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TSLA Market Action: 2018 Investor Roundtable

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Esme Es Mejor

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Dec 18, 2016
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And how would he know this?

He links to a WSJ article behind a paywall. I say NOPE (Not One Penny Ever) to WSJ, so I haven’t read that article.

I don’t if his numbers are correct, but since he only presents the worst case possible for Tesla, I trust the numbers are no worse than what he’s presenting. Cash flow of -$50 million halfway through the quarter suggests to me that they’ll succeed at their goal of cash-flow+ for the quarter.
 

ggr

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He links to a WSJ article behind a paywall. I say NOPE (Not One Penny Ever) to WSJ, so I haven’t read that article.

I don’t if his numbers are correct, but since he only presents the worst case possible for Tesla, I trust the numbers are no worse than what he’s presenting. Cash flow of -$50 million halfway through the quarter suggests to me that they’ll succeed at their goal of cash-flow+ for the quarter.
OK, so how would THEY (WSJ) know? The answer is that they can't without insider information. I, too, won't visit WSJ. But in the last couple of conference calls, Elon and Deepak have both stressed that cash flow precedes actual profitability, because they insist customers pay before delivery, but they get 30-90 days terms from their suppliers. Also that they would be profitable at >=5k/wk. The conclusion I draw is that the must already be cash flow positive.
 

MXWing

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OK, so how would THEY (WSJ) know? The answer is that they can't without insider information. I, too, won't visit WSJ. But in the last couple of conference calls, Elon and Deepak have both stressed that cash flow precedes actual profitability, because they insist customers pay before delivery, but they get 30-90 days terms from their suppliers. Also that they would be profitable at >=5k/wk. The conclusion I draw is that the must already be cash flow positive.

I want to know what the terms are for Dual Motor badge and spoiler suppliers are. I suspect COD, as they seem to be the only supplier holdouts not buying into "funding secured for net 30-90". :D
 
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dc_h

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Feb 14, 2015
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Tesla Still Has a Big Cash Problem

I’d like to apologize for linking to this garbage article. It’s by John Rosevear so, naturally, it’s narrative & conclusions are asinine.

That said, he included quite a few numbers that I found enlightening & encouraging (he, of course, found ways to see them as negative).

1. Accounts payable are shrinking as a percentage of revenue.

1. Quarterly cash flow through August 12 is negative $50 million. This is a huge improvement on Q2, and is trending strongly toward break-even, then cash-flow positive. As deliveries continue to increase & production continues to get more efficient, Tesla should get there before the end of the quarter.
I think -50m through 6 weeks averaging 4500 cars a week is ok. 2nd half of quarter is closer to 6000 and they seem to still be catching up on logistics—getting cars to customers. Solve logistics and end quarter with fewer or same inventory as q2 and they should be slightly positive q3 and ready for about 300 million positive in q4. Overtime should be declining and costs for rework and other process improvements will improve baseline break even, plus q4 avg of 7000 to 8000 in weekly production. That cash flow is less than I was expecting earlier, but should lead to at least 500-600 million per quarter in 2019 and steadily increasing.
Do the numbers imply margins lower than Munro very high margin report, but better than the low margin reports?
 
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Marsnaut

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Question that hopefully maybe someone can help me answer. This is one of the few times my SP got hit on a covered call, which got me thinking.

I wrote a weekly CC expiring today with a SP of $320. Let's say it's 3:59PM and using real after-market values, TSLA closes at $322.79 with the option at $2.95. Because it is $2.79 above the SP (and would be considered gains if you buy back), if you subtract it out (as it is intrinsic value), you're only paying $0.16 which offsets the money you wrote from writing the covered call. It makes sense as the option is ITM and it doesn't have theta residuals due to expiration.

I know my logic must be flawed somewhere as doesn't this mean that you never lose out on "opportunity cost" if the stock goes up? Sure you need to buy back the option but it offsets with the initial premium you collected which is a constant win-win situation. Even if the stock goes up a lot (like $50) to $372.79, the option would be around $50 + a small premium like $0.16 above. In this case, you'll pay $50.16 for the option which is likely way more than the CC premium collected but you still get $50 per share which zeros out the PnL there and you still make the CC premiums.
 

Chickenlittle

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Sep 10, 2013
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Question that hopefully maybe someone can help me answer. This is one of the few times my SP got hit on a covered call, which got me thinking.

I wrote a weekly CC expiring today with a SP of $320. Let's say it's 3:59PM and using real after-market values, TSLA closes at $322.79 with the option at $2.95. Because it is $2.79 above the SP (and would be considered gains if you buy back), if you subtract it out (as it is intrinsic value), you're only paying $0.16 which offsets the money you wrote from writing the covered call. It makes sense as the option is ITM and it doesn't have theta residuals due to expiration.

I know my logic must be flawed somewhere as doesn't this mean that you never lose out on "opportunity cost" if the stock goes up? Sure you need to buy back the option but it offsets with the initial premium you collected which is a constant win-win situation. Even if the stock goes up a lot (like $50) to $372.79, the option would be around $50 + a small premium like $0.16 above. In this case, you'll pay $50.16 for the option which is likely way more than the CC premium collected but you still get $50 per share which offsets.
Not all calls in the money are redeemed. I always assumed that if you sold a call than there was a buyer who had that call but it’s all pooled and sometimes some are not redeemed
 

Chartered321

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Oct 6, 2016
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Dear longs, it's a matter of days that we will reach the so awaited break even point (at around 7k M3P, or more in case of a lower ASP). As Elon said better days are yet to come, it means that, once we make it to that point, economies of scale are easy to replicate in a relatively seamless way. Interconnection and synchronization of robots of different gigafactories will trigger the creation of the infamous alien dreadnought around the world. So making one factory profitable means clearly that many are possible, it's a job of copy and paste until the demand is satisfied. Funding might not be secured for the LBO or the taking private process, that's what the shortsighted wall street grandpas are focusing their attention now, but what is secured is that the brand is loved by the new generations, the product is the most compelling and the boss is the most successful selfmade man of the industry (of carmakers, still not of IT), I can't imagine of what it can matter more than these. So even though probably it makes a lot of sense to take this beautiful entity private now that the worst is over, I wish it can stay public and kick asses every quarter from the next one as I'm not sure I can be a shareholder of a private entity.
Otherwise the good old war stock TSLA will be missed big times..
 

Marsnaut

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Not all calls in the money are redeemed. I always assumed that if you sold a call than there was a buyer who had that call but it’s all pooled and sometimes some are not redeemed

Yeah, I believe it's randomly assigned by the OCC.

I bought back way earlier today and the scenario above is essentially what played out. Which is why I'm confused... pretty much the only drawback of covered calls is that you give up potential profit. But to me, it appears that if you buy back near expiration, the stock to option parity is pretty much 1:1 which means buying back if it is ITM is the best option (and never getting assigned).
 

Esme Es Mejor

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Dec 18, 2016
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I think -50m through 6 weeks averaging 4500 cars a week is ok. 2nd half of quarter is closer to 6000 and they seem to still be catching up on logistics—getting cars to customers.

I think it’s more than okay— it’s a near-guarantee that they’ll be cf+ for the quarter. Tesla guided for 50-55k 3s produced & a higher number delivered. So, assume 51k delivered for Q3, subtract the 13k delivered in July, and that leaves 38k (19k/month) in Aug & Sept. So cash flow from Model 3 should increase substantially over the 2nd half of Q3.

In addition, though Tesla has begun smoothing S/X deliveries, they’re still weighted more heavily toward the end of the quarter. So we know cash flow from S/X will also increase substantially in the 2nd half of the quarter.

I don’t have any insight into profitability (though @luvb2b ’s model looks promising), but I can see from the bears’ own numbers that a cash flow positive quarter is already in the bag.
 
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mershaw2001

I'm short the short sellers
Apr 26, 2013
682
599
Menlo Park
Question that hopefully maybe someone can help me answer. This is one of the few times my SP got hit on a covered call, which got me thinking.

I wrote a weekly CC expiring today with a SP of $320. Let's say it's 3:59PM and using real after-market values, TSLA closes at $322.79 with the option at $2.95. Because it is $2.79 above the SP (and would be considered gains if you buy back), if you subtract it out (as it is intrinsic value), you're only paying $0.16 which offsets the money you wrote from writing the covered call. It makes sense as the option is ITM and it doesn't have theta residuals due to expiration.

I know my logic must be flawed somewhere as doesn't this mean that you never lose out on "opportunity cost" if the stock goes up? Sure you need to buy back the option but it offsets with the initial premium you collected which is a constant win-win situation. Even if the stock goes up a lot (like $50) to $372.79, the option would be around $50 + a small premium like $0.16 above. In this case, you'll pay $50.16 for the option which is likely way more than the CC premium collected but you still get $50 per share which zeros out the PnL there and you still make the CC premiums.
I'm not exactly sure what you're asking but the flaw in your thinking is here:
"but you still get $50 per share which zeros out the PnL there and you still make the CC premiums"
If the price of the stock runs up over the strike price, you only received a set amount at the time of sale of the option. You don't receive 50 dollars just because the price runs up over your strike price. You pay out that amount as loss if you don't have shares to deliver.
 

ggr

Expert in Dunning-Kruger Effect!
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Mar 24, 2011
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Question that hopefully maybe someone can help me answer. This is one of the few times my SP got hit on a covered call, which got me thinking.

I wrote a weekly CC expiring today with a SP of $320. Let's say it's 3:59PM and using real after-market values, TSLA closes at $322.79 with the option at $2.95. Because it is $2.79 above the SP (and would be considered gains if you buy back), if you subtract it out (as it is intrinsic value), you're only paying $0.16 which offsets the money you wrote from writing the covered call. It makes sense as the option is ITM and it doesn't have theta residuals due to expiration.

I know my logic must be flawed somewhere as doesn't this mean that you never lose out on "opportunity cost" if the stock goes up? Sure you need to buy back the option but it offsets with the initial premium you collected which is a constant win-win situation. Even if the stock goes up a lot (like $50) to $372.79, the option would be around $50 + a small premium like $0.16 above. In this case, you'll pay $50.16 for the option which is likely way more than the CC premium collected but you still get $50 per share which zeros out the PnL there and you still make the CC premiums.
I'm not quite following your logic, but you definitely lose out in a big way.

You wrote the call with strike $320, and got a couple of dollars for it (say $3), because the stock was trading at about $320. Then, magically, the stock price goes to $370 just before expiry. If you buy back the call, it will cost you $50, so you instantly lose $47. Alternately you can wait for expiry and assignment (and yes, it will get assigned in this case!). You lose your carefully hoarded stock and get paid only $320 for it when the market value is $370. Still lose the same $47, effectively.
 

ggr

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mershaw2001

I'm short the short sellers
Apr 26, 2013
682
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Menlo Park
Elon Musk hiring Morgan Stanley probably closes the book on 'funding secured' - Elon Musk hiring Morgan Stanley probably closes the book on 'funding secured'

I'm confused. If there was a handshake deal at 420, wouldn't you still need to hire Banks to facilitate? Especially if there's a giant private fund to be created?

Not to mention they say:
"Musk suggested two-thirds of investors might do so, which would result in a need for about $24 billion in outside capital at $420 per share"

which isn't accurate with the large short interest. They neglected to subtract out the shares that are held by people who bought from short sellers, which I think is brings this number from 24 billion down to just 10 billion.
 
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Curt Renz

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Mar 5, 2013
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Has anyone else noticed that Tesla's emailed weekly summary alert calculates the price change and percentage change by comparing a day's last trade with its opening price? Of course what really should be compared is a day's last trade with the previous day's last trade.
 

Marsnaut

Member
Apr 7, 2016
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282
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I'm not quite following your logic, but you definitely lose out in a big way.

You wrote the call with strike $320, and got a couple of dollars for it (say $3), because the stock was trading at about $320. Then, magically, the stock price goes to $370 just before expiry. If you buy back the call, it will cost you $50, so you instantly lose $47. Alternately you can wait for expiry and assignment (and yes, it will get assigned in this case!). You lose your carefully hoarded stock and get paid only $320 for it when the market value is $370. Still lose the same $47, effectively.

Ahh I understand. If you buy back the option for $50, you're no longer obligated to sell at $320. You keep the shares which are now currently worth $370. However, even though the shares are worth $370, you've essentially lost $50 - premiums you collected. It is akin to artificially getting assigned and buying back at $320 (the SP).

This defaults back to the traditional advice then of buying back the option if it is below breakeven price (SP + premium) at the time of expiration or getting assigned if it goes above breakeven.

Perfect thanks, it makes sense again.
 

ggr

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Not to mention they say:
"Musk suggested two-thirds of investors might do so, which would result in a need for about $24 billion in outside capital at $420 per share"

which isn't accurate with the large short interest. They neglected to subtract out the shares that are held by short sellers, which I think is brings this number from 24 billion down to just 10 billion.
No, for every short share, there are two long shares, the original holder and the one the short sold to.
 
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