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

[AudubonB]

They should have included a clause in the Tesla Referral program that any discounts earned from referrals towards the Signature Roadster Supercar will nullify if that person publishes any kind of leak from Tesla—whether true or not.

We all know that when leaks like the above get out before earnings it adds to the chances of a “buy the rumor, sell the news” event.

I would much rather have a “total surprise and lift off” kind of earnings event.

I consider this one of the more useful posts for Tesla Inc. - if not necessarily investors - to follow. Otherwise, we can get such baloney as....

Oh! Did you know I heard a rumor that GF5 is going to be placed in Indiana?
And one that GF6 is to be sited in Knik Arm directly across from Anchorage?
TVA is getting a 900MWh battery storage site; installation to begin in April and will be finished by late July.
All-in costs at just under $90kWh.

Aren't rumors fun? And just those alone should garner me enough referrals for 4 or 5 Roadsters.

 

[3Victoria]

Well, the announcement was a blunder either way. ....

Many interpreted that, poorly worded, statement as saying that profitability was obtained during the year, ie in one or more quarters, not that the year as a whole was profitable.

Writing non-ambiguous statements is harder than one might think, so I like to give some 'benefit of doubt' to them.

 

[Right_Said_Fred]

I totally understand that we're facing an exponential growth in renewable energy and energy storage in the next decade.

But I am in the dark about the reasons why Tesla should be in a special position to take advantage of this. In my reasoning PV-modules are dirt-cheap nowadays and will be getting cheaper still. And I think battery-storage is relatively low tech especially when there are no special demands (size, weight, safety) like when they are used in cars.

Would somebody care to enlighten me? Is it the battery-supply? What am I missing?

A. The battery supply
B. The longevity of those batteries
C. The lower price of those batteries
D. The smart software running those batteries (why would only the software in Tesla’s cars be better than the competition?)
E. The one-stop shopping: solar (roof or panels) + batteries + maybe even a car
F. The design
G. The brand!

 

[MarcusMaximus]

Of course people don't comply with it. In many contexts it's difficult to figure out if it's four independent number, or some combination of less than four. Commas and periods are more sensible. Ambiguity never makes for a good standard.

Really, the best would be ‘/‘ for thousands separation and ‘.’ for decimal. Every number becomes a valid Unix file path!

 

[Green Pete]

I'm sorry. I'm still not clear on if a bunch of you were hitting the sauce hard yesterday or if this accounting discover is as monumental as it is being made out to be? From the way everyone is talking they seem to expect a doubling of the stock by end of month

 

[HG Wells]

I'm sorry. I'm still not clear on if a bunch of you were hitting the sauce hard yesterday or if this accounting discover is as monumental as it is being made out to be? From the way everyone is talking they seem to expect a doubling of the stock by end of month

Doubling ?
I will be severely disappointed if it doesn't quintuple !

 

[Artful Dodger]

It would only be insider trading if a company's management, stupidly and potentially illegally, based on material non-public information, decided to sell a derivatives position before its value crashed.

In the Q4 scenario I outlined the opposite happened: TSLA closed the year at $418 and was trading above those levels afterwards. Tesla did not benefit from any non-public information and if they sold the hedge the underwriters benefited from that, because the hedge is even more valuable today.

Also, when there's the danger of MNI there are ways to counter it: for example to give the decision about whether to sell the hedges to an external party who doesn't have insider information. That way it's not management that decides to sell.

Companies are buying their own derivatives all the time, Microsoft being a famous example. I'm sure there are ways to make all of this 100% above board - the only question in my mind is whether Tesla would have sold a hedge for about 50% of its maximum potential value.

I think they'll wait until TSLA is consistently above $607 - in that case the hedge won't appreciate in value anymore and can be converted to cash.

Solid analysis, very helpful going foward, thanks for this. Let's game this out:

• TSLA excercises sufficient hedges to make 2019 as a whole profitable
  • total hedge income required will be lessed by 2 sources:
    • net income earned in 2019Q4
    • any "deferred Tax allowances" ala @The Accountant
  • likely need to excercise fewer than the available 60K hedges
    
  • so a significant number of hedges remain going forward
  
  
• declaring a 2019 profit drives SP up over $607
  • hedges must now be rolled forward (for a large gain)
  • future share dilution averted via newly strike price on hedges
    
  • S&P 500 inclusion occurs reinforcing the cycle (+25% gain?)

In this scenario, selling some hedges early (at less than maximum value) results in a large and lasting gain in the SP, making it a BETTER CHOICE than simply holding those hedges until the SP rises unaided to the $607 ceiling.

Surely, any contracted 3rd party advisor without material non-public information (MNI) would reach this same conclusion, when rating the balance of probabilities.

Cheers!

 

[jerry33]

Would somebody care to enlighten me? Is it the battery-supply? What am I missing?

No one will use lead-acid or gel cell batteries for this (replacing all the batteries in five years the way you have to do with previous technologies is not going to fly). Tesla has the supply (which I hope we'll learn more about on battery day), the experience (they actually have proven installations), the software (I don't think anyone else has this). They also have a big price advantage. The only disadvantage to battery grid storage is that the industry doesn't want it and are paying the politicians to disallow it. That will collapse someday, but right now it's a major barrier.

 

[lklundin]

Wuva just missed it, but at 1m40s we see a Model 3 on its way to doing the "fording test".

 

[MP3Mike]

Of course just a rumor but I'm wondering if true, when would MY reservation holders be contacted about delivery.
Assume the first cars off the line go to showrooms, employees and then reservation holders.
Is it fair to say that if reservation holders have not been contacted, it means we are months away from deliveries?
Could any Model 3 original reservation holders shed light on this? Once the first MY reservation holder is contacted, what is the delivery timeline? 2 weeks...1 month?

There is a big difference, with the Model 3 you only had a non-configured reservation. So Tesla had to contact people to configure and order. With the Model Y people already placed fully configured orders. So Tesla can just contact them and say that your car is ready get your cash/financing together and come pick it up. So it can happen much quicker.

 

[dw4ngg]

I'm sorry. I'm still not clear on if a bunch of you were hitting the sauce hard yesterday or if this accounting discover is as monumental as it is being made out to be? From the way everyone is talking they seem to expect a doubling of the stock by end of month

It’s really nothing If I had to guess, Tesla hasn’t had enough financial profit to really assert any of the deferred tax assets will more likely than not be utilized.

 

[reardencode]

There is a big difference, with the Model 3 you only had a non-configured reservation. So Tesla had to contact people to configure and order. With the Model Y people already placed fully configured orders. So Tesla can just contact them and say that your car is ready get your cash/financing together and come pick it up. So it can happen much quicker.

I'll bet they change pricing and configuration options at delivery launch, and give order holders one more opportunity to change. My guess is they eliminate LR RWD, increase range across the board, and possibly add an XLR version of both 3 an Y.

 

[Buckminster]

Shorts tomorrow:

 

[EVNow]

It seems to me that someone just screwed up and spilled the beans, thinking it was fine because the year was over and not having much knowledge about financial reporting. We don't know who wrote the email but it wasn't Elon.

There is very, very low chance of a Semi Truck comms/marketing team guy knowing what the Q4 profitability is - while not knowing much about financial reporting.

Only people reporting to Musk and high level managers in finance would know the results (and some finance operations folks).

 

[lklundin]

• declaring a 2019 profit drives SP up over $607

If 19Q4 turns out to have a GAAP net profit of 266M $ in turn making the sum of 19Q2 - 19Q4 positive, then 20Q1 only needs to turn a profit however small in order to qualify for S&P 500 inclusion after Q1.

So I would expect alone a positive sum of 19Q2 - 19Q4 to bring the SP up above 607$, this would be little more than 10% above the recently set ATH.

As such, I cannot actually get myself to guess at what a positive sum of 19Q1-19Q4 would do to the SP.

PS. My post is not actually contradicting the OP, since we both wonder about "above 607$"....

 

[JRP3]

FYI I asked Third Row Tesla if they needed approval from Tesla before releasing their video and they said "no". The delay is all in editing.

 

[Green Pete]

There is very, very low chance of a Semi Truck comms/marketing team guy knowing what the Q4 profitability is - while not knowing much about financial reporting.

Only people reporting to Musk and high level managers in finance would know the results (and some finance operations folks).

Its possible that someone sent a poorly communicated email that just happened to also be true for things it was not intended to be true. The email seems `meh` to me. All the accounting discussions over the last two days seem far more relevent.

 

[Buckminster]

@Fact Checking et al - Don't you think it is time for you to conclude on the calls and deferred tax situation? We need a guide for dummies and best guess projection including S&P500 likelihood.

There are four steps to the Feynman Learning Technique:

1. Choose a concept you want to learn about
2. Pretend you are teaching it to a student in grade 6 aka Buckminster
3. Identify gaps in your explanation; Go back to the source material, to better understand it.
4. Review and simplify (optional)

We promise to scour the internet for cat videos in compensation....

 

[dc_h]

While @The Accountant already addressed the GAAP income possibility, the idea of the hedge was not to be "able to pay the bond holders".

These are convertible notes, which means convertible to shares. If a note holder elects to convert, Tesla has the discretion to pay back purely in newly registered shares. The millions of new shares were registered with the SEC years ago already, already as part of the convertible notes offerings, and Tesla can issue them at zero cost.

The purpose of the hedges is to reduce dilution to shareholders. Nothing more, nothing less. Selling the hedges for cash sooner than the notes mature simply realizes part of the $1.7b dilution protection funds earlier. It doesn't change Tesla's ability to pay back the convertibles with shares.

The cost of selling the hedges before note maturity, at significantly lower value than the max hedging income would be higher dilution effect once the notes mature. But once the hedges reach a market value higher than say 80% of the maximum, it's in the interest of shareholders to convert the hedges to shares, if say Tesla's growth in the next 4 years to 2024 maturity is expected to be higher than 20%: in that case it's better for Tesla to utilize the cash and not store it derivatives.

This will be particularly true once the share price is consistently above $607: the derivatives position will reach its maximum possible value and there will be no economic reason to not convert it to cash immediately. A deep in the money bull spread becomes a cash equivalent.

It’s probably been discussed but Tesla could sell the options and use the time value premium to buy back shares now and keep the intrinsic value to add to their cash balance and accelerate investment. Let the warrants convert later without any effective dilution. The brain explosion in the tslaq world would be almost as nice as the squeeze itself.

 

[Fact Checking]

There is very, very low chance of a Semi Truck comms/marketing team guy knowing what the Q4 profitability is - while not knowing much about financial reporting.

Probability of them knowing the Q4 financials is exactly zero for another big reason as well: the email was apparently sent late December.