TSLA Market Action: 2018 Investor Roundtable

[Waiting4M3]

How are you getting $12.5B/Q?

By misplacing a decimal point, should be $1.25B/Q

 

[jhm]

Following the logic here. Tesla has 3.4 billion in cash. Tesla has 3.4 billion in debt and refundable reservations. If all creditors demand repayment and all reservations cancel, they will run out of cash. That will happen if their credit is downgraded and the stock price crashes. So, because of that, cash, we will downgrade their credit and tank their stock price.

It's a self serving prophecy. It's like a bank repossessing your home because you couldn't repay your mortgage today if for some reason they demanded it.

Both suppliers and reservation holders want the ramp up to succeed and have motivation to wait out delays. Certainly a supplier would not want to compromise the investment its made in being able to produce parts for the Model 3 demanding urgent payment by threat of a cancelled contract. I more reasonable response would be simply to halt supply production until payment is received, but this is not much of an issue if Tesla has sufficient inventory on hand to work through the slow ramp. All this could really threaten is a production constraint after production has ramped up enough to work through inventory. So one has to invent a crisis here that is bigger than just slower than expected production. It would need to be some sort of threat that would force Tesla to abandon making the Model 3 altogether. Only that sharp of a threat would compel suppliers to abandon a potentially long-term relationship with Tesla and for customers to be forced to buy cars for other makers. So the whole scenario strikes me a absurd. Suppliers and customer are not going to abandon Tesla abruptly and in great number just because production is slow.

 

[CuriousSunbird]

Both suppliers and reservation holders want the ramp up to succeed and have motivation to wait out delays. Certainly a supplier would not want to compromise the investment its made in being able to produce parts for the Model 3 demanding urgent payment by threat of a cancelled contract. I more reasonable response would be simply to halt supply production until payment is received, but this is not much of an issue if Tesla has sufficient inventory on hand to work through the slow ramp. All this could really threaten is a production constraint after production has ramped up enough to work through inventory. So one has to invent a crisis here that is bigger than just slower than expected production. It would need to be some sort of threat that would force Tesla to abandon making the Model 3 altogether. Only that sharp of a threat would compel suppliers to abandon a potentially long-term relationship with Tesla and for customers to be forced to buy cars for other makers. So the whole scenario strikes me a absurd. Suppliers and customer are not going to abandon Tesla abruptly and in great number just because production is slow.

The more likely scenario is that suppliers get nervous that Tesla can't pay the debt coming due and decide to ask for their cash first, just in case.

 

[30seconds]

Raising a $1B or 2 is not an issue with Model 3 being produced at these levels.

 

[Waiting4M3]

The more likely scenario is that suppliers get nervous that Tesla can't pay the debt coming due and decide to ask for their cash first, just in case.

They can't just change the term of the purchasing agreement, which is 60 days. If they do this without Tesla breaching the contract 1st, such as not paying an invoice, then I suspect Tesla would have grounds to sue.

 

[zmarty]

Well folks, I have made my bets - bringing my average share price down to about $300. Done buying TSLA for the foreseeable future since it's too large a percentage of my portofolio now.

 

[schonelucht]

They can't just change the term of the purchasing agreement, which is 60 days. If they do this without Tesla breaching the contract 1st, such as not paying an invoice, then I suspect Tesla would have grounds to sue.

But if Tesla just told the supplier "hey we commited to purchasing 400k widgets from you in 2018 but we'd only need 150k", it's not hard to imagine who has the strongest hand in the negotiations.

 

[bdy0627]

It will be interesting to see if shorts are covering or incoming going into the close. Production surprise seems unlikely at this point given the Fields email leak that has been published.

 

[Waiting4M3]

But if Tesla just told the supplier "hey we commited to purchasing 400k widgets from you in 2018 but we'd only need 150k", it's not hard to imagine who has the strongest hand in the negotiations.

That may be true if the supplier only plan to work with Tesla in 2018

 

[CuriousSunbird]

That may be true if the supplier only plan to work with Tesla in 2018

That's the point. If the supplier starts to have doubts about whether Tesla will be around in 2019, then the whole thing unravels.

 

[schonelucht]

2) read the quotes from Tesla management to employees... they are clearly going to aggressively make the case next week that Tesla has proved the "haters" wrong. I don't expect any "haters" to quit spinning, or much of the media... but, as of early next week, 95+% chance Tesla will be making a strong case that the bear narratives are false. That's a big change from what we've had since early November announcement of GF bottleneck, from defensive to confident claims of success.

If your strong case is that even in a clearly unsustainable way you can't reach 2000/week, well yes. But a factory operating on 'volunteers' and 'shutting down the S/X line' doesn't sound like something we should welcome. I'd rather they not go through that kind of gymnastics. It will just burn your people out and is a recipe for mistakes with operators in unfamiliar roles. This mail sounds more a desperate attempt to keep morale up than anything else.

 

[Mkorpal]

That's the point. If the supplier starts to have doubts about whether Tesla will be around in 2019, then the whole thing unravels.

You keep running these logic loops. The whole reason Tesla is going to fold is the suppliers demanding immediate payments. These suppliers are going to demand payments because they think Tesla is going to fold.

 

[Reciprocity]

Further thoughts on the Friday MS/X shutdown:

1) I still think financials is a likely cause. Every year my company shuts down around x-mas time, to give people more time off, and to shave some PTO balance off of the books. Also a wild hunch of mine, the fact that they initially wanted to shut down for 2 days but reduced to 1 day may suggest that they're almost exactly where they need to be, but have room to dial back a little and not need every trick in the book to meet it, which is probably a good sign.

2) I take back the comment on MS/X shutdown relating to M3 delivery logistics. The production to delivery gap is too large for this Friday to make a difference.

3) The extra man power to work on M3 production may not be to increase production, but to give the M3 production people an extra day off this Easter weekend. As Elon has said, the nature of M3 production is that it only works at how fast the robots can work, you can't just put a person next to the robot and expect it to run faster. We've heard anecdotes that M3 production people have been working overtime to ramp up production recently, so this seems more likely that they simply need someone to stand-in for a day. This could also explain why the shutdown was reduced from 2 days to 1 day, and that only a "limited" number of people are needed to move to M3 line, maybe after Tesla looked at how many people on the M3 are requesting an extra day off this weekend, they decided only 1 day off from MS/X is needed.

Something about all this 300/day," lets show em what we can do crap.." makes me a little concerned. Why is it grinding on me for some reason? It makes me wonder why the bottleneck is some extra workers tossed into the mix. The line is supposed to be mostly automated until the last part of the process? I guess it could be encouraging that the expensive robots are working so well that they have to wait for people to finish the vehicles. But then I thought, that would be crazy. Why have a bottleneck be the human parts of the production process, especially when you have half a million orders to fulfill and could get a half a million more if you fulfilled the first batch. A better reason would be that some of the automated parts of the process are not working at all and require good old fashioned elbow grease.

On one hand, 300+ per day is great and would be very close to what their goal was. But requiring extra bodies from X and S line is not good because that means Apr 2, everyone goes back to their normal job and we are back at 200+/day. The haters will be back to hating and 5k will be as far out of reach as it was 12 weeks ago when they did 700 over 3 days with very little improvement over the quarter.

I guess Canada makes more sense now, as its going to be pretty easy to stay under 200,000 for Q2. It would have been very difficult with 2000 to 3000 to 4000/w. But my guess is that on the earnings call they will move back the 5k date to Q3. I hate to stay, but the improvements a bit underwhelming. At least they will be able to extend the Tax credits by an additional quarter.

One thing this does though is show that they will not be going bankrupt anytime soon. They have the ability to crank out 2500/w in a push throughout the entire quarter, that is a lot of cars and it should help them keep their heads above water. Capex in general should be dropping at the same time that cash is flowing in from Model 3. The net effect should be more stability and enough to get them to 5k/w.

 

[Waiting4M3]

That's the point. If the supplier starts to have doubts about whether Tesla will be around in 2019, then the whole thing unravels.

OTOH the supplier is probably the 1st ones to know that Tesla is ramping, way before the market does. So they are usually in a batter position to know FUD from the truth.

 

[schonelucht]

That may be true if the supplier only plan to work with Tesla in 2018

Exactly. Every serious business vets their customers. Credit worthiness and credibility on projected orders are an integral part of that decision. At some point a supplier will reconsider if it still makes sense to keep a customer when both suffer blows. And if not, you raise your price, you ask concessions or other guarantees or you simply fire the customer. Elon is certainly no stranger to that concept.

There is no real way for us to decide if any of Tesla's suppliers are at a point where reconsideration is possible, but dismissing it as an impossibility is unwise. I am pretty sure Tesla management is constantly working on this issue with their suppliers.

 

[schonelucht]

So they are usually in a batter position to know FUD from the truth.

Or hype from sober reality.

 

[SwTslaGrl]

I think the logistics to feed the automated line could require some efforts..

 

[Mkorpal]

Something about all this 300/day," lets show em what we can do crap.." makes me a little concerned. Why is it grinding on me for some reason? It makes me wonder why the bottleneck is some extra workers tossed into the mix. The line is supposed to be mostly automated until the last part of the process? I guess it could be encouraging that the expensive robots are working so well that they have to wait for people to finish the vehicles. But then I thought, that would be crazy. Why have a bottleneck be the human parts of the production process, especially when you have half a million orders to fulfill and could get a half a million more if you fulfilled the first batch. A better reason would be that some of the automated parts of the process are not working at all and require good old fashioned elbow grease.

On one hand, 300+ per day is great and would be very close to what their goal was. But requiring extra bodies from X and S line is not good because that means Apr 2, everyone goes back to their normal job and we are back at 200+/day. The haters will be back to hating and 5k will be as far out of reach as it was 12 weeks ago when they did 700 over 3 days with very little improvement over the quarter.

I guess Canada makes more sense now, as its going to be pretty easy to stay under 200,000 for Q2. It would have been very difficult with 2000 to 3000 to 4000/w. But my guess is that on the earnings call they will move back the 5k date to Q3. I hate to stay, but the improvements a bit underwhelming. At least they will be able to extend the Tax credits by an additional quarter.

One thing this does though is show that they will not be going bankrupt anytime soon. They have the ability to crank out 2500/w in a push throughout the entire quarter, that is a lot of cars and it should help them keep their heads above water. Capex in general should be dropping at the same time that cash is flowing in from Model 3. The net effect should be more stability and enough to get them to 5k/w.

I can't imagine they would be sitting at 200+ all week and suddenly go to 300+ on Friday just because some extra bodies are around. Not only that, but it seems like this was a voluntary assignment. My take is, it's happening without the small addition of labor anyway, the shutdown on the S/X line has little to do with it, and the extra labor is just to help keep the stress down for those working on the 3.

 

[CuriousSunbird]

You keep running these logic loops. The whole reason Tesla is going to fold is the suppliers demanding immediate payments. These suppliers are going to demand payments because they think Tesla is going to fold.

No, it could be the suppliers or the creditors or the depositors, and that is the issue - the first one to pull the trigger is the most likely to get his money back.

 

[Waiting4M3]

Something about all this 300/day," lets show em what we can do crap.." makes me a little concerned. Why is it grinding on me for some reason? It makes me wonder why the bottleneck is some extra workers tossed into the mix. The line is supposed to be mostly automated until the last part of the process? I guess it could be encouraging that the expensive robots are working so well that they have to wait for people to finish the vehicles. But then I thought, that would be crazy. Why have a bottleneck be the human parts of the production process, especially when you have half a million orders to fulfill and could get a half a million more if you fulfilled the first batch. A better reason would be that some of the automated parts of the process are not working at all and require good old fashioned elbow grease.

On one hand, 300+ per day is great and would be very close to what their goal was. But requiring extra bodies from X and S line is not good because that means Apr 2, everyone goes back to their normal job and we are back at 200+/day. The haters will be back to hating and 5k will be as far out of reach as it was 12 weeks ago when they did 700 over 3 days with very little improvement over the quarter.

I guess Canada makes more sense now, as its going to be pretty easy to stay under 200,000 for Q2. It would have been very difficult with 2000 to 3000 to 4000/w. But my guess is that on the earnings call they will move back the 5k date to Q3. I hate to stay, but the improvements a bit underwhelming. At least they will be able to extend the Tax credits by an additional quarter.

One thing this does though is show that they will not be going bankrupt anytime soon. They have the ability to crank out 2500/w in a push throughout the entire quarter, that is a lot of cars and it should help them keep their heads above water. Capex in general should be dropping at the same time that cash is flowing in from Model 3. The net effect should be more stability and enough to get them to 5k/w.

I disagree, can you explain what Doug means by "ramping from 300 into the end of the week" if the borrowed people are only there on Friday? If they need manual work to reach 300/day, then to go from 1500/wk (200+/day) to 2100/wk (300/day), it seems that they would need to borrow those people for an entire week, or unless the extra people will crank out 600 cars on Friday? That would be a 4200/wk burst rate. If there are a few manual steps that can leap Tesla from 1500/wk to 4200/wk, you don't think Elon would be on automating those steps like white on rice?