in more money. Transferrable rights often must be registered with the SEC and often must be listed on the stock exchange. Subscription rights which are non-transferrable need not be.

If you want to avoid Wall Street, you'd avoid making insured (underwritten) rights offerings; underwritten offerings are for "we really definitely need this much money", as opposed to "we could definitely use some more money but we'd be OK without it".

Since rights are proportional, Mr. Musk would have to put in a whole bunch of extra money if he exercised his rights! He'd have to check his personal margin balances.

 

[RobStark]

Unfortunately, this article is behind a paywall. Would like to learn more.

Isn't this just the carbon tax, ZEV credits equivalent in Europe. I don't think it's really a part of their fleet. I think that if Tesla sells them those credits, then they can count some of Tesla's cars as theirs, and so they reduce their carbon emissions. Or something like that.

Go through Google. Answer a survey question then you can read.

Tesla/FCA are partners in Europe as far as EU is concerned regarding emissions.

Tesla can't sell to VW or Peugeot or anyone else.

Companies had to apply to be partners by March 25,2019. Tesla could have partnered with others but it didn't work out that way.

Toyota and Mazda are also partners pooling their fleets for regulatory purposes.

Cuz we're fratelli

 

[neroden]

Tesla formed the pool on Feb. 25. Looks like there could be some Q1 revenue recognition.

Wow, there are so many wild cards that I am absolutely not even trying to project Q1 financial numbers. This is another wild card!

 

[Do It]

There’s a dangerous tendency on this forum for any questioning of demand to be treated as a thought crime. We know that Tesla are targeting steady state production of 10k a week. And we know there’s a long standing internal assumption that steady state ASP will be $42k. Which means there’s some steady state cap on demand for premium models that is well below 10k per week.

Q4 had an artificially elevated demand curve in North America due to tax credit pull forward, Q1 the opposite effect. European demand for premium models in Q1 (and possible Q2 also) had a pent-up demand effect that that will fade over the coming months. This can be mitigated somewhat by opening up to untapped markets but there will also be a pent up demand effect in those markets too that will fade in time.

It’s perfectly reasonable to speculate that 5k-ish per week is as much demand for LR Model 3s as we’re likely to see.

Short term (1-2 Qs) that maybe true (even that I am not sure because we had the tax situation and Model 3 not fully marketed globally yet,) but longer term steady state should be way more. Model 3 is simply the best car for the money in that price range and people will slowly realize that now that large number of them are out - it just might take some time. There are still a lot of BMWs, etc. sold so until that number is significantly reduced, the market for Model 3 will continue to grow. Here is a chart for iPhone vs. Blackberry sales. Saying Model 3 steady state demand is 5k/w is like saying iphone steady state demand was < 10M/Q in 2008 - 2009.

 

[Antares Nebula]

Tesla formed the pool on Feb. 25. Looks like there could be some Q1 revenue recognition.

Question is how much will it really come out to annually or per quarter. Is that "hundreds of million" a one time up front or spread out over many years?

 

[neroden]

There’s a dangerous tendency on this forum for any questioning of demand to be treated as a thought crime. We know that Tesla are targeting steady state production of 10k a week. And we know there’s a long standing internal assumption that steady state ASP will be $42k. Which means there’s some steady state cap on demand for premium models that is well below 10k per week.

Q4 had an artificially elevated demand curve in North America due to tax credit pull forward, Q1 the opposite effect. European demand for premium models in Q1 (and possible Q2 also) had a pent-up demand effect that that will fade over the coming months. This can be mitigated somewhat by opening up to untapped markets but there will also be a pent up demand effect in those markets too that will fade in time.

It’s perfectly reasonable to speculate that 5k-ish per week is as much demand for LR Model 3s as we’re likely to see.

Sure, but I think that's too lowball a speculation. Based on Model S and X uptake of higher-end models, Model 3 reservation-holder percentages going for higher-end models, and various other things, I think the long-term US/Euro/China/Australia/New Zealand demand for LR Model 3s is going to be more like 7k-ish per week. (I'll wildly guess US sustainable LR demand 3k/week, Euro 2k/week, China 2k/week.)

 

[RobStark]

Question is how much will it really come out to annually or per quarter. Is that "hundreds of million" a one time up front or spread out over many years?

FT didn't get the financial specifics.

I doubt it is a one time up front fee though.

 

[neroden]

Hot take since it's late and I haven't yet had time to fully process this news, but...

We were just discussing alternate cap raise options today. This is... a non-dilutive, non-recourse cap raise.

Essentially, instead of paying fines to the EU, FCA paid somewhat smaller fines... to Tesla, who will probably use the money better. (If you think stopping global warming is priority #1, as I think.)

I'm cool with that!

 

[Antares Nebula]

Yeah, I can see the bears having a field-day claiming Tesla lives on ZEV-like payment aka subsidies from other car makers.
Lutz and ilk will claim Tesla wouldnt survive without the subsidies paid by main stream manufacturers.

Well, we'll just tell those damn bears that Tesla or its investors are not going to look a gift horse in the mouth. And if those polluting companies want to fund the growth and transition to an EV friendly future because they can't or won't do it themselves, we Tesla folks think that is only fair. How about them apples?

 

[neroden]

Continuing on the completely speculative but interesting topic of rights issues, this is what happens to short sellers at IB at least:
Information Regarding IB's Handling of Short Positions in Subscription Rights | IB Knowledge Base
-- if the rights are non-transferrable and the lender exercises them... well, the short-seller is on the hook and has to deliver the shares to the share lender. So if a holder of 50 shares gets a right to buy 1 share from Tesla at $250, then a lender of 50 shares gets the right to buy 1 share from the *short-seller* at $250; the short seller ends up short 1 more share and is credited $250. (If the rights issue price is less than the current trading price, as is normally the case, the short seller takes an instant paper loss, and is also more leveraged. Fun.)
-- if the rights are transferrable, the short seller is marked as being short the rights, and owes them to the brokerage (who owes them to the long holder). If the short seller is still short the rights on the execution date, they're in the same position as if the rights were non-transferrable.

I checked and this is more or less standard. Margin lending documents can vary by brokerage, substantially, however.

 

[ClimateOptimst]

Tesla formed the pool on Feb. 25. Looks like there could be some Q1 revenue recognition.

It would be ironic if, in what was seemingly setting up to be a disappointing quarter after an underwhelming P&D report a few days ago, this is the quarter that TSLA busts out. SEC issue is laid to rest, FSD demo in a few weeks knocks people's socks off, Tesla demonstrates novel ways of ingesting other car company revenues (i.e. directly via penalty partnerships), and 7,000 M3s start pouring out of Fremont week after week. Time to unleash the Kraken

 

[Carl Raymond]

I, for one, am fine with that. Who cares where the money comes from? This is business, not a children’s sport league. We don’t need to play fair, we just need to win.

But it *is* fair to correct for the unpriced externality of carbon pollution. Failure to do so is unfair.

 

[Krugerrand]

Here’s a link bypassing the FT paywall

Fiat Chrysler pools fleet with Tesla to avoid EU emissions fines - Phoneweek

Again...wait! WHAT!? Um...so many thoughts swirling and yet unable to put words to thoughts in a language other than gibberish. So, um...Show me the money!

 

[Krugerrand]

There’s a dangerous tendency on this forum for any questioning of demand to be treated as a thought crime. We know that Tesla are targeting steady state production of 10k a week. And we know there’s a long standing internal assumption that steady state ASP will be $42k. Which means there’s some steady state cap on demand for premium models that is well below 10k per week.

Q4 had an artificially elevated demand curve in North America due to tax credit pull forward, Q1 the opposite effect. European demand for premium models in Q1 (and possible Q2 also) had a pent-up demand effect that that will fade over the coming months. This can be mitigated somewhat by opening up to untapped markets but there will also be a pent up demand effect in those markets too that will fade in time.

It’s perfectly reasonable to speculate that 5k-ish per week is as much demand for LR Model 3s as we’re likely to see.

T’is a thought crime.