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

[dqd88]

Let's be real, if the CEO of a multibillion dollar issues a company wide email saying he is going to personally review every (10th) expense report, that's a huge cause for concern about the company's current financial state and how it's being run. I think my Model 3 is the best car I've own and I really want Tesla to succeed as a company, but they are certainly testing our faith.

The email is par for the course. He needs to remind staff to be mindful of expenses. When companies are growing fast many expenses creep in and it is necessary to periodically take a magnifying glass to identify and cut the fat.

 

[ZachShahan]

I went last year and may, if my schedule allows, go this year.

If I were to have any opportunity there to communicate anything to Elon and the folks at Tesla, it will be this: “You are doing a fantastic job. You have my complete support as a shareholder and customer. Please don’t let the fools and scoundrels get you down."

Said something very similar to Elon on the Tesla Q3 (or Q2?) conference call last year and again more recently when I met him in Fremont. I honestly think he could really use that more routinely in person.

He's human. It's genuinely hard for a human to be attacked and smeared so much, especially if that human is very concerned about honesty and justice.

(Though, I also encouraged him last year to make fun of the short sellers a bit — probably shouldn't have done that.)

 

[neroden]

Headlines focus on the 10 months, but that didn't move the market. CFO and CEO signing off on purchase orders is the real problem. That's only done in extreme near-BK crisis situations, or by extreme micro-managers who can't hire competent people and delegate. Neither is a good look for a growth stock with sky-high valuation metrics.

*Cough* we already knew that Musk is an extreme micro-manager who has had problems with delegation and with retaining competent people. So, not news.

 

[AlexS]

Really? That thesis seems perfectly sound, and is still my thesis, but they haven't surpassed 5k/week Model 3 consistently yet.

well never trust Bloomberg, but according their tracker the production is over 5k since beginning of April

 

[AcesDealt]

I'm really surprised there are not more posts about demand right now on this forum (or if I've missed current ones, please provide some links). I'd love to hear more educated guesses about demand and shipment forecasts for this quarter and the next few quarters (particularly some of the educated guesses that stem from country registrations where we do have some knowledge).

To me, softness in near-term demand is the biggest change in terms of the Tesla investment picture in the past year -- and its absolutely critical. It seems obvious to me that the cost cutting and erratic actions on pricing in the past three months were directly related to softer demand than Tesla anticipated. Musk basically conceded as much when he said that "people want to buy the Model 3, but the price is just too high" (I'm paraphrasing). That's an admission that demand is not where they thought it would be for the Model 3. Also, I think Tesla has been surprised about the softer than expected demand for S and for X. Here are some issues.

1) Going back to 2013 or so and the company's estimate for combined S and X global demand was 40k units annually. Initially, demand proved to be much higher than Musk or anyone else had assumed. Expectations soon ramped up to 100k units annually. At this point, it's always hard to re-calibrate expectations, but if steady state demand for S and X is actually 60k-70k annually, would that be so surprising? Relative to initial expectations, the products would still be home runs. And there are some reasons why a new steady state of demand might be falling into place.

2) With the model 3 production delayed, perhaps Tesla was forced into a situation of goosing demand as best it could for S and X for a couple of years by way of unsustainable referral programs. They also had the benefit of people buying the S since the 3 was not available. So, perhaps the 100k annual target looked much more solid than it was.

3) This dynamic may have now have reversed. The overly sweet referral program has ended. Moreover, some people are surely buying the 3 in lieu of the S. Comparisons with the 3 also really hurt S and X in the seasonally slow Q1 as people realized the battery and drive train in the 3 were simply better. It's logical to think that some people waited on S and X purchases in Q1 until Tesla updated the guts of those cars. So, to be clear, we may see some rebound with the new, refreshed S and X cars. I think this is what Elon and Tesla were expecting about the time of the Q1 conference call. I worry that the latest email from Elon imploring employees to reduce cost stems from the fact that they have not seen the S and X rebound they were hoping for thus far in Q2, which brings me to the very last demand point.

4) I think some of the chaos (and some of the FUD) around Tesla in the past year has eaten into demand. Because Tesla's Service organization was so strained in Q4, a friend of mine who purchased an X had a really crappy delivery experience. He still likes the car, but I imagine he's not the evangelist that he might have been if his delivery experience was much better. Perhaps he's not alone. Another admittedly anecdotal example: An older family relation of mine was interested in buying an electric vehicle last September. I spoke to him about Tesla, and he seemed like he was onboard. However, he's not the early adopter type. He's cautious and conservative. At the end of the day, he bought a BMW plugin hybrid instead. I'm sure he settled for a far inferior car. I think it was just the headlines and the controversy that he just could not stomach. He may not be alone.

To be clear, I'm big believer in the superiority of Tesla's products and in the company's competitive position, especially over the long term. However, the company may be facing a big temporary challenge as its near term demand may be very different than what the company expected for its cost structure. I'm not worried about the demand picture in the very long run. But I think how the demand picture shakes out near term is of critical importance. Thoughts or comments are appreciated.

I agree demand is soft and get disappointed when certain folks here act like that's not even a question. Tesla would not have rushed to pull every demand lever they had, laid off employees, and dropped prices and acted in such a panicy manner about sales strategy were Tesla's troubles just a function of production constraints. I mean they literally claim pull-forward from Q4 as an explanation which means demand, but no one can model how much of a factor that was including them, so the rebound isn't clear either.

I think the stock between 200 and 300 can be entirely explained by a lack of visibility into how Tesla rationally reacts to a lower than expected demand level. Elon has been continuing to bluff/predict an extremely fast ramp in demand, while also bluff/predicting that robotaxi tech would be sufficient next year. Neither of these scenarios have a lot of evidence for them. So what is the realistic plan from management where they actually reference predictions that people believe?

 

[neroden]

In Q1 it was unclear if Tesla simply had production constraints or was demand limited. The latter would be validated if Tesla fails to increase deliveries in a quarter with a tax credit cliff.

No it wouldn't. If they failed to increase deliveries, it would be due to production constraints.

If they cut *prices*, that might indicate a demand issue (as happened to 'old' S & X after the news of Raven was leaked)

 

[Wooloomooloo]

*Cough* we already knew that Musk is an extreme micro-manager who has had problems with delegation and with retaining competent people. So, not news.

It's not news, but a judgement on if that matters might change over time, depending on the size and complexity of the company at that time. Tesla isn't getting smaller, and Musk's free time isn't getting larger.

 

[DaveT]

While that is certainly *a* scenario and I might call it the most *likely* one, calling it the "best case scenario" is clearly incorrect. The internal timelines are very clearly to have all the equipment installed, all the workers hired, the supply chain lined up, and the first cars coming off the lines in September. They've said as much. That's what they're planning. After that, the debugging starts. We all, quite reasonably, expect all kinds of problems which will prevent a fast ramp-up. But the best-case scenario is that everything goes smoothly and by December they're producing 3000 cars/week.

Where are you getting cars off the line in September and 3000 cars/week by December?

 

[neroden]

My question on that is, if Tesla is truly demand limited currently, then why are they unable to produce enough parts for repairs? If the lines are slowed/off, then wouldn't they pump out parts to decrease customer downtime and associated costs?

From what I can tell, Tesla has substantially reduced the parts backlog -- the reports of waiting on parts are substantially down -- but given that the last two reports of production bottlenecks were battery cells, and before that, final assembly, managing to stock up some spare parts doesn't really indicate that they have solved all the production problems.

 

[neroden]

Where are you getting cars off the line in September and 3000 cars/week by December?

Tesla and Tesla. Do you actually follow the company any more?

 

[neroden]

I think it depends on which vehicle you're talking about. Model 3 looks demand limited, S/X not so much, they had inventory accumulation. The parts for S/X are probably harder to come by as well. What's unknown so far is how are the new Raven S/X models selling? Even if they have lots of orders I don't think we will see lots of deliveries until June.

Given that they only seem to have gotten the paperwork/homologation problems resolved and started deliveries last week, yeah, we won't see many deliveries until June. We have no insight into the size of the order book other than the people impatiently awaiting their cars.

Mostly it just seems like parts for repairs is low on the totem pole for Tesla's survival. The new car sales bring all the cash flow.

From browsing the forums, it does look like parts wait times have dropped substantially, so some effort was put into fixing that.

 

[Webeevdrivers]

well never trust Bloomberg, but according their tracker the production is over 5k since beginning of April

It’s been over 6 K for about a week. A little averaging gets you to around 70,000 for the quarter. Is 20,000 S and X doable for this quarter? That would put them right around 90,000.
Pipe dream? Who knows. Sales is another thing of course.

I’m thinking Canada could suck up as many as 12000 cars for the quarter just hearing how busy Vancouver is. Just a guess of course.

 

[neroden]

My buddy has a P85 that he was thinking of trading for a P90D. A few months ago he go a trade in quote of 33k i believe but didn't go through with trade in. A few months later he saw anothe P90D but this time his trade in value was at 21k which is a steep drop considering only two months difference. He was dissapointed and will be keeping his drivers edition P85 until the wheels fall off. Tesla is turning off lots of cureent customers by terrible trade in values hence the low demand for S and X IMO

The used car business has been a bad deal for Tesla, and as an investor I am glad they are lowballing offers. Make private party sales if you want a good offer for your Tesla. If you get a sales tax break on trade-ins in your state, Tesla will do a "courtesy trade-in" for the private sale you arranged.

Unless there's something wrong with your buddy's car, it's worth at least $35K. But Tesla isn't interested in buying it for what it's worth; they only want to buy it if they can make a significant profit on it.

 

[Carl Raymond]

Yes, that was nothing like what he said

I feel much better when the stock is reacting negatively, and the trolls tell us the reason is ‘blah’, and ‘blah’ is so easily shown to be false.

It adds to my confidence that there is a perception gap, one that ultimately vanishes as Tesla grows to dominate.

 

[SGordB]

View attachment 409962

Ark buys some more Tesla

I've been so curious to see if they're still buying, but all I've had are their seemingly weekly updates (https://ark-invest.com/wp-content/trades/ARK_Trades.pdf), which showed no buys since late April. Where/how did you get this? I'd like that inside track, too ;-)

 

[bsilva]

Didn't they review expenses pretty seriously in the past? I vaguely recall reading something in the last year or two.

This isn't exactly news except the poorly worded email with hyperbole. What else would you want them to do? Continue wasting money and blow through the capital raise?

I would want a CEO who knows how to hire, delegate to and retain strong people who can put in place proper operational and financial controls. Reviewing expense reports personally is not something the CEO of a well run company does. The fact that he thinks that's what he needs to do personally has freaked out the market and, I conjecture, potential buyers.

Can you really imagine Steve Jobs (Tim Cook), Bill Gates (Satya Nadella), Jeff Bezos, Robert Iger, Warren Buffett etc having such a poor organization that they have to personally review expense reports? Musk's CEO time is much better spent on building the right organization and communicating effectively, internally and externally; something that is sustainable and scalable.

It's his job to get the right people, processes, and organization in place to stop wasting money and use the capital raise effectively. Not to review expense reports.

 

[neroden]

Tesla's lack of a good organizational culture, disregard for the value of middle management and disregard of communicatons/people skills, has been its weak point since the Roadster days. You're only noticing this NOW?

The reason they can get away with it is that the products are so good that buyers mostly tolerate the awful communications, and working on Teslas is so cool that employees tolerate the internal disorganization and somewhat-chaotic management. I don't see this changing any time soon.

 

[KSilver2000]

It’s been over 6 K for about a week. A little averaging gets you to around 70,000 for the quarter. Is 20,000 S and X doable for this quarter? That would put them right around 90,000.
Pipe dream? Who knows. Sales is another thing of course.

That’s the problem.
He/They projected 90,000 deliveries—not produced—for the quarter.

Edit:
They have yet to show they are consistently delivering 6k/week on average. They haven’t even shown to deliver 5k/week on average over a quarter. Add the fact that there were some delays in getting the updated S/X delivered. Besides bullish calculations and optimism, nothing supports they can get to that 90k number.

 

[azaz]

Really? That thesis seems perfectly sound, and is still my thesis, but they haven't surpassed 5k/week Model 3 consistently yet.

Neroden what do we think of Q1 then? I think there was a short term demand issue there and they had to preserve cash mid quarter so they scaled back production a bit.

 

[azaz]

I do not think you can objectively call Q1 2019 "one of its worst quarters ever". Take a look at earlier quarters.

relative to our expectations it is up there for sure