TSLA Market Action: 2018 Investor Roundtable

[Revhappy2]

The big day is here! How are we all? Excited? Nervous? Drunk?

I have just shorted 2 TSLA OCT 125 PUTs and shorted another TSLA OCT 130 PUT. Please pray for me, that the stock doesnt fall below 150, until October. Please.

 

[gringotuanis]

I strongly agree. My AAPL position has been hugely rewarding for me, while most of my colleagues were seeing AAPL go into Chapter 11 following the Scully years. For obscure reasons I thought they would regain their vision, although I was quite nervous when Tim Cook took over. Even then knowing Cook was a master of detail at a critical time I suspected it would work out and doubled down. Now I no longer add to my AAPL position but the dividends alone give me a nice living.

Through all that the FUDsters have been consistent harbingers of doom. An old friend and AAPL hater told me two weeks ago that AAPL had peaked, that ApplePay was a disaster, the iPhone X a technical and sales horror, Apple Music was a major failure plus a few other points. All wrong, repeatedly so, but updated failure stories never seem to end.

Because the FUD for TSLA is similarly ill-informed I am confident this wild ride will be as rewarding as has been AAPL and AMZN (another FUDsters delight). I do believe strongly in Ben Graham's approach, which does require very careful examination of facts. To view TSLA has a high value-based decision one needs to examine buyer loyalty, marketing costs, repeat sales and GM. One also must know enough about accounting to adjust GAAP in a high-growth situation to steady state results. That last aspect kept me sane during the long evolution of both AAPL and AMZN although I took too little risk on the latter because I completely underestimated the resilience of that business model as books, in their physical form, have nearly died.

TSLA has so many unique advantages that are ignored by fudsters that I remain completely confident. Those are, more or less in order:
-the direct sales model;
-the advance ordering model (i.e. quite small inventory for sale);
-over-the air updates;
-Supercharging network;
-owner loyalty (repeat sales, referrals, word of mouth)
-Not last, but critical, mastery of social media and cultivation of owner participation.

Ben Graham knew sustainable value even though the technologies of his day were different. He, and Warren Buffet, will not invest in something they think they do not understand.
With AMZN, AAPL and TSLA we all need to understand the cultural and financial impact of the internet.

Those characteristics are shared by AMZN, AAPL and TSLA as they apply to their spheres of influence.
Other models are wildly successful without the extreme emotional attachment to the company that these three share. These really do stand out.

Of course GOOG and many others have some of those features, but they do not have the degree of financial investment by customers that those three do.

Though I like your approach and am a Tesla long...I don't think Graham would have invested in Tesla. He searched for PE's (like single digit) that were way lower than Tesla's valuation, he would basically look for nearly bankrupt companies (leftover cigarettes) and take a few more puffs of the used cigarette - this was one metaphor used to describe him and his style. Finding deep value conpanies . Tesla is really the opposite as Tesla doesn't even have PE). He would definitely classify Tesla as speculative, which I think it is at this point. That said, Tesla has some insane brand recognition moat which Graham would definitely approve of - like you mentioned. Graham also would sell at 40 percent gain NO MATTER what. Buffett actually opposed this rule and wanted to keep his winners. Just want to make sure ppl who haven't read The Intelligent Investor get the right idea of Graham. Not trying to hurt anyone's Tesla belief...but just have eyes wide open. Again I'm long via long term options and support Tesla because of their brand moat!

 

[ValueAnalyst]

Very odd...

• Q2 Model 3s in transit: 11,166
• Estimated July Deliveries: 14,250
• Estimated July Production: 16,000 (Skabooshka's estimates, 4k/week)

11.2k + 16k - 14.25k = 12,916 Model 3s not yet delivered

If Tesla was hoarding inventory at the end of Q2 for the tax benefit, shouldn't inventory/in-transit be going DOWN, not up?

Edit: Also, concerning to see S/X deliveries down 21% compared to July 2017.

Tesla will resolve any existing delivery bottlenecks within weeks, not months. In addition, Tesla may have continued to deliver to Canada throughout July. I would expect the units in-transit to slightly decline at the end of September, but not by much. I expect Q3 deliveries at 55,000 units, and today's data point is in-line with that.

 

[gringotuanis]

The above article asserts:

"Pro tip: share prices around $300 are not indicative of companies with problems raising capital."

Does that actually make sense, without implicitly assuming something about the number of shares issued?

For Tesla there is f.ex. about 170 million shares outstanding, for a market cap of 51 billion dollar at 300 dollars per share. I find it hard to believe that the above would hold equally well for a company with 170 thousand shares outstanding (i.e. a market cap 1000 times smaller than Tesla's) - and even more so for a (hypothetical) company with just 170 shares outstanding (i.e. a market cap of 51 thousand dollars, at 300 dollars per share).

PS. I am again far behind on this thread, so apologies if I have missed a discussion of this.

That's too basic of a statement to be quantified because it would totally depend on shares outstanding. The share price means little if there is one share outstanding for example...that one share would be worth $50 billion... You kinda have to read into his point being that if the price is up at a $50 billion marker valuation and holding steady...he thinks they won't have trouble raising money. You are correct. Long tlsa via shares and options.

 

[neroden]

Yeah, 37%?! Pfft!

Down: logically the stock could drop a bit if the ER is bad-bad (1 order of magnitude worse than the bad expected). But there’s been so much bankrupt talk - and that talk has been there pretty much since the beginning, so not new. So much general negativity, cancelled reservations, demand not there talk - again, been there, done that. It’s just not anymore true now than then.

Up: the only thing I can come up with that moves the stock up 37% is if Q2 somehow managed to be profitable. How? Not a clue. Could they cut expenses enough to make that happen? Throw in some ZEV on top? Still the market would bend that negative and say the only way Tesla gets to profitability is to stop growing.

I think these in-house experts are not so expert.

Well, they're risk managers -- they have an incentive to raise margin requirements early and often and to warn customers preemptively; if they warn customers of something which doesn't happen, on the other hand, that's fine.

 

[ZachShahan]

My mom actually lived in Shortsville, New York for a while!

Dan

See, you were drawn to this stock subconsciously.

 

[neroden]

Because the FUD for TSLA is similarly ill-informed I am confident this wild ride will be as rewarding as has been AAPL and AMZN (another FUDsters delight). I do believe strongly in Ben Graham's approach, which does require very careful examination of facts. To view TSLA has a high value-based decision one needs to examine buyer loyalty, marketing costs, repeat sales and GM. One also must know enough about accounting to adjust GAAP in a high-growth situation to steady state results. That last aspect kept me sane during the long evolution of both AAPL and AMZN although I took too little risk on the latter because I completely underestimated the resilience of that business model as books, in their physical form, have nearly died.

Well, AMZN was a really hard one to spot. You gotta remember that AMZN basically has no margin on almost all its businesses. To actually predict its recent profits you would have had to realize that the in-house software they created for their *barely breakeven* distribution network... was something they could rent to others for lots and lots of money. I'm talking Amazon Web Services, of course.

You might have guessed that after becoming a monopoly Amazon would be able to charge monopoly profits, but that would have been an incorrect business analysis. It seems that it's quite viable for competitors to leave Amazon and set up their own web shop, for nearly anything, so any attempt to raise gross margins above rock-bottom will get undercut. (Which is why Bezos rarely if ever attempts to raise gross margins on amazon.com.)

On top of that, most of Amazon is cloneable. Easily. The big exception turns out to be AWS... and there are several companies trying to clone it (including Alibaba), they just haven't been able to catch up.

Anyway, thanks for your comment, it gave me a lot to chew on. I generally agree. Not being an Apple-head, I just stayed on the sidelines of Apple.

 

[ZachShahan]

And it's a new design that is MUCH nicer than the previous design that it replaces. This is very surprising. Could the Model 3 be having an impact on standard sedans too (Camry, Accord, Altima), and not just premiums (BMW, Mercedes, Audi)?

Been saying so for months. Year+? Will do a follow-up. Thanks!

 

[ZachShahan]

Very odd...

• Q2 Model 3s in transit: 11,166
• Estimated July Deliveries: 14,250
• Estimated July Production: 16,000 (Skabooshka's estimates, 4k/week)

11.2k + 16k - 14.25k = 12,916 Model 3s not yet delivered

If Tesla was hoarding inventory at the end of Q2 for the tax benefit, shouldn't inventory/in-transit be going DOWN, not up?

Edit: Also, concerning to see S/X deliveries down 21% compared to July 2017.

InsideEVs is just guessing. They do tremendous work on many fronts, but I don't agree with their approach to estimating Tesla sales (think it's quite off).

 

[KarenRei]

A model 3 with air suspension and tow package? When are you going to take delivery on that? July 2019?

I'm in Europe. Iceland, specifically. It's going to be a long wait regardless.

 

[neroden]

The crown jewels is the data being collected that will feed the machine learning underpinning all these systems. Waymo just announced 8 million miles driven (and data collected).

The problem is that in typical "dumb machine learning", the data collection is specific to the hardware design and can't be transferred to different hardware. That said I think Tesla got the hardware right.

 

[Tslynk67]

Edit: Also, concerning to see S/X deliveries down 21% compared to July 2017.

Nice try, but no cigar... Historically Tesla have delivered less in July than June, I would assume due to their manufacturing batching for different markets. Now we know that they're trying to smooth this out a bit, which is probably why the drop between the two months is lower than previous years:

In 2017 we see roughly a 30% drop:

In 2016 it was eve worse, MS 50% and MX 63%:

 

[Zaxxon]

Here's a preliminary chart of Model 3 vs its class, using the InsideEVs estimate. It's prelim because aside from the obvious Tesla estimation, Mercedes does not seem to have reported yet (let me know if I'm wrong there) and I've only found a brand-wide July summary for BMW (down 0.3%). I've therefore got placeholders in for the 3-series and C-Class.

 

[neroden]

i try to get to the bottom of any claims sent my way. i've received the ones regarding paint shop limits a number of times, but haven't seen a solid response. can you provide any more info on this?

Oh. Those all originated by a hit piece on Seeking Alpha by a crazy bear whose name I can't remember. A loooong time ago, years back. So, he looked at the VOC emissions permits for the paint shop (which is fine), and he made a claim about VOC emissions per car (based on typical emissions from car paint from the early 1990s or something, which is not fine) and claimed that this put a hard limit on how many cars Tesla could produce per week at Fremont (which would have made sense if he'd used real VOC/car numbers). He claimed a limit much lower than their production actually is now, by the way.

Well, turns out Tesla had actually filed some government documents explaining the VOC emissions for the paint process they *actually* use, which is much lower-VOC per car. So the limit on number of cars painted based on VOC emissions permitting is much much higher than that guy "calculated", and is well over 10000/week. (On top of this, Fremont can grant additional VOC permits under some circumstances, and Tesla has other ways of reducing VOC emissions at the paint shop which they haven't used yet.)

Anyway, the other members of the short-seller disinformation cabal seized on this and kept parroting the false "number of cars limit" as if it was a fact. (The original bear openly said he was guessing at VOC per car, but by the time it got to "Montana Skeptic", "Montana" was claiming that it was a fact. And refused to be corrected.) It got spread about so much that I've now heard distorted versions of it from bulls.

 

[jelloslug]

And it's a new design that is MUCH nicer than the previous design that it replaces. This is very surprising. Could the Model 3 be having an impact on standard sedans too (Camry, Accord, Altima), and not just premiums (BMW, Mercedes, Audi)?

Well, the Model S decimated the large luxury car market even when both MB and BMW brought out all new models a few years ago.

 

[Krugerrand]

The big day is here! How are we all? Excited? Nervous? Drunk?

Waiting for the other shoe to drop.

 

[TradingInvest]

For new share purchase, I wait AFTER quarterly results.

 

[Krugerrand]

Well, they're risk managers -- they have an incentive to raise margin requirements early and often and to warn customers preemptively; if they warn customers of something which doesn't happen, on the other hand, that's fine.

Um...so they get paid to be drama queens and wrong as often as possible. Seems like an idiot proof job. Me want.

 

[ZachShahan]

Oh. Those all originated by a hit piece on Seeking Alpha by a crazy bear whose name I can't remember. A loooong time ago, years back. So, he looked at the VOC emissions permits for the paint shop (which is fine), and he made a claim about VOC emissions per car (based on typical emissions from car paint from the early 1990s or something, which is not fine) and claimed that this put a hard limit on how many cars Tesla could produce per week at Fremont (which would have made sense if he'd used real VOC/car numbers). He claimed a limit much lower than their production actually is now, by the way.

Well, turns out Tesla had actually filed some government documents explaining the VOC emissions for the paint process they *actually* use, which is much lower-VOC per car. So the limit on number of cars painted based on VOC emissions permitting is much much higher than that guy "calculated", and is well over 10000/week. (On top of this, Fremont can grant additional VOC permits under some circumstances, and Tesla has other ways of reducing VOC emissions at the paint shop which they haven't used yet.)

Anyway, the other members of the short-seller disinformation cabal seized on this and kept parroting the false "number of cars limit" as if it was a fact. (The original bear openly said he was guessing at VOC per car, but by the time it got to "Montana Skeptic", "Montana" was claiming that it was a fact. And refused to be corrected.) It got spread about so much that I've now heard distorted versions of it from bulls.

Thank you! That explains things.

I got repeated warnings about this from someone I consider very thoughtful, intelligent, and honest. Asked a Tesla rep about it but he was having some time off and seemed to indicate the production update on the CC would resolve any issue — or I read too much into his comment. We'll see soon enough.

 

[AudubonB]

My mom actually lived in Shortsville, New York for a while!

Dan

That’s on Long Island, right? So is everyone neurotic there?