TSLA Market Action: 2018 Investor Roundtable

[CuriousSunbird]

Here's just talking about a dumb lawsuit that won't go anywhere for the plantiffs

Are you saying it's dumb because of the exculpation issue, or is there another flaw?

 

[Papafox]

I think Deepak said 2k in depreciation per vehicle once they hit their volume target during the Q1 call.

Yes, he said less than 2K/vehicle once M3 hits full production, which suggests capital expenditures on the Model 3 line are not above such costs of typical auto manufacturers.

 

[CuriousSunbird]

This is a late reply, but when considering Gross Margin on a vehicle, a primary step is to subtract the cost of goods sold from the revenue that product brings in. Depreciation is an element of cost of goods sold. As an important example, all those robots in the production line get depreciated through some formula and then the cost of the robots is assigned over time to cost of goods sold for that vehicle. So, yes, the cost of the capital improvements directly related to the production of a vehicle eventually finds its way (spread out over years) into the cost of goods sold and is thereby considered in the gross margin computations.

Yes, and this may be a little distorted at the moment due to the de-automation - some of the equipment no longer in use (fluffabots, etc.) may be written off. Not sure if we can find out how much that is but it should probably be written back when analyzing process sustainability.

 

[SteveG3]

Not sure either, probably a bit of both



The net cost of the hedge/warrants for the 2019 convertibles was about $85.7 million:

In connection with the offering of these notes in March 2014, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of 5.6 million shares of our common stock at a price of $359.87 per share. The total cost of the convertible note hedge transactions was $524.7 million. In addition, we sold warrants whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) 2.2 million shares of our common stock at a price of $512.66 per share for the 2019 Notes and 3.3 million shares of our common stock at a price of $560.64 per share for 2021 Notes. We received $338.4 million in total cash proceeds from the sales of these warrants. Similarly, in connection with the issuance of the additional notes in April 2014, we entered into convertible note hedge transactions and paid a total of $78.7 million. In addition, we sold warrants to purchase initially (subject to adjustment for certain specified events) 0.3 million shares of our common stock at a price of $512.66 per share for the 2019 Notes and 0.5 million shares of our common stock at a price of $560.64 per share for the 2021 Notes. We received $50.8 million in total cash proceeds from the sales of these warrants.

That $86 million expense will be wasted if the share price is less than $359.87 on March 1,2019. At the conversion ratio, the 2019 notes are equivalent to 2,556,500 shares. Any share price above $359.87 on March 1,2019 means the expense starts to be recouped, but the break-even point for positive returns on the hedge/warrants expense is a share price above about $393.50. The financial risk reverts to Tesla above a share price above $512.66.

If the share price is expected to be above $400/share in 2019, why would Tesla want to issue shares for a recovery of $359.87/share to redeem the 2019 notes rather than using $920 million in cash, and replenishing the treasury with the proceeds of a follow-on offering of additional equity at much higher share price after the audited 2018 annual report (10K) is filed?

glancing through this, some of the details are beyond my understanding and I’m not so sure putting a good deal of time into trying to understand them would help, lols.

 

[Waiting4M3]

Yes, he said less than 2K/vehicle once M3 hits full production, which suggests capital expenditures on the Model 3 line are not above such costs of typical auto manufacturers.

Interesting, I'm trying to piece a few things together to get a production overhead cost for the M3.

Depreciation: this one is relatively simple: if we take the $2k/car at 5k/wk run rate, that comes out to 5k/wk * 12wk *$2k = $120m/Q

Labor: Making lots of assumptions here: in Elon's leaked mid-April email, he said hiring 400 people per week for several weeks for a 3dr shift. Assuming several is ~6, from mid-April to end of May, to be ready to crank up in June, this 3rd shift would be ~2500 people. Assuming the other 2 shifts are the same size, this puts total labor count at ~7500 people. Assuming a $100k cost per employee (salary + admin overhead), this is ~$188m/Q

Adding up the 2 gets to ~$300m/Q. Thoughts?

 

[MP3Mike]

I don't think you did. The article says they hit 32 units per hour. that is 3,500 per day with two 8 hour shifts. Or 768 a day @ 24 hours and 5,376 a week .

I think people are confusing things a little bit. The 32 UPH figure is for just the body/drivetrain marriage station. The 500/day number is for the line as a whole.

I, also, think it would help if the whole email was shared rather than bits and pieces of it.

 

[mongo]

Interesting, I'm trying to piece a few things together to get a production overhead cost for the M3.

Depreciation: this one is relatively simple: if we take the $2k/car at 5k/wk run rate, that comes out to 5k/wk * 12wk *$2k = $120m/Q

Labor: Making lots of assumptions here: in Elon's leaked mid-April email, he said hiring 400 people per week for several weeks for a 3dr shift. Assuming several is ~6, from mid-April to end of May, to be ready to crank up in June, this 3rd shift would be ~2500 people. Assuming the other 2 shifts are the same size, this puts total labor count at ~7500 people. Assuming a $100k cost per employee (salary + admin overhead), this is ~$188m/Q

Adding up the 2 gets to ~$300m/Q. Thoughts?

I think your labor count is high. I'm guessing < 2k per car human cost (5,200 across 3 shifts @$100k/yr), GF and Fremont dedicated to 3). IIRC the final assembly is only 50 cells, so most will be in sub assembly (doors, motors, material movement).

 

[mongo]

I think people are confusing things a little bit. The 32 UPH figure is for just the body/drivetrain marriage station. The 500/day number is for the line as a whole.

I, also, think it would help if the whole email was shared rather than bits and pieces of it.

Nah, I was just less caveat-y in that post
500 a day is running at 32/hr for 16 hour, seemed to line up...
Body/ drivetrain was the bottleneck before, and might still be (did I mention I'm an optimist?)

I did mislabel per day (500) and per week (3,500) again...

 

[Zaxxon]

I, also, think it would help if the whole email was shared rather than bits and pieces of it.

Yeah, it bugs me when media outlets do this. If you got the email, share the email. It's fine to also share your take on it. But share the actual thing so that readers can analyze it for themselves, too.

Of course, there are exceptions such as sensitive info the reporter promises not to share, etc. But in general, share it all and redact what you must. Really annoys me when an article discusses leaked info but never shares the actual leaked document. It's right up there with places that re-report stuff and don't include a link back to the original report on which they are basing their piece.

 

[wipster]

<snip> (did I mention I'm an optimist?) <snip>

I knew I liked your posts for a reason...

Personally I'm not a glass half full guy, it's completely full for me! BTW, that has created challenges for me in the past, but oh well...

 

[ggr]

Look at this: Tesla Investors Can Move Ahead With SolarCity Deal Lawsuit

The briefs are online somewhere - don't have time to find today.

Why is a two-month-old decision in a two-year-old lawsuit relevant to market action?

 

[CuriousSunbird]

Why is a two-month-old decision in a two-year-old lawsuit relevant to market action?

It was in reply to someone who was suggesting that SpaceX could bail out Tesla.

 

[Cartegena]

glancing through this, some of the details are beyond my understanding and I’m not so sure putting a good deal of time into trying to understand them would help, lols.

Fine. I did not mean to post anything beyond your comprehension, just trying to offer some additional details to what you originally posted.

 

[Irishjugg]

Look at this: Tesla Investors Can Move Ahead With SolarCity Deal Lawsuit

The briefs are online somewhere - don't have time to find today.

The suit will not be won by the plantiffs, it's super duper obvious. It's an attempt at settlement extortion and nothing more.
That's why it's irrelevant . The cash burn related to it is a rounding error, and there will be no damages awarded, so who gives a *sugar*?

 

[Irishjugg]

Are you saying it's dumb because of the exculpation issue, or is there another flaw?

All the shareholders made significant returns if they held, so what basis will they have to deserve damages?
SCTY assets generate cash flow, the bailout stuff is and was nonsense.

 

[Irishjugg]

It was in reply to someone who was suggesting that SpaceX could bail out Tesla.

The suggestion was that they would but Tesla bonds, not that they would bail out Tesla, which isn't something that's needed

 

[mershaw2001]

I don't believe it matters if the shareholders held the stock and made money, if the stock dropped in a time period associated with the merger the plaintiffs can claim losses.

Instead, the plaintiffs face an uphill battle because the CEO abstained from the vote, the decision was not clearly out of line with "good for tesla", and that is what they need to prove: that the decision to merge was not in the best faith for the TSLA shareholders. I don't believe there is a need to show that other companies are better to purchase (as some have claimed), but rather to show that it was a decision that hurt shareholders and had no obvious benefit to tesla. I think the courts allow quite a bit of leeway in letting companies run themselves....

But I'm no expert.

 

[SteveG3]

Fine. I did not mean to post anything beyond your comprehension, just trying to offer some additional details to what you originally posted.

sorry if my point wasn’t clear. I appreciated your comment and the info you brought here. I was just trying to acknowledge your post/question despite being unable to answer it.

 

[Irishjugg]

I don't believe it matters if the shareholders held the stock and made money, if the stock dropped in a time period associated with the merger the plaintiffs can claim losses.

Instead, the plaintiffs face an uphill battle because the CEO abstained from the vote, the decision was not clearly out of line with "good for tesla", and that is what they need to prove: that the decision to merge was not in the best faith for the TSLA shareholders. I don't believe there is a need to show that other companies are better to purchase (as some have claimed), but rather to show that it was a decision that hurt shareholders and had no obvious benefit to tesla. I think the courts allow quite a bit of leeway in letting companies run themselves....

But I'm no expert.

Right, I'm using "the stock appreciated significantly since the acquisition, therefore it wasn't against the interests of Tesla

 

[CuriousSunbird]

I don't believe it matters if the shareholders held the stock and made money, if the stock dropped in a time period associated with the merger the plaintiffs can claim losses.

Instead, the plaintiffs face an uphill battle because the CEO abstained from the vote, the decision was not clearly out of line with "good for tesla", and that is what they need to prove: that the decision to merge was not in the best faith for the TSLA shareholders. I don't believe there is a need to show that other companies are better to purchase (as some have claimed), but rather to show that it was a decision that hurt shareholders and had no obvious benefit to tesla. I think the courts allow quite a bit of leeway in letting companies run themselves....

But I'm no expert.

I think you're probably right, particularly given Tesla's exculpation provisions. Still, not the kind of thing director like to volunteer for.