TSLA Market Action: 2018 Investor Roundtable

[bdy0627]

Putting on my Trump voice: "I'm gonna buy a Tesla, and I'm gonna make the shorts pay for it!"

Due to Elon's imminent warning of a short squeeze, I trust Elon enough that I'm willing to take some risks I'd normally wouldn't do, which is to do some mild trading of TSLA medium term options to see if I can get achieve much larger gains than holding shares.

I'm thinking of putting 50k into doing this for about 1-2 months. I know it isn't much to most of you here, but that's all that I'm comfortable of losing (well, I'll be a little unhappy, so I don't know if that counts as comfortable ). Afterwards I'll convert all into either shares or LEAPs as the long term risk vs reward of trading without a short squeeze coming is not worth it, especially when factoring in time.

My basic strategy will be to follow the law of nullifying news and buying dips to trade calls expiring in 1-2 months to try to profit from the volatility and hopefully buy low and sell high (which I've fully experienced how hard it can be to actually do). I don't think I will trade puts because I don't want to be wishing for TSLA's SP to go down. I won't trade actively, probably just a few times a week.

I will be watching the market tomorrow and hope for a bear raid that pushes the SP down below $330, and then buy some calls August or September calls. Please, PLEASE feel free to offer advice. I'm all ears. I definitely will not blame anyone if I lose money on their advice because I would have processed it myself and thought it was a good idea before doing it, and therefore all fault will lie on me. Also, I'm not betting the house, if I lose it all, it won't really affect me too much.

This is the most incredible community I've ever seen. The amount of knowledge, passion, and activity is unbelievable. I am inspired by the love of Tesla and their mission from this community, especially now learning what bad actors Tesla is up against. I've learned so much from you guys, and I love it here!

My suggestions: be patient, definitely do it in tranches, and don't be too greedy. Be careful trying to catch the falling knife. That's part of the reason to buy in tranches. You will invariably try to predict the bottom and you will be wrong. TSLA can fall (and climb) much further than you may think it will in a very short time. I have some rules I use for buying dips, but the trading right now is so volatile that those don't currently apply. Buying near the bottom of the trading this week will likely be very very rewarding. Here are some calls I'm focusing on:

Aug 17 $300 (best avoided until the bottom is clear)
Sep 21 $300
Oct 19 $320
J19 $350

Premiums are very high, but these calls will provide about a 40% gain if the stock gets to $380 over the next 6 weeks. Some members here are very good at identifying when we are near the bottom. Look for those posts. Try not to get emotional about it and follow your rules.

 

[neroden]

My basic strategy will be to follow the law of nullifying news and buying dips to trade calls expiring in 1-2 months to try to profit from the volatility and hopefully buy low and sell high (which I've fully experienced how hard it can be to actually do). I don't think I will trade puts because I don't want to be wishing for TSLA's SP to go down. I won't trade actively, probably just a few times a week.

If you have the capital to do it and are authorized, you could trade puts the other way: sell them during a bear raid, buy them back afterwards. Why do this rather than trading calls? Bear raids increase implied volatility, which tends to raise the price of options, so you want to be selling options during the raid and buying options when there isn't a raid. And if you're short puts you're bullish.

The thing is it requires a lot more upfront capital and gives you much less potential gain, so probably unsuitable for your plans -- I was just pointing out that there's a bullish way to trade puts.

 

[SteveG3]

With all the hysteria going on with TSLA today, please take a good read at this from an actual person who is known for corporate finance and a more serious albeit outdated analysis.

Musings on Markets: A Tesla 2017 Update: A Disruptive Force and a Debt Puzzle!

I’m posting this because it’s a nuisance seeing all these “financial professionals” on CNBC making ridiculous claims with poor analytics and lack of big picture thinking.

After seeing Gordon Johnson’s segment and him continuously repeating how he’s an analyst bugged me to no end. The guy has no idea what he’s talking about and never made a thing in his life. Go on his LinkedIn profile and take a look at his history. He was part of Lehman Bros at the time of the financial market collapse. Enough said there. For those of you retail investors who aren’t sure who to turn to or have been pelted too much by the insane short rhetoric at the moment, take a read above and do your own analysis and come to your own informed investment decision. Unfortunately, I know of too many people that watch CNBC and message me asking what’s going on or make decisions based on what these talking heads say.

It would be nice if Damodaran was presenting useful analysis in the sea of nonsense. I have no doubt he has the capacity to do it... but, to my view, Damodaran has been repeatedly spinning nonsense about Tesla he is clearly far too intelligent to actually believe since his first blog on Tesla, which included some buried absurd assumptions tanking his valuation, came out 4 or 5 years ago.

 

[erha]

Chanos is now shorting the sun.

Even though it’s been able to rise every day of the previous quarter he doubts that it will be able to sustain that rate?

 

[generalenthu]

It would be nice if Damodaran was presenting useful analysis in the sea of nonsense. I have no doubt he has the capacity to do it... but, to my view, Damodaran has been repeatedly spinning nonsense about Tesla he is clearly far too intelligent to actually believe since his first blog on Tesla, which included some buried absurd assumptions tanking his valuation, came out 4 or 5 years ago.

I looked at his latest model and if I remember correctly, he has a flat 32% growth for next few years, and then it drops to 10% or something. No profitability for 3 years or so.

It looks like he has a standard model and just punched in some numbers and called it a day. All nuance, was totally lost. He is certainly smart, but he has not done his work on Tesla. He probably gets his assumptions from talking heads on tv.

Garbage in, garbage out, etc.

 

[Zaxxon]

Even though it’s been able to rise every day of the previous quarter he doubts that it will be able to sustain that rate?

To be fair to Chanos, given a long enough time horizon, all production rates are unsustainable.

 

[Waiting4M3]

Even though it’s been able to rise every day of the previous quarter he doubts that it will be able to sustain that rate?

Even in California not every day is sunny. Chanos knows he can always find a rainy day to spread his FUD.

 

[Jayjs20]

Just dropping in to say -->Q3 2016 ER<--

 

[generalenthu]

Even in California not every day is sunny. Chanos knows he can always find a rainy day to spread his FUD.

Speaking of rain in sunny California, the one question I had was about material flow to and from the tent when its raining. Wonder if they'll attach the structure somehow to the main building eventually.

 

[TradingInvest]

It would be nice if Damodaran was presenting useful analysis in the sea of nonsense. I have no doubt he has the capacity to do it... but, to my view, Damodaran has been repeatedly spinning nonsense about Tesla he is clearly far too intelligent to actually believe since his first blog on Tesla, which included some buried absurd assumptions tanking his valuation, came out 4 or 5 years ago.

I read Damodaran's past writings. He doesn't have the capacity to analyze Tesla properly. You are probably over estimating his intelligence level. He is a spreadsheet type guy, not much real vision. He is among those who claimed Ford produces more cars in a week than Tesla in a year. More importantly, the truly intelligent people don't discuss the things that they don't understand. He has been wrong on Tesla for years, if I were him, I would shut up and just listen. "Valuation King" - that title is ironic. Warren Buffett would not accept a title like that.

There are three professors from NYU talk about Tesla. Two guys are clueless. The female professor knows what she is talking about. (I forget her name).

Does Damodaran understand that Tesla is trying to address 10 trillion dollars market? I know he couldn't figure this out. But after other people pointed this out, can he understand it?

Does he understand that to value a high growth company like Tesla, the number one most important factor is the leadership, not next year's earnings?

Does he understand Tesla is a leading AI company, and does he know how to value an AI company?

 

[dmckinstry]

To me, people that claim to be analysts of a certain market but have never actually worked in said market hold very little credibility.

I apologize if a mod has to move this, but his saying "I'm an analyst." makes me think of Trump saying "I'm a very good Christian."

 

[Remus]

Does he understand Tesla is a leading AI company, and does he know how to value an AI company?

I think you hit the nail on the head. Tesla is an AI company, contrary to general beliefs, it has almost nothing to do with autopilot.

Andrew Ng said building a website for a shopping mall doesn't make it an internet company, it is much more than that. And training several models doesn't make you an AI company, it is much more complicated than that.

We have already seen Tesla's tremendous advantage. First and foremost is the strategic data collection pipeline, and the ability to quickly process that data for fast decision making and quick iteration. This is why I laugh my head out when people talking about Tesla killers. The don't even know what kind of enemy they are up against.

Andrew Ng also pointed out AI will bring next wave of automation to manufacturing, with combination of computer vision and robotics. Ofcourse doing that requires investment, experiments, and many many failures. Tesla is the only one invest heavily on that.

I guess this is something only high tech folks can truly appreciate.

I love Elon. With his achievement having a big ego is perfectly normal. But I really wish sometimes he can set his egos aside and just concentrate on what really matters. Apparently they are working on bring super automation, obviously there will be set backs and failures,. This is definitely the right way ahead, we can already see progress from GA 3 pictures. I would rather they use their very limited resources on the core competitive edge, rather than fixation on getting the 5000 number.

 

[SPadival]

You make some good points, I'm gonna think about this some more with your points in consideration.

Also consider the fact that Elon remains an optimist and aggressive with his timelines (with good reasons for both), even after past deadlines have proven to be too optimistic. This gives rise to the famed Elon time.

 

[SteveG3]

I read Damodaran's past writings. He doesn't have the capacity to analyze Tesla properly. You are probably over estimating his intelligence level. He is a spreadsheet type guy, not much real vision. He is among those who claimed Ford produces more cars in a week than Tesla in a year. More importantly, the truly intelligent people don't discuss the things that they don't understand. He has been wrong on Tesla for years, if I were him, I would shut up and just listen. "Valuation King" - that title is ironic. Warren Buffett would not accept a title like that.

There are three professors from NYU talk about Tesla. Two guys are clueless. The female professor knows what she is talking about. (I forget her name).

Does Damodaran understand that Tesla is trying to address 10 trillion dollars market? I know he couldn't figure this out. But after other people pointed this out, can he understand it?

Does he understand that to value a high growth company like Tesla, the number one most important factor is the leadership, not next year's earnings?

Does he understand Tesla is a leading AI company, and does he know how to value an AI company?

whether it’s about a lack of ability to understand or an attempt to sell what he is well aware is nonsense, we can agree the emperor has no clothes.

 

[CyberDutchie]

Morgan Stanley note keeps price target the same; while waiting for Q3 for evidence of sustained 5K/week production rates. Accoridng to Adam Jonas: $5K/week offers temporary relieve but long term risks remain.

“Making 5k Model 3 vehicles in a week should not come as a complete shock to investors given the extraordinary short- term efforts of the firm (the tent). However, sustaining 5k or 7k/week could significantly improve Tesla cash flow and the character of a potential capital raise.

Our model does not assume 5k Model 3 deliveries per week before 1Q19. Ostensibly, at least, the latest Model 3 production news suggests a faster ramp than we have allowed for in our model. If not a complete 1-off achievement, then our 2H forecasts for Model 3 deliveries look too low. We may need to see some evidence of the true telemetry of 3Q production and deliveries before we can make a material change to our unit estimates.”

Then he offers some key thoughts, here is a sample:

There ́s a big difference between making 5k Model 3 units for 1 week vs. sustaining 5k per week. Even Elon Musk ́s latest tweet “7000 cars, 7 days” does not offer much visibility to Tesla ́s ability to sustain this step-change higher level of production potentially limiting the magnitude of any relief rally.

5k units/week of Model 3 isn ́t just an operating achievement, it has significant impact on cash flow. We believe Tesla needs to sell a lot more Model 3s to avoid a potentially large, dilutive capital raise. Based on our forecast of gross margin for the Model 3 and its strong mix level (we ́ve assumed an ATP of $52 but are prepared for a temporarily higher amount), we estimate Tesla may reasonably make $13k of cash per unit sold and as much as $18k of cash per unit when including the working capital terms arranged with suppliers (we estimate days payable exceed days receivable by around 70 days). Producing and delivering 5k Model 3 vehicles per week can, all else equal, produce around $90mm of cash per week to Tesla or nearly $1.1bn per quarter. Adding cash generated from Model S and X less CapEx and cash expenses for R&D and SG&A could suggest a company generating positive free cash flow. Our model does not have Tesla generating positive free cash flow until late 2020 or early 2021.

Panasonic statement that it would support further investment in the Gigafactory is another important vote of confidence. At a media roundtable shortly after Tesla ́s 5k/week announcement, the chief of Panasonic ́s automotive business Yoshio Ito said, "We would of course consider additional investment if we are requested to do so." At the same event (also reported by Reuters), Panasonic said it has nearly completed its first $1.6bn tranche of investment in Tesla ́s Nevada Gigafactory, the world ́s largest battery plant by GwH of production.

 

[Yggdrasill]

In my view, Tesla is likely to achieve a sustained output of 5000/wk by the end of July. This should become apparent from VIN tracking, leaks, etc, so if I'm right, we should see analysts updating their models over the next few weeks/months.

 

[RABaby]

Morgan Stanley note keeps price target the same; while waiting for Q3 for evidence of sustained 5K/week production rates. Accoridng to Adam Jonas: $5K/week offers temporary relieve but long term risks remain.

“Making 5k Model 3 vehicles in a week should not come as a complete shock to investors given the extraordinary short- term efforts of the firm (the tent). However, sustaining 5k or 7k/week could significantly improve Tesla cash flow and the character of a potential capital raise.

Our model does not assume 5k Model 3 deliveries per week before 1Q19. Ostensibly, at least, the latest Model 3 production news suggests a faster ramp than we have allowed for in our model. If not a complete 1-off achievement, then our 2H forecasts for Model 3 deliveries look too low. We may need to see some evidence of the true telemetry of 3Q production and deliveries before we can make a material change to our unit estimates.”

Then he offers some key thoughts, here is a sample:

There ́s a big difference between making 5k Model 3 units for 1 week vs. sustaining 5k per week. Even Elon Musk ́s latest tweet “7000 cars, 7 days” does not offer much visibility to Tesla ́s ability to sustain this step-change higher level of production potentially limiting the magnitude of any relief rally.

5k units/week of Model 3 isn ́t just an operating achievement, it has significant impact on cash flow. We believe Tesla needs to sell a lot more Model 3s to avoid a potentially large, dilutive capital raise. Based on our forecast of gross margin for the Model 3 and its strong mix level (we ́ve assumed an ATP of $52 but are prepared for a temporarily higher amount), we estimate Tesla may reasonably make $13k of cash per unit sold and as much as $18k of cash per unit when including the working capital terms arranged with suppliers (we estimate days payable exceed days receivable by around 70 days). Producing and delivering 5k Model 3 vehicles per week can, all else equal, produce around $90mm of cash per week to Tesla or nearly $1.1bn per quarter. Adding cash generated from Model S and X less CapEx and cash expenses for R&D and SG&A could suggest a company generating positive free cash flow. Our model does not have Tesla generating positive free cash flow until late 2020 or early 2021.

Panasonic statement that it would support further investment in the Gigafactory is another important vote of confidence. At a media roundtable shortly after Tesla ́s 5k/week announcement, the chief of Panasonic ́s automotive business Yoshio Ito said, "We would of course consider additional investment if we are requested to do so." At the same event (also reported by Reuters), Panasonic said it has nearly completed its first $1.6bn tranche of investment in Tesla ́s Nevada Gigafactory, the world ́s largest battery plant by GwH of production.

If I am reading this correctly, and I may be entirely confused, but to summarize, he is saying that if Musk were telling the truth and Tesla is producing at 5K a week, then they will be cash flow positive this quarter, but their model says they won't be cash flow positive for two or three years. And because he doesn't believe Musk (or chooses to not accept the truth), he says they will wait to see what Tesla produces next quarter before raising their price, but in the meantime, those who are following our recommendations should not buy until it is too late.

 

[avoigt]

Order of Magnitude

 

[SebastianR]

Ok, here is my 2cts - could you check my logic?

I base this on the most excellent posts of @jesselivenomore here: Elon Musk vs. Short sellers

If this theory about shorts is correct, we will see a slow winding down of the attacks once Tesla is cash flow positive / has a (smallish) GAAP profit. In my simple mind this should start now, as we reach 5k/Model 3 a week. Of course this is my perspective. From a short perspective, however things are not clear at all. I do think we are in an interesting twilight moment, when some shorts start to realise the risk/danger they are in and some keep believing that it is all smoke and mirrors and that Tesla is going to need much much more external funding over the coming months.

So here are my questions: if the above is correct - what will it take to convince the shorts? Will that realisation be "at once" or slowly seep in?

(Aside from this, I noted a lot of jealous/nasty comments from legacy car makers it's not just the Ford tweet, it is a lot of comments in German media from guys that work in the German car industry).

 

[22522]

?... I would rather they use their very limited resources on the core competitive edge, rather than fixation on getting the 5000 number.

This may feel like nitpicking, but it is not. It is more than that.

Time goals drive rapid innovation and real improvements for society. This core building block of Elon's management philosophy is why many of his companies are successful.

SpaceX has to turn a rocket booster tube in 24 hours. That drives innovation to intrinsically drive costs down.

The Boring company is in a race with a snail, Gary. That drives a smaller diameter tube and the design of a new boring (dirt excavating) machine. This new machine makes 12 minutes to OHare possible.

Aiming for 5,000 a week forces "easy add" parallel production lines. There is a surface area to production volume thing going on that favors more lines in parallel - they need to breathe. Components need to flow in just like oxygen needs to flow into your lungs...

Tesla only discovers these things by competing on time.

There is an acquisition rate, or identification rate in AI. It is important. I think that the use of multiple frames/images will give you leverage on "is that a road sign that I have to read" faster than staring at a still image forever trying to find text. That is a rate forced change to what I see in AI. It brings in a new way to sort/prioritize based on the flatness and normal direction of a surface that can be figured from two successive frames spaced in distance the camera moved. Yeah, I think the way chickens move their heads when they walk is core to efficient processing of the environment with a single lens.

The need for speed drives innovation. An understanding of production by even the AI folks only helps Tesla.