TSLA Market Action: 2018 Investor Roundtable

[Reciprocity]

Tencent could say they buy every share below 900 USD so Tesla could make an efficient cap raise and burn out shorts ;-) But this will not happen either..

This is a good point. Its important to note that Tesla in China means Tesla is going to be seen more favorably by Chinese investors. It means Tesla is committed to China in a similar way that it is committed to the US and Europe with Tilberg. Having a second plant also means redundancy in case of a natural disaster.

 

[Reciprocity]

God bless you nero, but some people can't be saved and are destined to be separated from their money. Fudsters have been emboldened because the macros have been bailing them out. Every trade war scare, every Muller update.. the macros won't save them for ever.

It's important to note that fud on Twitter is having an impact on perceived solvency, as Galli recently coined it and @jesselivenomore has defined as a goal for shorts, and TMC members should take some time each day to counter fud on Twitter. We are starting to turn the tide with facts and it appears more and more are following our lead. Reach out to @MacRocket if you have any questions and want to help fight fud on Twitter. He has really done a great job organizing the fight against fud. I was personally inspired by people like @ValueAnalyst and Ross Gerber who where lone voices on Tweeter fighting the good fight, but now there are dozens of us making a few dozen tweets a day to counter fud. You will recognize many from TMC, but we need more. Many is these fudsters are paid full time to spread coordinated fud and it has an impact. It beats arguing the nuances of how great Tesla and Elon are in TMC all day. Not to bag on TMC, but it is a bit of an echo chamber with the occasional knucklehead wondering buy to spam the financial threads. You know the names.. mmd, myusername, curious sunbird or firebird or whatever bird they are this week.

Enlist today. Fight the good fight. Counter fud on Twitter with facts and humor.

Self reply..

If you look at the number of posts you have on TMC and its more than a 1000/year, you should be contributing 20 tweets a day to countering FUD. Tweets only a take a minute or two each. You can do them on the crapper. Just search for $tsla and find the most egregious crap spewing and counter it with facts. A hint of humor never hurt and will help retweets/engagement. Message me and I will certainly give you a follow and you can see how it works. Certainly Follow @ValueAnalyst and @altervigo and @barkshemgol (sp) for other examples.

 

[jhm]

6,032 times $20,000 = $120m cap raise, without the 3% banker fees.

@ValueAnalyst what do you think of Tesla using a portion of this cash to repurchase current debt, settling below 90 cents on the dollar before it comes due?

It seems this would prove to the markets that Tesla has sufficient cash flow and turn the Chanos strategy on its head. That is, Chanos has been trying to create a crisis of confidence for Tesla in the credit markets to deprive it of credit. This has lead to devalued debt. But if Tesla goes ahead to repurchase the devalued debt, it settles its debt below par and repudiates the false narrative that Chanos has created.

Bottom line, Tesla could save some $150M paying off $1.5B in current debt. That savings is a direct transfer of wealth from shorts to shareholders.

 

[lklundin]

I'm not aware that Tesla or anybody else said something about energy storage as in Powerwall / Powerpack. Not sure, how you read that out of my post. I'm simply assuming, if they want to build half a million cars there and said future factories would integrate car and battery production, they'd also produce the battery packs there.

I speculate that China will focus their GF on BEVs, which they need for several well-known reasons, and not Powerwall/Powerpacks.

China is run largely by engineers and others with technical insight, and they tend to take a strategic view that benefits the whole country and not just some influential industry. They understand that it is better to put their batteries in cars, and instead
- improve their grid infrastructure (like their cross-country powerlines, each up to 12GW (!)),
Ultra-high-voltage electricity transmission in China - Wikipedia, and
- use a very diverse energy-mix (nuclear, natural gas, still lots of of coal, lots of solar, lots of wind),
- mandate pretty generous feed-in tariffs, using the grid as battery.

While on the large scale there are alternatives to the Powerwall/Powerpack, there is not a viable alternative to the BEV.

EDIT: with the above, I meant that the Chinese likely has a say in what Tesla's Chinese GF should (and may) produce, not that the GF is actually Chinese.

 

[ValueAnalyst]

@ValueAnalyst what do you think of Tesla using a portion of this cash to repurchase current debt, settling below 90 cents on the dollar before it comes due?

It seems this would prove to the markets that Tesla has sufficient cash flow and turn the Chanos strategy on its head. That is, Chanos has been trying to create a crisis of confidence for Tesla in the credit markets to deprive it of credit. This has lead to devalued debt. But if Tesla goes ahead to repurchase the devalued debt, it settles its debt below par and repudiates the false narrative that Chanos has created.

Bottom line, Tesla could save some $150M paying off $1.5B in current debt. That savings is a direct transfer of wealth from shorts to shareholders.

I would agree with you, if this was an average company, because that's an easy 10% ROI. Tesla, however, can deploy that cash at GF1 or GF2 instead at 100% to 150% annual ROIC. Having said that, I nowadays think it's a great time to scoop up a few shares at FUD-financed $300 per share at the open market. If the stock was at $500 or more, I would not suggest this idea, because we could instead invest the money for 100%+ annual ROIC at GF1 or GF2, but TSLA is currently trading at one-third of intrinsic value, so I see a temporary window of opportunity. This is why TSLA comprises majority of my investments, why EM is buying shares for himself, but I also think Tesla could buy back some shares and really shut up FUDsters - not to even mention squeeze them. This would also increase EM's control on the company and benefit surviving long-term shareholders as well as employees that receive shares as part of compensation.

 

[mongo]

Tesla went from 0 model 3s to 5k/w in about a year with no prior setup to duplicate. Buildings go up in China lightening fast. Whole sky scrapers go up in weeks. Tesla is sandbagging it for real.

You can assemble things fast if you have the pieces ready. A working factory's timeline is limited to the longest lead item. If Tesla preordered robots, end effectors, stamping presses, and dies, then they can put together a factory quickly (or if the lead times are shorter than the factory build time). If their suppliers can boost output before the factory is built, then the new factory can assemble cars

 

[Boomer19]

You're way low.

The German tear down of the 3 LR estimated 28k in parts and assembly cost, Elon was asked about this:
Twitter


That's 28k cost on a 49k vehicle. 43% margin (at 10k/ wk). Applying that cost to SR, the GM is 20%.

Assume base LR is break even at 5k/wk:
EAP is 5k, that is 9% GM on 54k
P is 4k for AWD (assume at cost) and 11k for P upgrade. 11k on 64k is 17% GM.
P-EAP is 16k on 69k: 23% GM.

(On mongo's planet, Q2 numbers come out early, and they're a (good for longs) doozy...)

that would be pretty darn great
thanks for breakdown

 

[Boomer19]

It was probably to much to hope for a valid argument, why Tesla is supposed to achieve more with less CapEx, except the common "They innovate and you are kind of dumb or unwilling." theme. Some reasoning, why cumulated CapEx from 2015 to 2018 is around $10 billion, most of it spent for Fremont and the Gigafactory, and why it will be different with the new factory would have been nice. Well, i should probably be glad the two of you descended to my level and answered in the first place. So thanks for your valuable contribution.

i agree with points on both sides

im skeptical of the speed at which they can put into motion the china operation as well.

they do have a proven history of learning and iterating, that cant be denied by anyone.

i’ll hold judgement until we find out some financing details

 

[Reciprocity]

You can assemble things fast if you have the pieces ready. A working factory's timeline is limited to the longest lead item. If Tesla preordered robots, end effectors, stamping presses, and dies, then they can put together a factory quickly (or if the lead times are shorter than the factory build time). If their suppliers can boost output before the factory is built, then the new factory can assemble cars

My point was that the sprung structure could be in place before the cement drys on the foundation for the main factory. The reason this is important is because Capex for an entire factory will be $10B. Some will come from Panasonic, but Tesla will want to start taking advantage of China while the factory is being built to offset that Capex in real time or as it becomes due. In theory, they could be producing knockdown kits for 6 months before the first equipment arrives for mass production. 6 months x 10k/mo S3X is roughly 4.8B in revenue. Now the kits will be made it he US so only about a $1B could be attributed to China production. Could be some tariff and other related import and shipping savings since many parts come from China but that impacts the Kit less then the GA/FA, which has tons of parts. That $1B+ incremental revs for China, given new demand from a local company, would go a long way to paying for that $10B plant. Again the plant will be production cars about the time the payments are due, so that will get offset fairly quickly.

 

[tivoboy]

6,032 times $20,000 = $120m cap raise, without the 3% banker fees.

I think what is even more interesting is the trick to now open up ORDERS for model 3 vs making reservations. It means that tesla is getting now 2500$ with the order vs the 1000$ with the reservation. All of it is refundable until the company provides a VIN but even if one gets 50,000 new orders that’s 1.25 billon is cash flow without any real cost. Probably about 1.7% with the credit card fees

 

[ls7corvete]

I would agree with you, if this was an average company, because that's an easy 10% ROI. Tesla, however, can deploy that cash at GF1 or GF2 instead at 100% to 150% annual ROIC. Having said that, I nowadays think it's a great time to scoop up a few shares at FUD-financed $300 per share at the open market. If the stock was at $500 or more, I would not suggest this idea, because we could instead invest the money for 100%+ annual ROIC at GF1 or GF2, but TSLA is currently trading at one-third of intrinsic value, so I see a temporary window of opportunity. This is why TSLA comprises majority of my investments, why EM is buying shares for himself, but I also think Tesla could buy back some shares and really shut up FUDsters - not to even mention squeeze them. This would also increase EM's control on the company and benefit surviving long-term shareholders as well as employees that receive shares as part of compensation.

Why do you suggest buying shares in open market instead of buying back debt?

 

[mongo]

I think what is even more interesting is the trick to now open up ORDERS for model 3 vs making reservations. It means that tesla is getting now 2500$ with the order vs the 1000$ with the reservation. All of it is refundable until the company provides a VIN but even if one gets 50,000 new orders that’s 1.25 billon is cash flow without any real cost. Probably about 1.7% with the credit card fees

Yah, there had been some question on the refundable nature, here are the relevant passages from the order agreement.

https://3.tesla.com/assets/pdf/model3_order_agreement_en_US.pdf

Order; Nonrefundable Order Payment; Changes.
After you submit your completed order and the options you selected become available in production, we will begin the process of matching your order to a vehicle and coordinating your Vehicle delivery. Your Order Payment covers the cost of these activities and other processing costs and is not a deposit for the Vehicle. Your Order Payment is fully refundable only until your order is matched to a Vehicle, at which point it becomes nonrefundable. Any changes to your Vehicle Configuration, delivery location or expected delivery time after the Order Date will be difficult, if not impossible, for us to accommodate. If you want to make changes to your order, we will try to accommodate your request. If we accept your request, you may be subject to a non-refundable $500 change fee and potential price increases for any pricing adjustments made since your original Order Date. Any changes made by you to your Vehicle Configuration, including changes to the delivery location or estimated delivery date, will be reflected in a subsequent Vehicle Configuration that will form part of this Agreement.

Cancellation; Default.
We incur significant costs in managing your order, and locating and coordinating delivery logistics for your Vehicle. We may also incur significant costs for remarketing and reselling the Vehicle, including additional coordination, logistics and transport costs. If you cancel or default in this Agreement after your order is matched to a Vehicle, you will not be refunded your Order Payment as it has already been earned by us in taking and processing your order and preparing your Vehicle for delivery. You acknowledge that the Order Payment amount is a fair and reasonable estimate of the actual damages that we have incurred or may incur as a result of your breach of this Agreement, damages that are otherwise impracticable or extremely difficult to determine. When you take delivery of the vehicle we will provide a credit to the final purchase price of your Vehicle equivalent to the amount of the Order Payment you paid. This Order Payment and this Agreement are not made or entered into in anticipation of or pending any conditional sale contract

 

[Cosmacelf]

SpaceX isn’t building BFR’s tomorrow and Elon didn’t list the reasons why he doesn’t want to raise capital, so you can’t say whether or not they are different than what I laid out.

SpaceX is has been building BFR for several months now. It needs all the cash it can get hold of. BFR/BFS - General Development Discussion

 

[ValueAnalyst]

I think what is even more interesting is the trick to now open up ORDERS for model 3 vs making reservations. It means that tesla is getting now 2500$ with the order vs the 1000$ with the reservation. All of it is refundable until the company provides a VIN but even if one gets 50,000 new orders that’s 1.25 billon is cash flow without any real cost. Probably about 1.7% with the credit card fees

Precisely. Your point is alluding to a one-time impact, but a related aspect of the Model 3 program is deeply under-appreciated: cash flows come in two to three months before Tesla pays its suppliers, to the production ramp itself generates net cash flow. This is called the negative cash conversion cycle and greatly benefits some growth companies, including Tesla.

 

[Drax7]

Buying debt back would be more effective than stock.
Without debt you cannot go bankrupt.

Anyhow the ramp is now providing huge liquidity
And with a negative cash conversion cycle
It’s amplied further .

 

[Cosmacelf]

Buying debt back would be more effective than stock.
Without debt you cannot go bankrupt .

Not true. Even without debt you can still run out of cash if you have negative operating margins. Tesla is in no position to buy back debt or stock. It needs all the cash it can borrow, beg, or raise. Hopefully those operating margins will tip positive soon.

 

[2virgule5]

I understand the point, and I disagree with it. Capital is not the limiting factor for Tesla’s growth, so why would Tesla borrow money for it to sit there on its balance sheet?

To open GF in Europe? After China this is the next logical step and I see no reason to delay it too much as it will essentially be a copycat of GF3.

 

[brantse]

if one gets 50,000 new orders that’s 1.25 billon is cash flow without any real cost. Probably about 1.7% with the credit card fees

I'm with you, but you might want to double check that math.

 

[JRP3]

I understand that, but reading this thread (and indeed much of this forum) I see many people have an allergic reaction to anything remotely negative said about Tesla. That's unhealthy.

No one who feels so strongly about Tesla or Musk that they feel the need to defend them at every turn, should invest in Tesla. They're too emotionally attached and will likely make bad decisions because of it.

The only emotions I feel seeing posts like yours are boredom and annoyance. Do you have any idea how many posts just like yours we've seen over the years? New members telling us TSLA may be risky, we're blind kool-aid drinking fanbois, bull echo chamber, blah blah blah. You aren't original, you aren't helpful, and you don't know more about the company than we do. We don't need your advice or concern trolling. IF by some rare chance you actually had some piece of data which we didn't already know that would be useful, but anything short of that is simply noise.

 

[Cosmacelf]

Interesting story, and a question.

A few months ago, Tesla issued bonds maturing in 2025 with a 5.25% coupon rate. I tried to buy some of them at issuance. It turned out the bonds are unregistered, and classified in such a way that only actual institutional investors can buy them. After buying them for me, my broker realized I couldn’t legally own them since I’m not an institution (I am high net worth, and usually that’s enough to get around these SEC restrictions, but not in this case), so my broker had to unwind the deal and essentially buy them from me, but by this time, the price had already started heading downhill, so my broker had to eat a nice sized loss. Needless to say, my broker had a few choice words with his compliance department!

Anyways, this continues to this day. Only institutional investors can own these bonds. Supposedly, the bonds can be sold on the open market but only after 6 months post issuance, and only after the bond owner files a 144, similar to the process a stock founder might go through to sell and register founder shares after an IPO.

My speculation and question is that if these had been registered bonds, my suspicion is that the price wouldn’t have declined so much and so quickly. I suspect that the 7.5% yield on these 7 year bonds is a bit artificial created by their liquidity restriction. Any bond gurus out there have any thoughts?