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

[Silentk]

New ridiculousness on the Yahoo news feed:

“
It's looking less and less likely that Tesla will find a buyer to save it from its financial struggles and offer it a source of new funding, Bernstein told clients on Monday.

European autos analyst Max Warburton wrote in a note that while Volkswagen's CEO may take a look, there really wouldn't be much support for a bid to acquire any of Tesla's assets.

"What assets are attractive? Tesla no longer has genuinely differentiated tech. The production plant is sub-par. The Gigafactory is probably not essential (and may be claimed by Panasonic)," Warburton wrote. "The brand still has value, albeit one that is declining fast. The Supercharger network also has some value. Perhaps these get picked up. But at what price?"

"We struggle to see it being sold as a going concern," he added.



Yahoo is now part of Oath

Edit: I see @sparcs already posted same

 

[shootformoon]

Your cash generation theory is valid. But I have several concerns/questions.

1. Yes, the model 3 program is profitable if you only look at the manufacturing part. But tsla has 4b+/y of sga+research needs to be paid for by major programs. S3X are the only programs pulling their weight, all the other: service, TE, solar are dragging the feet. So if we assign 50%-75% of the 4b fix cost to 3, the dollar gross margin is not enough for anything less than 8k m3.

2. In Q1,SX has a major slowdown and more than half of the 18650 cell capacity was idle. Why they did not ask Panasonic to modify the line temporarily to produce for TE?

3. On the service section, they have negative gross margin. This is not acceptable at this cash starved stage. The higher portion of SGA of tsla compared to other manufactures are because tsla owns their own service center/show room. It effectively a combo of manufactuerers+dealer. Now the dealer part of tsla is losing money, so they need much higher gross margin of the manufacturer part to compensate it. Suddenly 20% GM is not enough, 25% is more suitable considering tesla vertical integration model.

4. Adam Jonas(I know, I know) pointed 200M credit sales profit are included in q1 20% GM. If the 200M is only the portion generated in Q1 I think it is real GM. Could you please verify if it does not include credits generated from previous quarters?

I might have missed your reply among the many responses, but could you outline this "disappointing" Model 3 SR+ margin story in actual numbers, I simply don't think it's there at all:



Yeah, so, firstly:

• Going from ~4,700/week to ~7,000/week alone will reduce per unit depreciation from ~$1,970 to ~$1,320, a difference of -$650. (This assumes $120m/quarter fixed depreciation costs.)
  
• Once GF3 capacity of 3,000/week is online, depreciation will drop to somewhere around $1,080. (This is estimated with the extra GF3 capex taken into account: $140m/quarter fixed depreciation costs.) That's a difference of -$890.

This is NOT a game of pennies even in the GAAP space.

But secondly and more importantly, why are we even talking about non-cash costs of goods components such as depreciation? Arguably it matters to GAAP income and EPS, but Tesla's growth is defined by the Model 3 (and Model Y) cash generation ability and cash margin, which as Q3 and Q4 established and Q1 reaffirmed, i.e. it has been fantastic for the Model 3 for the past 3 quarters, non-stop.

The good cash story is admittedly buried deep in the Q1 results, it's masked by the dis-economies of scale and payables contraction caused by the sudden halt in Model S/X deliveries from Q4 to Q1 - from tailwind-from-heaven season to headwinds-from-hell season, magnified by the tax credit cliff, the leak of the Raven refresh plus it was exacerbated by the cell supply constraints on the Model 3 side which kept it from counter-balancing the S/X drop.

We can approximate the "real" Model 3 margin by starting from Model 3 GAAP CoGs:

• minus depreciation
• minus stock compensation expenses

I.e. it's the raw cash margin plus probabilistic future expenses included such as warranty reserves.

I.e. there's a significant gap between GAAP CoGs and 'real' CoGs, of around ~$4,000.

Put differently: when Elon's leaked email said $38k CoGs for the Standard Range model? Real margin was more like $34k. Still not good enough for a $35k entry model and it's prudent they are emphasizing the SR+, but very good for a $40k ASP entry model, it defines a minimum Model 3 margin of ~17%, and this was 6 months ago, without additional improvements in efficiencies included.

(Also, Model 3 didn't have any significant recalls that I'm aware of, chances are that its current warranty reserves are possibly overly cautious. That too might add another couple of hundred dollars in margin improvements over time as Tesla establishes the warranty expense baseline.)

Put differently: Model 3 production would be fully sustainable even if all sales were at exactly the minimum ASP of $40k and if the production rate got stuck at 5k/week forever - but they aren't stuck there: Zach said in the conference call that ASP's started rising again after the SR+ rush, and I think there's good reasons to believe that Fremont production is probably somewhere between 6k-7k/week, with GF1 having in excess of 7k/week production capacity - which will be needed to keep Shanghai supplied with battery packs.

Obsessing over GAAP CoGs and smoothly pivoting from 'cash burn' fearmongering when it suits them to GAAP CoGs expense overcharging is really what TSLAQ does every time they want to distract how much inherent cash generation ability the Model 3 has even at 5k/week production rates - let alone at 7k/week and 10k/week rates.

(Not advice though, I've been wrong before and will be wrong in the future as well.)

 

[neroden]

I might have missed your reply among the many responses, but could you outline this "disappointing" Model 3 SR+ margin story in actual numbers, I simply don't think it's there at all:



Yeah, so, firstly:

• Going from ~4,700/week to ~7,000/week alone will reduce per unit depreciation from ~$1,970 to ~$1,320, a difference of -$650. (This assumes $120m/quarter fixed depreciation costs.)
  
• Once GF3 capacity of 3,000/week is online, depreciation will drop to somewhere around $1,080. (This is estimated with the extra GF3 capex taken into account: $140m/quarter fixed depreciation costs.) That's a difference of -$890.

This is NOT a game of pennies even in the GAAP space.

But secondly and more importantly, why are we even talking about non-cash costs of goods components such as depreciation? Arguably it matters to GAAP income and EPS, but Tesla's growth is defined by the Model 3 (and Model Y) cash generation ability and cash margin, which as Q3 and Q4 established and Q1 reaffirmed, i.e. it has been fantastic for the Model 3 for the past 3 quarters, non-stop.

The good cash story is admittedly buried deep in the Q1 results, it's masked by the dis-economies of scale and payables contraction caused by the sudden halt in Model S/X deliveries from Q4 to Q1 - from tailwind-from-heaven season to headwinds-from-hell season, magnified by the tax credit cliff, the leak of the Raven refresh plus it was exacerbated by the cell supply constraints on the Model 3 side which kept it from counter-balancing the S/X drop.

We can approximate the "real" Model 3 margin by starting from Model 3 GAAP CoGs:

• minus depreciation
• minus stock compensation expenses

I.e. it's the raw cash margin plus probabilistic future expenses included such as warranty reserves.

I.e. there's a significant gap between GAAP CoGs and 'real' CoGs, of around ~$4,000.

Put differently: when Elon's leaked email said $38k CoGs for the Standard Range model? Real margin was more like $34k. Still not good enough for a $35k entry model and it's prudent they are emphasizing the SR+, but very good for a $40k ASP entry model, it defines a minimum Model 3 margin of ~17%, and this was 6 months ago, without additional improvements in efficiencies included.

(Also, Model 3 didn't have any significant recalls that I'm aware of, chances are that its current warranty reserves are possibly overly cautious. That too might add another couple of hundred dollars in margin improvements over time as Tesla establishes the warranty expense baseline.)

Put differently: Model 3 production would be fully sustainable even if all sales were at exactly the minimum ASP of $40k and if the production rate got stuck at 5k/week forever - but they aren't stuck there: Zach said in the conference call that ASP's started rising again after the SR+ rush, and I think there's good reasons to believe that Fremont production is probably somewhere between 6k-7k/week, with GF1 having in excess of 7k/week production capacity - which will be needed to keep Shanghai supplied with battery packs.

Obsessing over GAAP CoGs and smoothly pivoting from 'cash burn' fearmongering when it suits them to GAAP CoGs expense overcharging is really what TSLAQ does every time they want to distract how much inherent cash generation ability the Model 3 has even at 5k/week production rates - let alone at 7k/week and 10k/week rates.

(Not advice though, I've been wrong before and will be wrong in the future as well.)

I should note that stock compensation "expenses" have to be backed out for valuation of TSLA just to avoid double counting, because I figure them into my dilution estimates.

Given the automated line screwups I believe there is depreciation on scrapped equipment hiding in the Model 3 COGS. So while depreciation is real, long term, the current GAAP numbers are substantial ly overstating the long term steady depreciation / equipment replacement rates. This probably should have been handled with writeoffs but probably wasn't entirely.

 

[Todd Burch]

New ridiculousness on the Yahoo news feed:

“...It's looking less and less likely that Tesla will find a buyer to save it from its financial struggles...

OMG, there are no buyers for something that's not for sale!

These people have gone off the deep end.

I cannot possibly believe these financial people are really, truly that stupid.

Oh wait, yes I can.

 

[CALGARYARSENAL]

Elon’s lies. All about the endless lies. This ain’t FUD, it’s a lying narcissistic man who’s going to run it to zero. Simple.

 

[Nocturnal]

Bernstein says Tesla won't be bought: 'We struggle to see it being sold as a going concern'
"What assets are attractive? Tesla no longer has genuinely differentiated tech. The production plant is sub-par. The Gigafactory is probably not essential (and may be claimed by Panasonic)," Warburton wrote. "The brand still has value, albeit one that is declining fast. The Supercharger network also has some value. Perhaps these get picked up. But at what price?"

Bernstein says Tesla won't be bought: 'We struggle to see it being sold as a going concern'

lol

Exactly. Tesla manufacturing gets better all the time. They constantly find ways to improve margins. And the network effect on demand is real. Just as Apple had an army of evangelists, Tesla’s customers also evangelise.

This past weekend there was a Drive Electric event here in KC. Tesla club was out showing off cars and giving rides. Local utility support for their charging network, some leafs, and an IPace. I'm sure we sold several Teslas.

 

[elasalle]

New ridiculousness on the Yahoo news feed:

“
It's looking less and less likely that Tesla will find a buyer to save it from its financial struggles and offer it a source of new funding, Bernstein told clients on Monday.

European autos analyst Max Warburton wrote in a note that while Volkswagen's CEO may take a look, there really wouldn't be much support for a bid to acquire any of Tesla's assets.

"What assets are attractive? Tesla no longer has genuinely differentiated tech. The production plant is sub-par. The Gigafactory is probably not essential (and may be claimed by Panasonic)," Warburton wrote. "The brand still has value, albeit one that is declining fast. The Supercharger network also has some value. Perhaps these get picked up. But at what price?"

"We struggle to see it being sold as a going concern," he added.



Yahoo is now part of Oath

No longer $10. Now full front court press to bankruptcy.

 

[CorneliusXX]

Market does never IGNORE information. Every information that is publicly availabie is interpreted accordingly. This does of course not mean that stock prices cannot be manipulated in the short-term. However, in the long-run, stock prices cannot be manipulated.

Further, if a stock decreases despite of good news, ask yourself: There might be other reasons for the stock to decline like the general market environment.

Only a first year business student would think the market never ignores news.

As one of many millions of examples where the market does not price correctly you could look at Warren Buffet and value investing. If the market was so clever there would not be even that concept.

 

[mariaaa]

*sugar*, I need more dry poweder to buy more shares. Damn.

 

[tivoboy]

We’re so far below any semblance of support it’s pretty scary.

I’m lowering any new entry point to nearly 20% below these levels. Unless we somehow get confidently over 225$ with volume. Which frankly I do not see happening anytime soon

 

[Krugerrand]

No, but it's the perception of the health of the company does effect SP. It's the false perception (I hope) that needs to be corrected. How the company can best do it is above my pay grade.

Yes, perceived company health good or bad will affect SP of any company.

Currently with Tesla the perception of poor company health is ludicrous and an entirely made up fantasy by the individuals and entities of the corrupt, money hungry machine called Wallstreet.

That poor company health narrative (and other negative storylines-EM is a liar et al) are also being flogged by others on behalf of a number of industries threatened by Tesla’s oncoming juggernaut of disruption.

I’m telling you, there’s not a thing that Tesla can do that won’t be flipped or distorted into a negativity by these people and entities.

The angst and handwringing and OMG! Tesla has to advertise and do this or that is to not understand the situation, the characters involved, human nature and certainly not how to resolve.

I get it’s frustrating. I’ll blow them all up with my mind the very instant I’m kidnapped by Aliens and the mind probe experiment goes horribly wrong, I almost die but don’t, and am saved by a usually lethal dose of mind altering psychedelics. I promise.

Until such time, though, Tesla’s best approach is what they are doing; head down, plough ahead, cater to the smarter, non-corrupt segment of the population and ignore the vast majority of distractions.

We can help Tesla by being ambassadors in our circle of friends, family and acquaintances. We actually have more power to help Tesla than Tesla has to help themselves or us. We are many and growing every day.

Trust me, though you have no reason to, you still should. We (the good guys) win or we all (good and bad) die a horrible death. I plan on leaving this world kicking screaming and doing what’s right. How about you?

 

[anthonyj]

We’re so far below any semblance of support it’s pretty scary.

Did Apple or Netflix show any support when they were free-falling in December? I just remember they were diving every day until it just reversed. Sometimes the market is irrational

 

[Singuy]

Just Google shitting itself dragging everyone else down. All my tech stocks are down except AMD.

 

[neroden]

It's still too high by far

It amounts to charging for 16000 miles a year of gas tax on a Prius. (Look at the difference between gas and electric registration fees, and at the new gas tax rate.). So yes, it is too high. Not ludicrously too high, but it needs to drop until it is equivalent to 9000 miles of gas tax on a Prius.

 

[mariaaa]

I guess I will be saving some dry powder so IF the stock falls to 150$ I can buy another 40 shares.

 

[CorneliusXX]

No longer $10. Now full front court press to bankruptcy.

Later this week it will be minus 10. Everyone get their wallets out.

 

[Dwdnjck]

If all this FUD was being created on the Detroit Big 3, I think there would be an investigation from US Govt, on industrial sabotage.
Given that Tesla has created 40K jobs, I think someone should do the same for Tesla.
Isn't misleading the public on a US company, for the benefit of foreign corporations industrial sabotage?

German auto must shaking in its boots.

 

[VValleyEV]

The pearl clutching CU "review" was absurd. I commented on the website and was happy to see such a high percentage of knowledgeable AP users also countering the article's premise. But there's going to be more of these freakout columns in the coming months as AP becomes more and more capable. A thorough review is valuable for customers as well as Tesla. I don't mind if the reviewer is abstemious with praise as long as they provide clear context (and video) when they find an issue.
I use AP frequently on decently long drives in all sorts of traffic. Recent versions have stopped alarming me with ghost braking and truck lust. But it still has issues.
Example: On my latest drive over I-5 Grapevine (~30 mi of winding 3-4 lane freeway) NOA made some really stupid lane choices. While in lane 3 of 4 lanes, on an uphill section with semi-trucks going 30-40 MPH why would it choose lane 4 to pass the truck when lanes 1,2 were completely empty? It's quite legal... but dumb. [AP 2.5; V2019.16.2, set to no-confirm lane change, "normal" mode]

Wow, “pearl clutching review”, “abstemious praise”, and “truck lust”. Tasty language bits.

Thx. I may deserve scolding for wandering into a feature discussion, again, but I was after the “what is going on with CR and is it going to change in Tesla’s favor” angle. I think as you say it will get worse before getting better because upcoming AP features, but good grief why this round-table pearl-clutching blather, instead of technical reviews with circles and arrows and videos and statistics?

 

[MarcusMaximus]

And Tesla has proven that they cannot be profitable even with delivering the expected amount of Model 3's

Have they? How? They had a 1 quarter return to losses after selling.... 50k Model 3 and 12k S+X(Model 3 due to lack of battery supply and poor worldwide delivery logistics and S/X due to a botched refresh). I don’t think having a net loss due to much lower than expected deliveries proves they’re unprofitable with expected deliveries.

 

[neroden]

Well, I wish I had more to invest, but am now highly resistant to margin calls and comfy with the 2021 puts I sold. I honestly expect Q2 results to surprise the Street positively at this point, since it has been pure bear raid nonsense for weeks in the news.