TSLA Market Action: 2018 Investor Roundtable

[Words of HABIT]

Hmm, well, the value of his shares are already exponential. The thing about milestones being linear with market cap is that it will take much longer to hit the first milestones than the final milestones. So the rate at which Elon earns his shares will accelerate exponentially.

But the key thing about this plan and how Elon rolls is that Elon is strongly inclined to focus the company for long term success even at the delay near term targets. As much as people complain about Elon missing target dates, I've never seen him sacrifice the long-term success for the sake of hitting of short-term targets. He is constantly positioning the company for long-term success, which makes critics think that he can't stay focused on near term goals. But for Musk, near term objectives only have value to the extent they position the company for long-term growth.

So for example, solving the problems with ramping up production are likely more valuable to Musk because the company is learning how to ramp quickly than merely to satisfy investors or even generate cash flow. To keep growing production 50% or more each year, Tesla needs to get really good at ramping up production because that's what they'll be doing constantly for the next ten years. They aren't aiming for flawless execution of a single ramp. They are aiming an impossibly fast ramp as a dress rehearsal for very frequent ramping. For example suppose that in 2019 Tesla builds 1M vehicles. Well, in 2020 they'll want to build at least 1.5M. Thus, they will be attempting to increase production by 500k in one year, which may include one or two product launches in that year. So naturally, Elon wants to challenge the organization to ramp up 500k in one year with the launch of the Model 3. He needs the whole organization to have that level of capability. He knows that the organization may not have that capability just yet, but he's going to be a tough coach and force it to try because that is the only way it gain that capability. By the time 2020 comes around and Elon wants to launch and build 500k pickups in year one, his team will be like, "No problem, we've got this." This is really no different than Elon crashing rockets in the quest to routinize propulsive landings. Sure, it exposed him and his team to the embarrassment of public failure, but I've got to believe that the experiences were highly motivating to his team. Elon keeps pushing the landings to the limits, even though this risks more failure. In the Falcon Heavy launch, they only stuck two out of three landings. But someday SpaceX will be sticking 100s of landings every day with absolutely no failures because many will transport humans. Elon is totally focus on achieving that level of performance in the shortest amount of time. So to get there, Musk is going to keep pressing limits and risking spectacular failure at every try. So am I worried about the M3 launch taking more than a year to hit 5k/week? Not at all, in fact, failure is the best way to train the team to perform at a much higher level. If Tesla is not failing on near-term targets, Musk is not driving hard enough to become a $1T company in ten years.

jhm, Best post I have read all week. I just finished reading it twice and found it twice as good as the first time.

 

[mongo]

Yeah, I was thinking this delay in production ramp is quite a big deal and that Elon probably should just take responsibility for it. Sure, the supplier dropped the ball, but Tesla dropped the ball by not being more proactively engaged with the supplier. They should have tested earlier and more comprehensively earlier. Management dropped the ball by letting this slip. And Elon, ultimately, dropped the ball for letting management not be on top of things like they should of.

You mean like he already did in the Q3 call?

Yes. I think first of all, I think, at the end of the day, everything is our fault and my problem, most of all. If we picked the wrong subcontractor, we're the fault. So just -- I don't want us to be -- sort of us externalizing responsibility. Really, it's our fault for picking the wrong supplier and then not realizing it until way later in the game.

It is impossible for Tesla engineers and factory management not to have known that this was going to be an unlucky supplier long before they took action.

There are two possibilities. Either the message didn't percolate up the management chain as it should. In my experience when bad news doesn't travel up it's nearly always due to a breakdown in culture making people afraid to speak up for fear of getting blamed and axed. Or information did travel up, but top management failed to intervene in a timely manner because they just assumed their teams would handle the impossible anyway.

Why is it impossible? Has no one ever falsified test data?
Option 3: supplier lied and said everything was groovy (either through incompetence or malice)
Q4 call

And of the four zones, two of them, of which are subcontracted to – the production systems are subcontracted to other companies, flat out didn't work, it turns out like, I mean, we promised they would work and it just didn't work.

And again: taking responsibility:

And I think in part we were probably a little over-confident, a little complacent in thinking that this is something we know and understand. And put a lot of attention on other things and just got too comfortable with our ability to do battery modules because we've been doing that since the start of the company.

And corrected (JB):

I also just want to add. I think it's fair to say that this maybe degree of complacency that happened at the end of last year has been thoroughly replaced by an intense focus from a huge portion of the Tesla team and there are a lot of different initiatives and teams, whole teams, targeted at this area.

 

[dmckinstry]

To conclude, I believe deal is possible and would create significant advantage for the first mover and Tesla, but will it happen? Could industry executives swallow pride and negotiate with Musk from the position of weakness? Would Musk get stubborn and condescending and want nothing to do with them? Who knows...

I don't believe EM would be condescending toward them, as it would probably advance his own goals of sustainable energy, However, it would have to be on his own terms. Again through I think he would be reasonable in his own demands.

 

[GoTslaGo]

Just watched this video by Damadoran about the current market situation. Nice perspective:

PS--He mentions that he is going to take a look at certain stocks that he would like to own, to decide whether to buy them or not... mentioned: AMZN, NFLX, and TSLA.

 

[NicoV]

I want to clarify that I’m as bullish as ever about the company’s long-term prospects, but the last couple of quarters have proven worse than management guidance, on many levels both on the revenue and expense sides, and it’s not clear if management is on top of it, so I am increasingly concerned. I believe that the recent disappointing trend will at some point reverse, and hope that it happens sooner rather than later.

The last few quarters consisted of lots of plans that met reality. Reality that sometimes turns out different than the plans. The BIG one being a battery automation system that didn't work as expected. Maybe even a supplier that tried to hide the fact that it didn't work as expected, maybe hoping they could fix the problem while other bottlenecks were solved. It's not the problems that you anticipate that kill your schedule, it's the ones that you thought that would not pose any problems. Elon Musk has been pushing Tesla's suppliers for two years now to make sure they're not the one that blocks the ramp, and he seems to have been fairly successfull at that, we' haven't heard from a lot of other bottlenecks. Unfortunately, the big one was one they didn't expect at all and in retrospect it's easy to say that they should have anticipated that, but untill you find somebody who can predict the future, these things are going to happen.
I think Tesla did fine with how they dealt with the battery manufacturing issue.

 

[WarpedOne]

OK, I'm late to the game ... the talk about battery assembly hickup ... but, do you remember:

October 2017:
Tesla’s Director of Battery Engineering has reportedly left the company

At that time we were scratching our heads but why?!?! This is Tesla's loss, they lost and expert ...
All dimensions where not disclosed (maybe not even known) at that time but we now can understand.
We can understand why this director has left the company: because under his watch the problem happened.

Musk loses trust only once.

 

[RobStark]

RobStark, every single EV by all other automakers listed on InsideEVs would only produce that vehicle in one factory for their entire World market and shipping from there. At 1400 units for the GM Bolt last month, there is no way GM is making these in multiple locations, they are losing $8000 per unit as it is.

Nissan LEAF is manufactured in Japan,England and Tennessee. There is also a rebadged version of the LEAF manufactured in China in a JV with a Chinese company.This is one way we knew/know that Nissan was serious while others were making a compliance play.

I was talking about vehicles in General and why they report the way they do. Dealer inventory smooths out sales or "deliveries" from month to month. Unless the vehicle is on backorder and gets delivered right away.

No major automaker is reporting ICEv sales monthly and BEV quarterly. Or would do so, It would add unnecessary complications.

For GM about 5k Bolts are for international sale. A rounding error in their ~9M sales.

Last year GM allocated 5k cars for Europe. Evidently PSA wants no part of the Bolt/Opel Ampera E at the price GM is selling them so 5k Bolts have been allocated to South Korea instead for 2018 (from 800 in 2017).

 

[Lessmog]

Are we really going to continue to pretend Tesla was totally blindsided by this? This is their core competence : building the machine that builds what makes their products unique. You don't just order that from a supplier and then let go until the day you switch it on to find out it doesn't work. There was plenty of back and forth at the engineering level between the supplier and Tesla. It is impossible for Tesla engineers and factory management not to have known that this was going to be an unlucky supplier long before they took action.

There are two possibilities. Either the message didn't percolate up the management chain as it should. In my experience when bad news doesn't travel up it's nearly always due to a breakdown in culture making people afraid to speak up for fear of getting blamed and axed. Or information did travel up, but top management failed to intervene in a timely manner because they just assumed their teams would handle the impossible anyway.

Whatever it was, the blame is squarely at top management. After Model X self-inflicted wounds due to its design of the doors, this battery module is management's second strike of severe shortcomings. If the conveyor system in the Fremont factory turns out to be of the same problematic order, it may be time to assess if replacing the top management structure isn't the better answer.

PS I am giving Tesla management a pass on the FSD failures because that task is so out of the world difficult that failure is an option. For ordinary factory automation, failure on this level is not an option without top heads rolling. And despite all Elon's hoopla about the machine that builds the machine being limited by aero drag, ordinary factory automation is exactly the level Tesla is currently operating at.

Late to this discussion. Let me just add one contemplation to those already offered:
If that supplier responsible for dropping the modules was PANA, one factor may have been the strict separation of company secrets -- we have heard that there is a "wall" between parts of GF.

Of course, regardless of where the fatuous miss occurred, the blame rests with Tesla and ultimately Elon. And he did take responsibility, publically, at the previous ER, and has worked hard to identify and fix the problem.

I wonder if we will ever know what actually happened. No matter, as long as it is fixed. Yet another lesson learned for Tesla's development -- costly, but hopefully also valuable.

 

[Cobbler]

...

100% akkoord ;-)

 

[Hogfighter]

No one asked (ain't the internet wonderful?), but here's my 2 cents regarding recent events:

1) Stock is at 345.

2) Tesla reiterates previously reported guidance.

3) People go berserk.

4) Stock plunges to 300.

5) The Hogfighter buys more LEAPs, as the Hog Negativity Index is now completely out of whack with reality.

 

[kbM3]

The last few quarters consisted of lots of plans that met reality. Reality that sometimes turns out different than the plans. The BIG one being a battery automation system that didn't work as expected. Maybe even a supplier that tried to hide the fact that it didn't work as expected, maybe hoping they could fix the problem while other bottlenecks were solved. It's not the problems that you anticipate that kill your schedule, it's the ones that you thought that would not pose any problems. Elon Musk has been pushing Tesla's suppliers for two years now to make sure they're not the one that blocks the ramp, and he seems to have been fairly successfull at that, we' haven't heard from a lot of other bottlenecks. Unfortunately, the big one was one they didn't expect at all and in retrospect it's easy to say that they should have anticipated that, but untill you find somebody who can predict the future, these things are going to happen.
I think Tesla did fine with how they dealt with the battery manufacturing issue.

I love the one by Mike Tyson: "Everyone has a plan till they get punched in the mouth".

 

[Jonathan Hewitt]

Hmm, well, the value of his shares are already exponential. The thing about milestones being linear with market cap is that it will take much longer to hit the first milestones than the final milestones. So the rate at which Elon earns his shares will accelerate exponentially.

But the key thing about this plan and how Elon rolls is that Elon is strongly inclined to focus the company for long term success even at the delay near term targets. As much as people complain about Elon missing target dates, I've never seen him sacrifice the long-term success for the sake of hitting of short-term targets. He is constantly positioning the company for long-term success, which makes critics think that he can't stay focused on near term goals. But for Musk, near term objectives only have value to the extent they position the company for long-term growth.

So for example, solving the problems with ramping up production are likely more valuable to Musk because the company is learning how to ramp quickly than merely to satisfy investors or even generate cash flow. To keep growing production 50% or more each year, Tesla needs to get really good at ramping up production because that's what they'll be doing constantly for the next ten years. They aren't aiming for flawless execution of a single ramp. They are aiming an impossibly fast ramp as a dress rehearsal for very frequent ramping. For example suppose that in 2019 Tesla builds 1M vehicles. Well, in 2020 they'll want to build at least 1.5M. Thus, they will be attempting to increase production by 500k in one year, which may include one or two product launches in that year. So naturally, Elon wants to challenge the organization to ramp up 500k in one year with the launch of the Model 3. He needs the whole organization to have that level of capability. He knows that the organization may not have that capability just yet, but he's going to be a tough coach and force it to try because that is the only way it gain that capability. By the time 2020 comes around and Elon wants to launch and build 500k pickups in year one, his team will be like, "No problem, we've got this." This is really no different than Elon crashing rockets in the quest to routinize propulsive landings. Sure, it exposed him and his team to the embarrassment of public failure, but I've got to believe that the experiences were highly motivating to his team. Elon keeps pushing the landings to the limits, even though this risks more failure. In the Falcon Heavy launch, they only stuck two out of three landings. But someday SpaceX will be sticking 100s of landings every day with absolutely no failures because many will transport humans. Elon is totally focus on achieving that level of performance in the shortest amount of time. So to get there, Musk is going to keep pressing limits and risking spectacular failure at every try. So am I worried about the M3 launch taking more than a year to hit 5k/week? Not at all, in fact, failure is the best way to train the team to perform at a much higher level. If Tesla is not failing on near-term targets, Musk is not driving hard enough to become a $1T company in ten years.

Awesome post! We should all be BTFDing on Monday now.

If JHM's post went over anyone's head here's the cliff notes version in my post from July last year

TSLA is going to fail again and again and again all the way to a $1 Trillion market cap. If they stop failing they will never get there.

 

[ValueAnalyst]

Hmm, well, the value of his shares are already exponential. The thing about milestones being linear with market cap is that it will take much longer to hit the first milestones than the final milestones. So the rate at which Elon earns his shares will accelerate exponentially.

But the key thing about this plan and how Elon rolls is that Elon is strongly inclined to focus the company for long term success even at the delay near term targets. As much as people complain about Elon missing target dates, I've never seen him sacrifice the long-term success for the sake of hitting of short-term targets. He is constantly positioning the company for long-term success, which makes critics think that he can't stay focused on near term goals. But for Musk, near term objectives only have value to the extent they position the company for long-term growth.

So for example, solving the problems with ramping up production are likely more valuable to Musk because the company is learning how to ramp quickly than merely to satisfy investors or even generate cash flow. To keep growing production 50% or more each year, Tesla needs to get really good at ramping up production because that's what they'll be doing constantly for the next ten years. They aren't aiming for flawless execution of a single ramp. They are aiming an impossibly fast ramp as a dress rehearsal for very frequent ramping. For example suppose that in 2019 Tesla builds 1M vehicles. Well, in 2020 they'll want to build at least 1.5M. Thus, they will be attempting to increase production by 500k in one year, which may include one or two product launches in that year. So naturally, Elon wants to challenge the organization to ramp up 500k in one year with the launch of the Model 3. He needs the whole organization to have that level of capability. He knows that the organization may not have that capability just yet, but he's going to be a tough coach and force it to try because that is the only way it gain that capability. By the time 2020 comes around and Elon wants to launch and build 500k pickups in year one, his team will be like, "No problem, we've got this." This is really no different than Elon crashing rockets in the quest to routinize propulsive landings. Sure, it exposed him and his team to the embarrassment of public failure, but I've got to believe that the experiences were highly motivating to his team. Elon keeps pushing the landings to the limits, even though this risks more failure. In the Falcon Heavy launch, they only stuck two out of three landings. But someday SpaceX will be sticking 100s of landings every day with absolutely no failures because many will transport humans. Elon is totally focus on achieving that level of performance in the shortest amount of time. So to get there, Musk is going to keep pressing limits and risking spectacular failure at every try. So am I worried about the M3 launch taking more than a year to hit 5k/week? Not at all, in fact, failure is the best way to train the team to perform at a much higher level. If Tesla is not failing on near-term targets, Musk is not driving hard enough to become a $1T company in ten years.

I agree with you 100 percent, which is why neither we nor Elon should have any problem implementing the following two simple fixes:

1. Put a time limit to market cap milestones; and/or
2. Weight the number of shares awarded to higher market cap milestones.

Either or both of these simple fixes drastically reduce the probability of unfair outcomes, while better aligning interests.

 

[elasalle]

.

The last few quarters consisted of lots of plans that met reality. Reality that sometimes turns out different than the plans. The BIG one being a battery automation system that didn't work as expected. Maybe even a supplier that tried to hide the fact that it didn't work as expected, maybe hoping they could fix the problem while other bottlenecks were solved. It's not the problems that you anticipate that kill your schedule, it's the ones that you thought that would not pose any problems. Elon Musk has been pushing Tesla's suppliers for two years now to make sure they're not the one that blocks the ramp, and he seems to have been fairly successfull at that, we' haven't heard from a lot of other bottlenecks. Unfortunately, the big one was one they didn't expect at all and in retrospect it's easy to say that they should have anticipated that, but untill you find somebody who can predict the future, these things are going to happen.
I think Tesla did fine with how they dealt with the battery manufacturing issue.

Given that the Battery module can be built, assembled and tested in Grohmann in Germany - I am a bit puzzled as to why this was not done for the GF modules? If the old GF Battery assembly modules were tested independently, I think the issue should have been caught in advance. I think TSLA, wrongly waited for Panasonic upstream battery production to be complete before doing too much on battery assembly module. Again might be over confidence and hubris here.

As lesson learnt, hope Tesla is testing Fremont systems to run at higher capacity.

 

[mongo]

.


Given that the Battery module can be built, assembled and tested in Grohmann in Germany - I am a bit puzzled as to why this was not done for the GF modules? If the old GF Battery assembly modules were tested independently, I think the issue should have been caught in advance. I think TSLA, wrongly waited for Panasonic upstream battery production to be complete before doing too much on battery assembly module. Again might be over confidence and hubris here.

As lesson learnt, hope Tesla is testing Fremont systems to run at higher capacity.

Agree with the sentiment, and Elon has admitted they did not focus on pack assembly since they considered it a core/ solved problem.The issue may have been that, especially given the purchase of cells from Samsung for TE, there was no spare capacity to produce the pallets of cells needed for testing module assembly at continuous high speed until the GF1 cell lines were operational. Empty can with caps could be used for mechanical testing, but for final performance check out, live cells were needed.

 

[MitchJi]

Your assumption is flawed. Maybe they had to rewrite the code as a stop gap, so that they could make 1000 cars/week while waiting for Grohmann to build from scratch?

Elon said that they completed rewriting the code first phase, and that replacing the hardware would take longer.

 

[22522]

.


Given that the Battery module can be built, assembled and tested in Grohmann in Germany - I am a bit puzzled as to why this was not done for the GF modules? If the old GF Battery assembly modules were tested independently, I think the issue should have been caught in advance. I think TSLA, wrongly waited for Panasonic upstream battery production to be complete before doing too much on battery assembly module. Again might be over confidence and hubris here.

As lesson learnt, hope Tesla is testing Fremont systems to run at higher capacity.

From a distance, Over commitment looks like incompetence. It is hard to resolve the difference.

They missed it. Yes, they could have been practicing module assembly for maybe years. Error of omission from overwork. It is not like the stuff they were doing was unimportant.

A Pareto chart on labor content and the understanding that you do not need to wait for actual batteries solves this.

Note: this is pattern match speculation. No supporting facts. Just what it looks like.

 

[22522]

Agree with the sentiment, and Elon has admitted they did not focus on pack assembly since they considered it a core/ solved problem.The issue may have been that, especially given the purchase of cells from Samsung for TE, there was no spare capacity to produce the pallets of cells needed for testing module assembly at continuous high speed until the GF1 cell lines were operational. Empty can with caps could be used for mechanical testing, but for final performance check out, live cells were needed.

Don't think you need live cells. Electrically potentially correct cells.

 

[mongo]

Don't think you need live cells. Electrically potentially correct cells.

I'm not following, how are you going to get cells that act like final cells, without final cells? 3 high potential small format Ni-MH in one can? Or pack a 18650 inside a 2170 can?

 

[MitchJi]

With this big of a drop, you might want to consider moving to some J19s. Those have dropped a lot more I'm sure than J20s and will go up a lot more as TSLA climbs than the J20s will. After a huge drop is a good risk/reward time to consider that.

I was actually just thinking that. Wasn't sure if it was the right thing to do though, so thanks.

I would be very careful using that as a strategy! Just because the SP has dropped doesn’t necessarily mean that all of a sudden it’s safer to buy j19’s as compared to j20’s.

In particular I would probably be extremely careful with moving your j20 $400’s to WOTM (way out of the money) j19’s without considering the fact that one way that high strike prices work is similar to a reduction in time value I’d run some comparisons here Long call calculator: Purchase call options, before making a decision (look before you leap).

I do think that it’s a great time to move a small percentage (~ 10%) to June and September close-to-the-money calls. My reasoning is not based on the facts that with the battery manufacturing equipment already working in Germany, scheduled to be delivered in March I think that it’s a slam dunk that they will have that bottlenecks removed by the end of May. The fact that when prices are low is a good time to make the switch from j19’s $350’s to June $320’s was an added incentive to make that move. You can determine if it’s better to roll specific options when the prices are low or high by determining which options have the most effective leverage using this equation (SP/ Option price * delta). I’m not sure if you are better off rolling j20 $400’s to June something in the low $30’s when the SP is low or high. The next decision I will be looking to make is to possibly move a large percentage of my June calls to either April (before the numbers) or May (before the Q1 ER).

Telling us that they have already tested the equipment in Germany and that it will be delivered in March was a late Xmas present from Elon! The only questions are will it start producing by April or May. Even if it slips until early June the mid June $320’s purchased when the SP is about $306 should be relatively safe. Not an advice.