TSLA Market Action: 2018 Investor Roundtable

[brian45011]

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.

Gross or Net Profit? 8k/week x $10k = $80 million/week x 50 weeks/production year = $ 4 billion. In 1Q18, OpEx was $1.1 billion and Interest/Other Expense was $0.18 billion.?

 

[generalenthu]

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.

There was a big influx of cash in the final week as the flood gates opened and folks jumped on putting the deposit before Q2 ended to get the free premium connectivity. My 1.5 to 1.6 billion estimate is conservative. All told, I would be surprised if the cash didn't go back to the low 2s after Q4. I believe luv is intentionally being a little conservative here. Remember all the hangover from holding back in Q2 will benefit Q3 significantly.

Also, didn't you point that Tesla has the option to redeem the converts in stock till a low of about $250.

 

[RobStark]

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.

1) There is also a cost to not doing so. I thought we were chasing upper end Camry buyers next year not just S Class customers.

2) Trade is a very small part of the gigantic US economy. Ford and GM largely produce where they sell. The somewhat exception is North America where both GM and Ford look at North America as an integrated market. Trade wars with China and EU will have minimal impact on Ford and GM. Among the risk for bankruptcy those are not high on the list.

3) Adding a Tesla Financial Co does not make Tesla Inc chances for bankruptcy equal to Ford or GM.

 

[Off Shore]

I would absolutely love that, but the word explosion connotes a very rapid event.

FWIW The Big Bang started 13.8 billion years ago, and it's still going on.

 

[hacer]

...
2) Trade is a very small part of the gigantic US economy. Ford and GM largely produce where they sell. The somewhat exception is North America where both GM and Ford look at North America as an integrated market. Trade wars with China and EU will have minimal impact on Ford and GM. Among the risk for bankruptcy those are not high on the list.
...

In 2016, total trade (sum of imports and exports) was $5.1 Trillion while GDP was $18.6 T, so trade was 27% of GDP, not a small part at all.
You must consider the sum of trade, rather than the net of imports/exports because many, many jobs rely on imports (e.g. clothing retailers) just as many jobs rely on exports. Slowing either one or both will depress the economy, to think otherwise is foolish.

 

[brian45011]

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.

CATL, BYD, Samsung, and others are increasing cell supply side. More objective discussions in comments to:

BYD Making Big Battery Investments, Tesla To Follow - BYD Co., Ltd. ADR (OTCMKTS:BYDDY) | Seeking Alpha

 

[mongo]

Gross or Net Profit? 8k/week x $10k = $80 million/week x 50 weeks/production year = $ 4 billion. In 1Q18, OpEx was $1.1 billion and Interest/Other Expense was $0.18 billion.?

3k on top of net company break even * 12 months * 4 quarters * 50k * 20%.
Assumes minimal infrastructure increase due to 50% total vehicle (7k to 10k) volume increase.

Question for you, what are you basing your carrying cost on? S/X especially seem high, 3 seems like a 50k ASP with 20% GM taken off. Did you back out the part inventory reduction due to these vehicles? If the cost is high, they should have high part cost also, so net due to vehicle inventory would be labor and equipment depreciation. (Maybe?)

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.

 

[dc_h]

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.

I think the marginal profit takes off after 5000. The profit doesn’t really change for the first 4000 or 5000 vehicles, it’s the fixed cost recovery point that matters and the cost per car after that. I’m expect break even is below 5000, especially cash flow, with depreciation excluded, Tesla should be very profitable in q3. If they can average 5500 cars in q3, gross and net margin on cars 5000 to 5500 are closer to equal numbers, so up to 25,000 in profit per car.
Looking to this quarter, Q2 revenue for auto should be up about 350-400 million, bit cars in transit will total about 20,000, up 14-15,000 from q1. Losses were 700 million, so losses for q2 should be big, but help setup a huge q3 and q4.
For q3, Tesla should sell almost 20,000 more cars than they make and they should make 60-65 3’s and 28,000 S/X, so deliveries could exceed 100,000 for the first time. At an ASP 58,000 * 75000 + 30,000 * 90,000 = 4.35 billion + 2.7 billion or ~ 7 billion, plus a flat TE of 400 million. This is about 117% quarter over quarter revenue increase. If gross margins of the 3 hit 20% from negative and S/X are closer to 30%, profit should be close to your 1.5 billion.

Sorry for the long reply to agree, but I wanted to walk through the logic. Some of the real accountants here can better detail expected q3.

More important than 1.5 billion in profits, would be cash flow. Depreciation was 416 million, so cash flow could be close to 2 billion and tracking for further gains in q4. Maybe Elon thought this was self evident to the market and thought the 5000 a week would be a short burn, since this would lead to 1-2 billion in per quarter cash flow from q3 onwards. The shorts only path to victory now is to attack demeaned and labor strife, which is Diogenes strategy this week. Personal attacks on Elon, selling the bad battery theme, panel gaps, battery fires and AP accidents will be stepped up along with selling tsla is a zero, not a hero.

Looking forward to getting past q2 numbers and what I expect to be the biggest attack yet in the next 12 weeks. One last attack will be going after to tax credit in q4, trying to disallow the credit and try to prove via foi requests, legal attacks and social media attacks scaring off buyers. The shorts might hold out to q1, hoping demand in USA will go to zero after the credits runout, assuming Tesla provides new features and uses volume to drive down costs and shift deliveries to export, this should not be a big issues.

My last thought for shorts in 2019, if they can’t create a crisis, will be the Sprung, which gives Tesla a line for a lower volume car or truck. They have press capacity and are adding paint capacity and maybe falsely assuming GA2 will become the big q3 story and path to 10,000 weekly 3’s.

Keep up the social media responses, try to be positive, but keep calling out the haters and baiters. Expect to be frustrated at times, the big lie team will be stepping up their game. If they can’t win, they will need an exit strategy, and that will require some cover fire and negative press.

 

[CorneliusXX]

1) There is also a cost to not doing so. I thought we were chasing upper end Camry buyers next year not just S Class customers.

2) Trade is a very small part of the gigantic US economy. Ford and GM largely produce where they sell. The somewhat exception is North America where both GM and Ford look at North America as an integrated market. Trade wars with China and EU will have minimal impact on Ford and GM. Among the risk for bankruptcy those are not high on the list.

3) Adding a Tesla Financial Co does not make Tesla Inc chances for bankruptcy equal to Ford or GM.

There is definitely a place for a financing arm as most captive finance companies also make quite a bit of profit if they don't chase low credit quality borrowers. However the establishment of a finance arm does tend to burn a fair amount of capital the outset (Operational setup, regulatory adherence, underwriting policy and process establishment, c.15% of loan balance as credit enhancement (assuming securitisation), any technology Tesla wants to throw at it). I'd argue that putting that money to work improving manufacturing is a better way to spend it in the short term.

Tesla can focus on financing when the base model 3 is for sale and more of the upper end Camry buyers are buying the vehicle.

 

[CuriousSunbird]

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.

GM securitizes approximately half their retail portfolio - about $40bn.

 

[brian45011]

3k on top of net company break even * 12 months * 4 quarters * 50k * 20%.
Assumes minimal infrastructure increase due to 50% total vehicle (7k to 10k) volume increase.

.

OK. I missed that it was incremental to the profits/breakeven(?) resulting from producing 5k/week. I suspect OpEx will continue to grow, SG&A for increased volumes and R&D for products in the pipeline, but there should be an opportunity for some operating leverage

Question for you, what are you basing your carrying cost on? S/X especially seem high, 3 seems like a 50k ASP with 20% GM taken off.

Could be: I just eyeballed it based on based list prices ($k) for the various offerings:

MODEL	75D	100D	P100 D
S	74.5	94.0	135.0
X	79.5	96.0	140.0

A lot depends on the version distribution. I was assuming a high percentage of P100Ds would be in loaner/test drive inventory.

Did you back out the part inventory reduction due to these vehicles? If the cost is high, they should have high part cost also, so net due to vehicle inventory would be labor and equipment depreciation. (Maybe?)

Parts Inventory is for repairs/service. Not sure what is going on with in-house collision repair centers since Jon McNeill left.

 

[RobStark]

In 2016, total trade (sum of imports and exports) was $5.1 Trillion while GDP was $18.6 T, so trade was 27% of GDP, not a small part at all.
You must consider the sum of trade, rather than the net of imports/exports because many, many jobs rely on imports (e.g. clothing retailers) just as many jobs rely on exports. Slowing either one or both will depress the economy, to think otherwise is foolish.

Those numbers are double,triple ,and quadruple counting products and services that cross the Canadian and Mexican border multiple times.

No tariffs or trade war will cease 100% of trade.

They mostly cause trade diversion. This increases cost to business and prices to consumers. But doesn't stop commerce.

Trade war with China and EU causing "great damage" is grossly overstated.

"The United States had $686 billion in total (two ways) goods trade with the European Union during 2016, its largest Goods trade partner."

European Union | United States Trade Representative

"U.S. goods and services trade with China totaled an estimated $648.5 billion in 2016. ... China is currently our largest goods trading partner with $578.2 billion intotal (two way) goods trade during 2016. Goods exports totaled $115.6 billion; goods imports totaled $462.6 billion."

The People's Republic of China | United States Trade Representative

 

[mongo]

.

OK. I missed that it was incremental to the profits/breakeven(?) resulting from producing 5k/week. I suspect OpEx will continue to grow, SG&A for increased volumes and R&D for products in the pipeline, but there should be an opportunity for some operating leverage



Could be: I just eyeballed it based on based list prices ($k) for the various offerings:

MODEL	75D	100D	P100 D
S	74.5	94.0	135.0
X	79.5	96.0	140.0

A lot depends on the version distribution. I was assuming a high percentage of P100Ds would be in loaner/test drive inventory.




Parts Inventory is for repairs/service. Not sure what is going on with in-house collision repair centers since Jon McNeill left.

Yeah, I was totally unclear where my number came from.
My mistake on terms also, I meant parts as in raw materials/ components at the factory being converted to cars as the cost to Tesla (variable cost becoming variable plus amortized fixed after assembly) of vehicle inventory. Given the mark up on Ps and EAP/FSD, the opportunity cost due to deferred revenue would be high, but the actual cost of the car would be lower.
Thanks for the feedback!

 

[RobStark]

I'd argue that putting that money to work improving manufacturing is a better way to spend it in the short term.

Tesla can focus on financing when the base model 3 is for sale and more of the upper end Camry buyers are buying the vehicle.

I'd argue that once Tesla is profitable ( like next month at the latest) Tesla is no longer capital constrained,if it ever was capital constrained.

So it makes sense to allocate capital wherever it makes sense.

Growth is limited more by management bandwidth, supply chain growth capacity, and finding qualified employees.

Tesla Financial would only need some good bankers not Musk supervision nor Mitsubishi Heavy Industries, and I don't think those are in short supply.

Do you have any data on sedan/CUV buyers in the $30k-$40k price range and how many come with cash on hand vs how many use OEM financing?

 

[Zhelko Dimic]

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

????!????!!!
They did.
Both @neroden and @jhm did, and I think someone else too...

 

[defc0n]

Anyone have any theories as to when the official Chinese factory announcement will happen? Think they will just roll that into Q2 ER to help soften the blow?

 

[CorneliusXX]

I'd argue that once Tesla is profitable ( like next month at the latest) Tesla is no longer capital constrained,if it ever was capital constrained.

So it makes sense to allocate capital wherever it makes sense.

Growth is limited more by management bandwidth, supply chain growth capacity, and finding qualified employees.

Tesla Financial would only need some good bankers not Musk supervision nor Mitsubishi Heavy Industries, and I don't think those are in short supply.

Do you have any data on sedan/CUV buyers in the $30k-$40k price range and how many come with cash on hand vs how many use OEM financing?

Not the best data but here is a link to an Experian quarterly report that provides some insight.(PDF warning)

https://www.experian.com/assets/automotive/quarterly-webinars/2017-q3-safm-recording.pdf

86% of all new vehicles are sold with financing. At that level it is a fairly safe bet to assume that many purchasers in the $30k-$40k price range would want to finance.

Suffice to say that when Tesla wants to expand past just the volume wealthier buyers can purchase then a strong captive finance arm is a good idea.

 

[bdy0627]

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.

This makes sense to me. For swing trading purposes, it's probably getting risky not to buy on any dips early this week expecting better deals later. Depending upon macros, I see us going up from here with a morning dip or two early this week.

 

[BornToFly]

Anyone have any theories as to when the official Chinese factory announcement will happen? Think they will just roll that into Q2 ER to help soften the blow?

That is what I would like to know. A month ago we were told "very soon...."

 

[wipster]

That is what I would like to know. A month ago we were told "very soon...."

Was that in Elon time though?