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

[Artful Dodger]

fewer shares to sell to pay for taxes to pay for the shares

IIRC @mongo straightened us out on this issue previously: the number of shares to sell remains a fixed percentage of the number of share options executed, and depends on the tax rate (including all CA complications) but is/was around ~53% of the shares executed.

Again, I thank @mongo for staying on top of this issue. Grazie!

 

[AudubonB]

Another example from the 70s I was a Principal Engineer at DEC, Digital Equipment Corporation, a minicomputer star of that era. Doing Business School nights at Babson I ran an Oracle decision making experiment that was supposed to converge opposing opinions on good results after iterations totally went awry because every single DEC employee I surveyed stuck by their initial response that microprocessors (INTEL 8008 forthcoming) were no threat and had limited low profit future vs mainframes and minicomputers.
Later DEC also eschewed PCs and were late limp entrants to that market. I was chagrined both times.
Supposedly smart people cognizant of the technology at the time can be blind to innovation and make fatally dumb shortsighted business decisions.
This includes this writer when it came to portals like Google as I did not understand the advt revenue model & potential.

I still miss my PDP-11. It was SO powerful!

I'll bet you helped install it.....

 

[Artful Dodger]

Long term it hurts him as a percentage of the original award.

Only for a little while, while the SP is low. Once unchained though, the SP will soar and Elon can sell shares for only the cost of the long-term capital gains tax. In this scenario, it's better to own the shares early (at lower price) and hold them long term. This aligns with shareholder interests, as it should.

The number of shares needed to sell to execute also increases with lower stock price (less gain per share).

This part is definately true, which is why Elon should borrow (against other assets) or use other funds to pay the cost to execute his stock 2018 stock options. Could sell a proportion after a year to pay any such loan, or just 'FIFO' older shares.

 

[Max Plaid]

Elon doesn't need to wait until 2028 to exercise all of his grants. He can do it gradually over time and planned so as not to tank the stock price.

And where would be the fun in that?

The most likely outcome is the most entertaining one...

 

[insaneoctane]

The SP IS currently too low and does not accurately represent Tesla the company.

Doesn't it depend on your time horizon? Granted, the market is forward looking, but if I'm evaluating the fundamentals over the next quarter or 3, I'm not sure "too low" is absolute. It's certainly too low considering my personal time horizon, which is why I keep buying.

 

[scaesare]

Yeah but the area Apple is dominant in is... profit margin.

Apple has (very roughly) 20% of phone market share, but 80 percent of all profits from phone sales.

When Tesla was looking very much like it was going that direction we were at ATHs. Now not so much. Some folks in here believe it'll be margins on energy (though I'd expect the same peak and then rapid decline in GM as Tesla scales back margins for volume in service to the mission there too as they scale up-- why WOULDN'T they once they can if they had reason to for cars?), FSD, and/or and robots that get us back there

Hence my point that :"the caveat that Elon is not all about pure profit... he recognizes companies must be profitable to survive, but they (and that $$$) are a means to an end. And that end is transitioning the world to sustainable transport and energy."

His drive to dominate what's needed to fulfill the mission. And as such total sales may take precedence over pure profit.

 

[insaneoctane]

Say question:

Since the FSD timeline has been elusive, can we get a standard report for Tesla's estimated timeline going forward in each quarterly report? Suggested format would be list of expected milestones with columns for date of completion and % confidence.

 

[M|S|M MYP]

Hope $TSLA reacts the same way $NFLX is reacting right now.

 

[Krugerrand]

Your description above is precisely why I shared that post (in addition to the great price cut graphic).

He repeatedly has undervalued Tesla, makes very conservative assumptions, explicitly excludes whole future product lines already in development, and yet the current stock price is only 10% above his fair value estimate.

I see that as very bullish.

Maybe include that kind of information and perspective next time. ‍

 

[M|S|M MYP]

Maybe include that kind of information and perspective next time. ‍

"Tesla stock is too high in my opinion"

 

[Krugerrand]

I wonder if moving away from stock-based compensation is a combination of employee feedback (stock trading sideways for long periods of time is not helping them) and the large number of employees now making it a substantial dilution.

There’s no factual evidence Tesla is doing any such thing.

 

[MC3OZ]

Elon finds cash to exercise his shares outside selling TSLA

I like this option, we need to consider a solution which achieves all of the following;-

1. Achieves Tesla mission aims and growth targets.
2. Grows the Tesla business and earnings
3. Allows Elon to exercise his options without needing to sell too many shares

There is a synergy here because:- achieving 1. helps achieve 2;. and achieving 2. can help achieve 3.

1. Mission aims by 2030:-

• 20 Million annual vehicle production
• At least 20X the current Tesla energy revenue
• Annual production of at least 1 Million Optimus robots.
• 1 million working Robotaxis

Ignoring the issue of whether or not FSD is ready, the main issue with all of these aims is battery cells.

IMO Gen3 factories, Megapack factories and Optimus factories can be a simple cut-and-paste with efficient Capex expenditure, relative fast construction and ramp. I can't prove it, but I think this side of the equation can keep pace with the mission aims. However, there is a need to consistently move fast.

For battery cells, I think in house 4680s with be at least 50% of the cells Tesla is using in 2030, they will still be using every cell they can buy from Panasonic, CATL, BYD, LG and probably others.

2. Earnings - If Tesla can achieve the mission aims, I am hoping there are in a position to pay cash dividends in a fairly regular basis starting in 2026. I know taxes need to be paid, but the taxes are a portion of the sum paid...

How can Elon get cash to exercise options:-

1. Pay the man a car industry CEO salary - ASAP- (incentives can be a separate matter)
2. Tesla pays cash dividends (hopefully in 2026)
3. Float X - 2026
4. Float Boring Co - 2026.

1. Salary - IMO Elon is worth at least as much as Jim and Mary so a number in that general ballpark with backdated payments for the recent period when he wasn't paid. Elon will need to pay taxes, but this should allow him to exercise a few options and pay taxes.

For the targets below, 2026 is both the first date by which I think they can be sensibly achieved, and also a good date to ramp up the amount of cash Elon has so he can start to exercise more options.

2. Dividends - better than a buyback IMO, because Elon needs cash, and by 2026 this strategy should not slow down expansion.

3. Float X - All of the software development at X needs to be largely complete and operational, including payments, X needs to be profitable. Elon may be able to retain voting control, and at least get a substantial chunk of cash back. This is optimistic, and it may seem far fetched, but what Elon is trying to do with X isn't well understood.

4. Float Boring Co - Dependent mainly in a final "mass production ready" Boring machine design. Elon might want to retain voting control, but in this case it isn't essential. Funds may also be need to build a factory to mass produce Boring machines...

If my strategy doesn't work by 2026 at the latest, we can revert to one of your strategies.

 

[M|S|M MYP]

Wonder if our good buddy Russ Mitchell was affected:

Los Angeles Times slashes more than 20% of newsroom staff as the paper confronts a ‘financial crisis’

The Los Angeles Times on Tuesday, facing what senior leadership described this week as a “financial crisis,” commenced a round of painful layoffs across the newsroom, a workforce reduction that is set to be one of the most severe in the newspaper’s 142-year history.

finance.yahoo.com

 

[keydiver]

There are 500 Wall St analysts *worse* than him??

Yes, and I have heard that CNBC is actively trying to locate them to come on and talk about TSLA.

 

[Krugerrand]

Doesn't it depend on your time horizon? Granted, the market is forward looking, but if I'm evaluating the fundamentals over the next quarter or 3, I'm not sure "too low" is absolute. It's certainly too low considering my personal time horizon, which is why I keep buying.

For some people their time horizon rules the notion of too low. I’m saying it’s too low all on its own in relation to the company right today.

I’ve definitely heard hundreds of times about this ‘forward looking’ market thing. I’ve also heard about the market not liking uncertainty and all those other catchy sayings.

It’s all made up rice pudding. It’s simply a narrative perpetuated by the likes of Jim Cramer and all his cronies paid for by the people who pull the strings and dictate the winners and losers so they can churn indefinitely and make money hand over fist.

Along with all those sayings are the metrics invented to ‘value’ a company on the open market that for some reason don’t actually apply to all companies and are often straight up wrong. But let’s keep using them because they drive a narrative that we control.

My perspective is that Tesla is actually invaluable and nobody of financial, political or otherwise import knows it. Indeed, most on the planet don’t know.

How should a company that turned the auto industry, dealership model, fueling stations, traditional advertising, energy storage, utilities, driving efficiencies/FCF/ and all those things that demonstrate business acumen extraordinary, and manufacturing on their heads. And appears it’ll do the same in the N/N, AI, robotics et al fields too. A company that may have (because it’s not over yet) been the spark that saved humanity from itself.

I say the market isn’t looking beyond the end of their noses. And is as stupid as the day is long.

 

[Krugerrand]

Say question:

Since the FSD timeline has been elusive, can we get a standard report for Tesla's estimated timeline going forward in each quarterly report? Suggested format would be list of expected milestones with columns for date of completion and % confidence.

No. So every time they don’t reach a milestone when trying to do something that’s never been done, what do we suppose is going to happen?

 

[2daMoon]

Ironically, the call themselves "Energy Companies" but mostly sell and distribute atoms... do any of their engineers know that electricity is fundamentally more efficient, and more abundant? Probably. Their Boards of Directors? Definately not!

So, would this mean we're witnessing a story about Atom and EV in the Garden of Elon?

 

[Artful Dodger]

So, would this mean we're witnessing a story about Atom and EV in the Garden of Elon?

Paging @Musskiah to insert false Idolatry reference as appropriate...

Cheers to the Flock!

 

[2daMoon]

Paging @Musskiah to insert false Idolatry reference as appropriate...

Cheers to the Flock!

Well played sir, well plaid indeed.

 

[mongo]

Only for a little while, while the SP is low. Once unchained though, the SP will soar and Elon can sell shares for only the cost of the long-term capital gains tax. In this scenario, it's better to own the shares early (at lower price) and hold them long term. This aligns with shareholder interests, as it should.

I know we keep butting heads on this...
Ideal is executing just before selling the shares, then he only gets taxed once.
The next best thing is executing at the highest price. The lower the exercise price, the more shares he must sell to execute which is disadvantageous. Taxes also work better if executed later:

If income tax is 50%, capital gains is 20%, and TSLA 10X from original award to sale starting at $100 above basis:
Execute at start, $100 above basis:
$100-50% = $50
10x = $500
Sell: $50 + 80%*450 = $410 Net, $140 tax paid

Execute and sell at end, $1000 above basis:
$100 x10= $1000
$1000 - 50% = $500 net, $500 tax paid
More tax paid in dollars but more money in his pocket because tax is a lower percentage.

Why? Because he doesn't get any further return on the tax paid at exercise (nor the basis).

Half way
$100 * 3.16 = 316 * 50% = $158 net $158 tax
$158 * 3.16 = $158 basis + 341 gains * 80% = $273
$431 take home $246 tax

This part is definately true, which is why Elon should borrow (against other assets) or use other funds to pay the cost to execute his stock 2018 stock options. Could sell a proportion after a year to pay any such loan, or just 'FIFO' older shares.

Using outside cash to cover basis and tax instead of selling shares is identical to just buying shares, they're fungible. If he were going to buy stock, he should do so before it appreciates.