Well feel free to point out what I got wrong instead of whipping out the ad hominem stuff. Also, talk with a current or former service employee and ask them what a “goodwill” repair is, then you will know what I’m talking about.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
The coming Tesla cash cow and the short burn of the century
- Thread starter DaveT
- Start date
I think it's not so much that it is inaccurate, it is that you can't use it as is to estimate future profits as additional sales come in. Especially not when comparing with a regular car manufacturer. For Tesla, there are some costs in SG&A that scale linearly with every sale. Things like the cost of the delivery advisor answering your emails, back office working with leasing companies, costs associated with test drives, etc... It would be helpful to get some idea how large this amount is.
VW went up 3000% in about 3 years. Peaked in 2008. Then went back down. That's how a major short squeeze works.
The coming Tesla rally should be similar percentage wise, even without a short squeeze. Future earnings will support the rally.
In my view, Tesla's growth in the next 10 years will be the main story. Short squeeze or not, is only side note.
jelloslug
Active Member
If somebody with a position different than mine is willing to elucidate the reasons for it, I'm interested.
While it took some doing, we've gotten it down to 2 main factors: rejecting the GM numbers, and concern of warranty costs.
As long as he's willing to discuss the aspects of those things rationally, I'm willing to consider the information.
If somebody reverts to obviously trolling, then I'll move on.
Good questions.
First, I would like to better understand, how does S3 arrive at their estimated of 47M shares to short? Is it just a model based on the demand, per the short interest rate? As far as I understand a borrowed share sold is bought with no strings attached (since otherwise its price would have to be discounted compared to the normal SP), so a single share can be shorted repeatedly.
As for the literal million-dollar question, when the top of the short squeeze is reached, I guess the daily volume can be divided into the estimated number of shares shorted, to get a rough lower limit on the number of trading days required for the shorts to close their positions.
More ideas for predicting the peak of the short squeeze would surely interest many here.
During a squeeze, the shorters who would not close their positions would not only have to be smart, they would first of all have to have sufficient funds in their portfolio, to not be forced to buy. So the weak holders of short positions would be the first to go (bankrupt), and their forced buying would force less weak ones to also close their positions, further squeezing the SP.
So I see a long position on TSLA as a healthy long term investment (with a small risk of total loss, following e.g. a massive fire at Freemont or GF1), plus a lottery-like chance of a sudden opportunity to sell at a vastly inflated price, the socalled 'short burn of the century'.
Regardless of how much money I might personally make on this, watching such a squeeze unfold to teach the TSLA-shorters a lesson would interest me about as much the maiden flight of FH. That's a lot.
It appears that SG&A was ~$686mil as of end of 2018 Q1.
As there are also costs that don't scale linearly, we'd expect greater sales, even with the same GM to outpace SG&A, no?
Comparing the numbers from the current letter to the one from 2015Q1, operating expenses (including both R&D and SG&A) went up by a factor of 2.9x. However gross profit went up 3.6x.
And this is all on relatively low volume.
So I suppose the question becomes: even if you feel the GM target percentage doesn't accurately include some operating expenses, does one really believe that when hitting 5-10K/wk that the "adjusted" margin won't outpace the current ~$600mil operations losses?
Reciprocity
Active Member
@ShortSeller
At some point you have to ask yourself. Are you the only guy in the world that understands how dire Tesla's situation is. I mean, If they are already losing so much money and the future only holds more losses with more production and shipments. Shouldn't the stock be going down? The share price is up over $50 over the last month or so. There has to be some people out there smart like you and can understand just how much trouble Tesla is in as they produce more cars, and how they will actually go more negative. What do you think the driver is for all those people buying the stock and keeping it going up? Maybe no one can read a balance sheet or understands how capex and amortization of costs or depreciation works. Or maybe you are missing something?
At some point you have to ask yourself. Are you the only guy in the world that understands how dire Tesla's situation is. I mean, If they are already losing so much money and the future only holds more losses with more production and shipments. Shouldn't the stock be going down? The share price is up over $50 over the last month or so. There has to be some people out there smart like you and can understand just how much trouble Tesla is in as they produce more cars, and how they will actually go more negative. What do you think the driver is for all those people buying the stock and keeping it going up? Maybe no one can read a balance sheet or understands how capex and amortization of costs or depreciation works. Or maybe you are missing something?
I have been looking at total GP from auto sales, auto leases, and services. I just want to get anything auto related in one calculation and leave out the speculation regarding GM calculation methodology.
The trend is this number decreases as the number of cars sold increases. I am assuming this trend continues as they get to 5,000 M3s per week.
The trend is this number decreases as the number of cars sold increases. I am assuming this trend continues as they get to 5,000 M3s per week.
Last edited:
The float is actually quite low, something like 20% held outside of institutions and insiders. I believe this is what’s keeping the price inflated. There’s also plenty of skeptics, I’m not alone in that regard.
Either you typoed, or you are saying increasing production leads to increasing gross profit....
Yes, we do (at least, I do). That said, we don't have full visibility and sometimes there is a nasty surprise. See for example the explanation for the loss in Services and Others this quarter given this quarter. It's a totally new one that blindsided everyone and it has rightfully become a focal point of those thinking more about the risks than the opportunities of Tesla.
Q2 will tell us a lot more. With at least three times as many model 3's delivered than Q1 we should surely start to see some of the scaling advantages materialize. Maybe not enough to get to profitability yet, but enough to decrease operational losses in the automative segment by some $200M (net of non-marginal S/X changes, but company guided those for essentially flat). That's the ballpark number that I am looking for. I expect Tesla to get there, but I can't rule out they won't.
Yes typo. GP decreases as cars sold increases. Sorry about that
Reciprocity
Active Member
The number of cars sold has never decreased with the exception of very short periods of time that would not be statistically relevant. Mass production of anything requires scale. Tesla is on the cusp of reaching such scale. The business is only profitable at scale. You would be correct if Tesla never reached this scale, but they are a few hundred cars a week away from this point today. More importantly, this milestone is repeatable. Tesla can finally become like other auto manufactures where they take incredibly successful processes and duplicate them in China and Europe to better address those markets and avoid duties and tariffs. The SG&A and R&D and even some Capex are all going to be amortized out over many times as many units. You can either believe that or or not. but you are risking a lot and you have to wonder if you are right or not.
After 5k/w, Tesla can leverage existing lines to push that number to 10k/W by duplicating some parts of the line but not the entire line as some parts will already run at 10k/w. The paint shop for example was designed for 10k/w. This is what Elon and Deepak talked about when they said 30-50% the Capex cost to from 5k - 10k. The best part. The capex payments will not be due until about the time the new parts of the line start production vehicles. Even the parts for those vehicles will not be due for 60 days. My guess is that they will spend the rest of 2018 pushing the existing line to 6-7k/w before determining exactly what they need to go to 10k, whether it be 30% or 50%. In theory it could be 0%, but that is unlikely. When you amortize all the R&D, Capex, SG&A as well as Opex, you start to get economies of scale. Tesla is smartly selling high end model 3s first where the ASP is $50k-$80k. They will hit scale just in time to start fulfilling the lower ASP versions of the car, but I still expect the ASP to never dip below $50k.
On a side note. Tesla will start to see some cannibalization. The higher end and higher margin Model 3 should start to destroy demand for the low margin Model S75D. Good reddens. Model S can finally move up market. What a great problem to have. High margin model 3s displacing low margin model S. Can you say Model S 120D soon? With 2170 cells, the cost would be the same as a 100D is today or less given that the 2170 packs are 30% lighter and thus 30% less raw materials and they are locally sourced instead of shipped from Japan.
Oh the horror.. what will Tesla do if they lose all those S75D sales. Well, the S100D will be cheaper as well with 2170 cells and people will just have to choose between the very high margin P75D Model 3 and the S100D model S. I know, tough choices right. I mean you could get a barebones IPace for the same price as model 3 P75D and get a whopping 220 miles of range vs 300+ for the Tesla.
No worries.
If you are looking at GP/ car as your metric you are going to see decreasing numbers since the 3 is a lower cost vehicle. At 25% GM, it only brings in 10-12k vs 20-25k for an S/X. Increasing 3 volume will reduce average GM while increasing total profit.
If you are using the production vs delivery numbers in the denominator, you are going to see an even worse (and inaccurate) trend during the ramp due to overhang at the end of the quarter. Consider that in Q1, 20% of the production occurred in the last week and went unsold due to logistics.
To clarify- I was referring to GP in total, not per car. The cars in transit at quarter end would be capitalized in inventory until delivered to a customer, so I believe this isn’t relevant to my analysis.
Previously rising losses were blamed mostly on CPO sales. For better or for worse, Tesla being a new company that needed to show leasing and financing partners that resale values would hold up, it was at least understandable that they'd subsidize the second hand market for their cars somewhat. Yet, now we hear about the service department needing to scale with sales as a driver for significant losses. That's not something we were used to. Previously, even in times of growth, maintenance was at zero-profit, zero-loss. What's different now? And is that difference a one off or something that will come back in Q2/Q3 or even Q4?
Isn't that addressed here?:
"We expect Service and Other losses to reduce substantially in the coming quarters as our service infrastructure becomes significantly more utilized with the ramp of our Model 3 fleet size. There are also substantial revenue generating opportunities as we open our own body shops in 2018 to improve costs of out-of-warranty repairs and as we increase our offering of accessories and merchandise."
They are having to build out service infrastructure in advance of the Model 3... and thus there's low utilization/high overhead. Once that's largely built out and amortized over 10X as many vehicles it's reduced substantially, right?
Similar threads
