TSLA Market Action: 2018 Investor Roundtable

[neroden]

HA HA but NO only because we can all learn from each other. See my note below.



Hi FC......that's close except you are rationalizing why the bond is trading at a 15% discount, not the argument presented by @CorneliusXX which was a 15% discount was due to the increased interest rates. We agree, its not solely the interest rate driving a 15% discount.

If factoring only the increase in yield, your math is off just slightly since you used maturity instead of duration. Using correct duration/treasuries its roughly 1.5% issuance delta x ~5.5 duration for 8.25% discount vs.15% current trade level. That was the simple point......even in a rising rate environment, this bond is trading with a steeper discount than it should. You took a crack at explaining away the difference as equity sentiment, but I would argue the other way around. And that's an age old debate. Good show.

I believe that the difference is partly interest rates, and partly that Tesla issued the bond at what was effectively "too low a rate" to start with. (Which is an awesome coup for Tesla.) *At the time* people were asking how they got a 5.3% rate and saying it ought to be higher. It's now trading at the yield it "should" be trading at.

 

[elasalle]

The Energy GF1 cell line(s) were converted to making Model 3 cells. The new equipment should remove that bottleneck.



Ummm, I bought around 370 last year (or was it 2016?) And bumped up holdings at 350-370 this year. Neither hurting nor mad at Elon.

(thumbs up) To each his own.
Before being mad at Elon, I would be mad at my own greed & trading strategies. I'm Long TSLA all the way.
Edit BTW. I too hero worship Elon, but that doesn't mean I need to agree with everything he does

For Solar panels etc could come from Buffalo. batteries could come from Samsung and be outside of regular GF lines. What SA will get by involving TSLA is their expertise in this field.

 

[neroden]

Karen, S & X sales have peaked at about 100K annually.

Donn, you know they're production constrained. (BTW, Tesla seem to have pushed it up to 110K.)

It's not worth it to spend large capex to build a second S & X line at this point, since it's clear demand for 200K isn't there at this price point -- demand might be there at a lower price point, but the financial calculations don't make cutting the S/X prices an advantageous thing to do right now. However, the base price of Model S is actually substantially higher than when it was first released, so they do have room to cut the price if they want to.

I see Model 3 at 500K in about 2 years for all variations. Your opinion?

That would be Tesla's actual planned production for Model 3, Donn. We'll see whether they need to build a new production line after that due to exceesive demand or not. I mean, probably not? But who knows? They were originally projecting 20,000 Model S per year, and they're delivering about 50,000/year at higher prices!

 

[neroden]

What you want to consider for all bonds, when the trend is for increasing rates, the bond value drops to match the market rate in terms of value to match the increased rate. The reverse is true for decreasing rates. Our wealth manager has sold a bunch so we are at about 30% cash on the promise to invest in corporate bonds, two year terms, when we discussed it @ 2.75 interest. If he does it now and rates go up, their value depreciates. He has not done so, I guess anticipating purchase at a higher interest rate. If he hits the peak, not guaranteed, but if he did, when rates drop say at the next recession (predicted here anywhere from 18 to 24 months) we will make a killing and it will be time to sell the bonds and invest in equities.

Best timing on this sort of trade which I can remember was a trade my Dad did in the late 1970s inflation, buying 30-year and 20-year municipals with coupons of 10% - 13%.

 

[Smokey4141]

Alright, here’s part 2 in my blog post series. After all parts are done I’m hoping to put it altogether in one post. Please PM me if you have any ideas on how we can get Elon to read the final compilation.

DaveT on Chatstarter: "Part 2: The Turning Tide - Why Elon vs SEC might have a very bad ending"

Also, I'm looking for quality feedback. Just @ me in the thread so I can see it.

Dave, just read Part's 1 & 2 .... A really fair and well-written summary...
Thank you for writing that, and looking forward to Part 3...

 

[Wnuk]

‘Think of us small people’: Tesla fans are begging Elon Musk to stop tweeting

One of our very own quoted in this piece. Quite amusing

 

[neroden]

Ten years on and I still wonder how these two companies are still in the game, rather than wound up with several people doin' time?

Not enough people switched to Fitch or A M Best.

Moody's and S&P would rate a ham sandwich -- they'll rate anything.

The reputable ratings agencies will only rate things they understand.

The disreputable ones, Moody's and S&P, are more attractive to many money managers *because* they have a rating for everything. (Fitch will often say "not rated").

Does this start explaining it?

 

[oneday]

@DaveT: Nice piece. I'm going to ask that you elaborate on the possibilties for Tesla the company.

Because I don't actually care what happens to Elon. I mean, sure, I wish him the best personally, but it's not like he's my ex-husband or anything personal. I care about Tesla, not about Elon.

I think Tesla would be fine without Elon in active management. Elon got it through its crucial period, and Tesla's current crises (communications, and logistics) aren't actually within Elon's areas of expertise. His areas of expertise (cost engineering, switching corporate directions quickly) remain useful, but not necessary.

I've been following Tesla since the days when Musk was a non-management investor. It was achieving great things -- but then the company hit a key problem where Eberhard wouldn't do the necessary thing, and Musk's precise areas of expertise were right to fix that. They also couldn't find anyone else suitable to be CEO, and they tried. His precise areas of expertise were also important at several other key points in Tesla's history.

But now, I think Jerome Guillen would be a fine CEO -- at least as suitable than Musk for the current problems, and possibly better -- and he's already President of Automotive (thank goodness). And it doesn't matter much who's chairman of the Board.

So I just don't care about Musk's personal fate. Not to sound harsh. What's the future for Tesla?

Maybe you’re right here. Maybe you’re wrong. If you’re wrong you should take into account what the possible outcomes are.

You are proposing Elon be forced out, maybe you think he could be convinced to step down? Does he play nice as #2 or #3? Perhaps this makes him walk away completely. You can’t just say you can force him to step down, muzzle him, but then still utilize all his talents because you gave him some new cool title like chief idea maker.

I will 100% agree with you Tesla is past the tipping point. It will survive as a company without Elon. But you can’t expect the same growth levels, the same amount of innovation, the same amount of continuous improvement.

I think without Elon, there is a possibility it just becomes an auto and battery maker. They give up on the solar business. They don’t ever branch out to other areas of transportation like trains or planes. They might grow to a $200 billion market cap company (big maybe) but no chance of $1 trillion.

I think you are too easily saying we don’t need Musk anymore. I think it’s foolish and wrong. No CEO or board would continue to make decisions that could upend industries. They will make safe bets and slow growth.

Effectively, you are voting to kill the mission, in exchange for a more stable stock price and company management.

 

[neroden]

No, this appears to be an active investigation into the model 3 production claims over the last year. I don't understand why the SEC was convinced to investigate, but this appears to be real.

I am entirely supportive of fighting and dragging that case out as long as possible, because (a) it's bullpuckey, and (b) even if there's a settlement, the goal of whoever's behind this is clearly to drench Tesla in fines *before* the cash flow comes through -- if Tesla has to pay any part of a settlement, it's better to drag it out to next year when the cash is gushing.

 

[Dig deeper]

Step one, don't owe any money yourself. Step two is the harder step.


Well, I picked companies which I think will still make money even in a bad economic environment, and an 80% loss still leaves me with enough to live on, if I get lucky enough to have no more medical disasters. I realize that isn't possible for everyone.

Mortgage and cars, which weight more than i'd like them to (DTI could be better) but its better than drowning in CC debt like most people in the western world.

I am assuming you consider Tesla among one of said companies? Your posts clearly demonstrate you to be extremely cautious. I definitely share the sentiment. Although '08 happened rather suddenly, i feel like no one is ever really prepared for a major recession. Given the size of our (all forum members minus TROLLS) collective investments in Tesla, both proportionally and in dollar amount, most of us feel some minor anxiety about things no doubt.

I wonder how Tesla would be able to shift effort and energy across their product line to weather such a storm. Perhaps looking towards Semi and utility storage (being products that would be less susceptible to tough economic conditions than higher margin P3Ds). I feel we haven't seen Tesla launch enough projects like the Australia one or the PG&E rumor, to have an accurate picture of what kind of gross margin we can reasonably expect. Interesting to see how partnerships develop with companies like Neoen UPDATE 1-French renewable energy firm Neoen plans to list shares by end of 2018 - source | Reuters

As for the Semi, there seems to be some ambiguity as to how they will be able to achieve such range and performance given current cell/pack technology (not referring to whoever that moron was a while back that was claiming it was "against the laws of physics"). Gross margin estimate on Semi anyone?

I guess getting to 10k/week giving them the ability to produce the 35k version of M3 profitably would help with maintaining sufficient demand during a recession. But then you have the S/X product line that needs a refresh in the coming years. Capex on that? Even some patch solution, like getting the the 18650 out and the 2170 in (I know its harder than it sounds, I am a moron from an engineering standpoint).

I feel like the biggest wild card is autonomy. If Tesla gets there first i think it will be game over. Betting on Elon (brilliant unconvential mind) rather than Bob Lutz or his ilk (dealing with paralyzing nepotism) in finding a solution to this immensely complex puzzle. Cathie wood seems to agree.

 

[dc_h]

Can anyone explain to me why are banks hitting up Tesla w/ refi offers? Is this standard procedure when debt gets near due?

Two primary options are that it’s a sign of strength or weakness, duh.
The strength story is that banks are becoming aware that Tesla is cash flow positive and they have a chance to get a high premium to underwrite Tesla debt, while Tesla may still need cash. The weakness story is that they are coming in with creative options, implying that new debts will be at the head of the table and secured by physical assists. We will know in a few weeks, if Tesla had 55,000 Model 3 deliveries at 60,000 ASP and didn’t manage cash flow well, the shorts will have a good story and Tesla will be in trouble. I think a good cash flow story needs to be at least 300 million positive, which would probably be a -200 million GAAP loss. I think a great story would be over 500 million cash flow positive and any profit, hopefully over 50 million-more than a rounding error.

I’m not counting on any surprise KSA deals or short squeezes, but I’m vested in a good quarter. Prior to Tesla I was never more than 10% in any stock, let alone my current at 50% liquid investments in one stock. Long term I don’t really want a squeeze, just a long steady rise driven by cash flow from operations. I’d prefer little to no profit for the next 5 years, while Tesla continues to reinvest, but I would like to see cash balances grow 300 to 500 million per quarter for a couple of years. Once the Y plant in shanghai is online, steady build of cash should accelerate. Short term, we need to be cash flow positive this quarter and really even a small profit will be spun as a one off, which is one reason I don’t see a short squeeze happening.

 

[neroden]

No CEO or board would continue to make decisions that could upend industries. They will make safe bets and slow growth.

Do you recall Marc Tarpenning, Martin Eberhard, Ian Wright, J B Straubel, et alia? Musk was not the only disruptor who founded the company. Although several of those people have left, the company is still full of other disruptors who share the mission still in Tesla, including Franz von Holhausen and Jerome Guillen. If Musk has acheived anything, it should have been to create a company whose culture would continue upending industries with or without him. While a leader is important, you can't have a company dependent on one man.

(I actually think Musk's special talents involved *playing it safer* than some of the other disrputers. Straubel proposed electric airplanes, and Musk said they weren't possible yet! Eberhard demanded excessively high appearance standards for the Roadster, creating critical cost problems!)

I'd much prefer a healthy Musk -- one who is getting some sleep and not making juvenile tweets -- running the company. But, if Musk had to leave for whatever reason, I think Tesla would not only survive (on which you agree with me), I also don't think that Tesla would lose its emphasis on growth and innovation and improvement. I am a little afraid that whoever replaced Musk might be overambitious and end up with products which are too expensive to produce, since Musk has an unusual talent for cost engineering.

Musk was never a substantial part of my investment thesis for Tesla (same as KarenRei, if I am not mistaken).

 

[neroden]

I am assuming you consider Tesla among one of said companies?

Well, I do. I have more TSLA than I'm comfortable with now. My investment thesis is centered in these points:

(1) The clear superiority of electric vehicles over gas vehicles on all measures except upfront cost, which is improving
(2) The clear demand for EVs vastly exceeding supply
(3) The staggering ineptness of the other would-be EV makers
(4) The inherently superior cost structure of Tesla's EVs vs. others (lowest battery cost, highest miles/kwh, taking dealership margin)

After that, it's just a question of "execution" -- ramping up production and deliveries until they can cover fixed costs, and then until they have a large cash flow above that.

The thing I keep a real eye on is the other would-be EV makers; if one of them starts seriously ramping up successfully and building a fast charging network, I'll have to reconsider Tesla demand. Seems like I've got at least another year.

(Which is actually mind-boggling. But most of this behavior was predicted by people who watched "Who Killed the Electric Car" -- it's a psychological problem in the boardrooms of the ICE car companies. What's more impressive is that Tesla is ahead of BYD and Geely, who do not have the same psychological barrier.)

Your posts clearly demonstrate you to be extremely cautious. I definitely share the sentiment. Although '08 happened rather suddenly, i feel like no one is ever really prepared for a major recession. Given the size of our (all forum members minus TROLLS) collective investments in Tesla, both proportionally and in dollar amount, most of us feel some minor anxiety about things no doubt.

I wonder how Tesla would be able to shift effort and energy across their product line to weather such a storm. Perhaps looking towards Semi and utility storage (being products that would be less susceptible to tough economic conditions than higher margin P3Ds). I feel we haven't seen Tesla launch enough projects like the Australia one or the PG&E rumor, to have an accurate picture of what kind of gross margin we can reasonably expect. Interesting to see how partnerships develop with companies like Neoen UPDATE 1-French renewable energy firm Neoen plans to list shares by end of 2018 - source | Reuters

I've considered investing in Neoen. I got out of utility companies when I realized they would be hit hard by the Great Energy Transition and only some of them would transition competenly and I couldn't tell which. Neoen, however, seems to be moving right into the exact sweet spot...

 

[omarsultan]

Do you recall Marc Tarpenning, Martin Eberhard, Ian Wright, J B Straubel, et alia? Musk was not the only disruptor who founded the company. Although several of those people have left, the company is still full of other disruptors who share the mission still in Tesla, including Franz von Holhausen and Jerome Guillen. If Musk has acheived anything, it should have been to create a company whose culture would continue upending industries with or without him. While a leader is important, you can't have a company dependent on one man.

(I actually think Musk's special talents involved *playing it safer* than some of the other disrputers. Straubel proposed electric airplanes, and Musk said they weren't possible yet! Eberhard demanded excessively high appearance standards for the Roadster, creating critical cost problems!)

I'd much prefer a healthy Musk -- one who is getting some sleep and not making juvenile tweets -- running the company. But, if Musk had to leave for whatever reason, I think Tesla would not only survive (on which you agree with me), I also don't think that Tesla would lose its emphasis on growth and innovation and improvement. I am a little afraid that whoever replaced Musk might be overambitious and end up with products which are too expensive to produce, since Musk has an unusual talent for cost engineering.

Musk was never a substantial part of my investment thesis for Tesla (same as KarenRei, if I am not mistaken).

Being a disruptor is easy, building a disruptive business is hard. The easiest analogy is Apple--while Woz might have being the technologist, Apple would not have exited the garage without Jobs. All the folks you mention are probably better than Elon in a single dimension (technology, operations, etc), but Musk has unique ability to pull folks together and mold them into a cohesive whole through is vision, passion and drive. At some point Tesla maybe in a position to a different type of CEO, much the same way Apple transitioned from Jobs to Cook, but I don't think we are at that point yet.

 

[oneday]

Do you recall Marc Tarpenning, Martin Eberhard, Ian Wright, J B Straubel, et alia? Musk was not the only disruptor who founded the company. Although several of those people have left, the company is still full of other disruptors who share the mission still in Tesla, including Franz von Holhausen and Jerome Guillen. If Musk has acheived anything, it should have been to create a company whose culture would continue upending industries with or without him. While a leader is important, you can't have a company dependent on one man.

(I actually think Musk's special talents involved *playing it safer* than some of the other disrputers. Straubel proposed electric airplanes, and Musk said they weren't possible yet! Eberhard demanded excessively high appearance standards for the Roadster, creating critical cost problems!)

I'd much prefer a healthy Musk -- one who is getting some sleep and not making juvenile tweets -- running the company. But, if Musk had to leave for whatever reason, I think Tesla would not only survive (on which you agree with me), I also don't think that Tesla would lose its emphasis on growth and innovation and improvement. I am a little afraid that whoever replaced Musk might be overambitious and end up with products which are too expensive to produce, since Musk has an unusual talent for cost engineering.

Musk was never a substantial part of my investment thesis for Tesla (same as KarenRei, if I am not mistaken).

One particular quote from this, “While a leader is important, you can’t have a company depend on one man.” Musk has never been this person. He has always attracted talent better than him and delegated really really well. I don’t think he has ever discounted the need of, worlds best talent, and recognizes it’s not just him.

Without Musk, I think you lose his roadmap. That roadmap still has a lot of twists and turns ahead. I do agree, Tesla would be fine without him. With sustainable profits, sales truly funding growth Tesla is at a turning point and I don’t think you underestimate how influential Musk will be in this situation.

Nonetheless, we will obviously have to agree to disagree here. And that speaks to how Musk has even begun to divide Tesla’s supporters. I believe this too shall pass.

 

[AWDtsla]

Well, I do. I have more TSLA than I'm comfortable with now. My investment thesis is centered in these points:

(1) The clear superiority of electric vehicles over gas vehicles on all measures except upfront cost, which is improving
(2) The clear demand for EVs vastly exceeding supply
(3) The staggering ineptness of the other would-be EV makers
(4) The inherently superior cost structure of Tesla's EVs vs. others (lowest battery cost, highest miles/kwh, taking dealership margin)

After that, it's just a question of "execution" -- ramping up production and deliveries until they can cover fixed costs, and then until they have a large cash flow above that.

The thing I keep a real eye on is the other would-be EV makers; if one of them starts seriously ramping up successfully and building a fast charging network, I'll have to reconsider Tesla demand. Seems like I've got at least another year.

(Which is actually mind-boggling. But most of this behavior was predicted by people who watched "Who Killed the Electric Car" -- it's a psychological problem in the boardrooms of the ICE car companies. What's more impressive is that Tesla is ahead of BYD and Geely, who do not have the same psychological barrier.)


I've considered investing in Neoen. I got out of utility companies when I realized they would be hit hard by the Great Energy Transition and only some of them would transition competenly and I couldn't tell which. Neoen, however, seems to be moving right into the exact sweet spot...

You are seriously underestimating the challenges coming for Tesla in the next 2-3 years. Elon has a history of delivering where others could not, as recently as a couple months ago. Remember when he fired Doug Field and took over production of the Model 3?

 

[neroden]

I'm not sure Musk is *capable* of continuously running Tesla right now. He's been under insane amounts of stress. and I know what that can do to people. You can't keep going at that speed indefinitely -- a company may be able to, but a human can't. He's been going all out for years, and the human brain and body simply isn't made for that. He ought to do what's necessary to take care of his mental health personally, and if that means a leave of absence, then we'd get him back better than ever. Also, Twitter is not healthy for him. He may like it, but it's not good for him.

I'm willing to seriously consider the possibilty that Musk will be forced out or that he will resign -- though I think a leave of absence / vacation would be much better. It would be ideal for me if he could figure out how to take a break / delegate even more for a month and then come back stronger than ever. He clearly doesn't have a good enough team yet if he keeps having to micromanage *every day*. I really think Jerome can handle things for a month.

 

[MXWing]

Good idea. I'll just say this. What Wahlmann admitted to when he was sued for securities fraud back in the past was: saying the opposite thing to the public from what he was recommending internally in his firm. (In other words, don't be surprised if Wahlmann's *actually* accumulating Tesla stock, and is just talking it down so he can buy it cheap. That's pretty similar to what he got nailed for before in another stock.)

Very informative.

Rather than start to bleat expletives at my friend regarding Wahlman I slow played it as I really want an introduction here.. “oh really? Yeah I follow his analysis in the automobile sector!”

Going to make an effort to find out what he really thinks as some of his articles defy gravity.

Bolt crushing Model 3 sales in June 2017? Ridiculous..

Will drive the volt to lunch.

 

[AWDtsla]

I'm not sure Musk is *capable* of continuously running Tesla right now. He's been under insane amounts of stress. and I know what that can do to people. You can't keep going at that speed indefinitely -- a company may be able to, but a human can't. He's been going all out for years, and the human brain and body simply isn't made for that. He ought to do what's necessary to take care of his mental health personally, and if that means a leave of absence, then we'd get him back better than ever. Also, Twitter is not healthy for him. He may like it, but it's not good for him.

I'm willing to seriously consider the possibilty that Musk will be forced out or that he will resign -- though I think a leave of absence / vacation would be much better. It would be ideal for me if he could figure out how to take a break / delegate even more for a month and then come back stronger than ever. He clearly doesn't have a good enough team yet if he keeps having to micromanage *every day*. I really think Jerome can handle things for a month.

I can't blame you for falling for the "Elon has gone off the rails" short thesis in this whirpool of bullshit. I almost fell for it too. I've come to the conclusion this is simply not true. He's as eccentric as normal. I think his patience for bullshit is wearing thin, as is mine. I think for him a vacation is going to work at SpaceX. What else do you suggest he do, build model rockets in his garage to take a break from Tesla?

 

[wipster]

Someone is a fan of Star Trek. (Me too.)

For those who don't get the references,

Darmok - Wikipedia

An excellent episode... sometimes even universal translators don't do the trick. Mongo truly deserves the credit though as he started it.

Wipster, his coffee cup empty...