TSLA Market Action: 2018 Investor Roundtable

[Tslynk67]

Well, we have one of those "follow the Nasda" days with a x4 amplification going on. I think on such days, when the macro is red, the shorts take a breather, or perhaps cover a little, don't know. In any case, I can't help feeling that TSLA wants to break free and trend upwards.

Purely gut feeling... In any case the shorts would probably jump-in at that point...

 

[seabie]

More news to come?

vincent on Twitter

 

[bdy0627]

More news to come?

vincent on Twitter

 

[Boomer19]

More news to come?

vincent on Twitter

what’s more, vincent also posted this;

maybe once the red tape is cut the construction will be more swift than by US standards.
we’ll see!

 

[rameshbende]

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.

Tesla will report any expense incurred due to workforce restructuring as a exceptional item. So minus that number is what analysts will look at. My calculation suggests q2 GAAP loss around 500-550 millions.

 

[Zhelko Dimic]

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.

No, you're right. They will need 10B capital in the next few years. But, if their execution improves, and revenue continues growing substantially, I don't see problem getting it, or carrying it on the balance sheet. It does become an exercise in balancing growth/spend/costs/debt...

But if they keep growing revenue at 50% for next few years, and get to 50B run-rate revenue in 2-3 years, do you think they would really have trouble borrowing and paying for carrying costs? I'm genuinely interested in your opinion.

I personally am confident they can manage this balance. I feel the most important part of bear theses relies on Tesla screwing up that balance, and shooting themselves in the foot, or another exogenous events, like capital markets closing completely. There is nothing in the way that Tesla behaved that makes it mandatory it continues behaving in the exactly the same way. Different models for different phases of the growth stage. Come to think of it, Tesla was very capital efficient as it was starting. But, I feel it's been very inefficient last couple of years, incinerating serious amounts of capital. That's ok, they traded money for time (or tried to to), but that is a choice that can change. Unless you believe they're incompetent, and we'll have to disagree there...

 

[neroden]

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.

Sure. I basically said that to the people who were denying the communications problems at Tesla, denying Tesla's copyright license compliance issues, or actually believed that full-self-driving would happen any time soon (it won't).

But we get a heck of a lot more blatantly false disinformation, so it's a much bigger problem. I'm still seeing the fearmongering over "fires", which is complete nonsense since gasoline cars have much more dangerous fires much more frequently.

 

[neroden]

I can't imagine the permits and what not will be as much of a hurdle in China as they are in California!

China can be very bureaucratic, though Beijing more than Shanghai. They do have one of the longest traditions of bureaucracy in the world!

 

[neroden]

I think the emotional attachment crosses beyond the company and into the health of the planet.
If you believe that this company is leading the rest of the industry to cleaner energy then maybe you feel like putting your money were your heart is.

Well, that's reasonable too. I mean it's certainly what Elon is doing -- devoting his life to trying to prevent humanity from choking itself to death on carbon pollution.

 

[Unpilot]

China can be very bureaucratic, though Beijing more than Shanghai. They do have one of the longest traditions of bureaucracy in the world!

True but if the powers that be want it done fast...then it happens. At least that is how it appears from central Illinois.

 

[neroden]

This is not a shenanigan. Lots of companies that issue convertible bond also engage in repurchasing shares. For one thing, many convertible bond investors are inclined to short the stock to hedge the bond. Repurchasing can help balance out this arbitrage motivation for shorting. This is delta hedging on effectively a call option. This will become more volatile as we approach bond maturity and have a share price near the strike price of $360.

But specifically in the case of Tesla, we need to think through what Tesla will do with surplus cash and how it will avoid share dilution. So let's say that in the next 9 months Tesla is able to generate $1.5B in cash for the purpose of settling the bonds. They also have an option to adjust the conversion rate to pretty much whatever they'd like it to be. Thus, Tesla has latitude to settle in shares rather than cash. So if you're sitting on cash and can settle in shares, it makes sense to repurchase shares at below the cost of settling the bonds and to repurchase bonds when the share price is above the costs of settling in shares.

I am not talking about some scheme to manipulate the share price. The point here is simply to settle convertible debt at lowest cost as Tesla generates cash. One way or another the capital must be returned to convertible bondholders, who are contractually indifferent to settling in cash or shares.

OK, this isn't exactly the same scheme I thought you were suggesting before.

I do believe that if the convertible bonds are trading below par Tesla will buy 'em back on the open market. But they're trading above par (I just checked), so I expect Tesla to pay them off in cash to the extent that Tesla has the cash.

 

[rameshbende]

No, you're right. They will need 10B capital in the next few years. But, if their execution improves, and revenue continues growing substantially, I don't see problem getting it, or carrying it on the balance sheet. It does become an exercise in balancing growth/spend/costs/debt...

But if they keep growing revenue at 50% for next few years, and get to 50B run-rate revenue in 2-3 years, do you think they would really have trouble borrowing and paying for carrying costs? I'm genuinely interested in your opinion.

I personally am confident they can manage this balance. I feel the most important part of bear theses relies on Tesla screwing up that balance, and shooting themselves in the foot, or another exogenous events, like capital markets closing completely. There is nothing in the way that Tesla behaved that makes it mandatory it continues behaving in the exactly the same way. Different models for different phases of the growth stage. Come to think of it, Tesla was very capital efficient as it was starting. But, I feel it's been very inefficient last couple of years, incinerating serious amounts of capital. That's ok, they traded money for time (or tried to to), but that is a choice that can change. Unless you believe they're incompetent, and we'll have to disagree there...

If model 3 as indicated by Elon achieves 25 percentage gross margin by q2 2019 then if you run the numbers Tesla will generate 1.5 billion GAAP profit in q2 2019 with cash flow from operations over 2.5 billion and over 10 billion in 2019. Enough to fund Gigafactory 3.

 

[neroden]

Yes, everyone needs to read that well written post. I hadn’t realized that the same shorts that targeted Solarcity just rolled over their short positions onto Tesla. Solarcity was indeed felled by the financial markets drying up, and I have no doubt it was orchestrated by short sellers. Tesla was always an odd choice for a concerted short attack since it isn’t a financial firm. Shorts, like all predators, like easy targets and financial firms are much easier to take down than a beloved manufacturing firm. Now that I understand the history, I understand why Tesla has been targeted.

Yes, yes, yes. SolarCity's *only* serious problem was its dependence on constant refinancing. The short-sellers hit that, which meant it needed to be absorbed into Tesla to survive -- but also meant that Tesla was getting a bargain deal. (I've been one of very few people here who described the merger as *both* a bailout *and* an incredibly good deal for Tesla.)

The manipulative short-sellers were furious and tried to target Tesla, which is dumb because Tesla's a manufacturing firm and you can't use the same tactics. Tesla is also actively avoiding the financing side of the business -- all loans are third-party, and they're discouraging leases, and they prefer cash. This is to prevent the short-seller tactics from working.

I also now understand Elon’s 1Q conference call. It was a middle finger at Wall Street, but I couldn’t figure out why. Now I know. This isn’t some minor skirmish war with short sellers thinking the stock is worth $100/share. This is short sellers absolutely trying to bankrupt Tesla through every legal and illegal means necessary (you have to read the attached pdf in the post to understand how much scum of the earth these guys are).

This is also Musk's first *opportunity* to do so. As long as he needed financing he had to appease Wall Street's precious snowflake feelings. He was quite sure at the time of that conference call that he didn't need to any more (which has been reiterated multiple times since then), so he was able to make the threat.

(That doesn't mean he *won't* raise more money from Wall Street. But there's a huge difference between raising it because you want to -- where they beg you, and you set your terms and can walk away at any time -- and raising it because you *need* to, where *they* set the terms.)

The meta message that Elon was telling Wall Street in the 1Q conference call was “If you help the shorts in any way, including asking idiotic questions that undermine confidence in Tesla, I’m gunning for you”. Calling on a wet behind the ears YouTube analyst and letting him ask 10 questions was a shot across the bow of Wall Street’s position of controlling access to information. It was an explicit threat that Elon, with his huge following, could do serious damage against Wall Street.

This truly is a real battle for the hearts and minds of investors. While it will have its ups and downs, I can’t imagine Elon not coming out on top. After all, if a mild mannered Canadian financial CEO could best these shorts, I have zero doubt Elon can.

 

[neroden]

True but if the powers that be want it done fast...then it happens. At least that is how it appears from central Illinois.

It took four or five years for the Shanghai Government to convince the Central Government to allow Tesla to have a wholly-owned factory. The exemption seems hand-carved for Tesla.

So it takes a while. I think a massive amount of the bureaucracy has already been done behind the scenes though.

 

[neroden]

Test drive vehicles will definitely improve orders. My wife is up next for a car and she won’t buy until she test drives (and her 2000 Toyota Echo dies).

Good taste in cars!

Sure I could get a friend to come by and let her test drive their M3 but not everyone has that access. P or not, the public is not as stupid as most paint them to be. Everyone knows a SR M3 is just slower with less range. The test drive for my wife is not about POWER. It’s about seat position and comfort, mirror positions, and pedal reach. She’s only 5’ tall.

The seats are kind of weird; the headrests are whacked. I'm 5'5" and I didn't like them. We'll see what your wife thinks.

 

[Zhelko Dimic]

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.

You do not speak for everyone here.
I very much like considered bear arguments.

 

[neroden]

The last time I checked, Tesla 7 year corporate bonds were trading at about 8% interest. This is expensive. It isn’t that Tesla is shut out of the bond market, just that the bond market is charging Tesla quite a bit of interest for its bonds. Tesla could indeed raise money (who knows how much?) at these rates, it just thinks it is too expensive right now. I suspect that if it waits a few more months, these bond rates will come down. I suspect the Tesla CFO also thinks this...

If you follow the debt schedules quarter to quarter, they're consistently refinancing inherited SolarCity debt at lower interest rates and refinancing unsecured debt with secured loans at lower interest rates. The only concerning point is how much is variable-interest-rate; I'd like to see them shift more of their asset-backed borrowing into fixed interest rates.

 

[neroden]

So your credit is all based on your number of posts and another guy's post?
My source:
https://fintel.io/ss/us/tsla
I do not think 60% of such a huge daily volume being short interests is plausible.

Make no mistake, I am firmly long. I just feel we give too much credit to short's alleged "power". Shorts would be powerless if enough longs want to squeeze them. Just think about VW 08 short squeeze. So my focus is when there are enough longs to make the move.

I think they must be using a different data source or calculating differently. Papafox is using this source:

Daily Short Sale Volume

We could write to both of them and ask their methodologies. Maybe one of them has a fundamental calculation error. (Or maybe fintel is trying to remove market maker rehedging and options rehedging, and shortvolume isn't; I believe shortvolume *explicitly* isn't and is dealing with raw transactions, not just retail transactions.) The TREND seems to correlate from both datasets (they go up at the same time and down at the same time).

 

[neroden]

So your credit is all based on your number of posts and another guy's post?
My source:
https://fintel.io/ss/us/tsla
I do not think 60% of such a huge daily volume being short interests is plausible.

Make no mistake, I am firmly long. I just feel we give too much credit to short's alleged "power". Shorts would be powerless if enough longs want to squeeze them. Just think about VW 08 short squeeze. So my focus is when there are enough longs to make the move.

OK, followup.. this is getting weird. Shortvolume.com has the *same short sale volume* reported as Fintel. It has *different total volume*.

Huh. So I look up the volume on Tradingview for July 5, and I get roughly 17 million. Fintel thinks it's 34 million. This is suspiciously twice as large, meaning I think Fintel is counting buys and sells separately (i.e. doubling the volume, since every trade is a buy and a sell). But then shortvolume.com thinks total volume is 9 million, which seems suspiciously like half of 17 million.

So I check Yahoo for volume, which agrees with Tradingview.

So it turns out shortvolume and fintel are both wrong. Shortvolume has the short percentage twice as high as it really is, and fintel has is HALF as high as it really is. So for yesterday, 7/10/2018, shortvolume said 61.4%, Fintel said 15.3%, and it's actually 30.6%.

Thanks for leading to this useful piece of detective work!

 

[RobStark]

Last quarter that stood at 15k vehicles. At 79% annual growth, you get to 500k by 2023.

You mean last year demand was 15k vehicles?

That is at S and X American prices plus trans Pacific shipping cost plus 25% import tax .

Demand at standard Model 3 prices without import tax/trans Pacific shipping cost should be much more robust.