TSLA Market Action: 2018 Investor Roundtable

[neroden]

I don't understand the fixation on the bond conversion point ($360).

At this point it's an irrelevance. Tesla's paying the bonds off in cash, and we know they have the cash to do it.

The bondholders are mostly short the stock (as an arbitrage trade) so they will cover around the time the bonds mature, which will affect the short interest slightly (no more than 2.5 million shares)

 

[KarenRei]

Remind me what use Murdoch is again?

Foil.

 

[neroden]

Do the bond holders not have the right to convert their debt into shares when the pice is over 360$?

Not really. Tesla can pay them off with the equivalent amount of cash to the shares... which is to say, more cash than Tesla would have to pay if the stock price was under $360.

Here's the important point: Tesla has a hedge written with one of the investment banks which pays for the "extra" cash. So the amount Tesla *really* has to pay, themselves, is constant.

 

[Reciprocity]

And Elon has stated that he expects a $25k Tesla in about three years. Who wants to guess as to whose car would be better?

Lets do a little thought experiment. Lets take Diess at his word and VW will have this magical 2020 car. To be fair, lets assume he meant the $28k car at half the price of a Model 3 LR with PUP and upgrade paint and wheels.

Now, the problem that I have with this is not that VW cant make a car cheap. They certainly can. The problem that I have is that the market for a $28k car better then a model is is somewhere on the order of 4M units per year. Assuming a 75KWh pack, that would equate to 75GWh per million cars. Or 2x GF1 x 4 by 2020. Just wrap your heads around that. I believe that Tesla consumes more KWh for automotive then all other vehicles combined and its almost 2019.

WHERE IN THE HOLYHECK DOES THIS VW MORON THINK HE IS GETTING THE MAGICAL BATTERIES.

Sorry for yelling, but it feels like German car companies things we are complete morons. Certainly many shorts are complete morons can they cannot picture the scale required to even compete on the same playing field with Tesla. Now, given the insane resources they have, they could. But they wont. Because they are too arrogant. Their investors will not abide the kinds of losses it would require. Even if they were willing to do it and their investors were cool with it, they implode from the lack of profitable sales of their ICE vehicles. Meaning, no one is going to by a $28k VW Passat if they can get a way better EV and it would have to much much better to be as good as a Tesla. They would be financially nonviable the more EVs they sold. If you traded 4M Passats at positive margins for 4M EVs at even slightly negative margins they would be toast. This is not a problem that you can just throw mountains of money at. It takes time and commitment.

Lastly, I will leave you with my Competition paradox. If they competition could make such a great vehicle, they wouldnt have waited for Tesla to do so. Tesla has 1% global market share. They would have make this magical car to crush each others and take the massive market shares the Toyota has or Nissan or GM or BMW. They have plenty of motivation before Tesla came a long. So when you hear about this car thats better then a Tesla and cheaper. Think about the Competition paradox. If they could do it, they already would have.

 

[KarenRei]

I'm not sure why you'd need to rewire them just for the LED conversion. Unless they have a particular flavor of "bulb" which is somehow uncommon, they should be able to get a retrofit LED module that includes power conversion and all that and thus can be changed out like a failed bulb replacement.

Though, a complete replacement with new "bulb" housing and etc can be beneficial for optimal light dispersion. In my town they've been replacing the old arc lamp street lights with LED lights for the last couple of years, and they replace the whole pole while they're at it (but not the wiring to the poles, just the poles themselves), and the new poles have different arm / light head design that is more optimal for the LED modules. We get way better street lighting with the new LED modules, and the city saves some money on energy costs. win-win! None of ours are gaining EV charging but that's because these are almost all along the medians of roads, etc - there's very little parking area along roads for which such a system would be useful for (and those few places that are more "european style" typically have L1 or L2 chargers going in already - there's not many such places but they're trendier/more upscale so they get the EV chargers).

edit: Or perhaps you're saying HV like 480V or higher, vs 220/240V for the lamps? I guess that's possible, but most street lamps I've seen are 220/240V range. Again, trivial to design a retrofit bulb that can handle 480V or whatever, but that would cause a problem for EV charging.

No. When talking about old streetlights, it's high voltage as in several kilovolts. A single transformer pumps up the voltage for a whole string of streetlamps in series. The only reason that they don't all go out when one bulb burns out is that they're designed to fuse the circuit closed at a bulb if that bulb burns out. Individual streetlights, obviously, cannot be turned on or off in this arrangement, and there is, obviously, no power to them except when the lights are on.

This is the older design for streetlights, but it's still in use in places. Parallel lighting is predominant in modern systems, although series is still dominant in airfield uses. Even for modern parallel streetlight systems running on mains power, though, there's no guarantee that the circuits will be live during the day, and the wiring won't be rated for EV charging currents.

 

[neroden]

Every quarterly filing since the May 2013 prospectus for the 2018 notes has stated Tesla's intention to repay the principal of all convertible note issues in Cash:

Since we expect to settle in cash the principal outstanding under the 1.5% Convertible Senior Notes due in 2018, the 0.25% Convertible Senior Notes due in 2019, the 1.25% Convertible Senior Notes due in 2021 and the 2.375% Convertible Senior Notes due in 2022, we use the treasury stock method when calculating their potential dilutive effect, if any.
​

However, the only convertible issue that has actually been settled is the 2018 Notes, and somehow stock was used for much of those recent settlements:

"In the second quarter of 2017, $144.8 million in aggregate principal amount of the 2018 Notes were exchanged for 1,163,442 shares of our common stock (see Note 14, Common Stock ). As a result, we recognized a loss on debt extinguishment of $1.1 million.

In the third quarter of 2017, $42.7 million in aggregate principal amount of the 2018 Notes were exchanged or converted for 250,198 shares of our common stock (see Note 12, Common Stock) and $32.7 million in cash. As a result, we recognized a loss on debt extinguishment of $0.3 million.

In the fourth quarter of 2017, $12.0 million in aggregate principal amount of the 2018 Notes were exchanged or converted for 96,634shares of our common stock (see Note 14, Common Stock). As a result, we recognized a loss on debt extinguishment of $0.1 million
​

It's akin to Lucy yanking the football away at the last second: perpetually and totally unexpected.

You're smarter than this, Brian. You can't generalize from the 2018 convertibles unless the stock price goes way up from here.

The 2018 convertibles (a) didn't have the option for Tesla to settle in cash at will like the later convertibles, and (b) as for the hedge/warrant transaction for the 2018s... the warrant strike price was well below the market price of the stock by 2017. (I no longer have a record of the warrant strike price for the 2018s, but you can look it up; you're good at that.) So effectively Tesla had no choice but to settle those for stock one way or another. On top of which Tesla was definitely short on cash for a long time.

Tesla's situation for the 2019 convertibles is exactly the opposite: flush with cash and with the stock price below the warrant price. If the stock price shoots above the $512 warrant strike price, the situation will reverse and they'll have to pay them off in stock. But if it stays low, they'll pay it off in cash.

 

[CaliBear1]

Careful there, cowboy. There's no guarantees that the stock will go up in the short term. Particularly in this macro environment.

How much do you want to risk your P3D?

I’m philosophical about it. If it dips and doesn’t pop above 350 for awhile then I’ll continue to drive my 2000 Honda Civic...which replaced my 335is convertible when the lease ended.

But, waiting is NOT easy! My test drive of the 3PD was like a straight shot of adrenaline to the heart. See “Pulp Fiction.”

 

[Curt Renz]

Not remotely historically accurate -- google "Gunboat Diplomacy". There's a long history of countries like England invading countries which have large English investments, often at the behest of the investors, in fact. Much of the conquest of India was done for this reason...

Indeed, even the United States. A good example is when the US in league with American plantation owners overthrew the Queen of the sovereign Kingdom of Hawaii during the 1890's.

 

[neroden]

Lets do a little thought experiment. Lets take Diess at his word and VW will have this magical 2020 car. To be fair, lets assume he meant the $28k car at half the price of a Model 3 LR with PUP and upgrade paint and wheels.

Now, the problem that I have with this is not that VW cant make a car cheap. They certainly can. The problem that I have is that the market for a $28k car better then a model is is somewhere on the order of 4M units per year. Assuming a 75KWh pack, that would equate to 75GWh per million cars. Or 2x GF1 x 4 by 2020. Just wrap your heads around that. I believe that Tesla consumes more KWh for automotive then all other vehicles combined and its almost 2019.

WHERE IN THE HOLYHECK DOES THIS VW MORON THINK HE IS GETTING THE MAGICAL BATTERIES.

It only requires 300 GWh of batteries per year. Easy, right? ;-)

Seriously, Tesla seems to be on a path to do that, eventually. VW does not.

Maybe VW will make, say, 500K/year of this "better than Model 3" car. And sell all they can make (while Tesla still sells everything it can make.) And then VW will raise the price of the car because they have a waiting list and their stockholders won't stand for giving away money.

I'm making an additional point to your points: an electric VW isn't competing with Tesla. Both will sell all they can make, because there's no way they'll have saturated the market. They're competing with VW's gasoline cars.

 

[AZRI11]

Tell that to Can-Am about their Spyder:

BRP Sells Its 100,000th Can-Am Spyder - Asphalt & Rubber

View attachment 348059

There's someone who lives near me that has one. See him drive it in the late spring and summer, for maybe 3 years now. Looks dangerous. I prefer my model 3.

 

[BioSehnsucht]

No. When talking about old streetlights, it's high voltage as in several kilovolts. A single transformer pumps up the voltage for a whole string of streetlamps in series. The only reason that they don't all go out when one bulb burns out is that they're designed to fuse the circuit closed at a bulb if that bulb burns out. Individual streetlights, obviously, cannot be turned on or off in this arrangement, and there is, obviously, no power to them except when the lights are on.

This is the older design for streetlights, but it's still in use in places. Parallel lighting is predominant in modern systems, although series is still dominant in airfield uses. Even for modern parallel streetlight systems running on mains power, though, there's no guarantee that the circuits will be live during the day, and the wiring won't be rated for EV charging currents.

Interesting. That's not common around here, I don't think I've ever seen street lights running off kV lines. Here from what I've seen, most commonly 220/240V to run the arc lamps and the streetlamps have light sensors on them to turn on automatically when needed.

Clearly someone could still build an LED module that ran off kV service but at that point the cost of the power conversion hardware etc per unit might make it worthwhile to rewire / replace the transformer (depending on if it's running from mains instead of distribution) for regular mains voltages. The only real downside is you'd have to do them all at once.

 

[EVNow]

The chance that TESLA goes up 30% from here SOON is low, but the chance that SQ, or AMZN or V or F even goes up 30% from these levels is much higher.

While anything is possible, chances that any of those others will SOON go up 30% is much lower than Tesla. Just see the option prices.

Other tech stocks are coming from 52 wk / All Time Highs. Tesla is not. All others are known quantity and the earnings didn't change anything much. For Tesla it did.

 

[RobStark]

I had this cautionary thought over the weekend as I went door to door asking people to vote.

Last week I stated that the big 3 couldn't possibly make margins because of Tesla's lead in technology (efficiency and battery costs). Now I look at those Ford Truck commercials and have trouble seeing these Trump supporters (classic Truck owner profile) switching to electric based on research with political preferences and lifestyles (a new book reference here eludes me).

The source pool for people to switch to EV cars was huge and represented a more even distribution of political views (compared to trucks owners). As a result, this demographic is going to take some time and they will resist. They love their macho mufflers and loud noise as it feeds their ego. Not sure an EV truck will do the same and some might be ridiculed for switching over at the next tailgate party. I doubt we'll get the 400K reservations like we did with the Model 3 but it will take a bite out of the market and will eventually shift over the years.

Thoughts?

Tesla doesn't need 51% market share right away.

Tesla Semi and Youtube videos of Tesla pickup out stump pulling a Dodge Ram 3500 Cummins Turbodiesel will quiet the attempted ridicule right quick.

Obama voters buy full size pickups too.Maybe less than a third of the market. That is still ~800k addressable market plus maybe 200k Liberal-NDP-Bloc Quebecois voters that buy full size pickups in Canada.

Toyota sells about 115k full size pickups a year in the US plus ~10k in Canada.

Nissan sells about 50k full size pickups in the US plus ~5k in Canada.

Given that the top Model 3 conquest are Camry,Corolla,Accord,Civic,LEAF, and BMW 3 Series maybe Tesla pickup starts by scooping up Japanese full size pickup market share first.

 

[CaliBear1]

Please Recirocity! Everything EXCEPT the “conflagrations!”

In general I agree. But Tesla will have to spend on Capex in 2019 to maintain that growth long enough to get to that 2020 jump. China financing will be a big chunk and they do not have to spend much to go from 7k/w to 10k/w at Fremont, probably more that what is listed there. But in general it will be much cheaper then the last 3-4 years when they were building out the GF1/GF2 and Model 3 capacity.

In particular duplicating lines is going to be very capex efficient because they dont have to start paying on that equipment until its in place and operational. Since they are not inventing the lines form nothing this time around, that will mean that the lines will start producing revenues about the time the start incurring the largest chunks of capex. Certainly there will be capex that falls outside of this, but the big chunks paid for thousands of robots, will come due 30 days after they are validated as functioning within spec. Which they will test by programming them to make model 3s. Copy, Paste, dominate.

Same goes for battery cell and packs. They will take known system, conflagrations and layouts... with only a few iterative tweaks for further optimization of course. All of this pain of production hell will be streamlined to an extent. Certainly there will be some hell to get through, but it will be an order of magnitude smaller. Only time will tell, but I think Tesla is finally being Conservative and sand bagging the timeline for GF3 in China.

 

[EVNow]

Given that the top Model 3 conquest are Camry,Corolla,Accord,Civic,LEAF, and BMW 3 Series maybe Tesla pickup starts by scooping up Japanese full size pickup market share first.

The question in my mind is - do people want to use a premium brand for tough/rough work ? May be Tesla needs to go after Hummer & Land Rover crowd first ?

Yesterday I was trying to convince my wife to get a Model X. Her main concern was scratching a $100k vehicle when parking.

 

[RobStark]

I have lots of conservative (and liberal) friends. Haven’t met one who doesn’t love Tesla and what they’re doing. Maybe because I’m a milennial?

Maybe because you are a millenial in New Jersey?

 

[RobStark]

Truck buyers are different than fancy SUV buyers. They will want off-road and towing capability even if they never use it.

And Jeep buyers are different than BMW-BMW-Audi SUV buyers.

 

[Yamantasdivar]

Not really. Tesla can pay them off with the equivalent amount of cash to the shares... which is to say, more cash than Tesla would have to pay if the stock price was under $360.

Here's the important point: Tesla has a hedge written with one of the investment banks which pays for the "extra" cash. So the amount Tesla *really* has to pay, themselves, is constant.

Do you know which bank?

 

[defc0n]

The question in my mind is - do people want to use a premium brand for tough/rough work ? May be Tesla needs to go after Hummer & Land Rover crowd first ?

Yesterday I was trying to convince my wife to get a Model X. Her main concern was scratching a $100k vehicle when parking.

People hauling their expensive boats to the lake every weekend would use an electric truck to save on gas I’m sure.

 

[defc0n]

Speaking of which, I want a Tesla boat.