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

[Krugerrand]

I disagree with the sentiment that tesla should not be aiming for consecutive profitable quarters and instead be continuing to plough all money back into R&D and expansion. Although I fully understand the philosophy of 'get big fast', I would argue that the company should concentrate a bit harder on showing some profit from here on (not a huge profit...but just not a loss).

Primarily the only direct effect a profit is going to have, is that the markets will lose one of their big sticks to beat them with, and the increased financial stability would lead to an stock price bump. Why should any super-bull or long term investors care about the short-term SP?

1) Many top-level and highly skilled employees will have remuneration tied to the SP. I'd guess a lot of them are motivated by the eventual value of stock & stock options. The longer they work with a flat SP, the less likely they are to stay / more tempted they can be by rivals, or the more expensive their compensating salary will have to be

2) There is a non-zero percentage of the population who believe tesla is always in financial trouble. cars are a big long-term expense and people do not want to be stuck with a car that's not supported ESPECIALLY a cutting-edge tech one which no other company knows how to service or support. This is a very real concern.

If I ran Tesla, I'd always be aiming to be profitable every quarter from here on, even if only trivially, and even if that slightly slowed expansion.

Been there, done that, got screwed for it. What a short memory you have.

 

[Krugerrand]

on Twitter

View attachment 462515

That’s the guy who’ll drive 10 miles because he needs a loaf of bread and it’s on sale for 10c cheaper.

Not everybody’s brain works well.

 

[jerry33]

Legislators or TxPUC staff? If the latter, that can quickly change until the Intervenors tie it up in a T&D utility's rate case docket. Look at what happened to the ONCOR idea of purchasing beaucoup Power-Packs

Legislators. That’s what nixed ONCOR’s plan.

 

[TheTalkingMule]

If I ran Tesla, I'd always be aiming to be profitable every quarter from here on, even if only trivially, and even if that slightly slowed expansion.

That last bit is a nonstarter. There's a mission.

 

[Pras]

That last bit is a nonstarter. There's a mission.

I agree that becoming marginally profitable is key to gaining confidence in market. And market is important, just this year Tesla had to raise equity/debt.

every quarter? Maybe not, but definitely on a trailing 12 month basis profitable.

Netflix and Amazon have shown that you can grow, invest, and innovate even with marginal profit. Tesla just need to find its cash cow. Maybe the margin from model 3/Y produced in Fremont, while they grow in China and Europe and across product.

 

[Fact Checking]

Macro news: significantly weaker NFP report just came in (biggest U.S. macro event of the month), which is clearly showing employment contraction in the U.S., both in terms of lower employee growth and lower hourly earnings. Last month's numbers were revised up, which accentuates the current drop.

I believe this data will give the Fed enough excuse to further decrease interest rates later this month - a stimulus that Trump and Republicans wanted badly to have a good economy in the election year.

This should be bullish, and NASDAQ and Dow index futures jumped 1% immediately and EUR/USD started weakening - usually a sign of a risk-off bullish trading day.

 

[brian45011]

+++++

Huh? A Tesla can be a net emissions win after just ~10,000 miles compared to an average MPG car, let alone compared to an old "clunker", and then we haven't even included the health care costs of gascar emissions which are higher than $10,000 per decade ...

Plus if the steel in the clunker is recycled, which is the typical case, then much of the carbon cost of the steelmaking is recovered - so the "decades of residual lifetime" is "decades of carcinogenic emissions and CO2 emissions".

I.e. the political bias in your statement is pretty incredible, from a "numbers guy".

Run a life cycle energy balance and let's compare results.

 

[pnungesser]

Macro news: significantly weaker NFP report just came in (biggest U.S. macro event of the month), which is clearly showing employment contraction in the U.S., both in terms of lower employee growth and lower hourly earnings. Last month's numbers were revised up, which accentuates the current drop.

I believe this data will give the Fed enough excuse to further decrease interest rates later this month - a stimulus that Trump and Republicans wanted badly to have a good economy in the election year.

This should be bullish, and NASDAQ and Dow index futures jumped 1% immediately and EUR/USD started weakening - usually a sign of a risk-off bullish trading day.

The reports I'm seeing show no changes in hourly earnings and an unemployment rate of 3.5%, lowest in 50 years. Doesn't sound like a terrible report to me.

 

[Fact Checking]

I agree that becoming marginally profitable is key to gaining confidence in market. And market is important, just this year Tesla had to raise equity/debt.

every quarter? Maybe not, but definitely on a trailing 12 month basis profitable.

This will eventually happen as a side effect of having strong positive cash flow in every quarter. If that extra income is primarily reinvested via capex then that creates a strong GAAP income stream as well.

But while Tesla is growing there's always going to be the 'leading shock-wave of fast expansion' that artificially reduces GAAP income:

• increased opex (you expand your business before you can increase production and draw more customers),
• lower operational efficiencies, (expanding businesses are always less efficient than steady-state ones), there could be an up to 5-10% of gap (up to $300m-$600m expense, per quarter),
  
• increasing stock compensation GAAP expense (~$200m per quarter),
• elevated levels of capex spending depreciation and amortization GAAP expenses that are 2x-3x the level of a 'steady state' business with similar capital costs, (about +$300m per quarter),
  
• interest expense, (~$120m per quarter),
  
• elevated levels of growth-opex, such as R&D expenses, (+$300m per quarter).

If we add up these factors it's about $700m-1.2b per quarter currently (there's a lot of vagaries in the exact figures).

I.e. the sum of Tesla's businesses is already vastly profitable, just masked by various growth expenses. If Tesla slowed down to say Porsche's steady-state business they'd be even more profitable as Porsche.

But "slowing down" is not Tesla's mission.

 

[Webeevdrivers]

So the 110,000 orders number - how many model Y orders do we think are in that figure?

And a secondary question. Is this 110,000 additional orders or were there 110,000 orders during the quarter of which 97000 were filled.

 

[Fact Checking]

The reports I'm seeing show no changes in hourly earnings and an unemployment rate of 3.5%, lowest in 50 years. Doesn't sound like a terrible report to me.

The absolute values of employment are unreliable metrics (they are calculated with a dozen major assumptions), instead the Fed is basically watching the second derivatives of primary economic data (employment and core inflation), which are not just leading indicators of recessions but are also much more reliably measured.

Specifically what matters (to the Fed) are the following aspects of the October NFP report:

• Expected hourly earnings growth was +0.4% (annualized +4.8%), instead we got +0.0% - which is on the brink of wage deflation.
• Expected employment growth was +145k, we got +136k instead, but due to the revision of the previous month it's showing a drop from +168k - a drop of ~15% in the rate of growth.
• Note that working age population growth of the U.S. of around ~0.8% per year defines a minimum required baseline of ~+100k-120k/month just to keep up with population growth, and this NFP report is much closer to that baseline.
• Every NFP print below that baseline will signal actual employment contraction that would trickle into the unemployment rate if sustained: and there were two such months this year already.

So "dropping employment growth" and "dropping inflation" are two confirmation signals to the Fed to reduce rates.

There's also the matter of "optics": the Fed is ostensibly independent of politics and hates being seen as being "pressured" into a rate cut, especially by a barely literate buffoon like Trump - so today's "dual confirmatory signal" gives them the perfect excuse to do it and stay out of the line of fire for the rest of the year and for most of 2020.

 

[elasalle]

Climate Change - (don't wanna give away the punch line )
Ryan Saavedra on Twitter

 

[cricketman]

Top tip for anyone who has ordered a Model Y in Europe...

I noticed that the price in the Model Y configurator is EUR3,000 cheaper than the purchase price that shows in my tesla account from when I ordered the Model Y shortly after the launch event. So, I clicked on "Modify Design" and chose the same options, confirmed and then the price gets updated to the current configurator price i.e. EUR3,000 cheaper

I actually also decided to remove the Full Self Driving option. I have enhanced autopilot on my Model 3 and here in Spain it doesn't work very well at all due to the EU rules of having to reconfirm all the time. I will purchase it later if and when EU regulations catch-up

 

[AlexS]

Hello fellow FUD-fighters, just wanted to say that if in beginning of Q3 someone would ask me that Tesla will deliver 97k take it or leave it. I would take it, because I didn't think they can deliver even 96k. Try to remember what were your own estimates in July. So everyone should relax about that and enjoy the ride.

 

[KarenRei]

Hello fellow FUD-fighters, just wanted to say that if in beginning of Q3 someone would ask me that Tesla will deliver 97k take it or leave it. I would take it, because I didn't think they can deliver even 96k. Try to remember what were your own estimates in July. So everyone should relax about that and enjoy the ride.

I don't recall exactly, but they were probably at least 100k. The limitation being my level of optimism about how rapidly they could scale production. I reasoned:

Q4 = 61,394 (4723/wk)
Q1 = 62,950 (4842/wk) (nearly flat)
Q2 = 72,531 (5579/wk) (significant growth)
Treating Q1 as flat, we get a Q2 growth of 737/wk average, meaning it probably ended at double that, +1474/wk over Q1, e.g. 6316/wk. So if Q3 production were to not grow at all, it'd be at 82,1k

Actual Q3 production: 79,8k. To me, that's disappointing. This would argue for some combination of:

• Significant downtimes in Q1 (e.g. the end-of-Q1-rate was significantly higher than 4842/wk, making up for downtimes, and thus the Q2 rampup smaller, and thus the end-of-Q2 production rate lower)
• Minimal downtimes in Q2
• Significant downtimes in Q3
• Low production growth in Q3 (the annoying possibility)

Most people here don't believe in nonsensical "demand arguments", for a company that consistently sells every Model 3 it can make, and then some, while still undergoing market expansion, a process that will be going on for some time to come. S and X have to fight being Osbourned, but 3 has no competition; every 3 gets a buyer. Heck, you're talking to a person who can't get theirs until Q1 because there's just too little supply. Many people in the world have to wait even longer than me.

 

[CorneliusXX]

This will eventually happen as a side effect of having strong positive cash flow in every quarter. If that extra income is primarily reinvested via capex then that creates a strong GAAP income stream as well.

But while Tesla is growing there's always going to be the 'leading shock-wave of fast expansion' that artificially reduces GAAP income:

• increased opex (you expand your business before you can increase production and draw more customers),
• lower operational efficiencies, (expanding businesses are always less efficient than steady-state ones), there could be an up to 5-10% of gap (up to $300m-$600m expense, per quarter),
  
• increasing stock compensation GAAP expense (~$200m per quarter),
• elevated levels of capex spending depreciation and amortization GAAP expenses that are 2x-3x the level of a 'steady state' business with similar capital costs, (about +$300m per quarter),
  
• interest expense, (~$120m per quarter),
  
• elevated levels of growth-opex, such as R&D expenses, (+$300m per quarter).

If we add up these factors it's about $700m-1.2b per quarter currently (there's a lot of vagaries in the exact figures).

I.e. the sum of Tesla's businesses is already vastly profitable, just masked by various growth expenses. If Tesla slowed down to say Porsche's steady-state business they'd be even more profitable as Porsche.

But "slowing down" is not Tesla's mission.

In the spirit of navel gazing, what do you think Tesla would need to give up to achieve regular GAAP profitability?

 

[Rohan]

I think the updates should be fewer between with smaller impacts to the UI. We need to consider who has bought the cars to date and the overwhelming masses who haven't. When people ask me about the car's interface and operation I tell them it's not so much a car with smarts, as it is a cell phone with wheels. That's not meant to be a bragging point.

They have early adopters and not so early adopters selection in the UI. Maybe they need a third option... "What, come again?"

Not just the first fifty or sixty years, whatever that means, but also pretty much forever one or other ICE manufacturer needs a bail out. Even the German car companies haven't always been successful. Every country used to have a national champion and they were mostly badly run and propped up by the government. Once the government goes all free market these companies normally die. Very few well run ICE manufacturers

 

[The Accountant]

And a secondary question. Is this 110,000 additional orders or were there 110,000 orders during the quarter of which 97000 were filled.

New orders taken in during the month were 110,000 with 97,000 vehicles delivered. Some of the delivered autos came from the 110,000 new orders while others from prior backlog. In the end, backlog has grown 13,000 units (110k-97k=13k). In my opinion, this is a sign that demand is exceed Tesla's ability to produce (production constraint) and will change with production in China this Qtr. IIRC, one analyst commented that he thought Tesla held back production because orders were slowing but that's FUD.

 

[PeterJA]

What's the total global market for $40,000 cars?

Again, this is a soon-to-be-obsolete question if Tesla achieves full self driving.

Better question: What's the total global market for automated, on-demand, door-to-door transportation costing a few cents per mile? (aka electric robotaxi service)

No one knows for sure but it is likely bigger than the current market for all cars.

 

[KarenRei]

Again, this is a soon-to-be-obsolete question if Tesla achieves full self driving.

Better question: What's the total global market for automated, on-demand, door-to-door transportation costing a few cents per mile? (aka electric robotaxi service)

No one knows for sure but it is likely bigger than the current market for all cars.

Depends on your definition of "soon".