TSLA Market Action: 2018 Investor Roundtable

[bobinfla]

You have Trump to thank for a new round of tariffs. futures are cliff diving.

Wish I had some dry powder.

This is about the 6th time this year there is some sort of announcement or action about tariffs, the media goes crazy about trade wars and the end of civilization as we know it and the market tanks. Then shortly thereafter, the market magically changes its mind and decides it wasn't such a big deal after all. The market climbs back up, and "someone" made a ton of money on the volatility.

With all the worry and fear mongering about catestrophic trade wars with China, with Europe, with Canada, with Mexico, etc., etc., etc., the DJIA is sitting 200 above where we ended last year.

Like the other times, this too will quickly pass.

 

[Cobos]

RE: the MS vs P3D discussion.
3. P3D buyers being potential MS buyers. From the perspective based strictly on the purchase price, possibly. However, using BMW as an example. The BMW M3 and their 5 series prices overlap. Does this mean that the 5 series sales have been hurt by people buying the M3? No, and for the same reason. Both BMW's M3 and Tesla's P3D are a niche market.

I do not disagree that both the BMW M3 and the P3D are niche vehicles, though the P3D is the new and hip one so will sell beter this year at least. But I'm pretty sure the same way the M3 sells a lot of 3 series cars the P3D will sell a lot of M3SR/LR cars and generate a lot of hype for Model 3. Not that Tesla really needs this yet for the Model 3, but it will probably also reflect positively on the brand more in general.

Cobos

 

[ValueAnalyst]

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...

Tesla doesn't need external capital any longer, neither does it want external capital. It could, however, raise debt capital at 8% and refi at a later date when the market finally sees Model 3 for the cash machine that it is in 3 months maybe, 6 months definitely.

 

[generalenthu]

They aren't going to issue new debt for several reasons; 1/ they're the subject of an SEC investigation/enforcement and would have to admit it in the registration filing 2/ the bonds are trading at 89 cents on the dollar 3/ they don't need money for new plant and equipment, as they're sitting on a ton of inventory already.

I see a ban hammer in your near future.

 

[Cosmacelf]

Tesla doesn't need external capital any longer, neither does it want external capital. It could, however, raise debt capital at 8% and refi at a later date when the market finally sees Model 3 for the cash machine that it is in 3 months maybe, 6 months definitely.

Need? No. Want? Absolutely. They need to build factories for Tesla Semi, Tesla Model Y, Tesla pickup truck, European factory, etc. etc. Tesla could productively put $10B to use right now today.

 

[ggr]

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...

I think (emphasis on "think") that there's a misunderstanding going on here. Tesla sold the bonds at the usual price of $100, with coupon interest at 5.something% interest. Tesla took the $100 and invested it. Now, some people think Tesla might default on its bond obligations, so the price of the bond has dropped to around $88. So the interest coupon which was fixed when the bond was sold, divided by what someone might now pay for the bond to buy it off someone else, comes to 7.something% interest. But Tesla isn't paying out any more than it committed to in the first place. The yield has gone up to a new bond purchaser, but Tesla doesn't care. Unless they need to issue more bonds, that is, which they currently don't.

 

[defc0n]

Similar to what others have suggested, Ben Kallo mentioned details about the Chinese factory agreement should likely arrive in “the coming days.” Now wondering if that will happen while Musk is in Beijing, and if that is all part of the 3 week short explosion warning still. Haven’t completely given up hope, yet.

 

[ValueAnalyst]

Need? No. Want? Absolutely. They need to build factories for Tesla Semi, Tesla Model Y, Tesla pickup truck, European factory, etc. etc. Tesla could productively put $10B to use right now today.

Did you just call Elon a liar?

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Adam Michael Jonas - Morgan Stanley & Co. LLC

Thanks. Elon, so you repeatedly said I think in recent weeks that you do not need to issue equity capital at Tesla, and I think many investors on this call would say it's better to raise capital when you don't need to. So I guess the first question is...

Elon Reeve Musk - Tesla, Inc.

I disagree.

Adam Michael Jonas - Morgan Stanley & Co. LLC

Yeah, you may not need to, but do you want to?

Elon Reeve Musk - Tesla, Inc.

No. I specifically don't want to.

ValueAnalyst on Twitter

 

[shootformoon]

Short percentage of trading has been trending up for over 10 days now. It's been approaching 60%, which is about as high as it typically gets. It was around 30% in late June. It's no surprise then that good news - end of June model 3 production, China factory announcement - has been causing temporary climbs that don't hold. Bad news or possible concerns - June delivery numbers, Doug Field departure, analysts raising ongoing concerns about profits and sustainability of the production rate, concerns being raised about quality issues and cutting corners to achieve production - have been causing the stock to drop significantly. The short percentage of trading sometimes stays up high for a few weeks, but it isn't going up much from here. It can pretty much only go down from here. When that happens, it will relieve selling pressure on the stock. IMO, this is not the time to worry about a big dip from here. On the contrary, when the short percentage of trading has been low, and the stock has climbed, is more typically the time to be wary of a dip. I see today's dip from the early climb as shenanigans combined with day traders jumping.

I am not sure where did you find 60%. From what i see, none of the days in the last several months has more than 15% short volume.

 

[shootformoon]

Did you just call Elon a liar?

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Adam Michael Jonas - Morgan Stanley & Co. LLC

Thanks. Elon, so you repeatedly said I think in recent weeks that you do not need to issue equity capital at Tesla, and I think many investors on this call would say it's better to raise capital when you don't need to. So I guess the first question is...

Elon Reeve Musk - Tesla, Inc.

I disagree.

Adam Michael Jonas - Morgan Stanley & Co. LLC

Yeah, you may not need to, but do you want to?

Elon Reeve Musk - Tesla, Inc.

No. I specifically don't want to.

ValueAnalyst on Twitter

I think the point is, tsla can use 10B interest free loan right now. But given the current market rate to tsla, elon refused to borrow at this cost.

 

[Boomer19]

But really will a new plant in China be that expensive anyway? I doubt it would be much more than a billion, and they could spread that out over a few years.

i think it will me much more than 1bb USD

 

[Boomer19]

You mean, like when I was originally supposed to get my model 3 end 2019 and got it early 2018?

i love this, congrats! i can’t wait for mine. guessing about 40-60 days

 

[Boomer19]

sorry,
totally cross posting this bc i wonder what all of you think about the next 6-7 months

ok so we are in the dreadful under 330 range
what’s the play?

events - our expectations / timeline
5k sustain goal - week
6k ramp - end of july/mid august
Q2 earnings - not thrilling but mkt reacts weirdly sometimes
Q3 deliveries - anything less than 55k is prob bad (23-25k sx + ~30k 3s)
i expect over 60 with the holdovers from Q2 being delivered early July. 65+ would be nice.
Q3 earnings - cash flow + profit
Q4 deliveries - must be 70-75k most likely to be viewed as positive (who knows where the ramp is by Nov)
Q4 earnings - continuation of q3

3/19 conv bond maturity; see
Short Squeeze Strategy
Short Squeeze Strategy

add ons
TE margins increase and contribution to earnings
announcements or developments (gf3 financing)

macro events;
will trump get europe and china to come to some agreement?
what’s the timeframe for something like this?
does it get worse before it gets better?

part of me thinks with short interest so high and good news on the horizon that it will take lots of ammo to keep SP suppressed at 300 or below. that said, we’re in for a sh!tstorm of epic proportions coming up from the usual enemies.

1) i think 30% chance we have opportunites below 300 before October. the vacuum between now and good news combined with unfavorable mkt conditions may allow some downdraft. i’m not sure it goes deep into 2s without macro fallout, but it could spike down like it has earlier this year. obv the face of tesla now is different even then a few months ago. that’s why i think maybe 250 is out, but 275 spike is possible on FUD combined wit macro.

2) 40% chance we, for the most part, stay in the dreaded 305-330 range until then. to me, this is two forces pulling in opposite directions. good news anticipation with fud ambush. this is because of the setup to keep stk below 360 for bond conversion (again, see the links and time put in by neroden) - forcing tesla to pay 900mm cash. if they can keep us down here now, then they may be able to fend off 360 when (nov-jan) the good news is really flowing...Q4 deliveries and Q4 earnings outlook will be expected to piggy back off of the prior Q3 earnings and deliveries. they’ll have ~30 point cushion to battle off good news.

3) then i guess the remaining 30% would be 335-375 (a wider range because of the consequences of good news and volatility of fud)

of course, i’m hoping tesla overcomes some major challenges and starts blowing out M3s like hotcakes...even then - the above may be the same because of the consequences of such high short %. it won’t be an easy battle.

...please share opinions on this as well
whether the estimates or the stock swings or all - thanks!

(those only LT investors prob think it’s silly to fret over this, but i do ST and LT so that’s why i waste my time with this)

This is how much Tesla could move ahead of earnings next month

- “massive bull bear debate”
- “talk about until we’re blue in the face”
- “may not resolve itself until 2020/2021”

3rd point i don’t agree with as much.
the war won’t be resolved. each stage is a battle. battles will be resolved at every iteration of tesla’s evolution/incremental failure

 

[Moderatefan]

EAP alone is 8% GM with a 60k ASP.
P base is 11k over AWD for motors with more testing and an interior option. That is basically pure profit, 17.5% GM on a 63k P.
P EAP is 16k of free-ish options on a 68k car or 23.5% GM ignoring base model gross margin.

You might be right about P, I did not look up in the past what was included in 11k.

But don't agree with 8% on EAP. It's separate from P and EAP 8% is gross revenue, not margin.
To enable it, there's a cost of cameras, radars, and ultrasonic. And since when software development is free? I'm sure the software team gets hefty salaries, benefits, and office space.
If hardware cost is not embedded in the $35k base price, then those who buy EAP must pay for themselves and the other guy, who didn't buy EAP.

 

[Cosmacelf]

Did you just call Elon a liar?

---------

Adam Michael Jonas - Morgan Stanley & Co. LLC

Thanks. Elon, so you repeatedly said I think in recent weeks that you do not need to issue equity capital at Tesla, and I think many investors on this call would say it's better to raise capital when you don't need to. So I guess the first question is...

Elon Reeve Musk - Tesla, Inc.

I disagree.

Adam Michael Jonas - Morgan Stanley & Co. LLC

Yeah, you may not need to, but do you want to?

Elon Reeve Musk - Tesla, Inc.

No. I specifically don't want to.

ValueAnalyst on Twitter

Oh geez. At current market rates, Elon does not want to raise money, but if someone waved a ten year $1B bond at 3% interest, he would take it. Got it?

 

[Moderatefan]

P3D buyers being potential MS buyers. From the perspective based strictly on the purchase price, possibly. However, using BMW as an example. The BMW M3 and their 5 series prices overlap. Does this mean that the 5 series sales have been hurt by people buying the M3? No, and for the same reason. Both BMW's M3 and Tesla's P3D are a niche market.

I know what people think about the site, but article written by a LONG: Tesla: Get Ready For A Huge Third Quarter; Dips Are Now Buying Opportunities - Tesla, Inc. (NASDAQ:TSLA) | Seeking Alpha
there's this suggestion:

The Model S saw a slight drop in sales of 9% YoY. This was more than offset by the 13.7% higher sales of the Model X vehicle. This suggests that some potential Model S buyers are purchasing the Model 3 instead.

 

[Sudre]

I am not sure where did you find 60%. From what i see, none of the days in the last several months has more than 15% short volume.

It comes from here. I little more reliable than someone with 9 posts.
Read thru the whole thread and you will understand where the numbers come from.

Daily TSLA Trading Charts

 

[CuriousSunbird]

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...

This is from November - so a little dated (and obviously written at a time of lower rates) but still relevant.

Firstly, the debt is much more expensive. A recent (September) 8-year bond issue by a Caa1/CCC+ corporation (Golden Nugget, Inc.) priced at 8.75%, more than 3% higher than Tesla's August issue.

Secondly, there is much less capital. Most high yield indices and institutional high yield investors allocate much less capital to C range investments than to B range investments. According to peritusasset.com, the high yield bond market in the US has total issuance of approximately $1.6 trillion. Again according to Peritus, high yield issuance is running at about $29 billion monthly. While it is difficult to establish how much went to each rating level, an approximate amount may be found by looking at two of the largest high yield aggregators - JNK, which tracks the Bloomberg Barclays High Yield Very Liquid Index, and the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA:HYG), which tracks the Markit iBoxx USD Liquid High Yield Index.


In the case of JNK, the allocation is...:



... while in the case of HYG, it is:



This suggests that the monthly pool of available capital for Caa/CCC issuance is around 12-15% of the $29 billion, thus around $3.5-4.4 billion, while the pool for B/B is $11.6-12.2 billion - almost 3 times larger. If Tesla, subsequent to a downgrade, sought to issue the same amount of bonds as it did in August, it would be soaking up approximately half the monthly available funds for the entire country - not a realistic prospect. And it seems likely, after the August experience, that the retail fan base will have discovered the unpleasant truth about low-rated junk bonds - you get much of the downside of the equity and none of the upside - so they will not be there to provide additional funds.

 

[mongo]

You might be right about P, I did not look up in the past what was included in 11k.

But don't agree with 8% on EAP. It's separate from P and EAP 8% is gross revenue, not margin.
To enable it, there's a cost of cameras, radars, and ultrasonic. And since when software development is free? I'm sure the software team gets hefty salaries, benefits, and office space.
If hardware cost is not embedded in the $35k base price, then those who buy EAP must pay for themselves and the other guy, who didn't buy EAP.

If a purely base short range rear wheel drive 3 is profitable, then EAP is pure profit.
Other thoughts: R&D is expensed separately and is a fixed, not variable cost, SW duplication is free, and most of the HW is needed for safety features.

 

[shootformoon]

It comes from here. I little more reliable than someone with 9 posts.
Read thru the whole thread and you will understand where the numbers come from.

Daily TSLA Trading Charts

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.