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

[TSLA Pilot]

That sucks and makes sense. Diversifying helps a lot while still trying as best as possible to invest in a company that's trying to avert climate change. Tbh, I found myself turning into a bit of an Elon Musk "stan" on the run-up over the past 2 years to my family and friends. It's not healthy.

Ah, well, I feel your pain having had to make six-figure cash infusions to make margin calls. HOWEVER, consider the longer-term view and plan accordingly going forward; diversification is suboptimal:

 

[CorneliusXX]

I wish I could just shadow someone to learn a way to low risk my way into this. I’ve got 1500 shares and have been terrified to do anything. With only a 50k income and being up like 1300-1700% over 5 years I fear I’ll always be too paralyzed to take risk as this is my one way ticket to an early retirement and knowing myself I’d ruin it.

I find the best way to learn these things is to start doing it in a way that gives you some skin in the game while not causing too much trouble if you stuff it up. I'd just buy a couple of cheap options in another company (because TSLA is too expensive (pre split at least) and you could buy cheaper options that might only cost you a few hundred dollars or less in another company) - that way if everything goes wrong you will be fine but hopefully learn a few lessons on what not to do. You can't lose more than you put in if you are buying options (as opposed to selling where losses can be many multiples of the cash you receive). It also sharpens the mind to start researching the product when it doesn't do what you expect. Once you get more comfortable with them you can turn your attention to TSLA.

 

[saniflash]

I find the best way to learn these things is to start doing it in a way that gives you some skin in the game while not causing too much trouble if you stuff it up. I'd just buy a couple of cheap options in another company (because TSLA is too expensive (pre split at least) and you could buy cheaper options that might only cost you a few hundred dollars or less in another company) - that way if everything goes wrong you will be fine but hopefully learn a few lessons on what not to do. You can't lose more than you put in if you are buying options (as opposed to selling where losses can be many multiples of the cash you receive). It also sharpens the mind to start researching the product when it doesn't do what you expect. Once you get more comfortable with them you can turn your attention to TSLA.

and never, NEVER get greedy with options. Should you find yourself on a track where you think you can make four or five-digits per week (e.g., by virtue of selling spreads), I can assure you this is the path to an eventual wipeout.

Even broader heuristic: Any time when you think "wow this is so easy why isn't everyone doing it and making a shitload of money", stop immediately whatever you're doing and backtest/research your ACTUAL risk exposure.

 

[15Peter20]

Only sell if you think their products and services are trending worse, or if you are buying a social media platform.

There. Fixed it.

Oh gods. It’s message to HODLers. Clearly he thinks Tesla’s products and services are trending worse, hence he’s selling!! The sky just descended by several thousand feet.

Do I need one of those /s thingies?

 

[hobbes]

SMP discusses ARK and Tesla, featuring an interview of Cathy Woods:

Interesting take away for me: They sold Tesla even though it has been down because other stock they have has been down more, so it is rebalancing, business as usual. Obvious if you think about it, but at the first moment selling when a stock is down smells like losing conviction.

 

[hobbes]

Companies on Shanghai’s first whitelist resume over 80% production: official - Global Times

www.globaltimes.cn

Additional info from Grace Tao and another Tesla official included here:

"We still have full confidence in China's economy," said Grace Tao, vice president of Tesla. "The pandemic is a short-term test. We have seen China's ability to cope with challenges and we believe that normality will soon return."

Its supply and logistics chains are in a "warming up" process, which has resumed 80 to 90 percent capacity, said Song Gang, manufacturing and operation director of the Tesla Shanghai Gigafactory.

Shanghai accelerates business restart with support measures

More than 80 percent of first round government-approved white list companies have resumed operations

www.shine.cn

 

[The Accountant]

The RORO carrier ship Viking Adventure docked at Shanghai today (Apr 30) with expected destination of Zeebrugge.
According to Franco, this is subject to change. The ship has listed Ningbo China as it's first destination which is unusual.
I think we will know more by mid-week.

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Mr Miserable who tracks ships on the UK & Ireland threads speculates that the Viking Adventure does not have Tesla vehicles onboard.
He's continuing to track the ship.

2022 Shipping Movements

Pier 80 is in San Francisco, not Shanghai mate Thanks mate, but I was just asking about shanghai because that's where the cars for the UK come from, not San Fran

teslamotorsclub.com

 

[The Accountant]

Build Quality / Build Design / Margin Spread
When Tesla sells a vehicle or an energy product, it puts aside some money (not cash but an expense accrual) for future expected warranty costs.
I've been tracking the warranty provision as a % of sales since 2018 and Q1 2022 is the lowest percentage recorded at 1.7%.
The reason for the decline can be attributable to 3 factors:
- Build quality is better thereby reducing warranty occurrences
- Build design is better reducing the cost of repairs
- Selling price increases are running higher than warranty repair costs increases.

My guess is it's mainly related to my first point on quality.

 

[brantse]

I wish I could just shadow someone to learn a way to low risk my way into this. I’ve got 1500 shares and have been terrified to do anything. With only a 50k income and being up like 1300-1700% over 5 years I fear I’ll always be too paralyzed to take risk as this is my one way ticket to an early retirement and knowing myself I’d ruin it.

I would recommend you try it out by selling one covered call, and certainly not on all your shares at once and not at these prices. In my mind, we were fully valued at around $1200 last fall, so I started selling one year out covered calls with strikes starting at $1800+. I was doing it slowly, knowing that trying to time the top is a fool's errand. Unfortunately, I was only able to sell calls on half of my position before Elon tweeted about selling shares.

I have since closed out all but one of those calls, by buying them back at significantly lower prices, and look to reopen when the shares are closer to being fully valued.

My recommendation is to stay away from weekly options and only do 3+ months out and at prices that you would not have heartburn about selling shares at. It's a very strange thing the first time you see a negative position in your account, and can get a little terrifying to see that negative position start climbing rapidly if the market goes on a tear.

 

[Max Plaid]

and never, NEVER get greedy with options. Should you find yourself on a track where you think you can make four or five-digits per week (e.g., by virtue of selling spreads), I can assure you this is the path to an eventual wipeout.

Even broader heuristic: Any time when you think "wow this is so easy why isn't everyone doing it and making a shitload of money", stop immediately whatever you're doing and backtest/research your ACTUAL risk exposure.

Ha ha, indeed - there was the "100k club" running for a time last year in the "other thread", crazy

 

[The Accountant]

Another Benefit of Direct to Consumer Sales
We've discussed often the benefits to Tesla of a Direct-to-Consumer model (no dealers).
@jbcarioca has informed us about the benefits of lower warranty repair costs, faster cash cycle, lower inventories, etc.

One other benefit of the Direct-to-Consumer model is Tesla gets the Customer Deposits.
In August 2021, Tesla increased the non-refundable customer deposits from $100 to $250. This means that the Customer Deposits that Tesla was holding at Q2 2021 will increase (assuming backlog stays flat) from $812m to over $2B by the end of this year as deliveries with $100 deposits get replaced with new orders of $250).

 

[SageBrush]

Build Quality / Build Design / Margin Spread
When Tesla sells a vehicle or an energy product, it puts aside some money (not cash but an expense accrual) for future expected warranty costs.
I've been tracking the warranty provision as a % of sales since 2018 and Q1 2022 is the lowest percentage recorded at 1.7%.

How does warranty expenses work for a company like Tesla that owns its own service centers ?
E.g., if Tesla builds a new service center and takes on those fixed costs of running it, does the accounting sheet show this as increased warranty set aside ?

 

[hobbes]

The real question for Shanghai, I think, is its suppliers. We don’t know what suppliers were shut down, for how long, or how much existing part inventory there was. As we all know, if you’re missing one part Tesla can’t ship the car.

Probably the only thing that can provide insight to that is drone flyovers.

See my post here: Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
(Sorry, should have replied directly in the first place)

 

[jerry33]

I wish I could just shadow someone to learn a way to low risk my way into this. I’ve got 1500 shares and have been terrified to do anything. With only a 50k income and being up like 1300-1700% over 5 years I fear I’ll always be too paralyzed to take risk as this is my one way ticket to an early retirement and knowing myself I’d ruin it.

I wouldn't sweat it. I am doing the same thing as you--holding shares.

 

[The Accountant]

Interest Income . . . . the Cash Generating Machine replacing Regulatory Credits?
Tesla is making an effort to get some investment return on it's cash balances. In Q1 2022, Tesla invested $508m in Corporate Debt Securities.
The fact that Interest Income only rose from $25m in Q4 to $28m in Q1 tells me the investment was made some time in March . . .so we only have partial benefit in Q1. I am hoping to see Interest Income jump to $40m in Q2 and a full year number of $150m. If Tesla invests more of its cash in Marketable Securities, we should see a nice increase in Interest Income. . . .combined with Tesla's future positive Free Cash Flow and a rising interest rate environment we could see annual Interest Income greater than $1B in a few years.

 

[jbcarioca]

How does warranty expenses work for a company like Tesla that owns its own service centers ?
E.g., if Tesla builds a new service center and takes on those fixed costs of running it, does the accounting sheet show this as increased warranty set aside ?

Structurally there is no difference between warranty provisioning and reserve management between Tesla and any other OEM warranty provider. In both cases the initial reserve is created at the time of initial entry to service (That, however can be a managed variable since It traditionally begins upon entry into service, thus demonstration and display vehicles can be without warranty initiation, sometimes).

The differences happen with post-delivery. With dealers warranty service usually is one of the most lucrative businesses, with formal pricing and terms favorable to dealers, and recalls being the most profitable part of warranty service. Diagnosis is a sub-component that generates very high margins. With Tesla the process is far more streamlined. The diagnosis is normally automated and very often is already done prior to vehicle arrival. Many items are done O TA, and few require service center direct physical diagnosis. Since all warranty costs are internal to Tesla the costs are recorded at actual costs, no profit margin or ‘padding’ nor large accounting and administration staff.

Total Tesla service center, mobile service etc are accounted for in traditional GAAP. Other OEM do not have that unless they own the physical plant and/or equipment. Some do, but most lease such properties or act as guarantors or supporters of dealer facilities. Those practices vary enormously even within OEM. The higher the facilities are standardized the more the support.

 

[mongo]

How does warranty expenses work for a company like Tesla that owns its own service centers ?
E.g., if Tesla builds a new service center and takes on those fixed costs of running it, does the accounting sheet show this as increased warranty set aside ?

I think that would only bump up warranty costs if the average fully burdened service labor hour increased.
Given that service is nearing profitability, it could be the case that warranty costs decrease as warranty hours become a lesser portion of the fixed costs.
Short term, while Tesla grows at a constant to increasing rate of 50%, the ratio of new fleet to old fleet will not improve much (even though out of warranty fleet size increases). So cost management is about right sizing service to saturate available hours and keeping warranty needs low.
Longer term, as Tesla slows growth due to total market conversion, out of warranty fleet will gain in and then surpass new vehicle; but that's a ways out.

 

[petit_bateau]

Interest Income . . . . the Cash Generating Machine replacing Regulatory Credits?
Tesla is making an effort to get some investment return on it's cash balances. In Q1 2022, Tesla invested $508m in Corporate Debt Securities.
The fact that Interest Income only rose from $25m in Q4 to $28m in Q1 tells me the investment was made some time in March . . .so we only have partial benefit in Q1. I am hoping to see Interest Income jump to $40m in Q2 and a full year number of $150m. If Tesla invests more of its cash in Marketable Securities, we should see a nice increase in Interest Income. . . .combined with Tesla's future positive Free Cash Flow and a rising interest rate environment we could see annual Interest Income greater than $1B in a few years.


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This is not my field, so may I ask a question. Berkshire is structured as an insurance company and I believe gains significant tax advantages as a result. Can Tesla benefit from any similar tax advantages, or could it do so if the surplus cash was invested using "Tesla Insurance Co" as the vehicle ?

 

[EVCollies]

I would recommend you try it out by selling one covered call, and certainly not on all your shares at once and not at these prices. In my mind, we were fully valued at around $1200 last fall, so I started selling one year out covered calls with strikes starting at $1800+. I was doing it slowly, knowing that trying to time the top is a fool's errand. Unfortunately, I was only able to sell calls on half of my position before Elon tweeted about selling shares.

I have since closed out all but one of those calls, by buying them back at significantly lower prices, and look to reopen when the shares are closer to being fully valued.

My recommendation is to stay away from weekly options and only do 3+ months out and at prices that you would not have heartburn about selling shares at. It's a very strange thing the first time you see a negative position in your account, and can get a little terrifying to see that negative position start climbing rapidly if the market goes on a tear.

I agree with avoiding weeklies, too much antacid intake. I trade monthlies 30-60 DTE giving me plenty of time to close or roll the option.

Options trading is gambling, with better than Vega odds I believe, but gambling nonetheless and options traders need to be ready to lose that gamble. Don't gamble what you can't lose... HODL TSLA with that money.

Structurally there is no difference between warranty provisioning and reserve management between Tesla and any other OEM warranty provider. In both cases the initial reserve is created at the time of initial entry to service (That, however can be a managed variable since It traditionally begins upon entry into service, thus demonstration and display vehicles can be without warranty initiation, sometimes).

The differences happen with post-delivery. With dealers warranty service usually is one of the most lucrative businesses, with formal pricing and terms favorable to dealers, and recalls being the most profitable part of warranty service. Diagnosis is a sub-component that generates very high margins. With Tesla the process is far more streamlined. The diagnosis is normally automated and very often is already done prior to vehicle arrival. Many items are done O TA, and few require service center direct physical diagnosis. Since all warranty costs are internal to Tesla the costs are recorded at actual costs, no profit margin or ‘padding’ nor large accounting and administration staff.

Total Tesla service center, mobile service etc are accounted for in traditional GAAP. Other OEM do not have that unless they own the physical plant and/or equipment. Some do, but most lease such properties or act as guarantors or supporters of dealer facilities. Those practices vary enormously even within OEM. The higher the facilities are standardized the more the support.

Tesla warranty/recall service will be sooo much less expensive that OEMs. They know a lot about our cars. I recall a phone call recieved from the service ranger who happened to be in our neighborhood and wanted to stop by and complete a recall. That visit cost Tesla next to nothing.

 

[The Accountant]

I estimate that Fremont Production increased by about 25% when comparing Q1 2022 to Q1 2021.
Yet, US sales increased by 97% as Shanghai took over responsibility for European deliveries.
Imagine . . . . 97% increase in US sales and still a one year wait on certain models . . . . . and why is this stock stuck at $900?