TSLA Market Action: 2018 Investor Roundtable

[cheshire cat]

Going to be an interesting trading day.

Japanese markets were down in large part due to GDP contraction and global worries.

Otherwise we have seen worse

 

[Hogfighter]

I have to say I was pissed after watching the 60 minutes story. Here’s a true American success story.....full of reasons why, with all our flaws, America is so great. Tens of thousands of people worked tirelessly, incessantly, led by a brilliant leader (immigrant), to accomplish the impossible for the betterment of humanity. They should have failed, but because of their ‘never say die’ approach, they are succeeding. Oh....and have hired 50,000 employees in an entirely new field!!

Instead 60 Minutes harped on trivial, often false narratives. Workplace safety? Pot smoking? Come on. Tough leader? People don’t understand what motivates humanity. Our goal in life isn’t to be ‘happy’. It is to matter....to work super hard, push yourself beyond what you thought you could do, and then succeed. If you’ve never experienced that feeling, It’s sublime.

 

[CHGolferJim]

Having watched the interview, it sometimes seemed like it was rushed from one topic to another when perhaps there was more to be heard. I suspect this is just the result of "editing for time" but the result was an excessive focus on FUD (which Elon did a decent job debunking, and like did a better job before the edits) and trying to paint him in an unfavorable light versus addressing thing fairly and focusing on truly relevant issues.

Unfollowing them on twitter may be a bit of an extreme reaction, but if Elon really did that I can understand why he did it. There was probably a lot of good stuff that didn't get aired in favor of rehashing old FUD.

Elon should make it a condition of all future interviews that he also gets a complete copy of the interview and is free to release it (edited or not) as he sees fit.

This has been the 60 Minutes approach for a long time.

 

[Carl Raymond]

macros already looking bad for tomorrow yet again

Good macros will lift the stock via the index funds.

Bad macros will (collaterally) squeeze the shorts and spike the stock.

This TSLA wins either way scenario may draw in new buyers, amplifying either effect.

 

[replicant]

I'm not really familiar with 60 Minutes, but it really looks like a TV show for old people who don't follow the news closely and to whom a TV network regurgitates the most "scandalous" talking points social media generated in the past year. I say "scandalous" because I don't know the word for "clickbaiting for TV" (I'm not 50 y-o).

I'm sure they added some helicopter sounds to the video of the Model 3 (which I guess was provided by Tesla) and of the GM skyscapper, so that the audience believe the network has done some serious journalism here. They probably added the horn sound when Model 3 drives in front of the Fremont tent ("we couldn't add a engine sound like the last time, but it is an actual car").. Idem to the spring sound when the Model 3 door closes at 5:40 in the main video segment.

The whole thing looks like a rerun of the social media circus, with some "clear head" filter so as to appear a more "grown up" that the Interweb, but still not too much antiquated.

 

[Dan Detweiler]

I have to say I was pissed after watching the 60 minutes story. Here’s a true American success story.....full of reasons why, with all our flaws, America is so great. Tens of thousands of people worked tirelessly, incessantly, led by a brilliant leader (immigrant), to accomplish the impossible for the betterment of humanity. They should have failed, but because of their ‘never say die’ approach, they are succeeding. Oh....and have hired 50,000 employees in an entirely new field!!

Instead 60 Minutes harped on trivial, often false narratives. Workplace safety? Pot smoking? Come on. Tough leader? People don’t understand what motivates humanity. Our goal in life isn’t to be ‘happy’. It is to matter....to work super hard, push yourself beyond what you thought you could do, and then succeed. If you’ve never experienced that feeling, It’s sublime.

All true, but 60 Minutes as well as all media exist for ratings and views. Sensationalism gets clicks. The downside has much more shock factor than the upside, thus it makes them more money. The good news is that it seems Tesla is almost to the point where none of the downside FUD is really going to effect it.

Dan

 

[22522]

Overall pretty good but why did the guy have to say that at the end about Tesla? So much for unbiased reporting.

"We don't think so?"

I did not watch the entire interview, but did they show this?

The first image shows scale.

This second image shows economies of scale through standardization.

 

[humbaba]

Overall pretty good but why did the guy have to say that at the end about Tesla? So much for unbiased reporting.

Well that piece isn't really what I would call reporting at all. To me, reporting is relaying some piece of news -- in which case it definitely should be accurate and unbiased, and the accuracy and bias can be measured.

But that is more journalism, its making a point. In this case the point is "what has changed" over the last decade wrt electric cars. It sets that up at the beginning (what was) moves to the present (what is) and lets that say for them what has changed. And it doesn't look good for Bob Lulz.

1. Tesla's original mission: accelerate the move to electric
2. Bob Lulz on the future: the Volt & "stake his 'reputation' on that"
3. CEO's are "rah rah" and claim their company is doing well while it is sinking
4. Musk is honest
5. Past Musk said Tesla most likely fail, present Musk said Tesla most likely succeed

At the end they emphasize Musk's vision for Tesla (accelerate adoption of EV) and point to Bob Lulz's capitulation (Volt being cancelled). What they are saying is that Tesla has already succeeded: they imply that EV has won out over the hybrid.

If I were Bob Lulz I'd be seething. The implication is that he's dishonest (normal for a CEO per the report, but still) and lost. If I were Musk I'd be at least somewhat happy. The outright statement is that he is a rare CEO: honest. And the implication is that he has already succeeded with Tesla so any future accomplishments are icing on the cake.

And it is implicit that his statement about Tesla continuing as a company is to be taken seriously -- this is no "rah rah" lying CEO, and when he thought Tesla most likely wouldn't survive he still led it to success. Now that is a desirable CEO profile.

 

[shootformoon]

I disagree significantly with your list of downsides, and I believe you left out a large number of potential upsides, which are IMO much larger than the potential downsides. To what extent the downsides and upsides materialize is uncertain.

Here's where I disagree with your downsides:

• While Model 3 ASP is down by only about $2.5k according to the Troy tracker, but the 'options mix' improved in favor of higher margin options, such as AutoPilot which has near 100% margins.
• Introduction of Medium Range potentially improves margins: people can spend more on higher margin options instead of being forced to spend on battery cells which is one of the lowest margin options.
• Model S/X ASP actually increased in Q4 so far according to the Troy tracker, within the limitations of that survey. This would be natural if higher priced Model 3 sales are replacing lower end Model S/X sales, which would push both ASP and margins higher, while keeping sales constant.

Here's my list of downsides and upsides - note that there's a couple of downsides you did not mention:

Downsides for Q4:

• Debt repayment downside: the -$230m notes repaid in November, compared to -$82.5m in Q3, i.e. -$147.5m more cash outflow than in Q3.
  
• Tariffs downside: impact of tariffs should be around the -$50m mentioned in the 10-Q guidance.
• Sales, General and Administrative downside: 'Slightly higher' SGA guided. If this means +5% then that's -$50m.
• Model 3 ASP downside: lower Model3 ASP by $2-3k, with the caveats above that could actually improve margins, plus the deliveries upside further below.
  
• The SEC fee downside: -$20m present on the income sheet, counter-balanced by the shares purchase of Elon on the cash flows sheet.

Upsides for Q4:

• Ramp-up leverage upsides: there could be 10k more deliveries in Q4 than Q3 (65k instead of 55k), which might not sound much, but there's a significant leverage effect of distributing fixed costs over +20% more units. This could add a couple of percentage points to Model 3 margins, which will increase income and cash generated. The impact could be in the +$50m income and cash generation range, relative to Q3.
• ZEV upsides: Tesla's seasonal pattern for ZEV credits is to sell them all in Q4. If they continue that pattern then they might have up to $400m-$600m in unsold ZEV credits in 2018. They have sold $100m so far in 2018, and in 2017 they have sold about $300m. So the two trajectories are:
  • limited ZEV market: if the ZEV market has a fixed size they could sell +$200m this year.
  • flexible ZEV market: but in 2018 Tesla generated twice as many ZEV credits due to selling over 100k Model 3's, so if the ZEV market can accept some growth and Tesla offers them a good deal they could sell up to +$500m. All of these would be pure cash income with a 100% margin.
• Potential deliveries and inventory upsides: cyclically Tesla has managed to reach the lowest inventory levels in Q4, which is due to the seasonality of production: a big chunk of the Fremont factory and of the Gigafactory workforce will be on holiday:
  • This could mean even lower Model 3 inventory levels than in Q3, and a deliveries upside of around +5-6k units - which has a revenue upside of around +$300m and an income upside of $60-70m.
  • Lower end of year inventory could have an additional cash flow and working capital improvement effect of around +$100m.
• Deferred revenue recognition upsides: Tesla has a significant portion of past AutoPilot income stored as deferred revenue, recognition contingent on delivery milestones of significant AutoPilot features. In Q3 Tesla did not deliver an AutoPilot milestone, but they did so in Q4 with a major upgrade. I expect them to recognize deferred revenue for the whole fleet of 300k vehicles for which they have deferred revenue. This could easily be in the $200m-$300m range.
• Efficiency and margin improvement upsides: as the Model 3 workforce gets more experienced, hours of work and re-work per unit will continue to decrease. Reported efficiency increases that were reported by Tesla to have been reached in August (the middle of Q3) will benefit the whole Q4 reporting period.
• Restructuring related cash flow upsides: restructuring costs burdened Q2 and Q3 cash flow, but probably won't burden Q4 - while the efficiency improvements and savings will still be there largely, despite increased hiring levels.
• Potential reduction in capex levels: while we don't know the exact depreciation and amortization schedule of Tesla, but by now all Model 3 related capex was present on the Q3 income sheet and there's no significant increase expected due to the capex freeze enacted in Q1. It's possible that some major past capex schedules of past Model S/X related expansion are now timing out, reducing overall capex portion of the income sheet and improving income.
• Q3 end of quarter receivables artifact upside: there was a bump up in receivables due to cash check clearing delays over the end of Q3 which fell on a weekend. This effect won't be there in Q4 and the Q3 outstanding cash flow will improve Q4 levels to the tune of $100m-$200m.
• Potential stock compensation upsides: Q4 is the first quarter with a significant number of executives and white collar workers not on the payrolls, i.e. there's a lack of vesting. While there's a lot of new hires, the vesting plans usually do not activate for about 12 months. So there could be a brief 'pause' or even drop in stock compensation expenses - which would improve GAAP income. Furthermore, Tesla employees might be less inclined to actually exercise stock options after Q3 despite the higher stock price, seeing the very real potential of much higher stock prices in the future.
  
• Potential payables upsides: suppliers might be less worried about Tesla's payables debt towards them after increasing cash levels significantly in Q3, and might have been more willing to allow Tesla to expand payables in Q4. In Q3 there was a remarkable lack of expansion in payables, despite significant increase in production - so there's room to grow there and there would be cash flow benefits from that.
• Tesla Storage/Energy upsides: these business units were in hibernation in Q1, Q2 and Q3 due to the chronic shortage of 2170 cells which were all used for Model 3 battery packs. Now that Panasonic has expanded cell production significantly end of Q3 and during Q4 as well, there's probably an uptick in storage sales and deliveries. New product iterations were released. While solar sales would be seasonally low, with the onset of winter, storage margins could also further improve as the 2170 mix improves.

I.e. IMHO, depending on the above factors cash flow from operations close to ~+2.0 billion dollars is not impossible for Q4 (in Q3 it was already an outstanding +$1.4b), combined with net profits of over $400m-500m ($300m in Q3). In fact if we add up the absolute best case from the numbers above there's some rather extreme outcomes possible as well, but have an admittedly low likelihood.

In any case, due to these factors I'd not be surprised to see all key business wide financial metrics to improve in Q4.

In my calculation, if long range is 74kwh, mid range 62kwh, pack cost $140, 1-12*140/4000 = 58%. So the difference between long range and mid range battery margin is 58%. So in this case, battery is NOT a low margin part.

 

[cheshire cat]

I have to say I was pissed after watching the 60 minutes story. Here’s a true American success story.....full of reasons why, with all our flaws, America is so great. Tens of thousands of people worked tirelessly, incessantly, led by a brilliant leader (immigrant), to accomplish the impossible for the betterment of humanity. They should have failed, but because of their ‘never say die’ approach, they are succeeding. Oh....and have hired 50,000 employees in an entirely new field!!

Instead 60 Minutes harped on trivial, often false narratives. Workplace safety? Pot smoking? Come on. Tough leader? People don’t understand what motivates humanity. Our goal in life isn’t to be ‘happy’. It is to matter....to work super hard, push yourself beyond what you thought you could do, and then succeed. If you’ve never experienced that feeling, It’s sublime.

Thanks for the précis , but is anyone surprised ? Yet again I wouldn't waste the electrons, Joe whatsit etc, etc. Same old crap by the sound of it, right up there with (Murdock's) LYE news, the Al- jaBBeeBa and our old friends at the GRAUN' ( insert E Musk quote here). P.s. 2.5 ? Euro jump in last couple of min's

 

[Hogfighter]

BTW, anyone that didn’t see the aired version: the Lutz part wasn’t on. Basically any of the better segments online weren’t aired.

 

[dw4ngg]

It will all come out in time. Patience, my TSLA friends.

 

[Fact Checking]

In my calculation, if long range is 74kwh, mid range 62kwh, pack cost $140, 1-12*140/4000 = 58%. So the difference between long range and mid range battery margin is 58%. So in this case, battery is NOT a low margin part.

So Long Range cell count is 96s-45p = 4,416 cells - and Mid Range is assumed to be 96s-38p = 3,648 cells, i.e. 768 cells left empty in the LR pack.

Cell cost is probably around $110 today which is around $2.00 per cell, and pack overhead is about +30% - lower with the new Grohmann machines. But an important part is that the MR battery pack 'overhead' (i.e. casing) is the same as the LR one, so the MR cost savings are on the cell level only. So I think the correct way to estimate pack costs is:

• LR: 4,416*$2.00*1.30 = $11,482
• MR: $11,482-768*$2.00 = $9,945

So MR is actually only about $1,536 cheaper to manufacture than LR - the cost difference of the cells - as much of the pack level cost is the same as for LR.

Since MR is currently selling for $46k with RWD and LR is only sold in AWD at $53k (at least on the website), it's hard to disambiguate - but assuming $5k for the AWD option, the price differential between MR and LR is $2k, which is pretty close to the $1.5k marginal manufacturing cost difference between the two options.

The real advantage of MR is that:

• it frees up cell output to make more cars and more storage products, without having to wait for the Standard Range battery pack.
• it bundles AWD (a popular option) with Long Range - so those who are budget constrained would opt for the MR and use any excess cash for high-margin options like AutoPilot.

(Provided my assumptions are correct and I did the math right.)

 

[Fact Checking]

I have to say I was pissed after watching the 60 minutes story. Here’s a true American success story.....full of reasons why, with all our flaws, America is so great.

I agree, but I have to say that IMHO Elon did great: he did not take the bait even once, he was measured, calm, tried to be easy but serious about it all. It was one of his best performances in a hostile environment.

Also, to 60 Minutes's credit, the questions were at times hostile and petty, they did not appear to have significantly cropped Elon's answers. These topics were a minefield and they could have created a NYT-article kind of hatchet job out of it. Yes, the questions were biased - but Elon was given opportunity to counter them.

If I were a neutral observer I'd probably have sensed the bias and I'd have come away from the interview with a better understanding about what Tesla is and why Elon is the CEO of the company. The rest about the story I can read/watch elsewhere.

I.e. I think this interview is really bad news to all those interests that tried to create a badly distorted, negative narrative based on lies that Elon Musk is "out of touch and out of control". This interview falsified all that:he was very approachable and honest through the interview - not the billionaire stereotype at all.

 

[shootformoon]

So Long Range cell count is 96s-45p = 4,416 cells - and Mid Range is assumed to be 96s-38p = 3,648 cells, i.e. 768 cells left empty in the LR pack.

Cell cost is probably around $110 today which is around $2.00 per cell, and pack overhead is about +30% - lower with the new Grohmann machines. But an important part is that the MR battery pack 'overhead' (i.e. casing) is the same as the LR one, so the MR cost savings are on the cell level only. So I think the correct way to estimate pack costs is:

• LR: 4,416*$2.00*1.30 = $11,482
• MR: $11,482-768*$2.00 = $9,945

So MR is actually only about $1,536 cheaper to manufacture than LR - the cost difference of the cells - as much of the pack level cost is the same as for LR.

Since MR is currently selling for $46k with RWD and LR is only sold in AWD at $53k (at least on the website), it's hard to disambiguate - but assuming $5k for the AWD option, the price differential between MR and LR is $2k, which is pretty close to the $1.5k marginal manufacturing cost difference between the two options.

The real advantage of MR is that:

• it frees up cell output to make more cars and more storage products, without having to wait for the Standard Range battery pack.
• it bundles AWD (a popular option) with Long Range - so those who are budget constrained would opt for the MR and use any excess cash for high-margin options like AutoPilot.

(Provided my assumptions are correct and I did the math right.)

Surprisingly my rough math yielded similar cost difference as your much more accurate one. But AWD $5000 is debatable since they try to sell is $4000, if so, $3000 price gets us close to 50% margin.

 

[ReflexFunds]

Great points here, thanks for the work! A few things I would add highlighted below:

Downsides for Q4:

• Debt repayment downside: the -$230m notes repaid in November, compared to -$82.5m in Q3, i.e. -$147.5m more cash outflow than in Q3. There is also a $180m term loan due in December which i expect to be repaid rather than refinanced.
• Tariffs downside: impact of tariffs should be around the -$50m mentioned in the 10-Q guidance. Second order impact of tariffs is inflation for commodities like steel produced in the US which I expect to be a similar magnitude impact to the tariffs themselves.
• Sales, General and Administrative downside: 'Slightly higher' SGA guided. If this means +5% then that's -$50m.
• Model 3 ASP downside: lower Model3 ASP by $2-3k, with the caveats above that could actually improve margins, plus the deliveries upside further below.
  
• The SEC fee downside: -$20m present on the income sheet, counter-balanced by the shares purchase of Elon on the cash flows sheet.
• Tesla's China price reduction: This was very material and could impact gross profit by c.$400m annually if China revenues return to the c.$2bn pre tariff run rate, and China doesn't cut the 25% US tariff. This could impact Q4 by c.$50m. I see this price cut as an investment in the future, sacrificing near term profit to maintain a strong market presence ahead of GF3 production.

Upsides for Q4:

• Ramp-up leverage upsides: there could be 10k more deliveries in Q4 than Q3 (65k instead of 55k), which might not sound much, but there's a significant leverage effect of distributing fixed costs over +20% more units. This could add a couple of percentage points to Model 3 margins, which will increase income and cash generated. The impact could be in the +$50m income and cash generation range, relative to Q3.
• ZEV upsides: With the EPA's current attempt to end the ZEV program (and make stockpiled ZEV credits worthless) I expect current demand for ZEV credits to be low until the California/EPA dispute is resolved. Tesla's seasonal pattern for ZEV credits is to sell them all in Q4. If they continue that pattern then they might have up to $400m-$600m in unsold ZEV credits in 2018. They have sold $100m so far in 2018, and in 2017 they have sold about $300m. So the two trajectories are:
  • limited ZEV market: if the ZEV market has a fixed size they could sell +$200m this year.
  • flexible ZEV market: but in 2018 Tesla generated twice as many ZEV credits due to selling over 100k Model 3's, so if the ZEV market can accept some growth and Tesla offers them a good deal they could sell up to +$500m. All of these would be pure cash income with a 100% margin.
• Potential deliveries and inventory upsides: cyclically Tesla has managed to reach the lowest inventory levels in Q4, which is due to the seasonality of production: a big chunk of the Fremont factory and of the Gigafactory workforce will be on holiday:
  • This could mean even lower Model 3 inventory levels than in Q3, and a deliveries upside of around +5-6k units - which has a revenue upside of around +$300m and an income upside of $60-70m.
  • Lower end of year inventory could have an additional cash flow and working capital improvement effect of around +$100m.
• Deferred revenue recognition upsides: Tesla has a significant portion of past AutoPilot income stored as deferred revenue, recognition contingent on delivery milestones of significant AutoPilot features. In Q3 Tesla did not deliver an AutoPilot milestone, but they did so in Q4 with a major upgrade. I expect them to recognize deferred revenue for the whole fleet of 300k vehicles for which they have deferred revenue. This could easily be in the $200m-$300m range. I assumed remaining Autopilot deferred revenue was related to FSD and not EAP, so I assume this will start to be booked in March/April with AP3 hardware and traffic light/stop signs software. Are you sure there is still EAP purchases within deferred revenue?
• Efficiency and margin improvement upsides: as the Model 3 workforce gets more experienced, hours of work and re-work per unit will continue to decrease. Reported efficiency increases that were reported by Tesla to have been reached in August (the middle of Q3) will benefit the whole Q4 reporting period.
• Restructuring related cash flow upsides: restructuring costs burdened Q2 and Q3 cash flow, but probably won't burden Q4 - while the efficiency improvements and savings will still be there largely, despite increased hiring levels.
• Potential reduction in capex levels: while we don't know the exact depreciation and amortization schedule of Tesla, but by now all Model 3 related capex was present on the Q3 income sheet and there's no significant increase expected due to the capex freeze enacted in Q1. It's possible that some major past capex schedules of past Model S/X related expansion are now timing out, reducing overall capex portion of the income sheet and improving income.
• Q3 end of quarter receivables artifact upside: there was a bump up in receivables due to cash check clearing delays over the end of Q3 which fell on a weekend. This effect won't be there in Q4 and the Q3 outstanding cash flow will improve Q4 levels to the tune of $100m-$200m.
• Potential stock compensation upsides: Q4 is the first quarter with a significant number of executives and white collar workers not on the payrolls, i.e. there's a lack of vesting. While there's a lot of new hires, the vesting plans usually do not activate for about 12 months. So there could be a brief 'pause' or even drop in stock compensation expenses - which would improve GAAP income. Furthermore, Tesla employees might be less inclined to actually exercise stock options after Q3 despite the higher stock price, seeing the very real potential of much higher stock prices in the future.
  
• Potential payables upsides: suppliers might be less worried about Tesla's payables debt towards them after increasing cash levels significantly in Q3, and might have been more willing to allow Tesla to expand payables in Q4. In Q3 there was a remarkable lack of expansion in payables, despite significant increase in production - so there's room to grow there and there would be cash flow benefits from that. There may be some upside here, but I think part of the reduction in payables days in Q3 was due to reduced capex payables on lower capex (which i don't expect to reverse in Q4) and also due to Tesla delaying its payments as far as possible in 1H18 before it achieved model 3 targets/positive cash flow
• Tesla Storage/Energy upsides: these business units were in hibernation in Q1, Q2 and Q3 due to the chronic shortage of 2170 cells which were all used for Model 3 battery packs. Now that Panasonic has expanded cell production significantly end of Q3 and during Q4 as well, there's probably an uptick in storage sales and deliveries. New product iterations were released. While solar sales would be seasonally low, with the onset of winter, storage margins could also further improve as the 2170 mix improves.
• $920m convertible bond hedges: With Tesla informing bondholders it will satisfy conversion with 50% cash, It can now choose to close option hedges on $460m notional of debt. Depending on stock price/implied volatility, this could be a further cash boost to Q4.
• China bank loans: Tesla IR appears to be messaging that Tesla will fund GF3 with $1.3bn local debt paying 3-5% interest. The first tranche of this may be signed in Q4, boosting cash position and reducing average cost of debt.
• Service and other business upside: Service revenue should continue to scale with auto revenue and total fleet size and better leverage the cost base leading to reduced gross profit losses. Increased outsourcing of vehicle trade ins may also improve profit and working capital of this business.

 

[Unpilot]

Look at the numbers of viewers of 60 minutes. (roughly 10 Mill)60 Minutes TV Show on CBS: Ratings (Cancel or Season 51?)

Then look at number of viewers of JR interview (17 mil so far)

Old media is dying.

 

[Fact Checking]

Second order impact of tariffs is inflation for commodities like steel produced in the US which I expect to be a similar magnitude impact to the tariffs themselves.

I believe most of the ~30% steel price increases in the U.S. were realized by Q3, so there should not be additional costs from that. The main tariff risk/cost would be China sourced electronics components - and Tesla guided that impact to be around $50m for Q4, as these are new tariffs.

Steel tariff impact should be pretty low in any case: if we assume 300-550 kg of steel in the frame of the Model 3 and the S/X on average then a 30% price increase would cause about a steel material cost increase of +$100-$150, or about 0.1-0.3% of ASP. Not zero by any means, but still only in the ~$20m range with 100k units made.

 

[Tslynk67]

An interesting piece on CBNC, for once: If Tesla can break this level, a short squeeze could deliver 45 percent rally: Piper Jaffray 

The relevant part, so you don't need to click:

Piper Jaffray

If Tesla can break through a key level of resistance, the short covering could propel its stock even higher, says Johnson.

"If we get a close above this $390 level, it's going to suggest a topside breakout with a measured price objective based on the charts perhaps about $525 to $550," said Johnson. "The shorts are going to be covering quickly and providing even a further squeeze higher from here."

 

[Fact Checking]

Tesla's China price reduction: This was very material and could impact gross profit by c.$400m annually if China revenues return to the c.$2bn pre tariff run rate, and China doesn't cut the 25% US tariff. This could impact Q4 by c.$50m. I see this price cut as an investment in the future, sacrificing near term profit to maintain a strong market presence ahead of GF3 production.

So I believe China revenue will go back to the baseline only once GF3 final assembly is online, sometime in Q3-Q4'19. At that point I'd expect Model S/X final assembly to be done in China as well, similar to European final assembly, which might avoid most of the tariffs.

The price cut Tesla made is only for part of the tariffs, and will likely only affect the first couple of quarters of 2019, but I agree that Tesla is probably treating this as an investment to maintain market presence.