TSLA Market Action: 2018 Investor Roundtable

[shrspeedblade]

To put it very simply, we think that at the current or higher ASP, Tesla will find insufficient demand within a couple of years, and if they substantially lower the ASP they will be selling at a loss. Plus we see competition coming over the next few years to peel off some of the richer buyers (Jaguar/BMW) and the poorer (Nissan/Hyundai/Kia).

Not being sarcastic, genuine questions: It seemed many bears were saying the same thing about S/X several years ago, and at much higher prices. Do you still think this and when it will pan out?

Tesla is expanding market share by taking away ICE sales, will Jaguar/BMW be reducing their own market or Tesla's? Even people who aren't Tesla bulls in the least seem to thing the transition to EVs is coming, and that they don't assume it will remain a niche market.

Edit: I type too slow!

 

[neroden]

I've been in the investment industry for 40 years, held Series 7 and 63 brokerage licenses, traded stocks, bonds and options for the same period, but I obviously don't have as much experience as you, given your comments.

I've listened to quarterly analysts calls for decades on a wide range of stocks I've owned, since way before Tesla was a glimmer in anyone's eye, and questions from the analysts can be brutal. And if the person answers by deflecting or refusing the question, they will ask it again -- analysts can be relentless until they think they've gotten a solid answer. And, it's not the least bit unusual for another analysts to go back to a previous question if they didn't fully understand the answer, That's just how it works across the board, not just for Tesla.

The nature of Elon's responses were inappropriate.

Wrong. I have slightly less experience than you... Only 30 years... Though it may be more relevant experience, as I am an investor rather than a salesman/trader employed by a brokerage.

i know when an incompetent analyst is wasting everyone's time. It is entirely appropriate to cut them off. I have even seen CEOs do it before. It is true that it is common for analysts to re-ask a question, but CEOs do get sick of it when the question was clearly answered already.

Musk quite rightly agreed that he should never have let the boneheaded analysts on the phone call, which is actually the standard CEO approach to such bone headedness.

 

[wnorris]

To put it very simply, we think that at the current or higher ASP, Tesla will find insufficient demand within a couple of years, and if they substantially lower the ASP they will be selling at a loss. Plus we see competition coming over the next few years to peel off some of the richer buyers (Jaguar/BMW) and the poorer (Nissan/Hyundai/Kia).

This theory is in direct conflict with what is happening in the market now. Tesla has excess demand for the next two years with the Model 3 and that is discounting additional reservations over that time period.

Second, the market for EVs is expanding while the market for ICE will begin to contract. This was highlighted in a recent market survey where 20% of those surveyed would purchase an EV, up from 15% in the previous year. Tesla will have a larger addressable market in the next couple of years.

I had a similar theory regarding the iPhone years ago. I will freely admit that I was very wrong in thinking cheaper Android phones would overtake Apple and thereby forcing margins to be squeezed. I discounted the mindshare that Apple garnered and the loyalty of their customers. I see the same scenario playing out here.

 

[Icer]

From Twit to a tweet:
Positive data point.
Is this new? I somehow missed it.
Hard to keep up.

 

[Waiting4M3]

This theory is in direct conflict with what is happening in the market now. Tesla has excess demand for the next two years with the Model 3 and that is discounting additional reservations over that time period.

Second, the market for EVs is expanding while the market for ICE will begin to contract. This was highlighted in a recent market survey where 20% of those surveyed would purchase an EV, up from 15% in the previous year. Tesla will have a larger addressable market in the next couple of years.

I had a similar theory regarding the iPhone years ago. I will freely admit that I was very wrong in thinking cheaper Android phones would overtake Apple and thereby forcing margins to be squeezed. I discounted the mindshare that Apple garnered and the loyalty of their customers. I see the same scenario playing out here.

I think the expanding market is a blind spot for Tesla doubters. Personally I will trade-in my 2004 Prius, and have never owned a luxury car (>$30k) in my life. I may be just one data point, but Tesla may have more data already. IIRC there was a mention in the conf call, where they said they can tell from the customer trade-in, the mix of buyers are not just previous luxury car owners. If they say they can open orders for the $35k model in 2019, and still have long term margin of 25%, I'm content to give them time to prove it. Tesla has generally be pretty reliable in their margin forecast.

 

[jhm]

Interesting and very timely comment.............because if you have any interest in the alignment of the planets you may already know that today signals a very powerful move of Uranus (planet of change and awakening) out of ego-focused Aries (political ego struggles, human rights issues/concerns) into Taurus for the next 7-8 years, resulting in a disruptive change towards a more sustainable and healthy planet. Some have suggested that huge investments will accelerate the change of the existing fossil fuel, energy, and transportation paradigm into an era of planet-friendly fuels (solar, wind, storage), and cleaner transportation early in this process. Empowering this process will be a greater sense of community and connectivity.........the power of social media for good, etc. Its been fun to read about.

Elon may have more than just a huge fan following, large investors, and even China behind his efforts at the moment, for the universe wants to move in that same direction as well, and today was its first huge step.

Planetary reading for the shorts that didn't find the door by the end of May 15, 2018............Prepare for Flamethrowers from Uranus!

Seriously? That's awesome!

 

[vinvin218]

On 5/16/18 Tesla China recruits multiple positions in Shanghai -- Engineering projects, Government affairs project managers, Tax Specialist Financial Services Area Manager, Low-voltage electrical test engineer and Asia Pacific IT Field System Administrator

here is my tweet : vincent on Twitter

 

[Icer]

Potential threat from the EU?
not from a problem with the cars.

From a problem of the fact that they love picking
the deep pockets of American high tech companies.
MS/Goog/FB etc.

They improvise the legal trivialities.

"We All Agree, this is Elon's Fault"

The driver of the car is responsible.
This is a somewhat important point.
A point the Euro folk will find a way to prove is not the point.
To enable reparations.
*
Okay, I am paranoid, but they do this. It worked before.
They will do it again.
A consequence of allowing the MS "Browser choice" extortion.
etc.

 

[Dan Detweiler]

Looks like we are going red today even with the Nasdaq looking good. Shorts are still able to maintain some control on it with the lack of major short term positive news.

New production numbers should be out by Friday. We'll see what Wall Street has to say then.

Dan

 

[Waiting4M3]

New production numbers should be out by Friday. We'll see what Wall Street has to say then.

Dan

If Elon keeps tweeting weekly production #s, I'm going to start to feel a little sympathy for Ben Kallo, who asked in the conf call if Elon would give updates on progress to 3k/wk, 4k/wk, etc., and got yelled at by Elon. /s

 

[Tslynk67]

Potential threat from the EU?
not from a problem with the cars.

From a problem of the fact that they love picking
the deep pockets of American high tech companies.
MS/Goog/FB etc.

They improvise the legal trivialities.

"We All Agree, this is Elon's Fault"

The driver of the car is responsible.
This is a somewhat important point.
A point the Euro folk will find a way to prove is not the point.
To enable reparations.
*
Okay, I am paranoid, but they do this. It worked before.
They will do it again.
A consequence of allowing the MS "Browser choice" extortion.
etc.

View attachment 301564

No stress, pockets aren't deep, they're going bankwupt!!

Seriously though, we have seen two crashes result in fires that may, or may not, have been the cause of death in the accidents. I'd like these to be investigated and understood. What troubles me a bit is that in the past we also got the occasional fire, but they were relatively slow to develop, these seem more rapid. That being said, we don't have all the facts to hand, the actual reality might be quite different.

 

[AudubonB]

Sea level rise makes them a poor investment. I'll buy upland continental property, thank you. ;-)

Seemingly not important for the Spiegels of this world: they’ve been underwater for years!

 

[elasalle]

Hedge funds often buy the convertible to hedge a short position in the stock and usually don't disclose the short position.

Tesla Just Got a Billionaire Ally -- At a Very Interesting Time

..... And if Soros and company are right, it means that Tesla's stock price could be heading much higher in the near-term....

edit: BTW. in the linked video .. it starts with Cramer saying - "It was a short busting call" - Is he referring to the fact that Soros bought these bonds?

 

[The Blue Owl]

To put it very simply, we think that at the current or higher ASP, Tesla will find insufficient demand within a couple of years, and if they substantially lower the ASP they will be selling at a loss. Plus we see competition coming over the next few years to peel off some of the richer buyers (Jaguar/BMW) and the poorer (Nissan/Hyundai/Kia).

I think this case is pretty weak. It's likely that at current or even higher ASP, Tesla will have more demand that they will be able to fulfill for a long time, so the substantially lower ASP won't happen. Even if it does, there are very significant efficiencies yet to be realized, especially on the Model 3 lines, which have only just started being optimized, so they wouldn't be selling at a loss. I think rather than selling for less, they will actually improve their margins and still not saturate demand. As for the competition, the EV market will expand in a vacuum created by the Diesel implosion and the fact that once customers drive electric, they never go back. All growth will be at the expense of the ICE segment. Electrics won't displace each other, they'll displace non-electrics, which will increase the difficulty of the transition for legacy manufacturers. I think it's likely that in the next 10 years, at least two will go bankrupt or be acquired.

The only significant risks I see with Tesla, other than a macro cataclysm that would take everybody down, are the Model 3 ramp (we're still not out of the woods, but getting there), mainly due to the cash crunch coming if it takes too long, and anything bad happening to Musk himself. My money is on the fact that the ramp will succeed. As for the rest, I'm prepared to take the risk.

 

[jhm]

I don't know why you're looking for nits to pick here. I simply pointed out that Reciprocity's cash flow analysis relied on an assumption that 100% of reservations convert to orders, and that his results would be impacted by the use of a different assumption. Defining conversion rates and computing them are really beside the point. I took no position on what response Elon should make to boneheads.

As it happens, I have been a professional actuary for the past several decades. Small world, eh?

Ok, my apologies. My real concern was with bonehead and shorts who use the conversion rate question as a form of FUD. Since you are an actuary, you are well aware of the difficulties of estimating ultimate outcomes. Clearly we are dealing with a long conversion process that makes short-term conversion rates very problematic. So the attack is ill-posed.

Rather than talking about conversions whether ultimate or within a limited term, we should talk about production and deliveries and not worry much about the denominator. For example, at 3k/wk Model 3 production rate, the 450k reservations will take 150 weeks to be satisfied. But over the next year, that production rate must get much higher. Whether Tesla produces less than 150k Model 3 over the next 12 months is a critical question. If it produces that little in 12 months, we may well see many reservations holder cancel to buy other vehicles. But let's suppose to the other extreme Tesla average 9k/wk over the next 12 months to produce 450k in the next 12 month. Here it becomes much less likely that reserve holder would cancel and demand refund simply because they run out of patients waiting for a new car. So ultimate conversion is easily a function of how quickly Tesla can fill orders. Now if Tesla delivered 450k Model 3 over the next 12 months would we even worry about cancellation rates? Likely not, we would still be concerned about reservations on hand and net new orders for Model 3, but whether 20% or 80% of the original reserve holders ultimately converted would not be terribly interesting as that is simply water under the bridge. What will matter is that Tesla delivered 450k Model 3 and has plenty of new orders coming in to sustain that production level.

Certainly as some point, customers won't need to take out reservations for the Model 3, they will simply go to the website and place their order. The more quickly we get to that point, the better. But I rather suspect that open ordering is more than 12 months away. This at least is a nice mile post to have in sight. We will all know when reservations are no longer needed (though that may vary by country). In the next 12 months, I just don't see Tesla running out of reservations.

 

[CuriousSunbird]

Not being sarcastic, genuine questions: It seemed many bears were saying the same thing about S/X several years ago, and at much higher prices. Do you still think this and when it will pan out?

Tesla is expanding market share by taking away ICE sales, will Jaguar/BMW be reducing their own market or Tesla's? Even people who aren't Tesla bulls in the least seem to thing the transition to EVs is coming, and that they don't assume it will remain a niche market.

Edit: I type too slow!

We think S/X demand has plateaued and has started a slow decline. And we think Tesla thinks so too (which is why they decided not to expand the S/X battery production capacity).

 

[CuriousSunbird]

I think this case is pretty weak. It's likely that at current or even higher ASP, Tesla will have more demand that they will be able to fulfill for a long time, so the substantially lower ASP won't happen. Even if it does, there are very significant efficiencies yet to be realized, especially on the Model 3 lines, which have only just started being optimized, so they wouldn't be selling at a loss. I think rather than selling for less, they will actually improve their margins and still not saturate demand. As for the competition, the EV market will expand in a vacuum created by the Diesel implosion and the fact that once customers drive electric, they never go back. All growth will be at the expense of the ICE segment. Electrics won't displace each other, they'll displace non-electrics, which will increase the difficulty of the transition for legacy manufacturers. I think it's likely that in the next 10 years, at least two will go bankrupt or be acquired.

The only significant risks I see with Tesla, other than a macro cataclysm that would take everybody down, are the Model 3 ramp (we're still not out of the woods, but getting there), mainly due to the cash crunch coming if it takes too long, and anything bad happening to Musk himself. My money is on the fact that the ramp will succeed. As for the rest, I'm prepared to take the risk.

We think that current US demand for mid--size luxury vehicles is about 300,000 cars pa and falling. Assuming Tesla continues to sell about 50% of cars outside the US, this would imply that the M3 would take 5/6 of that entire (EV & ICE) market. We think that is unlikely.

 

[kingjamez]

We think that current US demand for mid--size luxury vehicles is about 300,000 cars pa and falling.

Falling, until last week. The price of gas plays a large part in that number.

 

[shrspeedblade]

We think S/X demand has plateaued and has started a slow decline. And we think Tesla thinks so too (which is why they decided not to expand the S/X battery production capacity).

As a long time watcher of the auto industry, I'm not going out on a limb to say that this is normal for any new model. When the new S/X comes out in 3 years (guess) with the new batteries, features, etc. demand could spike again just like any car model does. Some from previous buyers. I rather doubt this, but buying into your bear argument with the tariffs going away couldn't they just shift deliveries to China for a couple of years where demand will almost undoubtedly increase? They're foolish to not start growing that market as soon as possible, and with mature models so much the better.

Why expand production on the last generation's battery? From the numbers the Model 3 is putting out this wouldn't make sense, and if for no other reason they would need to increase their "cash burn" that is so awful wouldn't they. I guess we disagree in that you think other manufacturers will be competing with Tesla's current models in a couple years, I think it will be their next generation. On one thing we do agree though if Tesla stays static they will be in trouble in a couple of years, as will any car company.

 

[CuriousSunbird]

Falling, until last week. The price of gas plays a large part in that number.

I don't think so. The price of gas factors into auto demand for lower socio-economic groups. For buyers of mid-size luxury, the market is more driven by consumer income, the stock market (capital gains) and tax effects.