TSLA Market Action: 2018 Investor Roundtable

[Tslynk67]

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

Depends if it's American or European "billions", to be more precise, 50k orders with $2500 deposit (remember it's an order, not a reservation) is $125,000,000

 

[bdy0627]

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

You absolutely should be skeptical that they can put together a mass-producing china factory faster than what is typically done. They really do not have a history of being able to do this. I certainly would not bet money on it. This is not to say that a production ramp there shouldn't go quicker than it has at Fremont since they won't be completely re-inventing production. However, getting all of the necessary pieces in place to be producing cars at a high level there will take quite some time.

 

[Krugerrand]

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.

Don’t be obtuse. The ‘common’ is quite inefficient. You don’t have to dig much to realize that. Prime example already slapping the world in the face is the aerospace industry - see SpaceX decimating entire countries on reduced costs and efficiencies.

Don’t like that example, go dig up how much cash Faraday blew through with nothing much of value to show for it. Where’s that factory they were going to build?

Tesla has had to be more efficient with cash, workforce etc... or they’d be dead already because you know; capital intensive business.

Tesla just built a ‘tent’ and GA line in less than two weeks with a tiny bit of capital and spit out enough cars because of it to reach their 5k/wk goal.

That’s innovating with your hair on fire and you clearly don’t get it. Through the black text, I can sense your incredulity and smugness that you know better than the majority of us on this forum. It’s all good.

 

[ggr]

Mod: I'll just make the observation that all these bond and capital raising discussions should not be in the "TSLA Market Action" thread. But it's too much trouble to move them. We've seen a number of instances where people are only reading one or a couple of threads, and have to be pointed to the more relevant ones. --ggr.

 

[Krugerrand]

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

The new reports I heard last night said the $2500 was NOT refundable.

 

[mongo]

The new reports I heard last night said the $2500 was NOT refundable.

It's not refundable after the order is matched to a vehicle. as @tivoboy stated.
See post 18992 in this thread.
TSLA Market Action: 2018 Investor Roundtable

 

[Lbkmxp100d]

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?

Thanks you for the info! I have never heard it explained in this much detail and now understand why the decline.

 

[Boomer19]

@mongo mentioned 5k and 10k expected margins recent post.

but you were possibly optimistic about Q2 - if so, can we examine these;
1) what would be needed to be cash flow pos given q2 deliv
18440 M3
10930 S
11370 X
(the labor cost factor the biggest risk to cash flow pos?? i don’t expect capex to be the killer this time, or am i wrong about that?) i mean i expect capex but not to extent of recent qtrs obv, bc of the need to cut costs and his explanation how they will achieve that..

also;
first, what’s our best guess at the composition of the 425k?
i have absolutely no clue. but if it was something like;
P - 5000
AWD - 50,000
RD LR - 100,000
RD SR - 270,000
what is our best guess at the composition of the orders? is this worth contemplating?

 

[jhm]

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.

I don't see investments in factories and repurchase of convertible bonds/stock as mutually exclusive. As you have argued, Tesla is not capital constrained, so there is limited opportunity to make use of cash in growth investments over the next 6 months. So I am talking about what to do with near cash flow in excess of these investments.

Also the opportunity to buy current debt at a substantial discount is limited. It probably would not take much buying to get the yield back down to 5%, depending on how liquid this bond is. So if Tesla just soaks up the bonds offered at a yield above 5%, it would quickly dry up the supply. This would go a long way toward shutting down Chanos's fabricated liquidity crisis.

I'm also in favor of a stock repurchase where the stock price is lower than the cost of settling the current convertible debt in shares. Basically, Tesla can buy back convertibles or stock whichever happens to be cheaper at the time. Buying back convertibles, however, is a lower risk play for Tesla since there is the risk that the stock price is even cheaper in 2019 Q1 than it is during the stock repurchase.

Either way, I think it would not take a whole lot of cash to bond/stock repurchases to shut down Chanos.

 

[mongo]

@mongo mentioned 5k and 10k expected margins recent post.

but you were possibly optimistic about Q2 - if so, can we examine these;
1) what would be needed to be cash flow pos given q2 deliv
18440 M3
10930 S
11370 X
(the labor cost factor the biggest risk to cash flow pos?? i don’t expect capex to be the killer this time, or am i wrong about that?) i mean i expect capex but not to extent of recent qtrs obv, bc of the need to cut costs and his explanation how they will achieve that..

also;
first, what’s our best guess at the composition of the 425k?
i have absolutely no clue. but if it was something like;
P - 5000
AWD - 50,000
RD LR - 100,000
RD SR - 270,000
what is our best guess at the composition of the orders? is this worth contemplating?

I'm the last person to discuss real financial projections with. I live on my own planet, where the sun is always shining and Tesla is always doing better than here on Earth (but I'm decent at regurgitating posted figures)...
@luvb2b and @ValueAnalyst have much more realistic threads on the subject.

 

[jhm]

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

My impression is that GF3 will mostly only supply the Chinese domestic market. Unless there is a strong appetite for exporting from China, there is no need to grow production at GF3 any faster than Chinese demand. Last quarter that stood at 15k vehicles. At 79% annual growth, you get to 500k by 2023.

 

[Boomer19]

I'm the last person to discuss real financial projections with. I live on my own planet, where the sun is always shining and Tesla is always doing better than here on Earth (but I'm decent at regurgitating posted figures)...
@luvb2b and @ValueAnalyst have much more realistic threads on the subject.

haha nor am i. i’m less interested in Q2 bc it’s unpredictable how mkt reaction would be anyway.

i’m actually more interested in what people thoughts are on how many of each type of 3 configuration there will be for the latest resv number of 425k

 

[tivoboy]

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

yes, sadly I put in the extra 0 but it nets to about the profit margin. Can't seem to edit past posts though, even with flag. Hmm.

 

[serverguy247]

Tweet from Elon just now:

Elon Musk‏
"Stockholm: it’s not just a syndrome"

European GF location? Their main exports are industrial machinery and cars... Geographically does not look like the best place though? Am I grasping at straws?

 

[Tslynk67]

My impression is that GF3 will mostly only supply the Chinese domestic market. Unless there is a strong appetite for exporting from China, there is no need to grow production at GF3 any faster than Chinese demand. Last quarter that stood at 15k vehicles. At 79% annual growth, you get to 500k by 2023.

Sure, but maybe historically they are production, not demand, constrained? In any case, the addressable market for M3 must be 10x+ more than MS/X

 

[ValueAnalyst]

I'm the last person to discuss real financial projections with. I live on my own planet, where the sun is always shining and Tesla is always doing better than here on Earth (but I'm decent at regurgitating posted figures)...
@luvb2b and @ValueAnalyst have much more realistic threads on the subject.

Take me with you to your sunny planet, and let's sip our piña colada. We'll leave real financial projections for @luvb2b 's excellent expertise.

 

[Boomer19]

Thanks you for the info! I have never heard it explained in this much detail and now understand why the decline.

@Cosmacelf im no bond expert

but rule 144a securities restricted. they are tradable only by QIBs
qualified institutaional buyers
Qualified institutional buyer - Wikipedia

and there are conditions that must be met in order to exchange them in open market - the conditions are about a half scroll down this page
sec info;
SEC.gov | Rule 144: Selling Restricted and Control Securities

your broker may have incorrectly listed the bond allowing a non QIB customer to purchase electronically, or if you had hand to hand with a service desk and they executed trade OTC with another broker without vetting your QIB status or the conditions in the clause. it happens, someone probably got in trouble and someone probably made out on the deal.

 

[ValueAnalyst]

I don't see investments in factories and repurchase of convertible bonds/stock as mutually exclusive. As you have argued, Tesla is not capital constrained, so there is limited opportunity to make use of cash in growth investments over the next 6 months. So I am talking about what to do with near cash flow in excess of these investments.

Also the opportunity to buy current debt at a substantial discount is limited. It probably would not take much buying to get the yield back down to 5%, depending on how liquid this bond is. So if Tesla just soaks up the bonds offered at a yield above 5%, it would quickly dry up the supply. This would go a long way toward shutting down Chanos's fabricated liquidity crisis.

I'm also in favor of a stock repurchase where the stock price is lower than the cost of settling the current convertible debt in shares. Basically, Tesla can buy back convertibles or stock whichever happens to be cheaper at the time. Buying back convertibles, however, is a lower risk play for Tesla since there is the risk that the stock price is even cheaper in 2019 Q1 than it is during the stock repurchase.

Either way, I think it would not take a whole lot of cash to bond/stock repurchases to shut down Chanos.

I am glad we are generally on the same page on this. I think you laid it out perfectly.

 

[MP3Mike]

but you were possibly optimistic about Q2 - if so, can we examine these;
1) what would be needed to be cash flow pos given q2 deliv

I don't think there is any chance of Q2 numbers looking good. I suspect that there will be a lot of severance package costs included from the RIF.

 

[mongo]

I don't think there is any chance of Q2 numbers looking good. I suspect that there will be a lot of severance package costs included from the RIF.

Very true, but if the severance was in accelerated stock options, and if they cut R&D, and if the line 3 capEx was concluded in Q1, and if Tesla bought a wining Power Ball ticket...