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

[Oil4AsphaultOnly]

Dukes of Hazzard

From the reporter, it was Daisy Duke at the wheel.

And as a testament to the kinetic energy involved, pay attention to the size of the boulder that was thrown into the air and into the second parked car!!

 

[Cherry Wine]

Yeah, the “Long Range Plus” moniker implies different hardware. Mysteries...

I agree.

 

[Artful Dodger]

I cannot subscribe to a theory that involves Fremont being partly idled, which is what you're suggesting.

• Elon said in the 3rd Row Podcast that Fremont Model 3 production is running at 7k/wk. That alone is the consumption of 7k/wk packs. Just Fremont. Just Model 3.
• The rate of loading of new ships is the same as in Q4, indicating the same sort of production rate.
• Packs are being produced at GF3. Indeed, you seem to be sourcing part of your claims from carsonight, but even he previously said that they stopped supplying new ones to China, after having been stockpiling them earlier in the year. Though strangely he now says just the opposite; his statements on this have shifted over time. Not that he'd know anything about local China production, or shipping to China, whatsoever, and has admitted as much.
• If there actually was a 7k pack limit, and Tesla was frontloading packs to stockpile at GF3 like carsonight suggested (at the very least, and even with a stockpile of zero, you have shipping lag times), then their Q4 production rate would have been impossible. January's 800/wk up to the Lunar New Year would have been primarily from packs made in December. Was the Model 3 line at Fremont curtailed in Q4?
• If GF1 can sustain 800/wk at GF3 and a Q4-level Model 3 production rate at Fremont, then it can sustain 10,4k Q1 production at GF3 (vs. the estimated 11,2k) with no idling at Fremont.
• There is no way, at all, that Tesla hasn't been ramping cell and pack production at GF1 in anticipation of MY. Yet you're proposing that it not only hasn't ramped at all for many months, but that it will continue to not ramp at all for the remainder of the quarter, and that they're deliberately robbing their Model 3 lines of packs. I find this notion to be nonsensical.

Also, weren't you just the other day saying that you didn't expect S/X to be down? Yet now you're going with 10-15k S/X? And why exactly, given that S/X wait times are just as long as for the 3? Are they making people wait for the fun of it?

There's no evidence suggesting that Model 3 production at Fremont has been curtailed, yet I find it remarkable how many people want to suggest it despite that, in order to fit some theory. Where's the people getting less hours, or outright cut shifts? Where's the infrequent ships? Where's the slow refill at Pier 80? Where's the leaks from Fremont about rate cutbacks? Where is literally anything whatsoever suggesting that production has been cut there?

Yes, clearly what he really meant to write was 83K Production, 62.9K Deliveries...

Cheers to the Longs!

 

[gluu]

13F reports pouring in.
Anyone have a take on Renaissance holding?
It seems TSLA is their 2nd largest holding now, are they “buy and hold” type or “tech trading” type?
Hope it’s not because they sold too many calls in 2019.(not even sure whether they do that at all)

Renaissance is the greatest quant trading fund in history. They are not long term holders. They essentially identify mispricings. For them to put on such a huge position indicates TSLA was massively underpriced in Q4.

 

[KarenRei]

The crocodile tears for the commercial tree plantation are a waste of energy.

For anyone really concerned about the ecology they should focus on the ancient Hambach Forest in Germany that is being shredded for a coal mine.

Hambach Forest - Wikipedia

Looking at it on satellite, I'm confused by what I'm seeing!

What is this witchcraft? Different species growing together? Trees not all of the same age? And not all planted evenly spaced in rows? Blasphemy! Where's all the geometric shapes???

Aaaaagh, undergrowth - sorcery!!!

(Honestly, the sad thing about it looking at it by satellite is how small it is. Knowing that that whole region used to be forested, but little of it remains, and of that, only a tiny fraction is old growth).

 

[davepsilon]

I am unfamiliar with the details of the convertible debt. I remember reading on this site that Tesla at their option could pay in stock or cash Due to the large spread between the .conversion price and the secondary offering doesn't it make sense for Tesla to use the cash they got at $767 per share vs a conversion per share price of say $360. Doesn't that cut the dilution in half?

This turned into a rather long response so I wanted to start out up front and say that while many are looking for how much profit can be extracted from the hedge transactions associated with the convertible debt I think it is a better plan to think about the repayments and the hedges from a cash flow and dilution perspective. With a high stock price they give Tesla flexibility to choose between cash flow and dilution.

This most recent capital raise provides a cushion should the stock price retreat below 360 that Tesla could pay the debt due with less impact on growth. But in general it does not make sense to use the proceeds of the latest raise to pay down convertible debt, because there is no way to do that. Per the terms the convertible notes were offered under Tesla cannot redeem them before maturity. There are a few conditions where the holders can, at their option, require Tesla to redeem the notes (events like being acquired) but none that work the other way. Now they could try to rebuy a portion on the open market or open a second derivative hedge, but I would be disappointed in that sort of use of the money on betting on Tesla’s own stock when the money is so useful as downside risk protection and for general manufacturing scaling.

As far as paying back the bonds. The first thing is that if the share price is less than the conversion price Tesla will pay back the principal in cash. If shares are above the conversion price Tesla can choose to pay in shares or cash (or combo). But in this second scenario that cash settlement would be based on whatever price the shares were trading at. The higher the stock goes the more cash it costs to avoid issuing stock.

There is a complicating factor that makes it a bit harder to follow along with the convertible bonds. Tesla paid hundreds of millions of dollars up front at the time they issued the bonds to hedge potential dilution due to conversion by purchasing long calls at the same strike as the convertible bonds and selling warrants (basically a call option, but dilutive when exercised) for a strike a few hundred dollars higher. These calls and warrants are not likely to be accounted under profit and loss but rather due to their purpose as items under shareholder equity - so don’t expect tricks with them to give any GAAP profit benefit. Tesla can opt to settle the warrants by issuing shares or with paying a cash equivalent price which leads to some flexibility depending how much Tesla decides they need capital vs. want to avoid dilution, all this provided stock price stays above the strike prices.


So let’s look at the March 2021 cash flow and dilution scenarios. The $1.38 B convertible debt is due with conversion possible at the rate of 2.78 shares/$1000 (effectively $360 strike price). Calls and warrants cover full potential dilution. Warrant strike is at $560.

1. Stock Price <360. Tesla repays loan with -$1.38 B cash. Calls and warrants expire worthless.
2. Stock Price Between 360 and 560. Warrants expire worthless. Tesla repays loan with 3.8 M newly issued shares and pockets profit on calls for +$0 - 760 M
   OR
   Tesla exercises calls for 3.8 M shares paying -$1.38 B and delivers these shares to the bond holders (no dilution)
   OR
   Tesla repays loan with cash settlement -$1.38 B - 2.13 B (for share price 360 - 560) and pockets cash profit on calls for +$0 - 760 M. (end result same as above -$1.38B)
3. Stock price above $560. Stock Price = P
   Tesla repays loan with 3.8 M newly issued shares and exercises calls to fulfill warrant obligations, pocketing the +760 M spread.
   OR
   Tesla exercises calls for 3.8 M shares paying -$1.38 B and delivers these shares to the bond holders. And settles warrants in cash for -$(3.8 M * (P-560)). At $768 price of the most recent raise that’s about -$790 M. Net result is no dilution but > -$2 B for $768 share price.
   OR
   Tesla repays loan with 3.8 M newly issued shares and issues another 3.8 M shares to fulfill warrant obligations, pocketing the profit on the calls +$(3.8 M *(P-360)). And collect the proceeds of the warrants for $2.1 B. Net result is 7.6 M shares of dilution and > +$3.6 B (for price = $768)

Given the intention of the hedge I expect Tesla will issue new shares only for the bond and not the warrants but the contracts allow the other actions or a blended action that mixes different cases together.

 

[azaz]

Renaissance is considered the greatest hedge fund of all time but they are all quant based

 

[qphan79]

Yeah, the “Long Range Plus” moniker implies different hardware. Mysteries...

(Slightly humorous, I’m in Canada skiing right now. I went to the Tesla.com website, and configured an X to check it out and my eyes popped out of my head when I saw the high price! Of course, Tesla redirected me to the Canadian Tesla site and everything it quotes is in Canadian dollars! Geez, maybe they could make that a bit more obvious!).

Perhaps all current Raven Long Range models will soon be offered a software upgrade to Long Range Plus for the additional miles? Pure speculation on my part!

 

[davepsilon]

Perhaps all current Raven Long Range models will soon be offered a software upgrade to Long Range Plus for the additional miles? Pure speculation on my part!

If it is a pure software upgrade it should be given away to X owners. Far too early on the adoption curve to start turning the screws in favor of revenue.

options like acceleration boost and Model 3 rear heated seat activation are in a different category. Those are after purchase upgrades that move you closer to +1 trim level. Makes sense to charge for that.

 

[powertoold]

So Elon said in the Third Row podcast that a large portion of the profit for traditional automakers comes from selling parts at a large margin.

Does anyone know where to find data on this? I haven't been able to find anything yet.

What about this from basic Google search

Here is how your carmaker has been fleecing you all these years

 

[JusRelax]

Hmm - considering I’m picking up an X tomorrow maybe I can get an answer as to whether this is hardware or software based.

Looks like you'll get the higher range, along with all recently made S/X:

Twitter

 

[Cosmacelf]

Wild, according to Elon: “Depends on when car was built, as there are many small hardware improvements, so most will be somewhere in between 373 & 390 [for Model S, X will have similar improvements]”

“Regulations require calling it something else, so we added +”

Mystery solved.

 

[Cherry Wine]

Looks like you'll get the higher range, along with all recently made S/X:

Twitter

Well tomorrow just got even better!

 

[Cherry Wine]

Elon also noted that Plaid will be more about performance than range increase. Quite the tweet storm.

Elon Musk on Twitter

 

[Cherry Wine]

From Reddit:

Back Row Heated Seats now a $300 option for SR+ trim : teslamotors

 

[Yonki]

Weekend OT options question:

Not a genius with options, but was lucky enough to buy a few Jan 2021 500 calls on a whim that have now appreciated 11,244% (pretty wild to need a thousands separator in your % gain!). So I'm looking for some not-an-advices about what to do now that the dog has caught up with the car. Am I right that the only way to postpone paying taxes would be to exercise the option? If I rolled it, I'd still have to pay taxes on the gain, right?

What might be a good next move? I don't need the cash - would rather keep this pot growing.

 

[vikings123]

From Reddit:

Back Row Heated Seats now a $300 option for SR+ trim : teslamotors

View attachment 511336

I’m actually surprised Tesla decided not to install the premium sound hardware(subwoofer) in all cars. They have the technology to limit features using software. Maybe they will in the future.

Could this 300 per car make a meaningful impact and improve the chances of Q1 profitability?

 

[Beltsbear]

I’m actually surprised Tesla decided not to install the premium sound hardware(subwoofer) in all cars. They have the technology to limit features using software. Maybe they will in the future.

Could this 300 per car make a meaningful impact and improve the chances of Q1 profitability?

The uptake will be pretty low in my opinion. And it’s pretty cheap. Though 10,000 buyers do make 3 million.

 

[JustMe]

The uptake will be pretty low in my opinion. And it’s pretty cheap. Though 10,000 buyers do make 3 million.

That’s how they get you. Nice little treat for yourself, not so expensive and just a few taps on your phone. Hey why not add premium connectivity for just a few bucks a month (forever). Apple makes a lot of money that way... hmm.

 

[Buckminster]

So instead of the "Big Three" we now have "The Big One and the Three Little Ones"?

So that makes Tesla the:

Pretty sure that not one of the three have built anything with bricks as yet...
Elon has: