TSLA Market Action: 2018 Investor Roundtable

[Time]

I was told that Tesla was going to die today because Elon Musk is a meany.

Can someone show me where on the financials the "meany" line is? I'm not seeing it.

 

[bdy0627]

If the stock price is above $360 I think they will be very happy to redeem in stock. If below, they will have to redeem in cash.

Are there people who think that TSLA will not be above $360 later this year when they are producing 5,000+ model 3 per week? Shorts barely kept it below $390 last September when they were making a few dozen model 3 per week.

 

[CuriousSunbird]

Where in the prospectus does it say holders have to give notice of desire to convert during the Free Conversion Period prior to 12/1/18????

"Conversions on or After the Applicable Free Conversion Date
On or after the applicable Free Conversion Date, a holder may convert all or a portion of its notes at any time prior to the close of business on the second scheduled trading day immediately preceding the applicable maturity date....

All conversions of 2019 notes occurring on or after December 1, 2018 (the applicable Free Conversion Date for the 2019 notes) will be settled using the same relative proportion of cash and/or shares of our common stock as all other conversions occurring on or after December 1, 2018. We will inform holders of the settlement method we elect for any conversions occurring on or after December 1, 2018 no later than December 1, 2018. If we do not timely elect a settlement method, we will no longer have the right to elect cash settlement or physical settlement and we will be deemed to have elected combination settlement in respect of our conversion obligation, as described below, and the specified dollar amount (as defined below) per $1,000 principal amount of notes will be equal to $1,000. If we elect combination settlement but we do not timely notify converting holders of the specified dollar amount per $1,000 principal amount of 2019 notes, such specified dollar amount will be deemed to be $1,000."

I don't think they have to give notice. The point is the holder MAY (or may not) convert. If the stock price is below $360, the holder would probably not. Unless circumstances change radically, I would expect Tesla to (i) announce on 12/01 that the conversion will be to all stock, and (ii) decline to exercise the anti-dilution hedge. Given that I expect the stock price to be below $360 for the whole conversion period, I would expect the holders not to elect conversion.

Is this responsive or am I missing the point of your question?

 

[Time]

Are there people who think that TSLA will not be above $360 later this year when they are producing 5,000+ model 3 per week? Shorts barely kept it below $390 last September when they were making a few dozen model 3 per week.

Ugh. You jinxed it.

I'm selling everything tomorrow.

 

[Mkorpal]

Are there people who think that TSLA will not be above $360 later this year when they are producing 5,000+ model 3 per week? Shorts barely kept it below $390 last September when they were making a few dozen model 3 per week.

Well, we are at 2000+ and we recently saw 250 and are now stuck at 283 . I think the stock trades illogically on both the bull and bear side.

 

[CuriousSunbird]

Are there people who think that TSLA will not be above $360 later this year when they are producing 5,000+ model 3 per week? Shorts barely kept it below $390 last September when they were making a few dozen model 3 per week.

In my view there are many shorts (including myself) who don't view the M3 production delays as the major issue. We think that Tesla will not be able to achieve a sufficient net margin at the 5,000 per week level. We think that if Tesla sells the M3 at a price level which makes an acceptable net margin they will not be able to sell enough (hence the importance of the conversion rate) and that if Tesla sells the M3 at a price which generates sustainable demand for 250,000 cars per year, they will not make a profit. So from our point of view, the sooner 5,000 per week is achieved the better, as it will then prove or disprove our thesis.

Having said that, the delay has had a significant effect in allowing Nissan and the Koreans to catch up to the extent where they will soon be pulling away some M3 demand in the lower income/more price sensitive demographics.

 

[BornToFly]

Are there people who think that TSLA will not be above $360 later this year when they are producing 5,000+ model 3 per week? Shorts barely kept it below $390 last September when they were making a few dozen model 3 per week.

I never thought that more than 9 months after the start of Model 3 production, with the 3 outselling BMW 3 series already, that we would be around 280. So who the hell knows?....

 

[bdy0627]

Well, we are at 2000+ and we recently saw 250 and are now stuck at 283 . I think the stock trades illogically on both the bull and bear side.

It's all about sentiment right now. For the stock not to move, sentiment would have to not turn positive despite mass producing model 3. That's possible but not at all likely unless macros go belly up. I think that is the primary risk. 3s will be showing up in good numbers all over the country within a few more months. Even with the low model 3 numbers we've seen so far, the feedback has been very positive. The positive feedback loop will be tremendous. Hopefully the market holds together or corrects and then recovers by then. There is certainly no guarantee.

 

[BornToFly]

I bought a lot of DITM 2019 LEAPS a year ago that I thought I would have to resist selling until this month so that I would pay capital gains tax rates instead of income rate. Well, they are all under water right now, so pressure to sell is absent....
I do hope they are extremely profitable in 6 months....

 

[bdy0627]

I never thought that more than 9 months after the start of Model 3 production, with the 3 outselling BMW 3 series already, that we would be around 280. So who the hell knows?....

Very true. What is almost certain is that whatever we guess will be happening to the stock in a few months is bound to be wrong, including being both high or low on predictions.

 

[elasalle]

Didn’t know market had an ego - but greed will supersede it

 

[zmarty]

Fidelity shows that among their retail customers trading Tesla shares, 66% of orders today were to BUY shares.

 

[Lbkmxp100d]

Romit Shah- Instinet Analyst
Just had some really great things to say about Tesla. Projects 400+ stock over next 12mo and the Elon Earnings call will be a non-issue in another week. His company’s is projecting 30k plus model 3’s in Q2.

 

[NicoV]

As a tsla investor I'd like to agree, but if we ever figure out fusion it could make solar power look as antiquated as solar makes coal or oil look now. Just imagine in 30? years the people in the Mr.fusion forum making fun of the people from Tesla still littering the earth with those archaic solar panel installations In reality Tesla would probably get into fusion when it makes sense. Why bother harvesting from the sun and having to deal with those silly old batteries when you can have fusion 24/7? Why nuclear fusion is gaining steam – again

I would love to have fusion working technically, but economically it probably wont make any sense by the time it’s feasable. Elon Musk thinks solar will become so cheap it will cost less than the transport cost. Fusion reactors will be big, so the transport cost will be high.
BTW: in Belgium the transport component of the electricity price is 3x the generation cost currently.

 

[bambam4171]

I'm a small investor but I'm in it with all my saved money, so in a way more dependent on TSLA but! I think the call went this way because Elon does not want to talk about short term financial implications but vision. He is the guy with the vision and thus should answer those questions. Of course he is not interested in nitty-gritty financial detail. So why even bother to ask? Because all the other CEO's have been bullied into obeying to pull down their trousers in these calls? Because all of them are dependent on the share price because their success is mostly measured in that. Now Elon's compensation has nothing to do with short term share price because the kind of growth laid out in the compensation package is not doable by concentrating on short term share price fluctuations, but it is doable with vision.

 

[jeewee3000]

I would love to have fusion working technically, but economically it probably wont make any sense by the time it’s feasable. Elon Musk thinks solar will become so cheap it will cost less than the transport cost. Fusion reactors will be big, so the transport cost will be high.
BTW: in Belgium the transport component of the electricity price is 3x the generation cost currently.

As a Belgian I can confirm this.

We are a very bad example of (the politics of) power generation/management/subsidies/...

 

[UnknownSoldier]

If Elon only wants to talk about vision that's fine. He should do what Jeff Bezos does and just not do CC's because he knows the analysts are beneath him.

In fact I think it would be funny if the next call, Elon shows up, gives his opening statement, and then is like peace out and the Q&A portion is only JB and the CFO guy. That would be great. I can imagine the meltdown headlines the next day after that happened.

 

[jeewee3000]

In my view there are many shorts (including myself) who don't view the M3 production delays as the major issue. We think that Tesla will not be able to achieve a sufficient net margin at the 5,000 per week level. We think that if Tesla sells the M3 at a price level which makes an acceptable net margin they will not be able to sell enough (hence the importance of the conversion rate) and that if Tesla sells the M3 at a price which generates sustainable demand for 250,000 cars per year, they will not make a profit. So from our point of view, the sooner 5,000 per week is achieved the better, as it will then prove or disprove our thesis.

Having said that, the delay has had a significant effect in allowing Nissan and the Koreans to catch up to the extent where they will soon be pulling away some M3 demand in the lower income/more price sensitive demographics.

If I may speak for longs, our counterpoint to the question of acceptable net margin on Model 3 is to look at the Model S and X margins. Back in the day the bear argument was that TSLA wouldn't achieve acceptable net margins on the S and X (for example due to the cars being so technologically advanced, or due to the relatively low production rate compared to other car makers).

We know that Model 3 is designed to be produced more cheaply than S or X, and even though Elon is stating the ramp is harder than they imagined, it is still an easier car to mass produce than S or X.

Also the planned production rate of Model 3 is way higher than S or X. Therefore the bear argument regarding net margins - which turned out to be false in the case of S and X - is plain nonsense on the Model 3. Yes, bigger Capex spending to drive the ramp is/was required, but the ramp is way more agressive than the ramps of the S and X. This too shall pass, and the Model 3 will have a net margin of around 20%. In 2019 TSLA predicts it to be 25% and even 'the high twenties' (28%, anyone?), so it is probable. (I agree with the shorts that reaching high margins might take longer than Elon predicts, as always, but that is not the point of the bear argument regarding margins)

The importance of conversion rate, as claimed by the bears, is irrational. I understand the premise: if we could find out how many reservation holders want the standard range, no options, skeletal Model 3 of $35k, and how many want other options, we could calculate the average selling price (ASP) of the original 450.000 reservation holders.

The argument fails however, as the current conversion rate (in the sense of: how many reservation holders that were invited to configure, have actually bought the car?) provides no information at all about the ASP. People who wait to configure could be waiting for standard range battery, with the options package and EAP/FSD, or they could want the full option LR version with white interior, or they want the performance version, et cetera.

The only relevant 'conversion rate' would be: how many reservation holders have cancelled their reservation and asked for their deposit back? But we know from the CNBC Model 3 factory tour that this happens very little, and there are more new reservations than cancelled ones every quarter.

Considering the above: the second question Elon ignored regarding conversion rate was in fact useless, illogical and a complete waste of time. The question showed that either the analyst didn't understand why his question was bull*sugar*, or that he maliciously wanted a quote from Elon to spin into more FUD.

I don't know if I agree with the precise way Elon handled those questions, but I do agree with his understanding of which questions matter and which don't.

For example: the market has not yet responded to the upcoming Gigafactory in China (bullish), which is to include cars and battery packs in one from now on (bullish, every GF from now on will be huge and more efficient due to less transport between factories).

The moment this is figured out, we should see an increase in SP. Probably triggered by an institutional buyer (Tencent?) that gets it before Wall Street does.

I remain bullish.

 

[neroden]

Got it! Portfolio managers' compensation is based on the churn they generate and not on their total return on assets under management.
Thanks!

Yep, always has been! Well, it's one of two.

There's basically two pay models in Wall Street:
(1) paid by the amount of money you bring into your firm (paid by size of assets under management). The "empire building" payment scheme. Return on assets == irrelevant
(2) paid by the amount of churn they generate (fees for activity, advice, research, etc). Return on assets == irrelevant

These are the fundamental business models for paying people at investment banks and brokerages. The only real exceptions are people who work for private foundations or HNW individuals directly.

The fact is that portfolio managers are usually in business #1, empire building. Churning the contents of their portfolio, however, is a way of drumming up sales. Increase your portfolio's volatility enough and you are more likely to get a lucky quarter or two, which allows you to drum up sales.

In addition, and perhaps more importantly, trading looks like you're "doing something", which also drums up business and justifies your salary.

A portfolio manager who made no trades for a quarter and just hung out on the beach... even if he was the best portfolio manager ever as judged by rate of return, do you think his banker/brokerage bosses would be happy with him? No!

 

[neroden]

In my view there are many shorts (including myself) who don't view the M3 production delays as the major issue. We think that Tesla will not be able to achieve a sufficient net margin at the 5,000 per week level. We think that if Tesla sells the M3 at a price level which makes an acceptable net margin they will not be able to sell enough (hence the importance of the conversion rate) and that if Tesla sells the M3 at a price which generates sustainable demand for 250,000 cars per year, they will not make a profit.

Oh. Then you're just wrong.

Frankly, this is boring. I've explained how this market works, as have others, several years ago. Electric cars don't compete with each other, they compete with inferior ICE cars. The minimum size of Tesla's market in any segment of the car market is equal to the total size of that market minus the other electric cars for sale in that segment. So Tesla can sell 500,000 cars per year at $50,000 each without blinking, even while Nissan and Kia and Renault also do so. If you haven't figured this out yet, you're going to get *everything* wrong.

It's interesting to see that you're making the most common and fundamental error of Tesla bears. You think there's a separate "electric car market". There isn't. There's a car market. Within that market, everyone who can get an electric car does, and everyone who can't afford one or can't find one suitable for their needs (e.g. needs a panel van right now) settles for an ICE car. That's the paradigm. Think in that paradigm and you may be able to do competent analysis.

This is serious advice.

A bear who thinks Tesla will need to raise cash before it can solve the production issues is potentially rational, though wrong. A bear who thinks *demand* for Model 3 is going to be an issue, at any price, for any time in the next *decade*, is a complete fool. I would say "boneheaded" if I were in the same mood as Musk.