TSLA Market Action: 2018 Investor Roundtable

[YasB]

Are there people who think that TSLA will not be above $360 later this year when they are producing 5,000+ model 3 per week? Shorts barely kept it below $390 last September when they were making a few dozen model 3 per week.

There are and i'm one of them. Of course i can't be certain that this will happen, but from my point of view it's a very realistic possibility. Lets's assume Tesla reaches a sustainable rate of 5k a week in July and keeps selling Model S+X at the current rate. How would you argument, that a share price above $350 is justified and below $300 is not enough, without refering to the past share price? From a bearish perspective that sharesprice wasn't justified at any moment in time and Tesla was trading at a pretty high hope-multiplicator. The story was fully intact and the outlook was something like this:

1. 500k Model 3 per year exit rate in 2018
2. Gross margin of 25% on those and above standard automation
3. Hope for Semi-Truck scale production start in 2019*
   
4. Hope for Model Y production by 2019 or 2020**
   
5. Hope for a refresh of Model S and / or Model X this year
   
6. Demonstration of huge advances in Autopilot development by the end of the year
7. Announcement of several new factories by end of the year 2017

Things have changed quite a bit since then and sentiment seems to turn around. In other places that is, not here of course. ;-)

Personally i have no problem with Tesla reaching break-even or posting a net profit with Model 3 this year, if they continue to postpone the other stuff. At first i was a bit surprised and rattled by Q1 numbers, since i assumed losses would be a bit higher and production rate guidance would be lowered again. That said, further reducing and delaying CapEx calmed me a bit down. This is not the stuff you want to see from a growth company, that is partially trading on a first-mover-advantage compared to incoming competition.

From my point of view the most bearish things i took from the update letter and conference call were:

• Not providing a schedule and financing plan for investments in Semi production.
• Stating CapEx for Model Y will be spent only from 2019 onward.

I'm not an industry expert, but after researching for a while, I've not found a single car production plant that was build in less than 3 years from construction start to production start. That would delay Model Y scale production until late 2021 or 2022. Until then it seems Tesla would be constrained at something like 500k Model 3 / 100k Model S+X in the most optimistic scenario i'm willing to consider. That's a lot of time for competing companies to try catching up, for sentiment or for macros to change and for a lot of things to just go wrong. And more importantly, it's not enough to support a valuation of $50 billion from a fundamental perspective.

* https://electrek.co/2017/06/07/tesla-semi-production-elon-musk/
** https://electrek.co/2017/08/02/tesla-model-y-coming-sooner/

 

[YasB]

A bear who thinks *demand* for Model 3 is going to be an issue, at any price, for any time in the next *decade*, is a complete fool. I would say "boneheaded" if I were in the same mood as Musk.

Now i'm curious. If demand is completely insensitive to price, what sense does it make to shift deliveries to other markets, to preserve the tax credit for another quarter? I was under the impression, that is what they are doing.

 

[jeewee3000]

Now i'm curious. If demand is completely insensitive to price, what sense does it make to shift deliveries to other markets, to preserve the tax credit for another quarter? I was under the impression, that is what they are doing.

First of all: it makes sense because Musk promised his (future) customers to try and optimize the amount of customers getting the tax credit. He always tries to deliver on his promises.

Second, Neroden didn't say demand is "completely insensitive" to price.

He said that demand is high enough that there will be demand at the current Model 3 pricing to sell every built Model 3 (let's say 500.000/year) for at least the first decade. Demand might drop from 1.000.000/year to 750.000/year if the price rises or the tax credit vanishes, but this has no impact on Tesla's immediate financial outlook.

 

[uselesslogin]

So I'm out of the drugged up state after having oral surgery and I'm now allowed to make important decisions such as what TSLA I'm going to buy. I'm also relieved the stock didn't go up yesterday since then I would have to consider getting more teeth pulled out just to help TSLA. So a great report and reported VINs are on the rise but the stock is down because of people's emotions and egos. I think I am going to speculate on some calls expiring in June during the mandatory morning dip. I'm hoping I didn't miss out already.

 

[brian45011]

Romit Shah- Instinet Analyst ... His company’s is projecting 30k plus model 3’s in Q2.

Production or deliveries? Troy's/Hobbes' spreadsheet shows just over 180k qualifying deliveries in the US through 3/31/18. Maybe 1,000 +/- more for Roadsters post-2009. Inside EVs guesses another 6,152 during April (some think the estimate is low). That totals about 187,300 with two months before the end of the 2nd quarter.

Unless Mr. Shah believes Tesla will stockpile many cars until early July, the implication of his projection would seem to be the phase down of the federal tax credit will begin in 4Q18 and the credit gone after 3Q19.

 

[jeewee3000]

I'm not an industry expert, but after researching for a while, I've not found a single car production plant that was build in less than 3 years from construction start to production start. That would delay Model Y scale production until late 2021 or 2022.

From the Fremont factory wikipedia:

Tesla officially took possession of the site on October 19, 2010,[11] and opened it on October 27.[21] The state of California has supported the renewal, expecting tax income from sustained jobs.[22][23][24] The first retail delivery of the Tesla Model S took place during a special event held at the Tesla Factory on June 22, 2012.

So in 1 year and 8 months Tesla got production started for Model S from scratch. Not three years. OK, this does not include building the factory, but Tesla (and SpaceX for that matter) has a knack for buying old facilities and refurbishing them quickly. Two years is realistic.

That's a lot of time for competing companies to try catching up

Even three years is not enough for others to catch up. We are still waiting for all the Tesla-killers anounced in the previous years. And even if some are released: the volume will be low and the demand for good BEV vehicles is so high they can co-exist with TSLA.

 

[brian45011]

... Return on assets == irrelevant

These are the fundamental business models for paying people at investment banks and brokerages. The only real exceptions are people who work for private foundations or HNW individuals directly.

NASDAQ shows 843 institutions during the fourth quarter of 2017 with activity in Tesla shares. Never realized Wall Street had that many investment banks and brokerages, private foundations, or asset managers for HNW folks.

Peruse the names of those institutions, and let us know how many of their portfolio managers are motivated by churn rather than trying to achieve a consistently high total return for assets under their management.

​

 

[neroden]

NASDAQ shows 843 institutions during the fourth quarter of 2017 with activity in Tesla shares. Never realized there that many investment banks and brokerages, private foundations, or asset managers for HNW folks.

There are a completely insane number of institutions these days total. There are more stock mutual funds than there are individual stocks -- a lot more. There's something very screwy about that, of course. It's a giant pile of fee-extractors.

In some sense it's always been fee extraction: the stories about Wall Street or the City of London arranging to extract money at every turn date back hundreds of years. It just takes different forms in each decade. Once upon a time, it was brokers recommending stock trades which would earn them commissions. This year, it seems to be ETF managers collecting a fee for whatever the hell it is that they do.

This does lend a lot of credence to Bogle's view that the key to good investing is avoiding fees. The average "investor" is getting dinged for custodial fees, fund manager fees (usually a % of assets under management), and commissions whenever the fund manager makes a trade.

At least with a long-term holding of an individual stock the only fees I'm paying are a very small amount of commissions (trading as little as possible). And the CEO and board salaries are really a type of fee; but if I pick a stock where the CEO doesn't take a salary, then I'm not even paying that.

I believe the term of art in economics is "principal/agent conflict of interest". Fund managers *never* have the same motivation as the people buying shares in the fund. For that matter, CEOs rarely have the same motivation as the people buying shares in their company. It's important to keep track of their motivations.

 

[Sancho]

Personally i have no problem with Tesla reaching break-even or posting a net profit with Model 3 this year, if they continue to postpone the other stuff. At first i was a bit surprised and rattled by Q1 numbers, since i assumed losses would be a bit higher and production rate guidance would be lowered again. That said, further reducing and delaying CapEx calmed me a bit down. This is not the stuff you want to see from a growth company, that is partially trading on a first-mover-advantage compared to incoming competition.

./

I agree that a fair bearish take on recent events is that Model 3 production problems are probably causing at least a six month delay to the semi and Model Y ramps. I might be willing to discount my future value of Tesla a little more based on that news, but my future value is so high that this additional discount is meaningless.

What is far, far more meaningful is Musk’s reaffirmation of cash flow positive and profits for the entire second half of the year. YOU may have “no problem” with that, but just about every other bear (and many bulls!) are going to need to fundamentally adjust their thinking in the next few quarters if that happens.

 

[bambam4171]

The way Troy's sheet shows VIN sightings should mean we have TSLA hitting new lows


I just need to find how the bears can spin this one around.
Maybe:
Look, they are sending out invites to configure like mad, they don't know what they are doing #TSLAQ.
Or:
Look at all those new cars, they are selling way too many! #TSLAQ

While bulls probably think: So that is why Elon told some Analysts and day traders to get stuffed!

 

[K_Dizzle]

I have so been waiting for the day when Musk finally raises his middle finger to the parasites and tells them to kiss his ass. How anyone cannot see how incredibly bullish this is is beyond me. The only real bear argument here is that Musk has decompensated and lost touch with reality.

These offended analysts are such a joke, revealing their pathetic egos, warning Tesla to take them seriously or face the consequences, even somehow taking credit for where Tesla is today (whaaa?!). They need to be sent to the countryside for reeducation (yes that is a joke dammit).

I was waiting for this ER as a buying opp and I am getting it. Increasing my positions across the board. There should be furious action today.

But when the dust settles, if macro behaves and TSLA is showing a profit 5 months from now, where exactly will the SP be and where will the bears be? Place your bets...

There are and i'm one of them. Of course i can't be certain that this will happen, but from my point of view it's a very realistic possibility. Lets's assume Tesla reaches a sustainable rate of 5k a week in July and keeps selling Model S+X at the current rate. How would you argument, that a share price above $350 is justified and below $300 is not enough, without refering to the past share price? From a bearish perspective that sharesprice wasn't justified at any moment in time and Tesla was trading at a pretty high hope-multiplicator. The story was fully intact and the outlook was something like this:

1. 500k Model 3 per year exit rate in 2018
2. Gross margin of 25% on those and above standard automation
3. Hope for Semi-Truck scale production start in 2019*
   
4. Hope for Model Y production by 2019 or 2020**
   
5. Hope for a refresh of Model S and / or Model X this year
   
6. Demonstration of huge advances in Autopilot development by the end of the year
7. Announcement of several new factories by end of the year 2017

Things have changed quite a bit since then and sentiment seems to turn around. In other places that is, not here of course. ;-)

Personally i have no problem with Tesla reaching break-even or posting a net profit with Model 3 this year, if they continue to postpone the other stuff. At first i was a bit surprised and rattled by Q1 numbers, since i assumed losses would be a bit higher and production rate guidance would be lowered again. That said, further reducing and delaying CapEx calmed me a bit down. This is not the stuff you want to see from a growth company, that is partially trading on a first-mover-advantage compared to incoming competition.

From my point of view the most bearish things i took from the update letter and conference call were:

• Not providing a schedule and financing plan for investments in Semi production.
• Stating CapEx for Model Y will be spent only from 2019 onward.

I'm not an industry expert, but after researching for a while, I've not found a single car production plant that was build in less than 3 years from construction start to production start. That would delay Model Y scale production until late 2021 or 2022. Until then it seems Tesla would be constrained at something like 500k Model 3 / 100k Model S+X in the most optimistic scenario i'm willing to consider. That's a lot of time for competing companies to try catching up, for sentiment or for macros to change and for a lot of things to just go wrong. And more importantly, it's not enough to support a valuation of $50 billion from a fundamental perspective.

* https://electrek.co/2017/06/07/tesla-semi-production-elon-musk/
** https://electrek.co/2017/08/02/tesla-model-y-coming-sooner/

WRT to the model Y production capex being delayed Deepak went into detail about this on the call. They said right now the model Y capex isint material with respect to revenue. It not $0 and it’s not material because at this stage of the model Y launch it doesn’t make sense to spend.

 

[YasB]

Second, Neroden didn't say demand is "completely insensitive" to price.

He said that demand is high enough that there will be demand at the current Model 3 pricing to sell every built Model 3 (let's say 500.000/year) for at least the first decade. Demand might drop from 1.000.000/year to 750.000/year if the price rises or the tax credit vanishes, but this has no impact on Tesla's immediate financial outlook.

Fair enough. I may have taken 'at any price, for any time in the next *decade*' too literal. For now i don't have a strong view on potential Model 3 demand given a production rate of 250-500k per year. I'll just wait and see how that develops.

 

[elasalle]

There are and i'm one of them. Of course i can't be certain that this will happen, but from my point of view it's a very realistic possibility. Lets's assume Tesla reaches a sustainable rate of 5k a week in July and keeps selling Model S+X at the current rate. How would you argument, that a share price above $350 is justified and below $300 is not enough, without refering to the past share price? From a bearish perspective that sharesprice wasn't justified at any moment in time and Tesla was trading at a pretty high hope-multiplicator. The story was fully intact and the outlook was something like this:

1. 500k Model 3 per year exit rate in 2018
2. Gross margin of 25% on those and above standard automation
3. Hope for Semi-Truck scale production start in 2019*
   
4. Hope for Model Y production by 2019 or 2020**
   
5. Hope for a refresh of Model S and / or Model X this year
   
6. Demonstration of huge advances in Autopilot development by the end of the year
7. Announcement of several new factories by end of the year 2017

Things have changed quite a bit since then and sentiment seems to turn around. In other places that is, not here of course. ;-)

Personally i have no problem with Tesla reaching break-even or posting a net profit with Model 3 this year, if they continue to postpone the other stuff. At first i was a bit surprised and rattled by Q1 numbers, since i assumed losses would be a bit higher and production rate guidance would be lowered again. That said, further reducing and delaying CapEx calmed me a bit down. This is not the stuff you want to see from a growth company, that is partially trading on a first-mover-advantage compared to incoming competition.

From my point of view the most bearish things i took from the update letter and conference call were:

• Not providing a schedule and financing plan for investments in Semi production.
• Stating CapEx for Model Y will be spent only from 2019 onward.

I'm not an industry expert, but after researching for a while, I've not found a single car production plant that was build in less than 3 years from construction start to production start. That would delay Model Y scale production until late 2021 or 2022. Until then it seems Tesla would be constrained at something like 500k Model 3 / 100k Model S+X in the most optimistic scenario i'm willing to consider. That's a lot of time for competing companies to try catching up, for sentiment or for macros to change and for a lot of things to just go wrong. And more importantly, it's not enough to support a valuation of $50 billion from a fundamental perspective.

* https://electrek.co/2017/06/07/tesla-semi-production-elon-musk/
** https://electrek.co/2017/08/02/tesla-model-y-coming-sooner/

clue - in the future all GFs will also do vehicle assembly - add that to all new construction happening at Sparks

 

[K_Dizzle]

Everyone go on twitter. Elon is about to drop some stock discussion tweets

 

[YasB]

So in 1 year and 8 months Tesla got production started for Model S from scratch. Not three years. OK, this does not include building the factory, but Tesla (and SpaceX for that matter) has a knack for buying old facilities and refurbishing them quickly. Two years is realistic.

Yes, but it looks like they needed 2 years and an existing factory to produce any meaningful volume later that year. I doubt they'll be able to set up mass production in another country in the same time, especially including new battery production lines and the building itself. That said, i'm sure they will be faster than they have been in the past and won't argue about 6 months more or less. Anyway, as a bear i was a bit concerned last summer when i read 'starting production in late 2019' and aiming for a million cars by 2020. That concern has mostly gone away.

 

[EVMeister]

Everyone go on twitter. Elon is about to drop some stock discussion tweets

Yeah, was just casually browsing Twitter during lunchtime here in England. This is getting good... I think it's important that this sort of thing comes straight from Elon himself. There are many people following him on Twitter or even casually observing his comments who don't actually know the difference between sell-side analysts and investors.

 

[brian45011]

Is this responsive or am I missing the point of your question?

Responsive, but I do not understand why Tesla is restricted to 2.7788 common shares per note, if they notify holders before 12/1/18 that physical settlement will be used during the Free Conversion Period (of if they specify a defined combination settlement method before 12/1/18.)

2.7788 common shares per note was the initial conversion rate for the 2019 notes. However, the first sentence in the penultimate paragraph of several obtuse pages (replete with arcane formulas) entitled "Conversion Rate Adjustment" throws the baby out with the bath water:

"We are permitted to increase the applicable conversion rate of either or both series of notes by any amount for a period of at least 20 business days if our board of directors or a committee thereof determines that such increase would be in our best interest."
​

My interpretation of the prospectus may be totally incorrect, but to summarize it:

Near the end of November 2018, Tesla has optionality to decide what may be in its best interest regarding conversions during the Free Conversion Period. Does it want (i) to induce holders to take shares or does it want to (ii) discourage any conversions during those three months, deferring the $920 million obligation until 3/1/19? It depends on the share price and other financial/operational circumstances during the second month of the fourth quarter (3Q18 results will be filed in early November.)

If the share price is sufficiently above $359.87, the obvious choice would be to notify holders physical settlement will be used for conversions during the Free Conversion Period--if the share price rises during those three months, the hedge writer have the risk up to $512.66; if the share price declines (particularly after the shares are conveyed to holders) Tesla might have settled the notes for less value than $1,000 cash.

The difficult decision for Tesla is if shares are trading noticeably less than $359.87. At what conversion ratio does the Board of Directors want to announce to induce settlement with shares ? The conversion rate appears to capped at 3.9597 (equivalent to $252.54/share)--not sure if the cap is under all circumstances.

​

 

[jeewee3000]

Elon's twitter storm regarding TSLA stock is indeed in full swing.

Funny comment:

Marek Cyzio: "My forecast is - it will go down and then it will go up and up and up and up and up."

Elon Musk: "Exactly"

Exciting times ahead.

 

[bdy0627]

In my view there are many shorts (including myself) who don't view the M3 production delays as the major issue. We think that Tesla will not be able to achieve a sufficient net margin at the 5,000 per week level. We think that if Tesla sells the M3 at a price level which makes an acceptable net margin they will not be able to sell enough (hence the importance of the conversion rate) and that if Tesla sells the M3 at a price which generates sustainable demand for 250,000 cars per year, they will not make a profit. So from our point of view, the sooner 5,000 per week is achieved the better, as it will then prove or disprove our thesis.

Having said that, the delay has had a significant effect in allowing Nissan and the Koreans to catch up to the extent where they will soon be pulling away some M3 demand in the lower income/more price sensitive demographics.

I get that, just as there are many longs who believe in a few years the stock will be several multiples above where it is now. There are also many momentum shorts just as there are longs, who jump on at the wrong time, after the stock has already moved down a lot. Once the stock starts climbing, they start covering, the stock climbs, momentum longs say, here we go, and jump back in, the stock climbs, more shorts cover, and suddenly the climb is huge. That will happen again, probably within the next 3-6 months. I think it's a mistake to think that shorts suddenly have such overwhelming conviction as a whole that they won't start covering during a climb. Once the stock has climbed way back up, the process will repeat, this time with longs selling and shorts continuing to pile on. I think it is naive to think the stock is not going to climb as model 3 production ramps up, even before financials are known. However, macros will play a big part in this as well, which is probably another reason shorts are currently more emboldened.

 

[bambam4171]

Yes, but it looks like they needed 2 years and an existing factory to produce any meaningful volume later that year. I doubt they'll be able to set up mass production in another country in the same time, especially including new battery production lines and the building itself. That said, i'm sure they will be faster than they have been in the past and won't argue about 6 months more or less. Anyway, as a bear i was a bit concerned last summer when i read 'starting production in late 2019' and aiming for a million cars by 2020. That concern has mostly gone away.

Well first time they had to setup all the assembly lines which we know went overly well. Once you know how a line is setup (like the one from Grohmann that is being installed at GF then its more or less copy/paste somewhere else which should be way, way faster than initial setup.