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

[Dylan]

We should all appreciate this opportunity to buy more shares. I know I do

 

[dww12]

I disagree. Knowing what I know now after driving Model 3 since january 2018 I would definitely want to not trade it for a gas car if I were to move into an appartment that does not allow charging over night.

I would miss the convenience of overnight charging like my iphone, but then could just pay the $30/month flat fee for charging at my work parking garage. And if I did not have that option, I would hit up a supercharger once a week while shopping. Either scenario is a heck lot better than driving a laggy shitty gas car (i.e. BMW M3) without autopilot through commute traffic and then pay extra $$$ for gas, oil change and smog checks, worry about having left my lights on and needing a jump start, scratch ice in the winter, worry about idling in the garage killing me, worry about not having sentry mode record anybody who scratches the car, worry about not being in the safest car should I get into an accident, worry about giving more money to the oil mafia that invests it straight into preventing humanity from escaping climate change for their short term profits etc.

Yeah, well if you are trying to convince a climate skeptic or a single mom with one car to go full EV it’s hard to push it if you can’t charge where you park. Not many businesses have EV chargers here, and level 2 does not cut it for “I need to leave to go charge”. If there is a local supercharger that changes the equation for a lot of people, especially if it’s V3.

 

[ReflexFunds]

How is no one discussing Tesla's 2TWh battery cell manufacturing plan?

This is so much more significant than anything else in the report or the call. A cell supply plan of this scale is enough to solve global warming.

2TWH is really, really insane. Tesla have to have made some massive breakthroughs in cell design and manufacturing in their R&D lab.

I highly doubt Tesla is aiming to sell 30-40 million cars alone. Most likely they aim for huge volumes of stationary storage and to open up their battery and powertrain platform to all takers.

I've been thinking a bit more about exactly what Tesla is going to "show" and announce in Feb/March?

I think Tesla likely needs another 20-25GWh capacity at GF1 in the near term to get Model Y into production next year. Tesla now has some space at GF1 after sending its old LR module/pack machines to China. I think the February/March "show and tell" will include first production of Tesla in-house cells at GF1 with plans to ramp to 20-25GWh by the end of 2020.

I expect Tesla's cell breakthroughs are going to include more than just Maxwell electrode tech. They may have new chemistries in the battery roadmap. They are also likely to have very different new manufacturing methods (for more than just electrodes) using machines designed and built in-house, which require much less staff, space and capex per KWh.

I think Tesla must have dramatically brought down the capex and space requirements through the whole battery production chain.

One key question Tesla will have to answer if they are really presenting "a manufacturing plan that has a clear roadmap to a TWH per year" is how do they get suppliers on board with such huge investments? It was hard enough to get people to commit to 35GWh, let alone 1-2TWh. I think the answer is likely taking everything in-house - almost through the entire supply chain.

​

Panasonic spent $1.4bn on equipment at GF1 to date to install 35GWh of cathode & cell capacity - so c.$40 capex per KWh of capacity. At this price 1TWh would cost $40bn capex for the cathode and cell machinery alone. I think Tesla will bring this down massively with its next generation machines/designs - however bringing the cell capex down makes other capex more significant.

On top of cell capex you need to pay for module and pack equipment, and factory construction. Currently suppliers will also have to pay to build new lithium/Nickel (& possibly cobalt) mines & processing plants, anode factories and other cell component factories.

Currently Nickel capacity would cost around $20-30 per KWh of annual capacity and Lithium Carbonate/Hydroxide around $15 per KWh of annual capacity. These seem high relative to the cell capex - this is partly because these metals plants have a life of 20-30 years - so upfront capex is very high, but depreciation is lower as its spread over more years. In any case, 1TWh of cells would require around $40bn of Nickel & Lithium upfront capex and currently 5-6 years lead time for production ramp. It will be very hard to get suppliers to commit to this, and they will have to demand a significant risk premium due to the financing costs of building high risk new capacity - so with production at this scale Tesla is highly incentivised to take Lithium and Nickel mines and production plants in-house. If they do this, they can also focus on R&D to bring down the capex and opex cost of battery metal production in the future.​

So I think for a truly credible March battery day Tesla should announce in-house cell and cathode production has started for Model Y (and possibly also in-house anode production). It should demonstrate the significantly improved labour, capex and space efficiency of the first generation of the new machines, as well as a roadmap for future technology introduction. It should also announce acquisitions of lithium and Nickel junior mining/production projects to supply its future cell manufacturing roadmap.

Another thing they could "show" is a battery machine factory. A huge mass scale production line for building battery cell lines.

 

[Mokuzai]

The best of the competition is in the low 200 mile range, the best of Tesla is over 300. 1/3 better miles.

200 to 300 is a 50% increase. 300 to 200 is a 33% decrease.

 

[StealthP3D]

I'm starting to wonder if, even if Tesla exceeds selling 1m/year, if Musk's insistence on growth over profits will keep the stock price stagnant.

No, growth is actually rewarded more than profits. Amazon was valued extremely high when they were spending all their gross profits on growth. If you wait until the GAAP profits are actually showing up on the quarterly report, you will miss the most dramatic stock price appreciation. I've seen this time and time again. The market is very forward-looking. The current knockdown in price is due to bad actors in the market using their wealth to purposefully "walk the price down". Entire books have been written on the subject. The value of the company hasn't changed from yesterday and this will be reflected in time. Maybe less time than you think.

Those who have a vested interest in slowing the growth of Tesla want you to focus on lack of current profits but the market is inherently forward-looking and, in the end, this always wins over price and sentiment manipulation.

Talking heads on TV may be full of it, but people hitting the buy and sell button for a living aren't dumb.

In time, you will learn, there's a difference between making a profit trading and becoming wealthy. IMO, traders might know their craft but it's one of the dumbest crafts out there.

 

[Doggydogworld]

I know Seeking Alpha, but any hints of truth to this article?

https://seekingalpha.com/article/4277442-tesla-going-miss-gone

They make it sound like positive cash flow was only due to a "one time" inventory flush. Thoughts?

The article is sloppy - e.g. he doesn't separate leasing out when calculating ASP. But his two main themes are on target:

1. Margin compression. 25% was once the floor with Musk talking about a 30% future. Now we need even more cost cuts to maintain 18-19% as ASP pressure continues.

2. Unit Opex. He says opex is stuck at 11k/unit. I recall an old SA article claiming Tesla was doomed because Model 3 gross profit of ~10k/unit would never cover 20k/unit opex. That article was obviously incorrect, as I explained in the comment section. But opex does have a floor, and you can make a good case it's somewhere around 9-11k/unit.

As I said in April, there's a reason Musk wants to change the narrative from S3XY profits to Robotaxis. The car business is hard.

 

[KSilver2000]

BMW in major crisis. Huge management shakeup. Flat revenue and deliveries.

Daimler Benz lost over a billion dollars in Q2 and faces a crisis. Former CEO ratted out the other Germans on dieselgate on the way out the door.

All of these auto companies are facing these problems with sales that are flat-ish or declining. Enormous revenue with tiny or negative profit combined with panic, shakeup, and stagnation.

Tesla is growing deliveries at what, 80% YoY? Revenue is skyrocketing.

Let’s think objectively.

What is this major crisis at BMW? Are they in process of filing ch7?
Tesla has also basically lost JB.

Daimler lost one billion on revenues of 42 billion. Tesla lost half billion on 6 billion. Which is better?

When dealing with percentages, going up from the bottom will be much bigger.

See how a half cup can be seen either way?

 

[Tslynk67]

But still falling, people are really scared

OK, one bunch will be swing traders, another shorties, if there are so-called longs selling right now then my only conclusion is that they're unable to, or can't be bothered, to read the investor note, from which anyone with a reasonable IQ would see that the company is in great shape, regardless of the profit situation.

 

[SOULPEDL]

I think Elon said that when he was trying to please Wallstreet which caused him to slow the growth plans, but then after talking to some of the large investors they told him that they prefer growth over profit, so now he has switched back to growing faster while trying to maintain a positive FCF.

But when do you stop "growth mode"? When every car on the planet is a BEV? He's claiming 2020 Q3/Q4 will be big. I suspect he was (and still is) banking on FSD sales. He said as much yesterday stating all that opportunity in FSD (code for not as fast as expected IMO). I don't expect FSD by 2020 either - the driver will still be needed. Now I'm really understanding what it means to be "Long."

Did someone manage to gather that data on "Market expectations" vs Tesla guidance? It was a great question. Is this the trick FUD plays every quarter now? Setting high expectations ever quarter?

So I forcast huge losses every quarter (and let's keep that tone), offset by ZEV credits maybe as the bonus check. +FCF and +Sales will ride us through eventually. Whatever the "Market" expects, subtract $0.50/share and we'll be fine with our SP predictions.

 

[traxila]

The best of the competition is in the low 200 mile range, the best of Tesla is over 300. 1/3 better miles.

Think that should read as "1/2 better miles" or 50% more. Which is even better!

 

[mtndrew1]

Let’s think objectively.

What is this major crisis at BMW? Are they in process of filing ch7?
Tesla has also basically lost JB.

Daimler lost one billion on revenues of 42 billion. Tesla lost half billion on 6 billion. Which is better?

When dealing with percentages, going up from the bottom will be much bigger.

See how a half cup can be seen either way?

The point of my post is that nearly every automaker on earth is facing some extremely serious headwinds right now and most of them have started piling up very recently.

Of course Daimler’s losses are better than Tesla’s, doesn’t take a genius to see that. Daimler is also not expanding their manufacturing footprint by 100% over the next year and their auto business shows little opportunity for anything beyond single-digit growth, at best.

It doesn’t take a lot of googling to see what BMW is up against. Mini is dying, they’ve lost their core audience for enthusiast products, and their existing sales are heavily dependent on affordable fuel. The Quandts are clearly displeased with the state of their company.

Tesla is a small automaker and is operating right on the edge of their absolute growth potential. Their growth is unlike anything else in the auto industry and their headwinds are comparable to established automakers.

 

[Skryll]

Yeah, well if you are trying to convince a climate skeptic or a single mom with one car to go full EV it’s hard to push it if you can’t charge where you park. Not many businesses have EV chargers here, and level 2 does not cut it for “I need to leave to go charge”. If there is a local supercharger that changes the equation for a lot of people, especially if it’s V3.

I agree with you that charge where you park at day is what makes it easier today and just is starting to be build out today, also because it allows capturing solar energy into batteries straight at the source instead of having to buffer it all for nighttime use in a more central place. Checkout PlugShare - Find Electric Vehicle Charging Locations Near You for whats around you today. Also check out EVSE | Electric Vehicle (EV) Charging Stations - ChargePoint which has tons of L2 and some 24kW fast charging options in San Antonio, TX.

I see solar panel shade structures over parking lots already in place at all schools around me here in California, but only very few actually also have L2 chargers attached to the parking spots.

This will likely change now that demand becomes more obvious and solutions for the bumpiness of daytime solar electricity generation is looking for solutions.

IMHO superchargers v3 are more interesting for road trips. I think especially for refilling more quickly when you arrive at a destination without a destination charger.

For apartement dwellers, the 45 minutes charging at v2 supercharger at the mall are actually a more useful timeslot, not too long but also not too short to not be able to be useful. You do want the plug in and walk away experiene, doing something useful with your time and then come back after without waiting around or babysitting the refuel process like you would have to for a gas car.

 

[azaz]

But when do you stop "growth mode"? When every car on the planet is a BEV? He's claiming 2020 Q3/Q4 will be big. I suspect he was (and still is) banking on FSD sales. He said as much yesterday stating all that opportunity in FSD (code for not as fast as expected IMO). I don't expect FSD by 2020 either - the driver will still be needed. Now I'm really understanding what it means to be "Long."

Did someone manage to gather that data on "Market expectations" vs Tesla guidance? It was a great question. Is this the trick FUD plays every quarter now? Setting high expectations ever quarter?

So I forcast huge losses every quarter (and let's keep that tone), offset by ZEV credits maybe as the bonus check. +FCF and +Sales will ride us through eventually. Whatever the "Market" expects, subtract $0.50/share and we'll be fine with our SP predictions.

FSD without a driver is 5+ years out and if that is what Musk is waiting for to reliably turn a profit, he's lost.

 

[SOULPEDL]

About 40 degrees Celsius here in Germany today supposedly the hottest day ever measure since 19th century.

Time to get into the Air Conditioning business!
As they say, "In a Gold Rush, sell shovels."

 

[Singuy]

Your explanation went off the rails right from the get-go. The money that started Tesla was not borrowed and there is no interest on it, it was money the founders invested in exchange for ownership of the business. Likewise, when Tesla went public years later, that funding was not borrowed money either, it was letting in new business owners (shareholders) in exchange for a share of ownership. There is no interest on that money either unless you want to consider future stock dividends as "interest" (which they are not).

Please note that I'm not saying Tesla hasn't taken out business loans to fund further expansion, they certainly have, but your explanation is simply incorrect on the nature of the initial money (and later, the IPO money).

Thanks for clearing it up. I would imagine capex being very low during the lotus days and it was more self funding. So "beginning" is more Fremont and gigafactory onward, the Tesla we know today. Just trying to answer why money supply increased in the bank while posting a loss.

 

[Remus]

A "usual" company would with an increasing order rate keep the price or raise it while Tesla is decreasing it to accomplish the mission and pressing other automakers to make the shift. Its a bid like cut throat competition.

While they do that & increasing production they do not optimize profits and they invest in CapEx for further production capacity and still make 600 Mid cash which is amazing. Sure money goes into optimizing Fremont and Nevada as well we know this as Groman has helped to increase Battery production which has let to nice growth in TE.

Tesla does not cut prices for cars out of a demand problem as others would do but because if BEVs don't go mainstream we are all frogs in boiling water. About 40 degrees Celsius here in Germany today supposedly the hottest day ever measure since 19th century.

Not doing what other automakers would do in that situation makes Wall Street coming to complete false conclusions and that coupled with the inability to interpret ER # is a toxic combination.

Still some Analysts and former board members got it right.

That's my point too but that's a big big departure from "profitable every future quarters". But the management team did not let us know, not officially.

Now all of a sudden we are warned about losses in Q3 and next Q1 Q2. Understandably people are pissed.

I get it that It's the Amazon way, grab as much market share as possible while maintaining solvency, killing everyone along the way. I also understand that since the initial plan of inspiring other car makers to make EVs failed miserably, it's pretty much the only way forward for their mission.

But Bezos kept his mouth shut and refused to give rosy guidance. Yet even that Amazon stock price went nowhere when they were doing that.

I stay heavily invested in Tesla more for the mission rather than money now. it's just that I can't see the stock price rise significantly for the next year.

 

[Remus]

Time to get into the Air Conditioning business!
As they say, "In a Gold Rush, sell shovels."

Except now too many people are selling shovels.

 

[Intl Professor]

Tried to grab 100 more @225, but was a bit too greedy. Raised to @227. I may be chasing a moving target but that's okay.

Until today, most recent purchase was ten at $224. Today bought ten more at $227.61 and a smidge. Good sale prices today.

 

[UnknownSoldier]

I should have known better. However I'm literally stupid. Losing 12% overnight sure is fun. I'm getting used to getting f***ed by TSLA though.

 

[ReflexFunds]

The article is sloppy - e.g. he doesn't separate leasing out when calculating ASP. But his two main themes are on target:

1. Margin compression. 25% was once the floor with Musk talking about a 30% future. Now we need even more cost cuts to maintain 18-19% as ASP pressure continues.

2. Unit Opex. He says opex is stuck at 11k/unit. I recall an old SA article claiming Tesla was doomed because Model 3 gross profit of ~10k/unit would never cover 20k/unit opex. That article was obviously incorrect, as I explained in the comment section. But opex does have a floor, and you can make a good case it's somewhere around 9-11k/unit.

As I said in April, there's a reason Musk wants to change the narrative from S3XY profits to Robotaxis. The car business is hard.

I agree that future Opex is core to medium/long term profitability forecasts and nonsense opex arguments have always been core to TSLAQ's narrative. But I don't think that unit opex is a relevant measure - opex is almost all fixed cost and has no significant connection to how many cars are sold. Unit opex is just a measure of current car volume and not structural profitability.

SG&A per car is high because volumes are still low while Tesla has built a global infrastructure designed for global car sales in the millions.

I have never seen either a good argument or financial evidence to explain that SG&A should have a significant variable component. What exactly needs to increase if Tesla sells another 0.5 million/ 1 million cars?
I think the evidence is extremely strong that SG&A is not variable and Tesla can scale volumes on its current global infrastructure, as @mrdoubleb posted earlier: In Q2 2018 Tesla sold ~40k cars and SG&A was 750 million. Q2 2019 Tesla sold ~95k cars and SG&A was 647 million.

I agree some costs do have to scale with production volume including:

• Referral fees and sales bonuses -are variable SG&A, but I think these are minor per car on average.
• Delivery infrastructure has to scale with volume - but this is paid for in Auto COGs.
• Service infrastructure has to scale with volume - But this is paid in warranty reserve in Auto COGs and in Service COGs.
• Call centre support staff will likely come under SG&A and this is something which should scale with volume, but likely hasn't happened so far. In any case it shouldn't be a huge expense.
• Data connectivity costs scale with volume - but this is paid with deferred revenue
• The supercharger network should scale with fleet size - but this should be self funding in the future.

The bulk of SG&A - Central HQ costs, software development costs, legal, Store costs etc shouldn't have to scale significantly for GF3, Model Y and Pickup release.

I would be interested to know exactly why you think Tesla will have to double opex if it doubles production volume in contrast to what we have seen this past 12 months?