TSLA Market Action: 2018 Investor Roundtable

[neroden]

I agree on all counts. Tesla stock should be priced based on new innovations and ability to execute. In other words, the kind of questions that the YouTube guy asked. Unless you are worried Tesla is going to run out of cash (which, given their team, is silly), focusing on esoteric changes in accounting between quarters is completely missing the point.

The only non-product question that has me worried is the actual stock price. If it falls a lot, to say around sub $200/share, then we are getting close to margin call territory when the bankers that have loaned Elon $4B will auto sell Tesla stock. Sub $200 means institutional investors will start dumping since they are worried about the margin call, then that’ll drive the stock price down to margin call territory (about $120/share). Yeah, I know, unlikely, but as I said, that’s the only thing that has me worried.

Does he have a $4b loan? And is that against Tesla or against *SpaceX*?

Normal margin maintenance equity levels are pretty low. If Musk's TSLA stake was worth only $8 billion nobody would dare to margin-call him, since he'd have 50% equity. So yeah, it would have to be below $200. But in practice they wouldn't margin-call him if he had 33% equity, which would mean $6 billion stock value, which would be sub-$150 stock. This is assuming he isn't putting up SpaceX stock as collateral, and I remember that he is.

 

[ZachF]

Doing a little math on Elon's claim of taking a "majority share" in premium sedans... and it doesn't seem that crazy.

Made a little excel sheet of sales data from goodcarbadcar, and here it is.

Audi numbers include everything from A3 to A8
BMW everything from 1 series to 7 series
Cadillac includes the ATS, CTS, CT6, DTS and STS (wow, poor Cadillac!)
Genesis is the brand and the car back when it was just a Hyundai
Jaguar includes the S-Type, XE, XF, XJ, and X-Type
Lexus icludes the CT, ES, HS, IS, GS and LS
Maserati is just the Ghibli and Quattroporte
Mercedes includes the C, CL, CLA, CLK, CLS, E, S
Porsche is the Panamera
And Tesla is just the S and the 3

In order to be number one, Tesla has to sell about 130,000 Models 3s this year.
I think US sales of model 3 + S of 250,000 next year is easily possible.

It's going to be interesting if Tesla adds to the total here, or cuts right in... because a lot of those other brands are going to see some pretty *steep* declines if it's the latter.

 

[Electroman]

It's not even a hypothetical: that article exists!
.

wow.. I even forgot that this article was published recently.. and guess what, that article is from the same analyst who Elon sidelined..

 

[neroden]

Why do people keep asking me if I'm serious?

Of course I'm fricking serious. Don't confuse a growth company with a company at maturity.

PE is only a reasonable evaluation when a company has reached maturity. C'mon dude. It's common sense. People invest for the future. Massively growing companies (i.e. Amazon, Tesla) show profit later, but stock rise often precedes it.

Indeed. This is why something called "forward P/E" was developed, something like a thousand years ago, based on projected earnings for a future year.

 

[mongo]

It's going to be interesting if Tesla adds to the total here, or cuts right in... because a lot of those other brands are going to see some pretty *steep* declines if it's the latter.

Nice table!
If Tesla pulls from BMW and Mercedes, it will take less that 130k 3s... or make the differential that much larger.

5k/wk x 24 = 120k (all H2 production to US)

 

[neroden]

This isn't even a tiny bit worrisome.

I ask this question again: Does anybody really think a Wall Street bank will forgo 10s or 100s of millions of dollars in fees if Tesla does decide to do a capital raise on Wall Street because one of their analyst was dropped on quarterly conference call? Or because Elon Musk was rude to one of their analyst?

Two companies so far have told Wall Street to go to hell and done direct public offerings without underwriters (thus avoiding the "roadshow" fees). So to issue stock, Musk can outright ignore Wall Street and leave the fees behind. (I'm trying to remember what the two companies were; read it in Bloomberg when it happened both times. Quite recent.)

Bonds would require interacting with Wall Street, but stocks don't.

The average Wall Street banker would sell his mother to Elon for less. Lets get real.

All the firms on Wall Street will compete for Tesla's business if Elon comes calling.

And I think he's sick of them. He's blowing them off because he doesn't need them at this point. He's had to court those jackasses for over a decade now, and now that he sees profit in sight, he figures he doesn't have to play nice any more.

 

[ZachF]

Does he have a $4b loan? And is that against Tesla or against *SpaceX*?

Normal margin maintenance equity levels are pretty low. If Musk's TSLA stake was worth only $8 billion nobody would dare to margin-call him, since he'd have 50% equity. So yeah, it would have to be below $200. But in practice they wouldn't margin-call him if he had 33% equity, which would mean $6 billion stock value, which would be sub-$150 stock. This is assuming he isn't putting up SpaceX stock as collateral, and I remember that he is.

Tesla has pretty much been in a big large, long term channel since 2013.

I really wouldn't be surprised if it goes lower for a bit here and tests the lower line.

If it does test it and holds, I also wouldn't be surprised for a rapid bounce to $450.

 

[neroden]

It's more about how the portfolio managers in the institutions react; (institutions hold over 100 million of the 170 million shares outstanding).

Well, sort of. Institutional holding numbers are really guesses given how many institutions act as agents for third parties.

But yeah, it's about how they react.

The more conservative portfolio managers, who might have preferred more of an explanation of the path to realize the predictions and who have good gains, might step to the sidelines until the next results are reported in early August.

Yeah, that would be the ones who don't invest long-term. "More conservative" is not an accurate description; "More churn" is an accurate description. And yes, high-churn portfolio managers are common.

This may take a week or so after the 10Q is available to shake out the near term share price level. The investment banks market new issues to institutions.

 

[neroden]

I think you're misunderstanding the take rate question. One of the issues with the M3 is that we all know the market for a $50,000 sedan is materially smaller than the market for a $35,000 sedan. But we don't know how much smaller. The conversion rate is probative in that regard. That's all we're getting at.

It doesn't give that information. For one thing, perhaps half the reservation holders are waiting for the white interior. I would be.

 

[neroden]

He's slow playing you. If he'd answered those questions maybe shorts would cover over the next month. By slow playing you, it will be during the Q3 earnings call when your questions are answered, and since the market is closed, no chance to meaningfully cover. Next day huge gap up with margin calls flying, positions being liquidated by brokers with gigantic losses, etc. I'm not saying that will happen that way, but if he really wanted to screw shorts over, that would be a much more fantastic screwing.

I hadn't thought about this, but that is what's likely to happen. We should watch out for trading halts on the day after Q3 earnings (or possibly Q3 deliveries).

I think Musk is sick of worrying about Wall Street, and with profit guaranteed in Q3 (in his opinion), he just doesn't care about the stock movements for the next few months. Unless they somehow drive the price low enough to margin-call *him*, which would be hard, he can ignore them.

 

[neroden]

Same concept as far the safest source of electricity.

View attachment 298405

Uh.... no. The numbers which the "nuclear is safe" people like to use are completely faked. They claim that nobody was killed by cancer or radiation sickness from Chernobyl or Fukushima (which is blatantly false), then count people falling off a roof as a cause of death from solar power (totally dishonest, since they exclude construction injuries for nuclear power plants and nuclear cleanup).

 

[neroden]

The analysts were not happy with Elon saying these are boring questions.

Adam Jonas quick to post his opinion:

I'm on record as saying that Jonas is a completely stupid person whose opinion is worth nothing: this is the man who valued the nonexistent Tesla Network at billions while valuing the actually-operating stationary storage business at zero.

Somehow it doesn't surprise me that he's a precious snowflake who wants his ego stroked. :-(

 

[MartinAustin]

And I think he's sick of them. He's blowing them off because he doesn't need them at this point. He's had to court those jackasses for over a decade now, and now that he sees profit in sight, he figures he doesn't have to play nice any more.

I think it's exactly this, and it's a great clue that we can start to be a lot more confident about seeing profits in the near term.

Great conference call (though, bizarre, yes), and obviously Elon likes to talk about the tech and upcoming developments more than picking over the carcass of the past.

I've lost count of how many times CNBC have mentioned Tesla today. They're focusing on Elon's behaviour during the call because they have to support their buddies on Wall Street. The fact that the ER beat forecasts is kinda downplayed.

Tesla is going to be the first non-Chinese car manufacturer with a 100%-Tesla-owned factory inside China. That's a great advantage compared to the other guys. They kept calm and bided their time, and now will get what they wanted in the first place.

I personally would not be surprised to see TSLA at $350 some time on Thursday

OK Let me amend this slightly. I personally WOULD be surprised to see TSLA at $350 some time today

 

[schonelucht]

Does he have a $4b loan? And is that against Tesla or against *SpaceX*?

He had pledged about $4b worth of TSLA shares (13,774,897 to be precise) as collateral for a loan at 31/12/2017.

 

[neroden]

If you subscribe to the notion that the change in tone was somewhat premeditated (and it’s a big if, but I’ll play along), then Elon must be extremely confident that production hell is almost over and Tesla is no longer dependent on Wall Street. Fits with the leaked email and the talk of profitability and day traders.

OK, we already knew he was extremely confident. While the quarterly letter says that they *expect* profit and cash flow in Q3.... Musk's tweet, from earlier, outright *stated* that they will have profit and positive cash flow in Q3, with no hedging. Which is an actionable claim. (As well as saying no capital raise in 2018.) He's usually actually pretty cautious about such statements, believe it or not. Making such a definitive statement means he's extremely extremely confident, much more than his usual high level of confidence.

 

[neroden]

He had pledged about $4b worth of TSLA shares (13,774,897 to be precise) as collateral for a loan at 31/12/2017.

Oh, so that's *much* less than $4b borrowed. Based on my knowledge regarding How This Works (from borrowing against stock myself), he will have been able to borrow against about 70% of that, max. I doubt he maxed it out, because of Tesla's high volatility, which he knows all about. I would expect that his loan is more like 1 or 2 billion. He's at no risk of being margin-called unless the stock price drops below $100.

 

[neroden]

Given Elon's attitude to the bank analysts, makes me think Tencent may well be the financial partner for the next expansion phase, which will be into China.

Quite likely. We know Tencent has the right attitude (they wanted to invest before another Chinese company got there), we know they're long-termers, and we know they're sitting on piles of cash.

 

[CuriousSunbird]

The basic problem is that we don't understand how he covers his cash needs over the next 12 months and he won't give any credible explanation.

 

[neroden]

I think it's more the change in working capital and the lack of explanation on filling the cash hole.

Seriously, WHAT cash hole? If they kept spending as much on capex each quarter as they have been -- which they will not, they've said they're spending less -- and they don't make *any* improvement in car sales, which they certainly will -- they have enough cash to get into the first quarter of 2019.

 

[neroden]

I am thinking no cap raise anytime soon...since he’s giving the finger to the banks.

Well, he did promise outright, by tweet, that there would be no capital raise in 2018. Because Tesla will be profitable in Q3 and Q4, which he seems absolutely certain of.

So if you remember that tweet, his behavior on the earnings call was pretty much telegraphed right there.

The only remaining bear case is believing that Musk is psychotic or lying through his teeth. Neither is plausible.