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The coming Tesla cash cow and the short burn of the century
- Thread starter DaveT
- Start date
Singer3000
Member
Thanks, with a bit of patience you can make a picture say whatever you want
You’re missing two things on Q4 17 vs Q1 2018:
Firstly, my graph doesn’t strip out ZEV credit sales because I was being a bit lazy. These were only $50m for March vs $179m for Dec, which helps explains the flat trend on Gross Margin. If I can be faffed I’ll redraw it to strip these out historically.
Secondly, Q1 had a gross loss of $89m from Services/other, which is dragging down the overall “all auto margin”. Hard to see how this relates to the company’s ability/inability to produce a marginal unit of M3 at a gross profit:
“Service and Other gross loss increased to $89 million due to the significant growth of our service network in Q4 that has not been fully utilized yet as the Model 3 production ramp works to catch up, reserves for settlements with former customers of Grohmann and a one-time warranty true-up for used car sales. Gross margin on used cars sales was close to breakeven.”
You’re missing two things on Q4 17 vs Q1 2018:
Firstly, my graph doesn’t strip out ZEV credit sales because I was being a bit lazy. These were only $50m for March vs $179m for Dec, which helps explains the flat trend on Gross Margin. If I can be faffed I’ll redraw it to strip these out historically.
Secondly, Q1 had a gross loss of $89m from Services/other, which is dragging down the overall “all auto margin”. Hard to see how this relates to the company’s ability/inability to produce a marginal unit of M3 at a gross profit:
“Service and Other gross loss increased to $89 million due to the significant growth of our service network in Q4 that has not been fully utilized yet as the Model 3 production ramp works to catch up, reserves for settlements with former customers of Grohmann and a one-time warranty true-up for used car sales. Gross margin on used cars sales was close to breakeven.”
Since May 2017, before that I was just gathering info and doing DD, not sure where it was going to lead.
Krugerrand
Meow
I hope you mean that to apply to everyone. There’s a lot of people assuming Q3 turns positive bro.
K_Dizzle
Member
Why don’t you ask yourself why every single institution expect for 8 have significantly increased their TSLA position lately? Do you think dumb or ill informed ?
adiggs
Well-Known Member
The "deadline" for each individual short is a direct function of the amount of cash they are willing to use to maintain their position. Namely, the shares borrowed by a short are charged an interest rate. Today I believe that's in the neighborhood of 2-3%, so the out of pocket cost is real but not outrageous if you're committed.
In addition, each shorted share has cash on depost with a 4th party bank equal to ~100% (I think with Fidelity, it's 102%) of yesterday's closing price.
Some of these details might not be completely accurate, but the general idea and accounting to short shares looks something like this:
I want to short a share of Tesla at $300, I sell-to-open that share that I first borrow.
I receive $300 from selling that share of Tesla (woot)!
I also receive a loan of 1 share of Tesla worth $300, and deposit $300 (actually, my broker does it for me by taking the cash out of my account) with the 4th party as a backstop for the broker(s) that I'll return the share on demand.
I begin making interest payments, daily, on the $300 loan - let's assume for the moment that it's 3% annual interest. Lightly shorted companies will be somewhere close to the risk free interest rate, where heavily shorted companies like TSLA will be higher (as a lender of shares, I've personally been paid as much as 14%, which means the shorts were paying more like 25%, to maintain their position).
All of this is done within a margin account, where I believe a typical expectation of the short's broker is that I maintain 50% of the value of the position for margin (another $150).
And all of this is adjusted daily. If TSLA goes down to $200 (keeping the math simple) the next day, then I'll pay 3% annual interest for that day on $200 instead of $300, my cash on deposit will be reduced from $300 to $200, and my margin requirement will be reduced from $150 to $100.
If TSLA were to go up to $400, then my $150 of margin will be reduced by $100 (cash on deposit increased to $400), and my margin requirement will increase to $200 (if I were at the minimum, then I'd be $150 scant of my margin requirement and would have a phone call from my broker - and I might not have enough time to deposit more cash to make up the margin requirement - the account requirements for a short / margin account are draconian).
As long as I have enough cash to pay the annual interest rate for the loan, I can maintain the position indefinitely. Even if I sell at $300 and the stock goes to $3000, all I have to do is increase the cash on deposit to $3000 and pay the interest rate then in existence on the now $3000 loan, and I'm all good with the market.
The screenshot you linked shows holdings at the end of March.
On March 27, Moody's downgraded Tesla (which wouldn't have yet been factored in to institution holdings).
Since then...
Tesla missed its Q1 model 3 production target.
The Mountain View crash and investigation started.
The head of autopilot quit.
The executive in charge of vehicle manufacturing went on sudden indefinite leave.
The Model Y, Roadster, and Semi were all pushed way back.
The Semi only has 2000 reservations.
Elon Musk has repeatedly insulted journalists and analysts.
Panasonic reported having 270M of Tesla inventory sitting on their balance sheet.
Net working capital plunged to under negative 2B.
Accounts Payable is at 2.6B while cash is at 2.7B.
Elon is being hostile towards suppliers and contractors in leaked company emails.
Bond prices have sat below 88 cents for a while.
Tesla pushed back an 82.5M loan payment from February to August.
I think some of those financial institutions are having second thoughts.
Tesla is in financial distress. The only hope they have is raising money (which Elon said he won't do) or quickly start producing massive quantities of profitable cars (which is really hard to do).
And for what upside? Tesla is already priced as one of the most valuable automakers in the world. They're losing the autonomous vehicles race. What's going to drive the stock up?
Thank you for posting, that is Q1 right?
Man, Josh Spencer @ TRowe is betting his career on this huh?
I wouldn’t hang my hat on institutional investors, there’s a lot of passive index funds who don’t have a choice on what they buy or sell. That being said. T Rowe Price adding more shares does surprise me.
Think about it like this
Tesla traded at ~$310 on Jan 1st (2nd), and somewhere around $260 on March 31st (30th), and that includes around 3billion in buys from TRowe who cant buy anymore (cant find link but there are policies regarding TRowe's holdings in one company that show they are at the max).
That fact alone would scare me a lot if i was long, which im obv not.
adiggs
Well-Known Member
Interesting, I would use the facts you enter as evidence (TRowe buying $3B to raise their holding of TSLA to their institutional limit) to arrive at exactly the opposite conclusion - a deep pocketed and presumably well informed investor has bought their limit over a time period of declining price, sounds like they think the price is going decisively above the $300 level.
I.e. - that fact alone would scare me a lot if I was short, which I'm obv not.
Agreed. I think the TRowe policy is not to own 10% of a company, but I don’t have a link for it, just what I’ve heard from other investors.
Since you have these battery pack numbers at hand:
If we assume that the current 2170 cell can indeed stand inside the Model S/X battery pack, what would be the maximum capacity of such a 2170-based Model S/X pack?
(Just want to know in case the 'short squeeze of the century' triggers my insanely high sell order, allowing me to upgrade from a Model 3 to a Model S...
The overall fewer number of larger diameter cells is offset by the fact that each contains a greater volume of material, so from the 18 vs. 20 millimeter perspective, it's pretty close to a wash. (While there's a small amount of difference in overall casing material, it really doesn't amount to much more than noise).
So the real difference is the additional height. A 70mm cell is ~7.7% taller than a 65 mm cell, so you could stuff ~108kWh in to the same footprint as a 100kWh pack, all else (i.e. cell chemistry, plumbing, etc...) being equal.
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bdy0627
Active Member
Well, the CEO did say to expect profits in Q3. I'm assuming he's telling the truth.
bdy0627
Active Member
Have you seen the short interest increase over that time??? That's a LOT to overcome.
Krugerrand
Meow
Of course I ment it for all people, but way to deflect from yourself. Way to also ignore that the CEO has guided for profitability possibly and slightly for Q3 and more so for Q4 so no need for anyone to make that assumption.
Thanks for the excellent explanation. I've read a lot about shorting and this is incredibly to the point and easy to understand. Cookie for you sir!
adiggs
Well-Known Member
Cookie monster like cookie
Seriously - I learned a lot when I heard about interest rates people were earning from lending their shares out, and decided I wanted in on that. It's like getting a dividend from these shares that aren't going to be paying a dividend any time soon.
And lending out the shares - I wanted to understand it well enough to be confident that the likelihood of losing my shares was low enough.
Interesting sidebar - I believe that shorting for most companies is close to the risk free interest rate because each short position has 150%+ cash (100% on deposit, another 50% and probably lower in the margin account) backing up the loan of the shares. Adjusted daily, so its not like you can get very far away from having more cash in the game than you have on loan.
If you really want to understand it, I expect the thing to do is actually short some shares.
Elon has said the same thing 3 or 4 times in the past, and missed badly. It pays to do your own work and not rely on Elon.
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