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

[Artful Dodger]

MmeAlexandraS wrote

“on July 15th, and only 32 of the 296 funds even hold Tesla. $TSLA represented only 1.56% of all holdings, so significantly lower than its weight in the S&P 500.”,

”whereof ARK holds 89% of the 1.5M shares”

This means the actively managed ETFs other than ARK only hold approx 0.18% of their funds in Tesla, until they decide to play catch-up to SP500 weighting.

Reminds me of a certain fable about a little Dutch buoy. New Amsterdam by the sea...

Cheers to the Longs!

 

[willow_hiller]

Waiting for all the clever heads in here to fabricate a TL;dr

View attachment 832510

Didn't see this pointed out yet, but it seems like Tesla is confident enough about new FSD features coming to recognize just over $1 billion in deferred revenue over the next 12 months:

Deferred revenue is related to the access to our Full Self Driving (“FSD”) features, internet connectivity, Supercharger network and over-the-air software updates on automotive sales with and without resale value guarantee, which amounted to $2.66 billion and $2.38 billion as of June 30, 2022 and December 31, 2021, respectively.

Deferred revenue is equivalent to the total transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, as of the balance sheet date. Revenue recognized from the deferred revenue balance as of December 31, 2021 and 2020 was $121 million and $157 million for the six months ended June 30, 2022 and 2021, respectively. Of the total deferred revenue on automotive sales with and without resale value guarantees as of June 30, 2022, we expect to recognize $1.02 billion of revenue in the next 12 months. The remaining balance will be recognized at the time of transfer of control of the product or over the performance period, which is generally the expected ownership life of the vehicle.

 

[Artful Dodger]

Future Tesla Shanghai second factory? \Giga shanghai\4K # 446 | WuWa on Youtube (1 hr ago)

On the Youtube page, WuWa provides this discussion and history:

Since the end of 2020, the news about Tesla to build a second factory in China has been debated. The controversy reached its peak last year. Last year, March 20, 2021, rumors of Tesla taking land information, the statement said that the area circled near the current factory area, and clearly between Canghai Road and Wanshui Road, land use area of about 460,000 square meters, according to the information provided, I looked for the location: (youtube]wsUoRupUR0c), but later confirmed not in the location.

Entering April 2021, a vacant lot south of the Shanghai factory area was under construction. I asked several drivers delivering earth what the future use of the land would be, and the truck drivers replied that they would build Tesla Phase III. Later a builder who was repairing the road informed that they were repairing Canghai Road and Wanshui Road, and the road was prepared for Tesla to build a factory. (youtube Yu0GcazHz00) But by the end of May, things changed again, because the negotiations between

Tesla and the local government did not reach an agreement, and Tesla temporarily abandoned the plan to auction the land. So information about Tesla building a second factory slowly fell silent. Even so, there are still many people interested in the land east of the factory who believe that the land expansion is more likely, but that land has remained a site of piles of construction waste for the past year. During that time, there were also a number of reports from China about a second factory being built in cities other than Shanghai, and information continued to spread around the Internet, but these were catch-22s.

Now let's talk about my latest discovery, which I got from a casual conversation with a source in the know, who informed me that the location of the new Tesla factory is at the site of the current Luchao Harbor Farm, which is located about 3 km southeast of the Tesla Shanghai factory and records the Tesla Shanghai factory. (My photo of the new village of Luchao Harbor Farm in November 2020 (youtu. be/ 35HriWvJUa8) I never associated it with the Tesla factory at the time I photographed it. Luchao Harbor Farm New Village is a more established farm community with over 3,200 residents. Built in 1973, it was an important market base for grain, cotton, oil and green fodder, and was one of the key channels for Shanghai's "vegetable basket project".

However, with the development of Shanghai, the government transformed the former agriculture-based Lingang into a high-tech and heavy machinery industrial park, and Lingang's agriculture-based economic construction gradually receded from the historical stage. Large tracts of high-quality farmland were replaced by factories. Back to the topic, in May this year, the news about Tesla building a second factory again was determined by Tesla, according to sources familiar with the matter, as early as 2020, Tesla and local government personnel have fielded the place of Luchao Port Farm and divided the area to be used and entered the negotiation stage, in March 2021 the Shanghai government released information related to the purchase of land by Tesla, if all goes well, the two sides should immediately sign the contract, but by May it was rumored that Tesla abandoned the lease land contract, it seems that the two sides did not reach consistency.

As you can see from the map, this piece of land in the new village of Luchaogang Farm is sandwiched between Canghai Road and Wanshui Road (under construction), and its area is about the same as the area of the existing factory if the dividing line in the west is at Miao Xiang Road and in the east to Chaoxing Road, and if the red dotted line is divided in, the land area is much larger than the existing Shanghai factory (860,000 square meters).

On July 22, I visited the Luchao Harbor Farm, where residential buildings were basically demolished and earth-moving trucks frequently shuttled through the streets, I chatted with local residents and when asked about the future use of the land after demolition, they unanimously replied "A Tesla factory will be built here ......"

Luchao Harbor Farm is located 3 km southeast of the current Tesla factory and about 5 km from Shanghai's Nangang Terminal, making it perfect for a factory.

Sources close to the situation told me that the disagreement between Tesla and the government about the way this land would be subscribed dragged on until now, as no mutually satisfactory way was reached.

"So whether an agreement has been reached between Tesla and the government is yet to be confirmed by Tesla officially, and communicated by the local government.

Cheers!

 

[Singuy]

Didn't see this pointed out yet, but it seems like Tesla is confident enough about new FSD features coming to recognize just over $1 billion in deferred revenue over the next 12 months:

Based on the 10Q since 2020, Tesla had always "expect to realize" over a billion from FSD deferred revenue within the next 12 months. So take this with a grain of salt.

 

[petit_bateau]

Didn't see this pointed out yet, but it seems like Tesla is confident enough about new FSD features coming to recognize just over $1 billion in deferred revenue over the next 12 months:

Absent this my calcs are net income over the next four qtrs would be approx $21 bn, so this would become $22 bn. Others are more optimistic than I am.

 

[Snerruc]

Perhaps there'll be a nice Genuflect mode so it lowers the sides to your exacting specifications and then raises for the floor to meet your items once you've hefted them over the side.

I don’t see the sails as a problem. I’m 5’10 “ and I can’t reach anything over the side of a F250. Not to mention 4” lift kits and 33 or35 tires. Around here they all seem to be coming from the factory lifted. I had a friend with a Honda with sails. It was no big deal.

 

[lklundin]

While that is certainly possible to switch Model S/X to 4680s, it doesn't necessarily mean a structural pack and front and rear castings.

I would like to see Model Y built at Fremont with a 4680 structural pack, and I would love to see a Model 3 with a 4680 structural pack at some stage.

If 4680 cells save money, they save more money in the higher volume models, that may face more price competition.

IMO regular LR Model S/X could remain as 18650s or even move to 2170s, if 4680s delivered a real advantage moving Plaid to Plaid+ would be the priority.

If Plaid+ required front and rear castings, that means the whole exercise requires a lot more engineering resources.

Going the lazy way carrying the pack as cargo means Model S/X can't tap the same weight reductions. But it does mean a slower more incremental evolution, with less downtime, at least no long stretches of downtime or line duplication.

But there are other ways of reducing weight, higher strength steel and aluminium, multi-piece castings. carbon fibre, higher voltage. A top of the range higher priced model can incorporate some new ways of reducing weight, even if the raw materials are a bit more expensive.

I do remember a Twitter post from Soylent Brown along the lines of "Tesla is making 4680s, but not making the bigger size at this time". I can't link it, we will need to trust my memory, or pass it off as my imagination. At the time I wondered if the Roadster and the Plaid+ were intended to use this bigger cell size.

So overall I recon seeing the Plaid+ is a coin toss. But if we see it, it will arrive with the Roadster.

Regardless of the structural pack and gigacasting considerations, there are a couple of reasons why Model S/X could start using the 4680 (or if need be a 46XX, XX < 80) cell:
1) If the cost of the battery cell is increasingly influenced by the cost of the raw materials (as seems to be the case currently), then the CapEx incurred by changing from 18650 to 46XX is amortized(*) more easily,
2) The tabless cell is objectively more efficient due to the absence of heat loss in the tab.
(*): Maybe I should not try to use a long word here.

 

[ByeByeJohnny]

Based on the 10Q since 2020, Tesla had always "expect to realize" over a billion from FSD deferred revenue within the next 12 months. So take this with a grain of salt.

Even more so. Not recognizing all or even most of the deferred FSD revenue in the next 12 months indicates they are not expecting it to be fully deployed even in NA in the next 12 months.

 

[mongo]

Which is why it's weird you tried to pretend Elon meant "other" when he not only didn't say other, explicitly made clear he meant service






Is there some other way besides "profitable" that you are reading Elon saying



and




because that's a weird read.





PENALTY!

MOVING THE GOALPOSTS!


The discussion was on Elon originally stating they had no intention of running service for a profit.

And his later remarks clearly showed he'd changed his mind- based on the real world results and realities of the business.


You denied this- but are now moving the claim to "well sure they're running for profit, but there's REASONS!"


Sure there are.

Reasons Elon realized a while ago- hence why he changed his mind on this.



The ability and willingness to do that in the face of changing situations is one of Elons greatest strengths.


So it's always strange to me when people here try and "defend" him by saying he didn't actually change his mind, when he's not only literally saying he did- but that it's a great thing that he's willing to


A willingness to change your position when new information presents itself is sorely lacking in the general population.

tl;dc; Perhaps we could agree that his intent has always been: "I'm against service charging more than is needed for its sustained viability"? As a contrast to dealerships where parts and service is the main profit stream.

Spoiler: Reducing Clutter

The goal posts:

This service profit thing is actually a really good example of Elon changing his mind on something over time:

Elon 2013: "Our philosophy with respect to service is not to make a profit on service. I think it's terrible to make a profit on service"
Elon 2021: "Unlike other makers of cars, our goal is *not* to profit from service."

Elon did not change his mind, regardless of if you think him doing so would be good.

As to Elon's 2018 statement of service, you'll note I caveated that irrelevant-to-inital-goal-post data point (if you want a separate discussion of what that statement meant, ok, but it doesn't change Elon's messaging Tweet to Tweet):

Even taking vehicle service on its own.

As in, even if he was referring to serivce vs service and other, service being gross margin profitable does not mean it is net profitable on an organizational basis. It means that the rest of the business isn't carrying its cost (or at least not as much in the case it is not fully offsetting its share of OpEx). It also means it can more likely scale without dragging down the finanicals.

Yeah, long-term I'd expect service to be a significant revenue item and to be a positive margin contributor. And it's going to be a function of our fleet size and (multiple speakers), yeah exactly we're under warranty, it is like a lot of surplus on warranty. But as the warranty expires, so there is like non-warranty items then we expect service to positive gross margin.

He has shown the same philosophy on Supercharging. 30% gross profit or 10% net to roll back into expansion, else growth is not feasible.

We aim for 30% GM or ~10% profitability, all costs included

https://twitter.com/x/status/1510691354623590410

You see 2018 as clear departure from a losing money service ecosystem, I do not. I see it as the same philosophy of covering the costs in a sustainable manner.

Anyway, I'm sure everyone else is bored (other than cat), so tag me in a different thread if you want.

 

[The Accountant]

Bitcoin Simplified

It's easy to get tied up in knots trying to figure out where Tesla stands on bitcoin because of the silly impairment charges clouding up true cash impact.
Here is a simple way to look at it.

Tesla spent $1.5b buying Bitcoin (cash out) and sold twice for $272m and $936m (cash in) leaving them $292m in bitcoin from their original investment.
As of July 25 (today) their remaining Bitcoin is worth $265m so they are underwater by $27m.
Tesla reaches breakeven on their original $1.5b outlay if Bitcoin reaches about $26k per coin.

 

[unk45]

OK, my questions for you all working on valuation models.

1. What modeling does wall street use? How far out? How do they value? What discount rate? Why for each of these things.

2. If different, why do you use your chosen method, time frame, and discount rate?

Feel free to direct me to a link explaining #1 if you wish.

I ask, because it just seems like going 20 years out is ridiculous (not a critique of anyone, just not how I think of it). When I was changing my own investing from the futures markets, day trading, and short term trading, I struggled with these things as I started groping with TSLA as an investment. I do not recall any texts that I read that discussed such things and could not find in person or online mentors to help me understand. What I did do, was look at statements TSLA made, figured on them capturing some percentage of the market at profit points they aimed for (I recall 10% margin on the unyet named model 3). I played around with earnings per share to come up with a price point we have long since passed. I discounted 20% per year for a present value.

I really felt brilliant doing such things by myself but you all amaze me with how thorough you all are (Rob Maurer also)

I recommend starting here:

Amazon.com

After that I recommend this:
Value Investing: from Graham to Buffett and Beyond and Competition Demystified: A Radically Simplified Approach to Business Strategy

These books are blatantly about Value Investing. The basic problem is how to define 'value'.
@The Accountant uses a traditional (in value investing terms) assessment of earnings quality with, in Tesla's case, not emphasizing debt coverage because Tesla has negligible debt. I'm sure he'll speak up if I seem to represent him.

disclosure: I am a graduate of Columbia Business School, where value investing has been a constant message since Graham and later, Dodd. That includes considerable attention to derivative and option pricing, although Value Investing and Speculation are opposite poles, with Momentum following closely on speculation. From an institutional investor perspective value forecasts mostly cede to rating agencies and advisory services; notable exceptions are strict adherents of value investing such as Ron Baron (who actually never had academic background in the investment philosophy he follows.

All this may seem irrelevant to the forecasting methodology one chooses. As several people point out the discount rate is one crucial point (In Value Investing the discount rate is meant to be the 'blended incremental cost of capital' but most Wall Street 'analysis' uses arbitrary numbers.)

One major problem with forecasting methodology is to accurately cost equity, and that is very hard to do without a regular track record of primary offers. In Tesla's case new issuances would be silly because of the cash generating nature fo the business. However, it's equally obvious that the Tesla cost of equity would be very, very low. We also do not know what Tesla cost of debt would be since the only debt they have offered recently has been lease and loan securitizations. An added complication is that Tesla has unusual pricing power so can anticipate regulatory pressure. Hence setting the proper discount rate for tesla is not easier, either.

The largest problem in forecasting Tesla is that there is no precedent. Many of us try with the 1910's Ford, Amazon, Google, Apple etc. We almost never think of Xerox, Kodak, Kaiser etc. We are just beginning to try to consider Tesla Energy, Supercharger network, used car sales as potentially material factors.

Hence long forecasts are important, but fraught more in Tesla's case than in many. Even the competitive outlook is largely imagined but not yet really in evidence. That is only exacerbated when we consider key executive risk (Elon is not the only one), regulatory impediments and the overwhelming climate risks.

Nobody has published much about how to value a company with a ~50% growth rate, several months of backlog and lack of presence of any kind in half the world. That is probably why we obsess on the things we can know, and why we want good critical thinking rather than FUD.

As for blended capital cost, at present and for some time, Tesla manages to have positive cash flow even while growing at >50% per year and starting new technologies, new factories at the same time. That is unheard of; I know of no such case ever, anywhere. Thus the cost of financing for Tesla is now negative since they are realizing sales before they must pay suppliers. That, in turn, keeps their supplier costs very low.

So, to be accurate in these circumstances the discount rate for Tesla would likely be roughly equal to the inflation rate in major supplier countries and major sales countries. Not precise but close, Tesla has roughly equal exposure in US dollar (9.1%), China (3.0%) and Eurozone (8.6%). Blending those would yield average inflation of 6.9%, so as good a discount rate as we might have.

FWIW, nobody so far is using such a low discount rate. Why? Because they all seem to think Tesla is somehow higher risk than may be others. Personally I think the positives for Tesla outweigh all the questions so I'd discount at 6.9%.
So the higher the discount rate the shorter the term value chain will be. By choosing the one I do, forward values really go at Plaid speed, which as we know from Spaceballs, is very high risk.

That is our dilemma. The facts seem too optimistic. It seems wildly implausible. Yet such things have happened, but most of them were a century ago or more. Thus our realistic analogues are probably Amazon and Apple. If this approach to Tesla is wrong, we'll have much more serious problems than correct valuation of securities.

Obviously all this is my opinion, driven by decades of experience and study. A huge caveat is that I would never, ever vote for anybody within a decade of my age. That may apply to my investment approach too, although I don't think so. Old and opinionated, I am.

 

[Singuy]

Even more so. Not recognizing all or even most of the deferred FSD revenue in the next 12 months indicates they are not expecting it to be fully deployed even in NA in the next 12 months.

Well we know wide release will be US only, then Canada probably half a year later. EU and China shouldn't hold their breath for the next 12 months.

 

[ZachF]

Comment from a former Moody on Tesla bond rating (Edit: MmeAlexandraS on Twitter, thanks, @new_sneakers)

”
according to Alexandra Merz, founder of L&F Investor Services, which advises international investors on the creation or purchase of U.S. businesses. Merz spent years as a credit officer at Moody’s in France.

Merz is comparing cash to debt, debt to equity, and debt to operating profits, among others. “It’s ridiculous,” adds Merz about the rating versus metric paradox. “Tesla is clearly in the top 3 strongest [large cap companies.]”

S&P and Moody’s might not have acted yet because they are typically slow to do so, adds Merz.
”

https://twitter.com/x/status/1551193224773074944

I told you they’d get a debt upgrade after there was no longer any debt to upgrade!

 

[Nocturnal]

I don’t see the sails as a problem. I’m 5’10 “ and I can’t reach anything over the side of a F250. Not to mention 4” lift kits and 33 or35 tires. Around here they all seem to be coming from the factory lifted. I had a friend with a Honda with sails. It was no big deal.

Also worth noting that lifting heavy objects up out of a bed (a few feet away from your center of mass) and then up and over your head/shoulders is recipe for injury.

Plus, the CT has a bed. If people have this imaginary need to do this, keep those items at the rear. The other EV trucks are nearly worthless for towing, may as well stick with my 3 for this purpose. The range is what makes the CT the superior all around truck.

 

[Artful Dodger]

CATL is building a new European battery plant in Arnstadt, Germany. This location is approx. equidistant from Tesla in Berlin, VW in Wolfsburg, and other German automakers in Munich:

CATL in ARNSTADT Germany - Future European Battery Production Base

LFP's will be much cheaper to ship from the center of Germany, rather than from China. Good for the Germany car industry, going forward.

Cheers!

 

[ZachF]

https://twitter.com/x/status/1551556758497333249

Is this Fremont? I thought they hadn’t gotten single piece castings yet?

 

[Mengy]

https://twitter.com/x/status/1551556758497333249

Is this Fremont? I thought they hadn’t gotten single piece castings yet?

Sure, my 2021 MY LR has the single piece rear casting in it.

 

[elasalle]

When WSJ FUD piece came out it was not behind any paywall. FUD for free.
Saw another linked WSJ around same time on EV and Govt spending and Tesla and it was behind a paywall.
Saw mention that WSJ corrected it's story after Elon's rebuttal and now the FUD piece is behind a paywall ( go figga ... )

 

[mongo]

https://twitter.com/x/status/1551556758497333249

Is this Fremont? I thought they hadn’t gotten single piece castings yet?

Fremont has had two single piece rear casting machines in sheds outside for quite a while now.
Tesla Model Y Giant Casting Machine Already in Fremont Factory
Y production switched over from two piece in early 2021.

In case of ambiguity, no one has full vehicle one piece castings.

 

[TN Mtn Man]

I've come to value the financial expertise on this forum more than the "talking heads" on most of the network financial programs, so I figured I'd ask. Q2 GDP results are coming out this week. So-what will the impact be on the market as a whole, and TSLA in particular? If GDP is down, we fit the "classic" definition of a recession, with 2 consecutive negative quarters. At the same time, I hear the "talking heads" spinning it that that's no longer the "proper" definition of a recession. So, either way, if GDP is down, will the market be badly impacted, or is it priced in? Conversely, if there is a surprise and it's positive, will this be a significant boost, indicating that perhaps we have bottomed and are in a "recovery" (yes, not proper def if we're not formally in a recession). The claim is that "unemployment is at record lows", but lots of companies in tech in particular are either laying off or reducing hiring plans, not sure how that hits the labor market as a whole. The slowdown in housing starts should be a negative employment indicator in that sector. What does the local brain trust think? Thanks.