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IMO, the 200K in July (instead of June) news was significant; despite the seemingly negative headlines. But what does that mean in $ fed tax credit for the buyers? My simple math shows a $900M more for the buyers, with a very simple ramp of 7K/wk to 12K/wk production ramp (S+X+3). What am I missing? Can we hit $1B additional credit?
bdy0627
Active Member
I spent the 45 minutes watching that April Hedgefund video on how awesome TSLA is to short. They have many reasons, but perhaps the biggest is that Tesla does not know how to manufacture cars at high volume profitably. Period. That's precisely what Tesla needs to disprove to shake off shorts. It looks like the high volume production has finally arrived given that Elon is indicating they will be out of hell next month with a sustained rate of 5,000/week. Next, they will need to demonstrate that they can do this profitably in a sustained fashion. That's certainly going to take Q3, 4, and Q1 2019. Even at that point, the bears will be expecting Tesla to collapse due to loss of demand from competition and the tax incentive going away. The other point will be that Tesla will then need to rely on primarily their base model 3 for profits, which will be negligible. To counter those arguments will likely require the rest of 2019. I'm really at a loss for where a true short burn would come in, since profits are already likely widely anticipated for the next 3 quarters. I just see lots of volatility.
I disagree on "since profits are already likely widely anticipated for next 2 quarter's". The Bear argument is Tesla will not be profitable selling the M3 so the more they crank out the more they lose. A profitable quarter will go a LONG way in proving them wrong and possibly causing SP to rocket on its announcement.
Wooloomooloo
Member
Really? You know it was reported on Bloomberg first right as part of a much larger piece. Tesla said the pipe burst has been fixed but didn't deny it occurred and didn't add any details. Are you suggesting something like this shouldn't be mentioned just because no one knows the details?
I mean the article is certainly clickbait BS but your email to her looks petty.
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The “old” short case was predicated on that. But now it’s ____________.
I do, however, agree that a profitable quarter will be very good for the SP.
FirebirdAlpha
Member
No. The bear argument is that they're in such a cash hole that even if they're able to crank out profitable cars, they won't be able to generate enough cash.
At the end of Q1, they were at -2.2B net working capital with 2.35B in planned CapEx. That's a 4.5B current budget shortfall.
They need to sell a lot of Model 3s to fill that budget shortfall. Even at a generous 25k contribution per car, they need to sell 180,000 Model 3s by February 2019 (when 1.2B in debt payments are due).
Mod: @FirebirdAlpha complains about his posts never being seen. Here is a beautiful example of a post that would never have seen the light of day. $1.2B / $25k = 48,000. Just slightly less than the claimed 180,000 above. Just over a week's current steady state production. --ggr.
More Mod: I got the arithmetic wrong myself, in the original version of this. See quotes below. --ggr
And that's a 25k contribution per car. How many customers are buying the performance / AWD version? And how many are waiting for the 35k model 3?
Oh, sorry, that's a boring, bone-headed question. Not cool. Sorry.
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Esme Es Mejor
Member
Tesla handled the situation masterfully to place its 200,000th American delivery near the start of the 3rd quarter. That level was going to be reached soon anyway, but this allows a greater number above 200,000 of its American customers to receive the tax credit. This may also motivate Tesla to really ramp up deliveries this year and next, since volume is no longer a factor for the tax credits.
This creates a nearly full six-month window for customers to order the more expensive (higher margin) cars that will be prioritized and get the full tax credit. Also those who can afford the more expensive cars are more likely to owe $7,500 in taxes before the credit is taken into account. So this news is a boon to potential customers who can take full advantage of the credit, and a boost in demand for the company's higher margin cars.
It's a win-win except possibly for those who can only afford a base Model 3. However many of those would not qualify for the full $7,500 tax credit, even if they received their cars this year. They'll still qualify for a reduced tax credit next year.
Indeed the news is significantly positive and investors should see it that way, despite any negative spins by the media.
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bdy0627
Active Member
I agree that point is debatable, but I think smarter bears are anticipating that Tesla is likely to have some profitable upcoming quarters. However, they will assume it is only temporary.
Overall, the headlines associated with Tesla reaching 200K US cars have probably negatively affected the stock price today. Anyone who closely follows TSLA would know that reaching 200K in July was a good thing, and receiving this confirmation from TSLA "should" have been positive for the stock. But not every investor understands this.
Of course, Tesla has every motivation to increase production while the US tax credit remains in place, since there's no legal cap on the number of new Tesla vehicles that can be delivered during the next six quarters and thus be eligible for the federal tax credit. During 2H '18, there may be another 150K cars eligible for the full $7500. I'll bet our lawmakers didn't anticipate such a scenario! Tesla has handled this admirably.
Of course, Tesla has every motivation to increase production while the US tax credit remains in place, since there's no legal cap on the number of new Tesla vehicles that can be delivered during the next six quarters and thus be eligible for the federal tax credit. During 2H '18, there may be another 150K cars eligible for the full $7500. I'll bet our lawmakers didn't anticipate such a scenario! Tesla has handled this admirably.
RobStark
Well-Known Member
Bears are going to say it is a manufactured quarter like the only two previously profitable quarters. Tesla artificially delayed delivery of 15k cars in big loss Q2 to make Q3 look better. This argument will sound reasonable.
They will say the same thing after Q4. It will sound less reasonable.
They will say the same thing after Q1 2019. It will begin to sound hollow.
They will say the same thing after Q2 2019. It will sound ludicrous.
bdy0627
Active Member
Provoking others with differences of opinion is fine, but there is no good reason to provoke others via inflammatory language.
Wooloomooloo
Member
Fair enough - hangover from yesterday's loss...
bdy0627
Active Member
The more I think about this, the more I think you are right. We know so much about Tesla, that we see it as a positive that Tesla did not reach 200K in Q2 and was able to delay it to Q3. The rest of the market just sees that the phase out timer has been triggered on tax incentives for Tesla's customers, which is a negative. I think this probably did affect the stock negatively.
Sorry, I got confused with your pinned tweet on twitter where you were feeling sorry that PWC will be in trouble for certifying TSLA as a going concern. 200K in Q3? No problem.. on to the next boogeyman.
bdy0627
Active Member
Wooloomooloo
Member
It's extremely unlikely that an inevitability like that would affect the price on a given day - it would have already been baked into the price long ago. If the government changed the tax law to scrap it, that would affect the price (based on reduced demand for the 1st 200,000 cars) but if the company is serious about selling 500,000 cars by 2020, that means it is banking on 300,000 people not caring about the tax break (and every customer after that)
The alternative narrative is that 400k people only signed up to buy the car thinking they would be the first 200k, beyond which there are no buyers which is (hopefully) not the case.
While we may be lamenting the phase-out of the US tax credit, we should not forget that "short range" Model 3 buyers will be eligible for $3750 during the entire first half of 2019. On a $35K car, $3750 is no small rebate, particularly when combined with rebates in some states. In California, where I believe most EV buyers receive a state rebate of $2500, the total subsidy per car will be $6250, thus bringing a base Model 3 down into loaded Camry, Accord, or Prius territory before even accounting for fuel savings. I see the glass as half full.
That said, it's hard to say whether Tesla will actually ship any base, $35K vehicles in 1H 2019 - this will depend on demand for higher-priced variants and the strength of Tesla's desire to ship some base cars for PR purposes. Personally, I think it might be best for PR to at least ship a trickle of $35K - $40K cars during Q4 2018 and 1H 2019, enough to satisfy the very earliest reservation holders who waited in line at Tesla stores.
That said, it's hard to say whether Tesla will actually ship any base, $35K vehicles in 1H 2019 - this will depend on demand for higher-priced variants and the strength of Tesla's desire to ship some base cars for PR purposes. Personally, I think it might be best for PR to at least ship a trickle of $35K - $40K cars during Q4 2018 and 1H 2019, enough to satisfy the very earliest reservation holders who waited in line at Tesla stores.
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