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

[Fredneck]

I'm not a big fan of share buy-backs but they do increase the value of the remaining shares in a growing company. And the faster a company is growing, the more this is true. Because each share represents a larger portion of the revenue stream. This is basic stock valuation stuff and the reason why companies buy back shares.

That is my point. There is a value to the company based on the revenue stream. There is a value to the company based on the cash on hand. The value of the stock is the combination of the two. When you retire shares by buying them with cash, it is an even swap and the remaining shares are not worth more.

Look at it this way, if the stock value doesn't include the cash, Gordon Gekko buys the company, grabs the cash and sells the company at a price set by the revenue stream. Obviously this would happen at any company where the value is not set to include the worth of the cash as well as the revenue stream. Trade cash for stock and you've changed the value of the company, but not the value of the remaining shares because the cash for stock should be even Steven. Of course in any given company this may not be exact, but it should be close to even or the stock is not valued appropriately and Gordon Gekko can swoop in to make millions... no, billions.

 

[UnknownSoldier]

Your parents will only mock you if you are short...in which case you'll deserve it.

What if he's tall? Nobody ever got mocked for being tall.

 

[Cherry Wine]

I see your Rob Maurer and raise you Dave Lee on Investing:

@DaveT goes into some detail on the timing (relative to SP) and motivation for the raise. An interesting analysis for sure, I found it quite educating!

New shirt alert!

Thanks.
I think I understand this a little better now - will try out a few scenarios taking Delta into account. Not exactly sure how to use theta, so will likely ignore it for now.

In the call spread strategy, do you always keep the same strike dates for both the long call and short call? Was wondering if selecting an earlier strike date for the long call and a later strike date for the short call would be better?

There are many different spread strategies, including:

• Vertical call spreads -- wherein the long/short legs of the spread share the same expiry.
• Calendar spreads -- same strike, different expiration.
• Diagonal spreads - different strike, different expiration.

 

[UnknownSoldier]

God I hope so. I sure as hell wasn't done accumulating. Never thought I would be this upset about my net worth increasing so rapidly.

Every time I sell a call for a profit, I imagine the visit from Mr. IRS Taxman and I get a little sad. I know I should be happy because you only have to pay taxes if you have gains, but I don't know. Human psychology is weird.

 

[AudubonB]

Maybe I've said this already, but I'm not saying the company won't do well and be worth more in the future. Clearly company has a long term historical trend upward and they have more room for being even more highly valued, but the anticipated growth of the company will make the company worth $900 a share for many years. In the mean time the market will reject the over enthusiasm of the current prices and bring it back to a more reasonable number in the $200 to $300 range. All it will take is for the company to miss one quarter. I'm not sure what the expectation is for 20Q1, but that is already shaping up to have issues. Maybe enough to bring back losses, maybe not.

One point that gets ignored a lot here is that while expansion through debt is a good thing in general, it creates risk. If the market/economy starts to slip and people buy fewer cars than Tesla is making in the previous quarter/year, the expenses of making cars can be cut back, but the debt can't. The company can easily go into the red depending on things the company can't control. To reach $900 a share in real value will require not just excellent performance over a number of years, but also the external factors that Tesla can't control. By that time there will be all manner of new competition as well.

In the mean time anything can happen. I would never have said it would peak at over $900. There is just so much irrational exuberance for this company.

You are a forum newcomer, so may not yet have learned that - not as the “owner” of this thread that bears my name, but as its senior Moderator - I do not bestow any post “likes” or other icon comment. Rather, if I find a post worthy of comment, I comment.

What could the forum regulars possibly more clearly have written over the past many months from which anyone a visitor here not have learned that Q1, most especially in the shadow of the spectacular Q4, will be modest? Unless, that is, that some of the FCA credits and other items sitting on the balance sheet begin to march their inexorable way across to the income statement, of which we received excellent suggestions in the released 10K.

The parallel thread, “Near-term Quarterly Results” should be required reading for anyone wishing to post in this thread...as a start.

Here is a question for you, however: Wherever do you come on in that second paragraph discussing the risks of debt when the company just this past week has shored up an already impressive cash balance with more than $2 billion in new cash?

 

[Fredneck]

Again, you are wrong, if you look at proper peer reviewed well-to-wheel energy efficiency studies then even "worst-case" 100% coal powered EVs are far more efficient and produce far less local pollution than gasoline cars.

Please provide a reference. I take exception with your use of "far more" efficient.

(A very short summary is that coal plants are, in essence, high efficiency (50-60% energy efficient depending on technology) steam engines with excellent thermodynamics

I've not seen any data showing 60% conversion efficiency in coal plants. That may be theoretical, but the coal plants in use in the US are more like 30% to 35% efficient.

and average electricity transmission and EV drive train losses are more than counteracted by the 10% regenerative braking claw-back, while the crude oil extraction, transportation and refinery process combined with an inefficient ICE engine alone is less than 20% energy efficient even for econocars - and less than 10% energy efficient in performance ICE vehicles such as Porsches that Tesla is displacing.)

Sorry, that seems like hand waving. I have seen the analysis with details and there are significant transportation and processing costs and energy losses with extracting coal as well. It's also absurd to talk about the ICE being only 20% efficient. I would also point out the size of the car has nothing to do with efficiency in a technical sense. It just takes less power to propel an econocar just like a large portion of the efficiency of the Teslas is due to the aerodynamics and various efforts taken to reduce losses involved in the car itself which have nothing to do with being an EV.

This is a simple scientific fact that has been rehashed here numerous times already, if you want to dispute it please take it to other forums.

Yes, there are scientific facts, but you seem to be distorting them.

 

[ByeByeJohnny]

For decades I've heard complaints from you poor Americans about having so few days off. That seems to be wildly inaccurate. Even the stock markets that are run by the computers seems to have an extra day off every couple of weeks.

It's time you all start putting more hours in so we can get back to making money.

 

[StealthP3D]

A vaccine coming soon?

San Diego Lab Says It Has Designed a Vaccine for Coronavirus

If true then the market might like this.

I'm afraid not. The vaccine still needs to go through clinical trials.

 

[StealthP3D]

Here is a question for you, however: Wherever do you come on in that second paragraph discussing the risks of debt when the company just this past week has shored up an already impressive cash balance with more than $2 billion in new cash?

That is the part that really jumped out at me as being particularly disconnected from reality. Tesla's debt is mostly convertible debt at prices low enough they are very unlikely to have to pay it off with cash. And the recent > $2 billion cash raise incurred no new debt. Tesla's balance sheet has never looked healthier and a quarter that surprises to the downside is not going to raise any concerns with the level of debt.

 

[Fredneck]

Given that workers are already returning, as shown in photos, isn't that kind of disingenuous?

I read that it is not unusual for some percentage of workers to not return after the holiday and with the Coronavirus that may be exacerbated. Also, while things are looking better with the new infection rate, it is a long way from being over and it has potential for getting a lot worse.

I'm not trying to say that this is a problem or that it will be a problem. I'm just trying to point out that even the short term future of Tesla is not cast in stone. The current valuation is at levels that will require many fold growth of the company over years. It just seems like a silly bet to expect the company will perform perfectly for that long. The first significant misstep and the stock price will drop and you'd be better off having not bought it earlier. That's why I'm selling at these prices as soon as my gains will be long term and I'll wait for some bad news to bring the stock price to more reasonable prices.

 

[Cherry Wine]

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

So a quick update after a whirlwind of a weekend. Picked up the Model X yesterday - LOVE. IT. Car was pretty much flawless, with the only flaw being a very faint circular patch of swirl marks on the hood about the size of a small plate. Very hard to see unless under certain lighting conditions (which is why I didn't notice it until we got it home and under the fluorescent lights in our garage). Tesla pledged to have the detail team polish it out whenever we'd like. Go Tesla!

Some bits of data that I can share beyond just gushing about the car:

• "Long Range Plus" / Mfg. Date: In case anyone is curious, the car was manufactured (per the door jamb sticker) in 02/2020. It (unsurprisingly) has the software-locked 328mi max range.
• Tesla Insurance: Added my wife to our Tesla insurance policy, which dropped the premium by $0.88/mo. Was on hold for about 3-4 minutes to make the change, but once I was through it was very painless.
• Deliveries / Foot traffic: The delivery / service center was doing steady business both yesterday and today (when I went back to pick up my other vehicle, since I had to pick-up alone yesterday). Plenty of folks taking test drives, checking out the cars, and I'm pretty sure someone placed an order while I was there. There were two other Model X deliveries taking place at approximately the same time as mine yesterday. I was told that they had about five deliveries planned for Saturday.

Also, I scratched a long-standing itch and test drove a Performance 3 today. All I can say is...holy ****.

 

[MC3OZ]

RIP Holden.

Maybe Tesla can come to Australia in a year or two.

The best hope for Australia is if a derivative of Cybertruck can be done quickly for lower capex, and energy storage batteries can be done quickly for lower capex... The Australian public would be overjoyed, and politicians would be falling over each other the elbow their way into the photo opportunity..

But Tesla would get a similar welcome anywhere....

 

[deffu]

Every time I sell a call for a profit, I imagine the visit from Mr. IRS Taxman and I get a little sad. I know I should be happy because you only have to pay taxes if you have gains, but I don't know. Human psychology is weird.

Obviously Uncle Sam is the one who is the best in trading stocks. You are just jealous of him.

 

[Artful Dodger]

Boo-birds and snow-flakes out on a cold nite in February... let's take a moment to recall how the Market reacted to Elon's announcement about Gigafactory Berlin: (evening of Nov 12, 2019)

Seems the Market placed negative value on another Gigafactory, hmm? So now the boo-birds and snowflakes think the SP will collapse? Yeah, because WHAT again?

Buy the dip. These manipulators will be.

Cheers!

P.S. Yes, your eyes aren't deceiving you: 3 mths ago the TSLA was trading for $346/share. Guess the post-GF4 announcement WAS a good time to buy TSLA...

 

[Fredneck]

You are a forum newcomer, so may not yet have learned that - not as the “owner” of this thread that bears my name, but as its senior Moderator - I do not bestow any post “likes” or other icon comment. Rather, if I find a post worthy of comment, I comment.

I don't know if you are joking about this or not. Maybe I just don't get your style of writing.

What could the forum regulars possibly more clearly have written over the past many months from which anyone a visitor here not have learned that Q1, most especially in the shadow of the spectacular Q4, will be modest?

Sorry, I'm not sure what you are saying. Your description of Q4 as "spectacular" Q4 seems overdone since it was just Tesla doing what they said they were going to do, no? They actually barely scraped by in meeting the year's goals.

Unless, that is, that some of the FCA credits and other items sitting on the balance sheet begin to march their inexorable way across to the income statement, of which we received excellent suggestions in the released 10K.

The parallel thread, “Near-term Quarterly Results” should be required reading for anyone wishing to post in this thread...as a start.

Here is a question for you, however: Wherever do you come on in that second paragraph discussing the risks of debt when the company just this past week has shored up an already impressive cash balance with more than $2 billion in new cash?

You mean the capital infusion that resulted in the dilution of shares from the shares that were issued in order to acquire the capital? Yes, this was a much better time to sell more shares of stock than it was the last time Tesla had to raise capital. It was very strange that just days before Elon had indicated there was no earthly reason to seek new capital. But maybe he meant any more capital than they were planning to raise and hadn't told anyone about??? Sometimes his guidance seems almost perverse in its opposition to reality.

 

[Aeon]

I don't know if you are joking about this or not. Maybe I just don't get your style of writing.


What could the forum regulars possibly more clearly have written over the past many months from which anyone a visitor here not have learned that Q1, most especially in the shadow of the spectacular Q4, will be modest?

Sorry, I'm not sure what you are saying. Your description of Q4 as "spectacular" Q4 seems overdone since it was just Tesla doing what they said they were going to do, no? They actually barely scraped by in meeting the year's goals.




You mean the capital infusion that resulted in the dilution of shares from the shares that were issued in order to acquire the capital? Yes, this was a much better time to sell more shares of stock than it was the last time Tesla had to raise capital. It was very strange that just days before Elon had indicated there was no earthly reason to seek new capital. But maybe he meant any more capital than they were planning to raise and hadn't told anyone about??? Sometimes his guidance seems almost perverse in its opposition to reality.

*sigh
[ad hominem attack here]

 

[Singuy]

Sorry, I'm not sure what you are saying. Your description of Q4 as "spectacular" Q4 seems overdone since it was just Tesla doing what they said they were going to do, no? They actually barely scraped by in meeting the year's goals.




You mean the capital infusion that resulted in the dilution of shares from the shares that were issued in order to acquire the capital? Yes, this was a much better time to sell more shares of stock than it was the last time Tesla had to raise capital. It was very strange that just days before Elon had indicated there was no earthly reason to seek new capital. But maybe he meant any more capital than they were planning to raise and hadn't told anyone about??? Sometimes his guidance seems almost perverse in its opposition to reality.

Hey Elon guided for robotaxi this year. So I guess if that happens then you'll also yawn at the dawn of full autonomous driving..lol.

2021 I hear they guided for rocket intercontinental transportation.

2023 I hear we are going to the mars

All a bunch of nothing burgers if they all come true because it's within expectations to you

 

[CorneliusXX]

Maybe I've said this already, but I'm not saying the company won't do well and be worth more in the future. Clearly company has a long term historical trend upward and they have more room for being even more highly valued, but the anticipated growth of the company will make the company worth $900 a share for many years. In the mean time the market will reject the over enthusiasm of the current prices and bring it back to a more reasonable number in the $200 to $300 range. All it will take is for the company to miss one quarter. I'm not sure what the expectation is for 20Q1, but that is already shaping up to have issues. Maybe enough to bring back losses, maybe not.

One point that gets ignored a lot here is that while expansion through debt is a good thing in general, it creates risk. If the market/economy starts to slip and people buy fewer cars than Tesla is making in the previous quarter/year, the expenses of making cars can be cut back, but the debt can't. The company can easily go into the red depending on things the company can't control. To reach $900 a share in real value will require not just excellent performance over a number of years, but also the external factors that Tesla can't control. By that time there will be all manner of new competition as well.

In the mean time anything can happen. I would never have said it would peak at over $900. There is just so much irrational exuberance for this company.

This is just the start. Tesla has a lock on the future of the auto and energy sectors, along with potential to enter adjacent markets of shipping, aircraft, home automation and many more. $900 is the probably discounted value of all that future revenue. The problem with your analysis is that you lack the vision to see what Tesla is becoming so you think it is overvalued. We are only in the first or second inning. You need to think about how this game will unfold.

 

[davepsilon]

That is my point. There is a value to the company based on the revenue stream. There is a value to the company based on the cash on hand. The value of the stock is the combination of the two. When you retire shares by buying them with cash, it is an even swap and the remaining shares are not worth more.

Look at it this way, if the stock value doesn't include the cash, Gordon Gekko buys the company, grabs the cash and sells the company at a price set by the revenue stream. Obviously this would happen at any company where the value is not set to include the worth of the cash as well as the revenue stream. Trade cash for stock and you've changed the value of the company, but not the value of the remaining shares because the cash for stock should be even Steven. Of course in any given company this may not be exact, but it should be close to even or the stock is not valued appropriately and Gordon Gekko can swoop in to make millions... no, billions.

That’s the fundamental valuation view. The stock price reflects discounted future cash flows.

There is also the technical value view. The stock price reflects the equilibrium price for active investors.

When looking at a supply shock in the number of shares available - as is the case when a company buys back their shares - the second view seems more useful. Some investors have to stop holding since the shares are no longer available. The invisible hand of the market steps in and convinces investors to do this the only way it knows how, a price increase. Not to mention the tax planning options that investors benefit from with a stock buyback compared to a dividend.

I found the post below very useful when thinking about this idea of technical demand setting the price.

On this topic, some thoughts on general drivers of Tesla share price this year:

A company’s share price is the equilibrium point where Active Investors with a fair value estimate greater than the current share price is equal to the number of shares available for active investors to purchase.
Share price is changed by 3 key things: A) Changes in current investors fair value estimates (based on fundamentals), B) Increased pool of investors considering the stock & making fair value estimates & C) Changes to number of shares available for active investors to purchase.
Changes to shares held for Options & Convert Delta Hedging and changes in Short Interest do not change A & B, but they do change C and hence do drive changes in the share price.

In the short term, Options Delta Hedging is ~6x more powerful feedback to share price moves than Short seller’s collateral calls (and c.1/3rd of this is cancelled by convert delta hedging). However in the longer term I'd guess changes in Short Interest are more significant to SP. I haven’t tracked full net delta exposure of the Tesla options market through time but I guess this is kept relatively stable - on the scale of weeks options holders likely take profits.

Change to short interest however is a more permanent reduction is Tesla share equivalents traded in the market. When a short borrows from one investor & then sells a Tesla share to another investor, they are effectively creating a synthetic Tesla share.
This synthetic share is the short's contractual obligation to the party they borrowed from to return the share & to mirror all dividends on the real share. The original Tesla long now owns this synthetic share & not a real share, but they still have unchanged Tesla exposure.
So when there was 44 million shares short interest in May, Tesla longs had a pool of 224 million Tesla equivalent share exposure to buy from (180m real shares & 44m synthetic shares). This has reduced to an estimated 206m shares today (180m real shares, 26m synthetic shares).
In terms of number of shares available for Active Investors to purchase in the market, shorting/covering is equivalent to raising capital/buying back shares. And this has a permanent impact to the share price even if it does not change any individual investor's valuation. It does not change fundamental value of a company because when synthetic shares are created and destroyed, the economic % ownership of a company and its profits/dividends does not get diluted, and the company does not actually change its cash position.
But in terms of supply demand dynamics for Tesla shares this 17m reduction in Tesla synthetic shares traded was equivalent to a share buyback of 17m shares (I estimate at an average share price of ~$275 and total cost of c.$4.7bn and average SP).
So even if there was no change to any individual investor’s fair valuation of Tesla & even if no new investors got involved in the Tesla story as results improved, then the SP of Tesla could still have permanently changed due to the change in short interest alone.

However, I think its fair to assume that many people's fundamental based fair valuation of Tesla has changed too since the share price lows in May.

Key drivers of this change are:

• There was uncertainty where Model 3 demand would land after the initial reservation orders were fulfilled and US EV credit expired. Deliveries in Q3 & Q4 post clearing the backlog have now significantly reduced uncertainty on this.
• There was uncertainty whether Tesla could continue reducing the production cost of Model 3. But Q319 results implied a ~$5k reduction in Model 3 COGs since 4Q18.
• There was uncertainty how delayed Tesla would be in building and ramping production at GF3 in China and Model Y in the US. But all indications are now that Tesla is currently on schedule or possibly ahead on Model Y.
• There was uncertainty whether Tesla could contain SG&A and R&D expenses as it grew deliveries & launched Model 3 in new markets. But in 3Q19 vs 3Q17 SG&A was down 9% in absolute terms & R&D was flat despite a 272% increase in deliveries.
• Concerns over Tesla customer service and satisfaction have been high based on many anecdotes shared on social media & the media. However in the first large scale survey (5k owners), Bloomberg found 99% of Model 3 owners would recommend to friends, defects were down 44%yoy (far below market average), ~80% say Model 3 is more reliable than their previous car & <5% say it is less reliable.
• There were concerns that ICE OEMs would launch competitive cars such as the E-tron, Taycan etc. However in the end most OEM EV programs have had issues, are relatively low volume programs or are behind on key specs. For example the Taycan is 46% worse than Model 3 LR AWD on the key Powertrain technology metric EPA miles of range per KWh. It even lags 2012 Model S by 31%. As a result investors adjusted their view on how easy it will be for ICE OEMs to catch up on EV tech.

So in conclusion, the 126% increase in Tesla share price from $180 in May to $407 today is likely driven by:

• Changes to original investor’s fundamental fair value estimates.
• New investors getting involved as uncertainty reduced
• A 17m reduction in shares available for longs to buy.

And in the short term price changes are also heavily accelerated by Options delta hedging.

 

[CaliBear1]

Teslas are ubiquitous in Medina, where Gates lives, and Overlake CC, where he's a member. He just wants to stand out from the Teslanaire crowd.

Regardless, I'm appalled by his ignorant and (probably) inadvertent contributions to EV FUD.

Dumb move. If he was a smart person, he could have bought faster and better EVs with 4X that range for the same money! How ? Of course, buying 2 Tesla Model S at nearly 400 miles range each

BTW, this morning Google recommended me this article:
Buy a Brand-New Car Online in California at a Great Price - Ageful
Looks like Tesla-effect hitting the traditional OEMs?
And CNBC anchors still wondering why TSLA valued so high...
Maybe because they keep selling every car they make at 60+% yearly growth rate ?