TSLA Market Action: 2018 Investor Roundtable

[neroden]

I'd like to see at least some of the Model 3 "day one line waiters" who are holding out for the SR (short range) version get access to the full $7500 tax credit in the US.

People were, IMHO, quite clearly warned upfront about this. Tesla quoted the price *without* incentives, said that you couldn't build a business model on incentives, said that they didn't guarantee anyone access to a particular incentive, et cetera. Tesla still has US first-day line-waiters getting *LR AWD* who haven't gotten their cars yet, and I think Tesla's going to try to get all of those delivered before the end of the year so they can get the $7500 credit.

I think they'll deliver the SR version in the first half of next year so that the line-waiters can get the $3750 credit.

 

[neroden]

understood but point was whether they are callable...
after a bloomberg search i found the 2025s are callable. not sure about the converts

They're not going to call bonds with that low a coupon interest rate. Not with the current interest rate trends.

 

[neroden]

While there might be margin improvements available by tweaking the battery design for SR, simply not including some cells is enough for now.

This is not a reasonable thing to do. They're redesigning the pack for *all* the Model 3s, and the redesign is substantial. I suspect it has to do with the "bandolier" assembly design, which proved to be seriously problematic. I don't know what the new design is, but they clearly don't think it's worth doing any R&D on the old design; they'll ship as-is packs on the existing lines, but all the R&D work will go into the new design.

Even spending a little time on tweaking the old design to have fewer cells ends up being a waste of R&D work -- *in order to make less money now*. And it's not trivial to "just not include some cells" with the bandolier design, unfortunately.

I don't think it would even get that much goodwill. They couldn't possibly deliver to all the people who waited in line before the reveal, and so it would just make people angry that it was a crapshoot whether they got the $7500 credit or not.

I think Tesla is trying to get the $7500 credit for every US first-day reservationist who ordered a trim which is currently in production. At that point, I don't know whether they'll try to get the $3750 credit for all the US first-day reservationists who held out for the SR car... but they might. We'll know when we find out when they're shipping to Europe, because around January their choice will be ship to Europe or ship the SR car.

 

[beachbum77]

People were, IMHO, quite clearly warned upfront about this. Tesla quoted the price *without* incentives, said that you couldn't build a business model on incentives, said that they didn't guarantee anyone access to a particular incentive, et cetera. Tesla still has US first-day line-waiters getting *LR AWD* who haven't gotten their cars yet, and I think Tesla's going to try to get all of those delivered before the end of the year so they can get the $7500 credit.

I think they'll deliver the SR version in the first half of next year so that the line-waiters can get the $3750 credit.

Neroden, go read the Tesla website. They have been quoting "cost after estimated savings" from day one. They are still doing it today on Model S. It is even worse on Model 3. Go to the order page and look at the lower left corner when you select loan. It is actually implying you will get a lower payment after the credit and savings. That is very misleading since the credit and gas savings will not affect the purchase price or your payment by even 1 cent. It only impacts the total cost of ownership years down the road.

Another interesting little detail is that Tesla has now upped the downpayment in their scenarios from $5,000 to $10,000 to show a lower monthly payment.

 

[neroden]

European deliveries will be much higher priority than standard range car, because they will be long-range with options and good margin.

Tesla will likely push off standard range car (due to low margins) for as long as they can. Makes too much business sense.

But does it? Tesla has in the past prioritized markets where tax credits are going away. And the US is currently such a market.

It makes no sense to ship an SR car to the US when you can ship an LR car to the US -- same tax credit situation -- but come January, if the LR queue is finally down to a reasonable length, it may make sense to publicize the upcoming end of the $3750 tax credit, and then of the $1875 tax credit, and see if they can get an extra flood of orders pulled forward from 2019. The European reservationists will wait, and the upcoming cash flow needs mean that the difference between starting SR deliveries in January and European deliveries in June and vice versa aren't that big.

However, I agree with you that they won't start the SR deliveries until they have the new improved pack design, so it just depends on when they get that. (It also depends on how long it takes them to sort out the changes needed for the Euro-spec version, *and* the logistics for the European deliveries. That might take longer than the new improved pack design.)

 

[Zaxxon]

Setting aside the question if whether Gali is the best person to represent retail shareholders, it's nice to see Tesla continuing to put action behind Elon's words and give Hyperchange the same tour access they gave the big fish.

 

[neroden]

The big players are shipping about 2 million new 2019 units around the U.S. this month to Tesla's 20-25,000. I fail to see how a comparison of their staging lots matters.

Tesla doesn't even have 1/100th as much staging lot space as THE SUM TOTAL OF ALL OTHER CARMAKERS IN THE US, which is what it would need to have a proportionate amount of space.

For another way of looking at this, consider BMW. They have over 3 times as many dealerships in the US as Tesla has stores, while delivering about 1.5 times as many cars. Their dealerships have larger lots than Tesla's stores. And they have more, bigger staging lots than Tesla.

Porsche has roughly twice as many dealerships as Tesla has stores, and they have larger lots, again. And they only ship about 50K cars per *year*.

Tesla is underprovisioned on parking lot space for the logistics of delivering cars.

This is an interesting problem: Tesla has created buffers and avoided Just In Time practices when it comes to car parts, so that one failure doesn't cripple the entire line speed. But for deliveries, they have too little buffers and too much Just in Time, and one small lot at Mt. Kisco filling up, or one train showing up late or early, can bollix up the entire delivery chain.

Honestly, some of us were warning that they were badly underprovisioned for the delivery logistics, and they were. But parking lots are expensive, so they were conserving opex and capex. Once they're generating some free cash flow, they should use some of it to get some buffers into the system.

 

[jhm]

understood but point was whether they are callable...
after a bloomberg search i found the 2025s are callable. not sure about the converts

it’s an interestng scenario if they were in a position at any point going forward to just be able to erase those fears/ammo for doubters

Ah, callable. I would expect a company can buy back a bond on the open market without it being callable. Callability gives the issue the privilege of redeeming a bond prior to maturity. But if a bondholder is selling, I see no reason why the issuer could not be the buyer.

 

[neroden]

Ah, callable. I would expect a company can buy back a bond on the open market without it being callable. Callability gives the issue the privilege of redeeming a bond prior to maturity. But if a bondholder is selling, I see no reason why the issuer could not be the buyer.

I don't think it would make sense to buy back the 2025s if Tesla could use the capital for expanding. It's a good coupon interest rate; the only reason to buy them back would be if Tesla could refinance at a lower rate. (Or if Tesla couldn't find a place to deploy the capital in the active business, but that's ridiculous.)

The convertibles are another matter; it would make a lot of financial sense to buy them back below par, even at the expense of delaying capital investments. Both in order to avoid the stock dilution, which could amount to a truly large loss to shareholders, and because they're going to mature a lot sooner -- the difference between losing a source of capital which lasts 7 more years and one which lasts 2 more years is significant.

But of course the convertibles are trading above par.

 

[beachbum77]

Tesla doesn't even have 1/1000th as much staging lot space as THE SUM TOTAL OF ALL OTHER CARMAKERS IN THE US

So? It does not mean Tesla is not storing/staging cars. The lack of space is one of the problems that may be contributing to their decreased production estimates by Bloomberg. When you run out of space you have to cut back production. That is a given. If my dealership lots had been filled to capacity (they never were) I would have had to cut back on orders. Very logical consequence.

If cars are not moved out from a port staging lot fast enough they cannot unload arriving ships. When my transport company was taking boats, cars and RVs to either Baltimore, Jacksonville, or Ft Lauderdale for overseas shipments you are given very narrow windows for dropoffs. Miss it and you will have to leave the port and wait for another slot. Tesla has had problems of trucks arriving at DC's with no place to unload the cars. (Read the threads and forums). Lot space is a critical commodity in many businesses.

 

[neroden]

So?

So, Donn, to get back to the original point, YOU WERE TALKING NONSENSE. You claimed that as soon as customers were aware that there were cars available for immediate pickup (BTW... there are some) that the delivery logistics problems would magically vanish and all would be well.

That's just nonsense. The delivery logistics problems are largely, in my opinion, *and apparently in your opinion too*, due to a lack of staging capacity. "Customer awareness" of "cars available for immediate pickup" has nothing to do with it.

Do you admit that you were talking nonsense before?


This entire discussion started with me calling out your nonsense. You basically just agreed with me, so will you admit that you were talking nonsense before?

 

[Reciprocity]

People are quick to discount Gene Munster on this board, but the guy has earned his reputation as one of the best Apple analysts over the years. He’s been very bullish on Tesla and Elon, but understandably the recent months of Elon’s antics have exhausted his patience. Another note is that Munster is likely in touch with a lot of institutional funds and he has a pulse on their sentiment. He is not just talking from conjecture. It’s very likely large institutional fund sentiment has shifted negative and that concerns Munster.

It makes sense to have a stronger and more independent Tesla board to act as a check and balance so that there’s a group Elon needs to answer to.

But I do understand the concern that a stronger board would slow Elon down or discourage him. Perhaps Elon has an earth-shattering idea he wants to do at Tesla that would be great, but the board resists due to practical reasons.

Overall though, I hope that Munster and others can punt on this issue for another few months at least while Tesla reports Q3 profit and Jerome takes reign of Tesla Automotive. Stock also will likely rebound quickly and once we’re over 350, optimism and euphoria sets in. And as long as Elon doesn’t screw up on Twitter or elsewhere, then everything will look rosy soon. At least that’s the plan.

Elon doesn't need to be put in check in the traditional way a CEO needs to be put in check. That's why l am fine with the current board. Any change would be purely to satisfy those institutional investors. Elon's issues are not inside the walls of Tesla, they are on Twitter and dealing with outside forces. No board will stop him from tweeting something that springs to mind. 80pt drop and really in July and 100pt from since the 420 tweet. All self inflicted wounds that had nothing to do with running Tesla. Sad to say, no board could have stopped him without removing him and that's not an option. There is no Tesla without Elon. Not yet anyways.

At some point Elon will realize he is causing more damage then good with some of the nonsene and he will stay away from getting into the mud with the snakes in Twitter. I honestly like 99% of his use of Twitter, it's mostly positive. I have zero issue with how he's done the rest of his job. The communications around the next product ramp could be a tinch more conservative, but I like the aggressiveness, it worked to get model 3 much faster then what was realistically possible.

But Elon needs to stay out of the weeds.. pun intended, where the snakes are slithering and looking to bite him in the ass.

 

[jhm]

The stock price is not the denominator in that ratio. Rather, it is the equity portion of the balance sheet.

Altman Z-score - Wikipedia I'm talking about the inverse of X4. Different models may use different conventions.

 

[neroden]

For an example of the not-enough-parking-lots problem, there are a lot of reports elsewhere in this forum of Model 3 customers being called up and told that they can get their car *but only within a window of a week*. And a few where they're being given a *2-day* window. People who have pre-planned trips... often simply literally can't do this. They need the car to be stored for 5 days or a week until they can make it back from their trip and get it, even though they want to get the car ASAP.

But Tesla doesn't have the lot space to handle that (very reasonable) request, so they've been handing the car to someone else and putting the customer in line to get a newly produced car instead! And it is confirmed specifically that it's about how much space they have on the lots. It's not just Raleigh or Charlotte, I've been hearing it out of Mt. Kisco, Chicago, and other places too.

...but that's just one part of it. Having the delivery center in Chicago do the scheduling does NOT solve the problem. Because they're having trouble getting the cars delivered from the trainyard elsewhere in Illinois on schedule. If they start from the customer end and specify a date the car should arrive by... they can't guarantee that it will actually arrive on that date, because of delays anywhere along the route (factory, train, truck, transload yards, etc.) Some are showing up late! Some are showing up early!

This can all be solved by doing logistics design and planning. Each storage point in the transportation system should have enough capacity to buffer for any likely level of delay in the next segment (which means they'll normally be less than fully), and each transportation segment should have enough capacity to catch up on an full buffer behind it (which means that the transporation segments will normally run at less than full capacity). This allows for pulses to be "worked out". The variability of the timing of each step in the process needs to be estimated.

For a specific example, the final delivery center should have an estimate of how many customers might have to have their cars held until they get back from vacation (maybe an 80th percentile guess, so it won't be overwhelmed more than 20% of the time), and should be sized to do that.

But it has absolutely nothing to do with "customer awareness" of whether there are "cars which can be picked up today".

 

[jhm]

I don't think it would make sense to buy back the 2025s if Tesla could use the capital for expanding. It's a good coupon interest rate; the only reason to buy them back would be if Tesla could refinance at a lower rate. (Or if Tesla couldn't find a place to deploy the capital in the active business, but that's ridiculous.)

The convertibles are another matter; it would make a lot of financial sense to buy them back below par, even at the expense of delaying capital investments. Both in order to avoid the stock dilution, which could amount to a truly large loss to shareholders, and because they're going to mature a lot sooner -- the difference between losing a source of capital which lasts 7 more years and one which lasts 2 more years is significant.

But of course the convertibles are trading above par.

Yes, this discussion has gotten strung out. Other posters missed my distinction. My original point was about buying back the current debt, not the 2025 debt. We're on the same page.

 

[beachbum77]

Tesla doesn't even have 1/100th as much staging lot space as THE SUM TOTAL OF ALL OTHER CARMAKERS IN THE US, which is what it would need to have a proportionate amount of space.

For another way of looking at this, consider BMW. They have over 3 times as many dealerships in the US as Tesla has stores, while delivering about 1.5 times as many cars. Their dealerships have larger lots than Tesla's stores. And they have more, bigger staging lots than Tesla.

Porsche has roughly twice as many dealerships as Tesla has stores, and they have larger lots, again. And they only ship about 50K cars per *year*.

Tesla is underprovisioned on parking lot space for the logistics of delivering cars.

This is an interesting problem: Tesla has created buffers and avoided Just In Time practices when it comes to car parts, so that one failure doesn't cripple the entire line speed. But for deliveries, they have too little buffers and too much Just in Time, and one small lot at Mt. Kisco filling up, or one train showing up late or early, can bollix up the entire delivery chain.

Honestly, some of us were warning that they were badly underprovisioned for the delivery logistics, and they were. But parking lots are expensive, so they were conserving opex and capex. Once they're generating some free cash flow, they should use some of it to get some buffers into the system.

I have written articles about the same problem I could see would develop as they ramped up. The critics said I was nuts. Well now we know we both were right. The immediate problem now when they are trying to hit a profit in Q3 is they are behind the power curve. It is like a surfer missing a great wave by paddling too late.

You are forgetting one thing though. Dealers sell used cars too generating huge profits. Tesla just wholesales used cars off and loses money on almost all of them. While this reduces the needed lot space, it is a very costly trade-off.

Now in fairness to Tesla part of this may be because of arrangements with the states. Tesla may not be allowed to sell off brand used cars since that would require a separate used car dealer's license. All used car sales now are handled remotely in coordination with CarMax and the auctions from what I have been told. But it has had a crippling effect on the "Used and Other" gross loss.

 

[Off Shore]

I think the big difference is that in western economies cars are so expensive that about 80% of the sales are financed. In fact there's a fair argument to be made that ICE cars are currently only selling in such numbers because of a car-mortgage debt bubble, created by overly easy loans given by the finance side of ICE companies. There's 1.1 trillion dollars of car mortgages outstanding currently.

(I.e. a vendor-financing debt bubble: the phenomenon that almost killed one of the largest dot-com darlings, CISCO. Drop in ICE demand due to EVs is going to hit them in the worst possible moment - but I digress.)

But the point is, many customers don't really look at the sticker price, they look at the financing rate, the monthly rates, whether they get the loan to begin with, versus the utility the new car gives them.

And the Model 3, once out in all options, will be a really ... addictive product in terms of incremental utility:

• $35,000 base price. Yay, we can buy a Tesla, we officially made it in life! Cannot wait to post this on Facebook!
• +$9,000: Long Range. 50% more mileage, no more range anxiety! More effective regenerative braking. Ability to do road trips without spending half the time at Superchargers, and charging faster as well. Ability to recharge only once every one or two weeks, if there's no charger at the condo. ("Also, while it accelerates better, that's honestly not the reason I want it, honey!")
  
• +$6,000: AWD. A must in the snow belt. Absolutely because of the safety of the children and the wife, not because of the acceleration! ("Even in sunny California AWD is a must because we always wanted to drive up to the Mammoth Mountain Ski Resort, honey!")
• +$4,000: EAP. AutoPilot makes you arrive more relaxed at work. More relaxed back home as well, through rush hour on the highway. Totally worth every single dollar, not to mention Summon and AutoPark.
• +$1,500: White seats. Totally stain resistant Elon promised, and they don't get hot in the summer. They also look slick as hell.
• +$5,000: Premium interior. ("Honey, this option is for you, look how nice everything looks with premium interior, and it's easier to clean as well! We get the premium connectivity package as well.")
  
• +$2,000: Premium paint. That red looks totally awesome. ("Honey, this is the one option we'll be buying just for me, and it's the cheapest - in exchange we won't be buying those overpriced $9,000 red brake calipers! Also, did you know that black is the hardest car color to keep clean??")

In a blink of an eye you are above $60,000 with a $1,000+ car mortgage, you have blown up the family budget and there's serious negotiations which option to nuke. Tesla is really good at moving people up the price ladder and making them spend a lot more on a car than they ever thought they would spend.

With an iPhone there's very little true differentiation in utility, the choice is really binary: you either have it or don't have it. Storage space is secondary with cloud storage so there's really just two options that make sense: the most expensive iPhone (because it's the most expensive one), or the cheapest iPhone (because it's still an iPhone).

What'd ya, tap my phone?

 

[beachbum77]

For an example of the not-enough-parking-lots problem, there are a lot of reports elsewhere in this forum of Model 3 customers being called up and told that they can get their car *but only within a window of a week*. And a few where they're being given a *2-day* window. People who have pre-planned trips... often simply literally can't do this. They need the car to be stored for 5 days or a week until they can make it back from their trip and get it, even though they want to get the car ASAP.

But Tesla doesn't have the lot space to handle that (very reasonable) request, so they've been handing the car to someone else and putting the customer in line to get a newly produced car instead! And it is confirmed specifically that it's about how much space they have on the lots. It's not just Raleigh or Charlotte, I've been hearing it out of Mt. Kisco, Chicago, and other places too.

...but that's just one part of it. Having the delivery center in Chicago do the scheduling does NOT solve the problem. Because they're having trouble getting the cars delivered from the trainyard elsewhere in Illinois on schedule. If they start from the customer end and specify a date the car should arrive by... they can't guarantee that it will actually arrive on that date, because of delays anywhere along the route (factory, train, truck, transload yards, etc.) Some are showing up late! Some are showing up early!

This can all be solved by doing logistics design and planning. Each storage point in the transportation system should have enough capacity to buffer for any likely level of delay in the next segment (which means they'll normally be less than fully), and each transportation segment should have enough capacity to catch up on an full buffer behind it (which means that the transporation segments will normally run at less than full capacity). This allows for pulses to be "worked out". The variability of the timing of each step in the process needs to be estimated.

For a specific example, the final delivery center should have an estimate of how many customers might have to have their cars held until they get back from vacation (maybe an 80th percentile guess, so it won't be overwhelmed more than 20% of the time), and should be sized to do that.

But it has absolutely nothing to do with "customer awareness" of whether there are "cars which can be picked up today".

Great points!

That is why I think all deliveries should be coordinated at an intermediate or DC level. Once the car ships the ISA should be out of it. The DC manager or maybe these new regional managers should be taking over with a big wall schedule or a spreadsheet where the manager and his staff can monitor the activity live. Customers who are traveling can be entered into the system as well with their constraint dates. Telling someone who has been waiting over two years "sorry it is these dates or we are giving your car away to someone else" is insane! The first time I read that in a thread I thought it was a joke. What a great way to tarnish the brand and hurt the SP.

I firmly believe if Tesla fails to hit a profit this quarter it will not have been because of production, it will have been because of poorly planning the delivery ramp including the points you mentioned above.

 

[TrendTrader007]

Today’s action was positive for bulls in that low volume orderly pullback despite a major desertion by an erstwhile bullish analyst premarket
Claiming $TSLA is no longer “investable”
Really! Sure go ahead and invest in $F
I’ll stick with trading $TSLA
I expect a big up day tomorrow

 

[beachbum77]

So, Donn, to get back to the original point, YOU WERE TALKING NONSENSE. You claimed that as soon as customers were aware that there were cars available for immediate pickup (BTW... there are some) that the delivery logistics problems would magically vanish and all would be well.

That's just nonsense. The delivery logistics problems are largely, in my opinion, *and apparently in your opinion too*, due to a lack of staging capacity. "Customer awareness" of "cars available for immediate pickup" has nothing to do with it.

Do you admit that you were talking nonsense before?


This entire discussion started with me calling out your nonsense. You basically just agreed with me, so will you admit that you were talking nonsense before?

Not nonsense or "magically vanish". But just one way to alleviate some of the pressure off the DC's that are struggling with too little space and are already full of cars.

I agree it will not help the in-transit problems they are having. But it would help the over-crowding of cars already on the DC lots. Nothing is worse than having to turn away a truck with 9 or 10 customer cars. But I also believe this happens because managers are not given enough discretion to boldly take action.

I once worked for a network of companies that included a large leasing outfit for small rental car franchises. One year we got inudated with thousands of Daewoo lease returns. We were renting spots in every Hollywood/LA parking structure we could find, doing the inspection/prep work on site and then sending them off again to the auctions or conducting on-site auctions to local wholesalers. My point is when you need space you can find it if you are given the operational authority to solve the problem. I do not believe Tesla has granted anyone that authority at this time.