TSLA Market Action: 2018 Investor Roundtable

[2virgule5]

"BMW confirmed that the carmaker had awarded a contract worth just over 1 billion euros ($1.16 billion) to CATL so the Chinese battery maker can build a factory to make cells for EVs in Europe."

Automotive News China

Yes, but that is about enough cells for ~100k BEV at best, probably spread through many years. Doesn’t seem to be much more than the compliance cars they are making now.

 

[defc0n]

Boy it sure would have been nice if the people who "saw it coming" could have been helpful and warned people in this thread.

Oh I wasn’t going to be surprised about a dip. I was, however, surprised that the dip ended up going below 300......

 

[dc_h]

Out of curiosity, how much does 1B buy? And how quickly will it be producing? Those are the important questions. Announcements are nice, results yesterday are better.

About equal to Tesla 2014 Tesla battery demand. Objects in mirror may be further than they appear.

 

[mongo]

Well, the bond price needs to rise. This reflects the rather unemotional evaluation of institutional investors, not so much news of the day. Extremes of opinion may not 'matter much at this phase. Elon's mum and Chanos seem to be occupying solidified positions.

Demand is very strong. SP reflects strong demand and also Tesla's limited ability over the next five years to monetize that demand.

I'm not up on how the bonds work, so I'll defer on that...

General outlook (Assumption land):
If 3 at 5k/wk makes Tesla profitable, and they make 20% GM per car, and they get to an 8k per week rate with a 50k ASP that is 1.4 Billion in profit per year to roll into other endeavors.

 

[Krugerrand]

About equal to Tesla 2014 Tesla battery demand. Objects in mirror may be further than they appear.

That’s funny and probably true.

But I would seriously like to know what they are expecting to produce for that 1B and when. No mention of it in the announcement.

Adding particularly for Brian(plus numbers after his name that I’m too lazy to go back and look up-it’s Sunday and that’s how I roll on Sundays; lazy), who has always given me the impression he’s against Tesla, when Tesla announced they’d build batteries they announced inced it would be the biggest factory on the planet, that it would produce more batteries than the rest of the world combined, gave an output figure (which of course we know they’ve since increased a lot), said that they would build in phases, told everyone the strategy for location, gave the factory a name etc...

Point being, I am uninterested in these announcements until someone else gets serious.

 

[hacer]

This isn't strictly true. While they may not need fresh cash in the form of equity, Tesla will still need to raise a lot of debt over the coming years, whether it be bonds issued by the company or the securitisation of auto loans. The lower the share price, the worse terms Tesla is likely to receive.
...

I think it would be a mistake for Tesla itself to make auto loans. GM and Ford of course do that because they need to finance their dealers and sub-prime car buyers. Tesla has premium products and can easily afford to sell to a market of only customers with good credit who can get conventional auto loans from banks and credit unions because they have only a tiny fraction of the car market. Doing it this way will allow them to survive (or even thrive) when the inevitable macro market downturn comes. Such a downturn could easily bankrupt other automakers who have gigantic debts for auto financing.

 

[ggr]

Here's my take on the action next week. Monday and Tuesday, the big institutions will get back to work revising their models. A couple of the pro-Tesla ones will fight over who gets to upgrade the stock first. Similarly some of the short ones will issue pathetic excuses for downgrades (like perhaps "Elon's lost focus, worrying about Thailand" or something). Who knows what Adam Jonas will say. But around Wednesday I think we will see the upgrades winning. So my guess (not advice, but I'm playing it this way) is flattish for two days, then up.

 

[Unpilot]

The Bloomberg tracker seems to indicate more than 5k a week If that holds up and in fact increases I think we will see a nice steady rise in the next few weeks. Throw in some big news on TE or China factory and it will be more than a steady rise.

 

[Krugerrand]

The Bloomberg tracker seems to indicate more than 5k a week If that holds up and in fact increases I think we will see a nice steady rise in the next few weeks. Throw in some big news on TE or China factory and it will be more than a steady rise.

Remind me, where is Bloomberg tracker getting its data from and how accurate was the tracker for the last week of the quarter?

 

[RobStark]

I think it would be a mistake for Tesla itself to make auto loans. .... Such a downturn could easily bankrupt other automakers who have gigantic debts for auto financing.

1) Tesla need not hold onto these loans. They can securitize them and sell them off.

2) Subprime loans go bad in a recession. Vast majority of prime loans are still good even in a recession.

 

[RobStark]

Remind me, where is Bloomberg tracker getting its data from and how accurate was the tracker for the last week of the quarter?

It seems to be followed by the financial press and fund managers.

That makes it important enough to follow regardless of where they get their data or how accurate they were in a one week window.

 

[hacer]

1) Tesla need not hold onto these loans. They can securitize them and sell them off.

2) Subprime loans go bad in a recession. Vast majority of prime loans are still good even in a recession.

Good point on (2), but it's also true that those customers won't have any trouble getting their own loans. Regarding (1) while this is true I'm guessing it's not all that cost effective otherwise the other major auto makers would sell their loans but they don't seem to do that much.

 

[Curt Renz]

 

[SW2Fiddler]

Boy it sure would have been nice if the people who "saw it coming" could have been helpful and warned people in this thread.

Indeed, it was (nice) as they were (being Helpful, I rated several as such) when they did (warn us here).

I want to add my thanks as well.

 

[RobStark]

Good point on (2), but it's also true that those customers won't have any trouble getting their own loans. Regarding (1) while this is true I'm guessing it's not all that cost effective otherwise the other major auto makers would sell their loans but they don't seem to do that much.

1) People like options. People like comparing their credit union offer to the OEM offer. People prefer dealing with a captive finance company for leases. To many it seems intuitively easier to return your car after lease to OEM than a bank.

2) Captive auto finance companies have little difficulty selling off prime loans and they don't sell off subprime loans because they rather keep the high interest payments than sell them off at a relatively large discount. So it would be up to Tesla if they want to offer subprime loans and whether they want to incur the risk in order to get the high interest payments.

 

[CorneliusXX]

Hence the first portion of my second to last sentence. I see your point, but IMHO you're reaching quite a bit.

Disagreement is good to move any idea forward. Happy to disagree on this point.

Enjoy your snooze.

 

[brian45011]

I do not think a repurchase is realistic. They probably ended q2 around 1.5-1.6 billion, which is too close for comfort in case of some unforeseen event. They'll be able to show cash growth in q3, and the sp would have recovered.
Trying to eke out that little bit with repurchase is not worth much in the big scheme of things.

Your $1.5 - $1.6 billion in Cash & Equivalents at Q2 end looks reasonable as does your conclusion.

At the end of Q1, (ignoring restricted cash) the Cash & Equivalents balance was $2.7 billion, having dropped $702 million during the quarter. During Q1, Tesla gained about $90 million in cash by transferring almost all of the direct-lease vehicles to the ABS debt issue and repaying related Warehouse line draws, so essentially a non-recurring benefit that reduces future gross margin and cash from those transferred direct leases.

Inventory will be a large consumer of cash during Q2. Changes compared to the prior quarter include:
-S & X in-house inventory increased by 1,256 vehicles while S & X in-transit dropped by 168. At a carrying cost of $85k/vehicle that uses an additional $92 million.
-M3 in-house inventory increased by 1,012 vehicles while M3 in transit increased by 9,126. At a carrying cost of $40k/vehicle that uses an additional $ 406 million.
-as M3 production ramps there will also be increased use of cash for Raw Material, Work-in-Progress, and Parts Inventory. Total Inventory increased by ~$300 million during Q1. I'll guess it will increase by closer to $700 million during Q2.

Q3 will increase Cash over the balance at the end of Q2, but luvb2b's latest estimate of the year-end balance only gets back to $2.0 billion and Tesla has to redeem $0.92 billion in 2019 notes by March 1, 2019

In 4 days last week, 57.4 million shares traded. It was a high volume week, but using the arithmetic average of the high & low trades, that's about $19 billion in trades. Any open market buy-backs by Tesla may be indiscernible in share price movements. Also, Tesla has sold follow-on equity every year since the IPO (other than in 2014 when it sold $2.3 billion in convertible notes.) Tesla's expansion plans for completing GF-1, financing GFs 3-X (?), the Semi, MY, and TE projects will all require new capital. For a open-market buy-back to make sense, Tesla would need reasonable assurances that any new equity offering would be higher than the price of shares bought back

What ever cash Tesla has ought to be deployed in its own operations rather than dabbling in the market.

 

[CorneliusXX]

I think it would be a mistake for Tesla itself to make auto loans. GM and Ford of course do that because they need to finance their dealers and sub-prime car buyers. Tesla has premium products and can easily afford to sell to a market of only customers with good credit who can get conventional auto loans from banks and credit unions because they have only a tiny fraction of the car market. Doing it this way will allow them to survive (or even thrive) when the inevitable macro market downturn comes. Such a downturn could easily bankrupt other automakers who have gigantic debts for auto financing.

They've already done one.

Tesla Files to Issue Inaugural Auto Lease Securitization

However I do agree that they have less reason to finance their vehicles as most Tesla buyers are wealthy and Tesla can sell all they can make without a strong captive financing arm. That said, as supply catches up to demand they should have a strong finance arm to remove a hassle many have with purchasing a vehicle.

Tesla is also in the unique position of selling many expensive products - It would be nice to be able to walk into a Tesla store and buy the car, the roof and a powerwall or two - all with finance sorted out. It remains to be seen how this will play into Tesla's financing decisions.

The technology advantage Tesla has may also lead to a better financing experience for the customer. Possibly a completely automated underwriting process and settlement process through the touch screen and app. They could potentially turn their machine learning skills to underwriting to get better loss outcomes and cheaper rates for all their customers.

 

[CorneliusXX]

Good point on (2), but it's also true that those customers won't have any trouble getting their own loans. Regarding (1) while this is true I'm guessing it's not all that cost effective otherwise the other major auto makers would sell their loans but they don't seem to do that much.

Other automakers do securitise a lot of loans. There has been the best part of £1b between Mercedes and BMW in the UK over the last couple of weeks.

 

[hacer]

Other automakers do securitise a lot of loans. There has been the best part of £1b between Mercedes and BMW in the UK over the last couple of weeks.

Ford and GM don't securitize much and the reason is that there is a cost to doing so. Maybe someday when Tesla isn't production limited it will make sense for them to enable instant purchases, but I think it's not the best way to go at the present time. They've been doing it with leases but I personally think that is not the best strategy. There was a time when it was necessary to prove the resale value of their cars because lenders had no data to work with; that time has passed so Tesla does not need to finance vehicle purchases (nor lease them themselves). The coming trade war is likely to seriously harm the US economy and auto sales could well decline significantly. This has the potential to bankrupt both GM and Ford, better not to add Tesla to that list.