TSLA Investor Discussions

[Johan]

My wife says I do in fact have crystal balls..

They're frail and brittle? Or beatiful and precious?

 

[kenliles]

They're frail and brittle? Or beatiful and precious?

I'd ask her but I'm afraid of the answer!

 

[NigelM]

Ahem....Stay family friendly please.

 

[Bardlebee]

Think I may grab more shares at 33.5 or below. But I feel like I am relenting on my goal of below 31, not sure if I should hold out. I may be being impatient.

 

[Sans Gas]

Article by Malcome Berko 12/8/12
Dear BP: Tesla Motors (TSLA-$34.45) makes a hot-looking car that runs on battery power. The biggest concern about TSLA’s car, and all battery-powered cars, is that it may not get you where you want to go. That’s also my concern about TSLA’s common stock. Even though Tesla’s Model S sedan earned rave reviews, great products often fail to make great investments. And one of the fund managers (I’ll call him Bob) of a very large mutual fund family, told me that he would personally short the stock. TSLA had a secondary offering at $28.75 last September and told investors that the company “is on track to deliver 20,000 Model S cars in 2013.” Those cars sell for $80,000 plus state tax and Bob said he nearly fell off the floor when TSLA made that announcement. Toyota Motors, which may have the best R&D engineers and scientists in the auto industry, recently killed plans for an all-electric car. Toyota believes that battery technology is still in the 1940s, that technology necessary to meet consumer demand is at least 10 years away, and that the costs are unacceptable. Tesla’s Model S has the classy lines and looks of an Italian sports car. Realistically though, would American consumers want to own a Maserati that has an electric lawnmower engine under the hood?

Bob is also highly critical of the company’s accounting. He believes the Deutsch Bank valuations are obviously unrealistic and doubts that TSLA can survive without constant cash injections or additional secondary offerings. I can’t find a single, compelling reason to own the stock of a company that burns cash like firewood, has lost nearly a billion dollars in the past six years and is selling cars for $80,000 (plus tax) to consumers who need to save money on gas. Tesla is not an investment but rather a rank speculation based on hype, hope and more hope.

I emailed him -
Regarding your thoughts about Tesla Motors:

You mention “it may not get you where you want to go”. This is the so-called range anxiety and has been addressed with ranges of between 160-300 miles depending on battery option. In addition a super charger network is under construction (presently 6 stations in CA) for the US with station ~ 150 miles apart operational in 3-5 years. These are solar powered and free to Tesla owners for the life of the car. There are many other options for charging that can be located with a search of the web.

Your mention about Toyota’s lack of interest is not supported by their investment of $50 million dollars in Tesla motors and contracts with the company to support their automotive efforts.

Your mention about owners having a Maserati style car with a lawn mower engine is misleading. The Model S does nor have an internal combustion engine, but electric motors with equivalent horse power of a Maserati and acceleration surpassing sport cars such as those.

Tesla Motors has spent a lot of money designing and bringing to production first a roadster and recently a sedan the Model S. The roadster has sold out and is out of production. There are ~ 15-18000 paid reservations for the Model S with planned production of 20,000 cars in 2013. There has been a price increase in the car for new reservations in 2013. I should have mine in Feb.-Mar. The company has said it will move from the red to the black in 2013.

I disagree with your comment that TSLA is “not an investment but rather a rank speculation based on hype, hope and more hope”. I wonder if there were similar views when we moved from the horse and buggy to the automobile. I’m hoping and investing that TSLA is the new Apple on the horizon.

I enjoy your articles, but think you were misled by the fund manager “Bob” and should have done some more research, see Model S Facts | Tesla Motors . Visit a store 515 Lincoln Road Miami Beach, FL 33139 and take a ride. You’ll come away with the Tesla smile.

 

[Johan]

I dislike how the term "burning cash" is constantly thrown around, whether it be "Tesla is still burning cash" or "Tesla has stopped burning cash" (the former apparently according to some "journalists" equating being cash flow positive). Now I'm not a professional investor nor economist but I don't believe that the term "burning cash" has any real definition. In my mind it would mean being extremely wasteful economically, with synoyms being "throwing money out the window" or "bleeding money" etc. Now, we all know that Tesla has been reporting consistent losses for a very long time due to the fact that the company is using more money than it is earning. I would not however equate using with burning. This money has gone towards:

1) A whole lot of R&D which has payed off for Tesla in form of: Bringing the Roadster and the Model S to market, having Model X in the pipeline, any development already done on Gen III car, numerous patents on battery- and drivetrain technology the value of which is obvious when we see the kind of partnerships Tesla has formed with Daimler and Toyta where both these giants are using (Toyta) or planning to use (Daimler) Tesla's actual technology in their actual vehicles (Rav4, B-class and Smart).
2) Aquisition of the NUMMI plant (at an extremely good price) and the staffing and tooling of this plant to make it one of the most modern and complete car factories that I'm aware of.
3) Development and building the value of the Tesla brand including the Stores/Galleries which to me it would seem is a very cost efficient way to build the brand and Tesla has gotten a great deal of good publicity with using very little economical resources.

So if you could somehow calculate the value of the above mentioned things, that is the intellectual property/patents/technologies (very hard to calculate a value but I would think the value is hughe since Tesla is basically the filed leader when it comes to electric cars, battery tech. and drivetrains), the factory with it's tools and trained staff and the stores+brand then IMO that value would greatly exceed the investments ("cash burned") up to this point in time. If we also factor in the possible/probable future revenue from the actual sales of vehicles (with a good profit margin) together with the opportunities for growth globally (hughe IMO) that will give us the correct valuation of TSLA as stock.

"Burning cash". The term has bothered me too long. Also, the burning of cash is illegal in most countries, in the US prohibited under 18 U.S.C. § 333: Mutilation of national bank obligations, which includes "any other thing" that renders a note "unfit to be reissued".

 

[JRP3]

Wow. It's just a phrase.

 

[jerry33]

I dislike how the term "burning cash" is constantly thrown around, whether it be "Tesla is still burning cash" or "Tesla has stopped burning cash" (the former apparently according to some "journalists" equating being cash flow positive).

The difference is that you're not writing an article that has a negative slant to it.

 

[Bardlebee]

Is there a thread for Solar City? Is anyone here interested in investing in them? Anyone have prior experience good or bad investing on an IPO day? I am new to investing and IPO's obviously so I was hoping for some input on this.

 

[vfx]

Solar City IPO

 

[smorgasbord]

There's some very weird activity in the options of tesla today. Calls trading at 0 IV.

Just in case any Option newbies are trying to follow, that's a typo. The options are not trading at zero IV (Intrinsic Value), they're trading at zero TV (Time Value). Also, the options were not "on that ask at 14.20" - the ask price was $19.20.

At the time, the stock itself was priced at $34.20. Thus a Jan $15 Call has an IV (Intrinsic Value) of $34.20-$15 (stock price minus strike price), or $19.20. As agelston notes, the calls were actually trading at Intrinsic Value, which means there's no Time Value (TV). With 6 weeks of time left on the contracts, I agree there should be some Time Value. But, my explanation is simply that option prices for Tesla are inherently bearish - for instance, I recently initiated a Synthetic Long in TSLA below the current price of the stock for a net credit!

For the option newbies still with me, a Synthetic Long is selling a Put and buying a Call at the same expiration date and typically at the same strike price. The Put and Call will typically be about the same price, so this is a no-cost way to do something that acts like buying the stock, but without the up front capital. What's weird is that usually the Call costs a tad more than the Put and you're paying trading fees - but in this case the Put paid me $1.35 more than the Call cost me! It's like buying Tesla at $30.65 when it is trading at $34 a share, and not having to put any money in up front. One has to resist the temptation to do too many of these since your potential losses are the same as buying the stock.

As for closing the positions on the Jan $15 Calls, if Tesla drops enough the Call price will go down and the Call seller can buy the Call options back cheaper than $19. If the stock goes up, the Call buyer may choose simply to acquire shares at $15, which he can then sell for a profit. If anything, the Call buyer is the one who has to worry about closing the position out in the relatively illiquid option market for Tesla - there may not be enough option buyers, even if Tesla goes up, for the Call buyer to close out his position, so he may be forced to actually buy shares. So, that's my guess as to why more people aren't taking advantage of the guy that's selling the Jan $15 Calls, even at zero Time Value. Note that many option contracts are not entered with the intent of actually buying or selling shares, but just to make money on the price of the option itself going up and down.

Tesla usually takes a few weeks before announcing end of quarter and end of fiscal year results. So, Jan 12th may be too soon to have heard from Tesla on how Q4 production and cash flow actually went. Personally, I'm staying away from the Jan options, since any rumor could swing the stock one way or the other and wouldn't be corrected until after option expiration. For instance, the Synthetic Long I just entered was for June (and it looks the same even days later). I also sold some March $20 Puts for $2.45 that I could buy back for $0.70, but I'm going to just let them expire for full profit. Should disaster strike, I'd be happy to buy Tesla at under $18/share.

 

[brianman]

"Burning cash". The term has bothered me too long. Also, the burning of cash is illegal in most countries, in the US prohibited under 18 U.S.C. § 333: Mutilation of national bank obligations, which includes "any other thing" that renders a note "unfit to be reissued".

My understanding was that literal burning of cash in the U.S. was only legal for the government to due (as part of the cycle of life for getting newer paper).

Literally and figuratively government is definitely the most thorough at burning money.

 

[agelston]

Just in case any Option newbies are trying to follow, that's a typo. The options are not trading at zero IV (Intrinsic Value), they're trading at zero TV (Time Value). Also, the options were not "on that ask at 14.20" - the ask price was $19.20.

At the time, the stock itself was priced at $34.20. Thus a Jan $15 Call has an IV (Intrinsic Value) of $34.20-$15 (stock price minus strike price), or $19.20. As agelston notes, the calls were actually trading at Intrinsic Value, which means there's no Time Value (TV). With 6 weeks of time left on the contracts, I agree there should be some Time Value. But, my explanation is simply that option prices for Tesla are inherently bearish - for instance, I recently initiated a Synthetic Long in TSLA below the current price of the stock for a net credit!

I was using IV as implied volatility which is calculated based on TV. Using Intrinsic/Time values by themselves works too.

Implied volatility - Wikipedia, the free encyclopedia

 

[Robert.Boston]

For the option newbies still with me, a Synthetic Long is selling a Put and buying a Call at the same expiration date and typically at the same strike price.

What are the margin requirements for a Synthetic Long?

 

[smorgasbord]

What are the margin requirements for a Synthetic Long?

You need to be able to write naked Puts (ETrade calls it Level 3, but levels vary at different brokerages). That does typically means a margin account, although some brokers will let you write cash-secured Puts in an IRA account. If you haven't been writing covered calls or buying calls, you'll need to get those levels first and use them for a while before they graduate you. The margin requirements are typically just having enough other money/securities to be able to pay for the stock should you be forced to buy it. You may get only 50% credit for the value of your other securities, for instance, but that shouldn't matter since you shouldn't use that margin anyway (in my somewhat risk-adverse opinion).

Without the ability to write Puts, you could still do the other leg and just buy Calls. This has the advantage of limiting your downside to the price of the calls, but the disadvantage of requiring a larger stock price increase before you make a profit, since you have to overcome the price of the calls. If you want to do this, I'd recommend looking at longer term options to give yourself time for things to play out. For instance, Jan 2014 $35 Calls will cost you about $5. That means Tesla has to hit $40 for you just to break-even, but in no case will you lose more than $5. If Tesla goes to $50 in a year, then you made $10 - or a 200% profit - pretty sweet. But, will Tesla actually hit $50 within 13 months? It's not risk free.

While buying Calls is better than buying stock in that you don't have to front as much money and so you get more leverage, it's worse than buying stock in that the stock price has to move more and within the limited time that the option is valid. With a stock purchase you can always just sit tight and wait years and years for an eventual payoff (as our Petersen is doing with his Axion stock), but with purchased Calls you need the price to move up before the option expires.

Jan 2015 options are available right now and one can make a pretty good case that if Tesla stock doesn't appreciate substantially in 25 months, it's probably never going to. Let's say you think Tesla is going to at least $50. You could spend $3400 and buy 100 shares right now. When it hits $50 and you sell, you'll make $1600. Nice. If, however, you put that money into Jan '15 $35 Calls instead, you'd be spending $3200 to buy 4 contracts (at about $8 each right now, but thinly traded). When Tesla hits $50, those options should be worth at least $16, so you've made at least $3200, or twice as much as buying stock. And, if Tesla hits $75, then with stock you've made $4100 with the stock purchase, but with the 4 Calls you would have made $16,000. Awesome! However, if Tesla only gets to $40, then you still have made some money ($600) via a stock purchase, but you have lost money on the Call option. And if Tesla crashes, with stock you still have some value and can wait for a turnaround, but with Calls you've lost it all and have only until Jan 2015 for the turnaround.

That's leverage for you - great when you're right, really bad when you're wrong.

BTW, I love Malcome Berko's "burning cash" term. So many people still want to short Tesla that they're willing to pay higher prices to buy my Puts, which gives me money to buy Calls at a strike lower than the current stock price. It's almost like buying Tesla stock at a 7% discount.

 

[smorgasbord]

I was using IV as implied volatility which is calculated based on TV.

And I thought the computer industry was rife with overlapping acronyms. That's for clearing that up for me.

 

[Brian H]

I just found this:

Blackrock Buys a Stake in Tesla - Corporate Intelligence - WSJ

Blackrock acquires 4,99% Tesla stake!!

Subsequently corrected; they reduced holdings to just below the 5% threshold and that generated the report. Reopen that link for explanation/update.

 

[Robert.Boston]

Tesla was awarded its Class I Dealer license tonight by the Natick Board of Selectmen, provisional on its assigning its lease on its Natick sales location to the Tesla Massachusetts corporation. Big win for GeorgeB and the team, which also removes some doubt about the legal status of non-dealer-based sales in Massachusetts.

 

[mitch672]

Tesla was awarded its Class I Dealer license tonight by the Natick Board of Selectmen, provisional on its assigning its lease on its Natick sales location to the Tesla Massachusetts corporation. Big win for GeorgeB and the team, which also removes some doubt about the legal status of non-dealer-based sales in Massachusetts.

The biggest difference is, if you trade in a car now, the trade in value can be deducted on your invoice, and you only pay %6.25 MA sales tax on the cash amount (your save the sales tax your trade value). This would have been a pretty big number for Ben, for example.

I hope this kills the MA auto dealers association lawsuit, but, I think they are tenacious and won't give up easily.

 

[Robert.Boston]

Yep; he figures about $5k. It also means I wouldn't have had to spend an hour getting to, returning from, and waiting at the Registry of Motor Vehicles; that I wouldn't be trying to sell my current car myself because Tesla can't accept trade-ins of non-Tesla vehicles; and that my DS could directly oversee the vehicle delivery on Wednesday. (He still can't, because the license is conditional on the lease assignment, which won't be done before Wednesday AM.)

I'm sure the MADA will seek ways to fight this award, but they have an uphill battle. Massachusetts law grants towns the exclusive right to grant dealer licenses and is very explicit about who has standing to challenge such an outcome. Competing auto dealers don't have standing.