TSLA Market Action: 2018 Investor Roundtable

[Fact Checking]

Colin Langan felt the need to lower his PT from 195 to 190 and reiterate his sell rating since it's been almost 10 days since the last time he did it.

Tesla Motors (TSLA) PT Lowered to $190 at UBS

What's next, will UBS lower their wet dream ridiculous price target by 1 cent every day? Or lower it by $100 after trading begins and quietly raise it back up after the market closes, every day?

 

[humbaba]

Or a rule to warn and ban posters that get 10000000 dislikes and 1 like from various members, because that poster would be either a troll or is a waste of everyones time.

No! you are ruining my plan!

More seriously, I don't "dislike" anyone. There are two ways to get a "funny" from me -- unintentionally funny is *still* funny.

 

[KarenRei]

You will not have much of an investor roundtable if everyone at the table is of one mind. Ten people can look at a painting and each will notice something the others do not. But hey, put on those blinders and earplugs. Does not bother me.

There's a difference between having reasonable differences over production numbers, margins, etc, and believing in conspiracy theories that there's no demand (despite the large percentage of us who are either still waiting for our cars or even just waiting for the chance to be able to config one) and that cars are being secretly dumped in the desert.

I welcome the former individuals (which, correct me if I'm wrong, includes you). The latter I invite to instead hang out on Alex Jones forums.

 

[bhtooefr]

Here's another reason August sales estimates will move the Market today: Look at the drop in market share for the top 4 cars (those with Aug monthly sales > Model 3). So it's not just the premium German sedans losing sales to the Model 3; its the top-selling Japanese cars too: (% drop in YTD sales, not just August)

1. Camry (-5%)
2. Civic (-7.5%)
   
3. Accord (-14%)
   
4. Corolla (-7.8%)

I'm not entirely convinced that it's just the Model 3 cannibalizing those models. For the Civic and Accord there is something going on (as the HR-V and CR-V have both lost sales), but for the Toyotas...

Camry YTD difference: -12,528
RAV4 YTD difference: +11,870

Corolla family YTD difference: -18,133
C-HR YTD difference: +21,907

Basically, Toyota isn't losing the sales, they're just converting them to crossovers instead. (Now, where they are losing the sales and I suspect not converting them, is Prius family sales, -12,487 units on YTD, and that's with a refresh on the Prius c since then. I also didn't look at the Lexus brand, there may well be sales lost there.)

 

[EVMeister]

Toyota is losing sales in the sense of people trading in their Toyotas and going for a Model 3 instead. Rather than going for another Toyota. This has been known since the last investor call. I agree that it is too simplistic to suggest that all of the losses for those models is down to Tesla, however.

 

[gora321]

I'm not entirely convinced that it's just the Model 3 cannibalizing those models. For the Civic and Accord there is something going on (as the HR-V and CR-V have both lost sales), but for the Toyotas...

Camry YTD difference: -12,528
RAV4 YTD difference: +11,870

Corolla family YTD difference: -18,133
C-HR YTD difference: +21,907

Basically, Toyota isn't losing the sales, they're just converting them to crossovers instead. (Now, where they are losing the sales and I suspect not converting them, is Prius family sales, -12,487 units on YTD, and that's with a refresh on the Prius c since then. I also didn't look at the Lexus brand, there may well be sales lost there.)

We need Model Y

 

[Mike Smith]

Ford is recalling 2 million trucks in North America to address fire concerns for seat belt parts

Ford seems to have recalls every month. Maybe they need a COO or something.

 

[bhtooefr]

Toyota is losing sales in the sense of people trading in their Toyotas and going for a Model 3 instead. Rather than going for another Toyota. This has been known since the last investor call.

I've edited to add some more hypothesis, but I think what's happening is that people are trading their Prii in on Model 3s. (The investor call outright said that much.) That is quite significant.

OTOH, I think they're trading their Corollas and Camrys in on C-HRs and RAV4s, and Toyota isn't losing those sales yet. Model Y is, as @gora321 suggested, a much bigger threat, because it'll go after those.

 

[jhm]

Let me refine your question as:

Can we just create a rule that allows only profiles with a positive like/disagree ratio to post on this thread?

Let us make a poll?

There are problems with this. It would give trolls an incentive to boost the dislikes on persons they would like to silence here.

Most of the disagrees I have gotten have been from trolls who did not like that I was refuting their nonsense.

Lest we think that fair minded participants will outnumber trolls in promoting agrees, consider that organized troll farms can generate multiple accounts on this site and overwhelm the system with fake votes. Yes, having multiple accounts is a violation of forum rule, but organized troll farms have ways to cover their tracks. I suspect we already have multiple accounts infecting the site from the same trolling organization.

 

[Fact Checking]

He got respect there by reasonable behavior, ability to listen and capacity to ask the questions listeners want. he is probably one of the very few journalists with professional integrity, this exclusive nowadays feature provides him exclusive possibilities to interview interesting people in long free format.

So Joe Rogan is the exact inverse of David Gelles @ NYT?

Good!

 

[TheTalkingMule]

A lot of this noise will go away once profitability hits. The pedo guy thread will magically sink and be forgotten.

I still expect a net positive week.

 

[X Fan]

Here's another reason August sales estimates will move the Market today: Look at the drop in market share for the top 4 cars (those with Aug monthly sales > Model 3). So it's not just the premium German sedans losing sales to the Model 3; its the top-selling Japanese cars too: (% drop in YTD sales, not just August)

1. Camry (-5%)
2. Civic (-7.5%)
   
3. Accord (-14%)
   
4. Corolla (-7.8%)

Here's the table from GCBCs: The Best Selling Cars in America – August 2018

View attachment 332354

Thanks for report.....it's even more significant since they all have been running promotions in August to boost sales....

 

[Drax7]

What's next, will UBS lower their wet dream ridiculous price target by 1 cent every day? Or lower it by $100 after trading begins and quietly raise it back up after the market closes, every day?

Right and What a pathetic lowering with the intent to hurt the stock.

Nonetheless, They can make extremely precise estimates on future cash flows down to 6 digits right of
The decimal point to then discount to a billionth of a penny and derive a $190 per share.

 

[Fact Checking]

I'm still trying to figure out under what circumstances Tesla would make a profit by getting the leased cars returned early. Market value for the cars is easy enough to figure out; what's less easy to figure out is what the current value of the value of the remaining term of the lease + the car being returned at the end of the lease was to Tesla.

It's possible that Tesla feels that the cars are going to be worth more now than the remaining lease payments + the value at the end of the lease.

Or -- I think I might have figured it out. Under the leasing standards, the leasing revenue isn't recognized all at once, but is stretched out over the lease lifetime (vaguely related to the cash payments). Reclaiming the car and *selling it* (not re-leasing it) realizes the revenue *in Q3* rather than over the next year. It's revenue pullforward, as well as cash-positive.

I wonder if Tesla is only doing this with direct leases, because that would make sense.

On third-party leases or sold-off-to-third-party leases, Tesla gets all their money upfront and recognizes the revenue upfront, which is clearly what's wanted. Tesla really doesn't want to be in the direct lease financing business *at all*, from an accounting perspective (similar to the reasons why they don't want SolarCity to lease solar panels). Maybe the old direct leases aren't packagable/resaleable (too few, terms too inconsistent).

So there's my hypothesis. Just a hypothesis at this point, though. Not fully comfortable with it.

IIRC Tesla has done this in the past already, so Tesla probably has a pretty good idea what effect it's going to have on the bottom line.

Here are my guesses about what this move of allowing relaxation of leasing until the end of quarter policy:

• This is going to generate a fair amount of 'upgrade sales': you on 2015 or early 2016 AP1 but the 3 year lease is still not fully up? You can now buy or re-lease a 2018 Model S with HW3 compatibility! This is worth quite a bit: I'd not be surprised if owners would go for a ~20% upgrade, some of them software options like AP and FSD which have 100% margins.
• It's a good deal to owners who are thinking about getting a new car, and in-inventory cars are often fully optioned - which creates some additional incentives for up-sales.
  
• Even if the owner is going from an old lease to a new lease with a similar new car value, 2-3 years of depreciation has reduced the value of the old car by 20-30%. By refreshing the lease Tesla gets some incremental income of +20-30% of the value of the car.
• As you noted Tesla can book the residual lease revenue of the outstanding part of the lease, plus 100% of the new lease's cash flow can be booked right on delivery, improving cash flow.
• Pre-2018 cars can have resale value guarantee and other liabilities attached. If new car doesn't have that, or has lower levels, then the new sale might reduce outstanding liabilities.
• Inventory value reduction: if Tesla can do 'fast delivery' of on-inventory Model S and X cars and can thus deplete inventory, they'll reduce inventory levels by the value difference between the old and the new car, which can be 20-30%. This doesn't decrease the number of on-inventory cars, but reduces their total value - which improves cash flow. (Because inventory is accounted on a cost-of-goods basis there's an additional ~30% advantage on the price difference that improves cash flow.)
• 100% of customers affected by this are lease owners, and inevitably there's going to be a percentage of owners who will upgrade to buy (because they have the cash), which is a win for Tesla as all outstanding revenue can be booked.
• There will be those who lease through some separate bank where I think the lease will burden that bank's balance sheet, not Tesla's - and Tesla can recognize the whole new value as a sale and as revenue.
  
• The cost to Tesla is that they do have to handle the "old" car now which is at the expense of future demand - but apparently resale values are very good and there's a record number of new Model S+X orders, so they feel comfortable about doing this.

(I'm not 100% certain about these details either - maybe @luvb2b wants to chime in what exact effects this leasing program tweak will have on Tesla's financials?)

Anyway, the bottom line is that these percentages add up rather nicely: more revenue, more income, better cash flow, lower liabilities, lower inventory levels, happier owners. Win-win-win-win.

It also increases the odds that Tesla is really serious about generating some seriously positive cash flow at the end of Q3.

 

[bhtooefr]

Minor point: resale guarantee wouldn't affect a leased car, I'd think? (I thought that was the problem of resale guarantee, that it was priced like a lease as far as the liabilities went.)

 

[beachbum77]

I'm not entirely convinced that it's just the Model 3 cannibalizing those models. For the Civic and Accord there is something going on (as the HR-V and CR-V have both lost sales), but for the Toyotas...

Camry YTD difference: -12,528
RAV4 YTD difference: +11,870

Corolla family YTD difference: -18,133
C-HR YTD difference: +21,907

Basically, Toyota isn't losing the sales, they're just converting them to crossovers instead. (Now, where they are losing the sales and I suspect not converting them, is Prius family sales, -12,487 units on YTD, and that's with a refresh on the Prius c since then. I also didn't look at the Lexus brand, there may well be sales lost there.)

You are spot on. The friends I have who are still in the car biz have been texting for some time now that the movement they are seeing out of cars into crossovers and SUVs is unlike anything they have ever seen since the introduction of the SUV. I saw the same thing at a Mazda dealership last weekend when a relative leased a new CX-5. In the time we were there every new vehicle delivery was a CX-5 or CX-9. The one my relative leased arrived on Thurs. She had to come back to pick it up on Sat after they were through with PDI. She came out of a Mercedes 3yr lease.

 

[Navin]

New rule suggestion that perhaps get passed if enough likes....

If a poster posts more than 10 times in one day and also has more than > 100 total dislikes (in same one day time period) by at least 10 people - they get put on suspension for 10 days. This way - we avoid trolls pissing everywhere we read trying to insert FUD and misinformation to others.

 

[X Fan]

I just realized: the proof that no one wants any ICE vehicles is, and always has been, right before us. There are literally *thousands* of car lots filled with ICE vehicles that are just sitting there. In fact, there are *so* *many* they have them distributed all across the United States. In fact, even the small town where I live has several of these lots. I drive past a couple of large ones every day. To make it easy to tell which ICE manufacturer has this excess of unsold inventory they usually have their logos posted on the lots.

This has literally been under our noses for years, if not decades, or /even longer/.

We can no longer deny this incontrovertible truth: traditional car manufacturers have been over producing their underselling models and storing them in lots to the tune of millions of unsold inventory. They are all about to go out of business.

To your point, here in Naples and in my beach home in North Carolina, the BMW/Porsche & Mercedes dealers just spent millions building huge new (in Mercedes case two levels & in addition to their large location near downtown) locations over last 2 years.

Naples is very affluent/older so I'm sure they are banking on that but increasingly I'm seeing new Tesla S and X vehicles being placed in households that would traditionally be Mercedes S, BMW SUV's, Porsche, etc.

Also, Germain Toyota has a land about a mile from us that has easily 300 new cars (and it hasn't changed much in last 3 months)......

Those dealers are in for a financial day of reckoning......

 

[jw934]

This article looks accurate, inclusive, balanced and broad to me. Good article to share to introduce the world of EV, Tesla, and Elon. Provides a fairly complete list of negatives of Elon and Musk without the FUD. Mercedes-Benz is finally taking on Tesla. It probably won’t work.

 

[Fact Checking]

Minor point: resale guarantee wouldn't affect a leased car, I'd think? (I thought that was the problem of resale guarantee, that it was priced like a lease as far as the liabilities went.)

This is from Tesla's latest 10-Q:

"We offered resale value guarantees or similar buy-back terms to all direct customers who purchase vehicles and who financed their vehicle through one of our specified commercial banking partners. Subsequent to June 30, 2016, this program is available only in certain international markets. Resale value guarantees available for exercise within the 12 months following June 30, 2018 totaled $139.3 million in value."​

So I think it affects leased vehicles as well, although I'm not certain to what extent.

Note that there are other liabilities as well (such as warranty reserves and future service cost reserves) that could improve with a new car. So switching an 'old car' (accounted with old standards) to a 'new car' (with new standards) would improve those reserves. The 'old car' would then be re-valued, maybe even refreshed for CPO sales.

This would offer small incremental improvements to the balance sheet.

I think the biggest deal is the revenue recognition, the potential upgrade sales of HW3, plus the locking in of new sales of fully optioned vehicles on inventory and thus reducing total 'finished goods' inventory value at the end of the quarter.

So I see this as bringing forward future sales as long as sale is from new inventory and delivery happens by end of Q3, which will not hurt future demand considering that they have a record number of new Model S/X orders:

"Demand for Model S and Model X vehicles remains high, with Q2 2018 being our highest ever Q2 for Model S and Model X orders."​

I.e. they are basically asking owners who can take delivery by end of Q3 to bring forward their purchase of a new car.