TSLA Market Action: 2018 Investor Roundtable

[theschnell]

My thoughts on market action going into end of quarter.

Bullish:
Relatively low market expectations for profitability
Relatively low bullish sentiment overall
Deliveries meeting / exceeding guidance.
ASP higher than anticipated.

Bearish / Neutral
Market / Press again ignores growth and overall revenue and makes comparisons of present deliveries with traditional auto.

So leaning towards bullish but as always could go either way.

 

[winfield100]

I'm in Chicago land and frankly you're not wrong. Solar is not that great. Until you add an electric car or two. My rates were awesome at 10.5c/KWh before solar and about 4.5c after. When you migrate $400/month in fuel cost to $200/month in New electricity cost, on top of the original $150/mo. Solar starts to look real good. Now I pay less than $100/mo. And that covers two EVs and my home. Net savings around $275/mo. $35k system, half paid for by invectives (Fed tax credits and srec program) leaves about $17,500/12 mo /$275 savings per month = just over 5 year pay pack. The system will generate for 25+ years and electricity rates always go up, so the long term value is more then $60k+ in total net payback even though there will be some degrading of production.

Elon was right. People will eventually understand why acquiring solar City was important and required.

Residentual solar is only a tiny part of the equation. Super and mega charging, if converted to solar and battery, would give Tesla a cost closer to 5c/KWh, allowing for 30% GM for megachargers. If all where converted, Tesla would instantly become the largest most profitable utility on the planet with a highly captive customer. Don't be fooled, Tesla does not have to put the panels on the chargers, they can work deals with utilities to provided offsets and energy in smart ways so that an equivalent amount of charging is offset by smarter grid tech. In theory, 50,000 solar + powerwalls could be used to offset supercharging for a large City, and much of the mega charging will be done at the customers distribution centers and where they unload at say a local Walmart. Tesla will install solar + battery in partnership with customers. And they will be happy to do it, because the batteries and solar will be used for then entire distribution hub or store and will save them even more then switching to Tesla semi alone.

Tesla's biggest issue today is not demand, it's opportunity loss due to but being able to expand fast enough. Model 3 is totally consuming every cell they can make. Semi will require 100GWh for 100k semis per year. That is almost 5x the cells they make today at GF1. Staying public was probably the only way to realistically get the funding required for this kind of expansion.

The Australia Tesla "big battery project"
Revealed: True cost of Tesla big battery, and its government contract
""That suggests that the battery is on track to earn more than $25 million in revenues in its first calendar year – although its profit margins on that project are not made clear.""

Also, distributed generation w/batteries, etc. Australia seems to be leading the way, with many at their heels, although California is going faster

Big switch: Distributed energy to overtake centralised power by 2018

Also here
look specifically at PV modules shipped and gigawatts of electricity produced spreadsheets
U.S. States - Search - U.S. Energy Information Administration (EIA)

California 4,100 Giga watt hours

 

[neroden]

List of things Tesla needs capital for:

You left out the needed OpEx increases:
-- hiring new, better programmers to manage their sales/production/transportation/delivery database
-- hiring competent delivery specialists (there are some great ones, and then there are the MIA ones who they have to fire and replace, and they need more total)
-- hiring a competent programming team to maintain the media player
-- installing functioning bug tracking systems for their software

 

[Fact Checking]

That model is too conservative on top line and ASP, but probably underestimating SGA expenses. energy margins may be flat to worse where I remember the model assumes improvement. But overall, I am thinking it will still be a few cents of gaap profits.

So, while I don't talk for @luvb2b nor his model (here's the latest Q3 and Q4 estimates of @luvb2b), let me attempt to address your observations:

• For Model 3 ASP @luvb2b is using $60k, which is the current measured value in Troy's spreadsheet. Note that ASP probably increased gradually in Q3, so it might improve by another $1k by the end of the quarter, but the later the sale the less total effect it's going to have on this quarter.
• The Model S/X ASP figures are in line with user reported estimates AFAICS.
• Top line sales/revenue is conservative as it assumes 50k Model 3 deliveries, right at the lower end of the guidance range.
• Q3 opex increases somewhat in the model - contrary to Tesla's guidance of 'roughly flat opex', but Tesla's track record in terms of controlling opex is atrocious.
• I think both energy sales and margins are guided to be improving - but indeed Energy/Storage is mothballed right now, waiting for the 2170 cell ramp-up and for a credit upgrade to continue leasing programs. Any further contraction in Energy would probably improve net income and cash flow, given that Energy margins are currently worse than the expected automotive margins.

The model still gives much better Q3 results than current Street estimates, so it's not like there's any big pressure to make it more optimistic - if it's in the right ballpark it will still be the most accurate model, by far.

Also, @luvb2b tends to make conservative estimates before the delivery report and then updates his model to the precise delivery figures (to be released in ~6 business days) - which is a prudent approach.

 

[generalenthu]

Also, @luvb2b tends to make conservative estimates before the delivery report and then updates his model to the precise delivery figures (to be released in ~6 business days) - which is a prudent approach.

Agree that it's a good idea to keep the estimates prudently conservative like she does.

 

[bonnie]

Going to be called cynical again (hehe), but the original question was a plant. That's just how social media works these days.

It wasn't a plant. Volunteering was proposed by your fellow TMC forum member, Ryan McCaffery (host of Ride the Lightning). Ryan and I have been in contact multiple times since Elon responded - and he was blown away by how many people are jumping in.

Good to be cynical at times , but this isn't one of those times.

 

[Open Interest]

Yeah, and we should also remember how mindbogglingly simple EVs are mechanically and power-train wise.

I know nothing about cars. I am not a car person. I came to this forum a couple of years ago as an investor, and I’ve rarely strayed off the investor threads.

But, thanks to you guys and some research, I became interested in the M3. After I began seeing them all over the Bay Area, I was completely seduced.

Yesterday I spent a good part of the afternoon at the Tesla store in Walnut Creek, where a very patient salesperson explained everything about the car, how it works, what the recharging options are much more. And also the low maintainence costs. Fact Checker’s post above is both timely and very appreciated.

The next step will be a test drive, which I have not yet scheduled, and I think a factory tour would be very interesting. I LOVE THIS CAR - and I really have never cared about cars, except to get me from point A to B reliably.

As a single mother who just finished putting the last of three kids through college, “frugal” is my middle name. Purchasing a car at this price point has never been an option for me. Now, while financing a retirement looms, I need to figure out how to finance this car. I think maybe in the next year or two, I could really own a Tesla.

And I’m stoked

Part-time mod: fixed quoting, hope I got it right. --ggr

 

[Open Interest]

sorry, did not mean to put my whole post in FC’s quote

 

[Fact Checking]

List of things Tesla needs capital for:

1) Finishing Fremont scaleup for Model 3
2) Finishing Giga 1 scaleup for Model 3 and other battery devices
3) Getting Giga 2 up to meeting its obligations
4) Giga 2 scaleup
5) Giga 3 (Shanghai)
6) Giga 4 (Europe)
7) Model Y
8) Semi
9) Roadster
10) Increasing density of stores
11) Increasing density of service centres
12) Converting service centres to also be body shops
13) Major expansion of the mobile service fleet
14) Massive expansions to the supercharger network in its current locations, which will increasingly outgrow its capacity as the flood of vehicles continues
15) Expanding stores, service centres and superchargers into new markets all over the world.
16) Lowering margins (for example, undoing some of their recent Model 3 options price hikes)
17) Opening up lower margin Model 3 variants
18) Eventually, advertizing
19) "The $25k Tesla"
20) "Future products" (smart home integration hardware, electric aircraft, etc)
21) More gigafactories
22) Dramatically expanded production of grid products

But oh no, we're supposed to support dumping cash in order to make options traders happy...

I fully agree. In an attempt to put a dollar figures to future capex needs, my current estimates for all those items are the following:

1. Fremont Model 3 scale-up to "8k or beyond" was estimated in the 'incremental capex in the tens of millions'
2. Giga 1 scale-up capex is largely spent already, via Grohmann expenses and the 3 Grohmann machines that are arriving this year and which will increase Model 3 battery module throughput to beyond 10k/week. This spending is probably included in their ~650m/quarter capex cash outflow they guided for Q3 and Q4 already.
3. Giga 2 is mostly finished I believe, but Energy/Storage mothballed as it's hard to originate long term leases which solar requires while being downgraded. It would explode after a Moody's upgrade, possible later this year or early next year. (They might be waiting for Tesla to pay the March 2019 convertible notes first.) Storage growth depends on Giga 1 2170 output. No significant capex needed there I believe.
   
4. Giga 2 (solar) scale-up will be self-financing I believe, i.e. conditional on the previous items.
5. Giga 3 will be financed via non-recourse local loans secured against the factory I believe - i.e. only a fraction of the $2b guided total capital will be required to be provided by Tesla. The $680m capital Tesla registered with their Shanghai company recently is very close to a third of $2b - i.e. they might already have financing lined up for the whole $2b, once their provide their own capital as skin in the project.
6. Giga 4 Europe seems less advanced as Giga 3, but I suspect Tesla will attempt a similar local financing construct.
7. Model Y: I'd not be surprised if Grohmann built their robotic lines for the Y.
8. Semi: I think this will be a surprisingly low capex project which re-uses as many components from the 3/Y flow as possible. The much lower unit count output will allow a larger proportion of manual labor and a lower count of assembly stations.
   
9. Roadster 2 is a prestige project, with no mass manufacturing needs, with very little capex expected.
10. Store expansion: I think this will happen organically and in a self-financing fashion as Model 3 sales spread and grow. Note that the U.S. market is currently overwhelmed, the rate of sales will be lower once this initial storm is over and sales spread globally.
    
11. Service center density: while some of this will be necessary, it's already been done to a certain degree as a preparation for the Model 3 and can now be utilized. Service center problems seem to be concentrated on a few geographical hot-spots. I also think that Model 3 service intensity might be lower than expected.
12. Body shops: I actually think this is a new business segment which should generate income with healthy margins, while increasing customer satisfaction. The biggest capex would be painting facilities and any space expansion.
13. Expansion of the mobile fleet: see #11, but this too can grow as the fleet grows.
    
14. Supercharger contention will I think be managed via the idling fees and via Supercharger pricing. I'd expect big Supercharger 3 announcements later this year, which could further speed up the charging on modern battery packs, and reduce average stall time, with only incremental capex.
15. See #10.
16. Tesla is still, and is going to be for years, the owner of a natural monopoly, the luxury EV market. Price hikes and reductions purely balance revenue against income. In that sense Tesla uses options pricing not to increase/decrease absolute demand mainly, but to shift demand between models and options, to maximize margins.
17. Lower margin Model 3's might turn out to generate sales of near 100% software options and might improve margins. The key I believe is a convincing demonstration of self-driving features using the Tesla AI chip NN platform. So I'd expect a big surprise in this area, the economics might turn out to work against conventional wisdom.
18. I don't think Tesla will advertise for years to come, except the occasional Superbowl ad perhaps - they have utilized social media effects perfectly so far.
19. The $25k Tesla might never happen as a new car platform, instead we could see a gradual reduction in Model 3 base pricing to perhaps $30k or $29k. Lower mass cars have trade-offs in safety, and I'm not sure Tesla should be making compact cars.
    
20. "Future products": I'd expect these to flow out from the massive free cash flow Tesla is going to generate by the beginning of 2019.
21. More Gigafactories: if Tesla can leverage local versus self-financing in a 80%:20% degree then that won't require nearly as much capital as their existing Gigafactories.
22. Grid products: if you mean Storage products then yeah, but I think this is mainly gated on 2170 cell output, storage is not nearly as capital intensive like automotive. I.e. marginal cost of grid storage solutions of 125%-150% of the cell cost should be achievable. For automotive the Model 3 marginal cost is like 300%-400% of the marginal cell cost... I.e. I don't see very high capital costs, unless Tesla wants to start making their own cells. (Which I'd advise against - they should buy/merge Panasonic instead.)

I.e. overall the future capex requirements are surprisingly low - but I do agree that Tesla should use all free cash to expand, and I think they will do so.

 

[KarenRei]

Quick question: around when can we expect Q3 deliveries numbers?

 

[davecolene0606]

I'm in Chicago land and frankly you're not wrong. Solar is not that great. Until you add an electric car or two. My rates were awesome at 10.5c/KWh before solar and about 4.5c after. When you migrate $400/month in fuel cost to $200/month in New electricity cost, on top of the original $150/mo. Solar starts to look real good. Now I pay less than $100/mo. And that covers two EVs and my home. Net savings around $275/mo. $35k system, half paid for by invectives (Fed tax credits and srec program) leaves about $17,500/12 mo /$275 savings per month = just over 5 year pay pack. The system will generate for 25+ years and electricity rates always go up, so the long term value is more then $60k+ in total net payback even though there will be some degrading of production.

Elon was right. People will eventually understand why acquiring solar City was important and required.

Residentual solar is only a tiny part of the equation. Super and mega charging, if converted to solar and battery, would give Tesla a cost closer to 5c/KWh, allowing for 30% GM for megachargers. If all where converted, Tesla would instantly become the largest most profitable utility on the planet with a highly captive customer. Don't be fooled, Tesla does not have to put the panels on the chargers, they can work deals with utilities to provided offsets and energy in smart ways so that an equivalent amount of charging is offset by smarter grid tech. In theory, 50,000 solar + powerwalls could be used to offset supercharging for a large City, and much of the mega charging will be done at the customers distribution centers and where they unload at say a local Walmart. Tesla will install solar + battery in partnership with customers. And they will be happy to do it, because the batteries and solar will be used for then entire distribution hub or store and will save them even more then switching to Tesla semi alone.

Tesla's biggest issue today is not demand, it's opportunity loss due to but being able to expand fast enough. Model 3 is totally consuming every cell they can make. Semi will require 100GWh for 100k semis per year. That is almost 5x the cells they make today at GF1. Staying public was probably the only way to realistically get the funding required for this kind of expansion.

This exactly, power prices in FL are very similar. When we added 3 cars to our PV equation the payback changed radically.

One more aspect to consider is retirement. If one takes into account the cash flow required to power ones home and “fuel” ones transportation, a set amount of capital has to be set aside at X return to provide for that cash flow. For us, it’s about $80k counting on a 5% roi taking taxes into account makes the roi requirement a bit higher.

So, $80k on the roof or with my wealth manager? Short answer to me, roof.
Fixed cost of energy for 25-30 years
Zero market risk
Zero risk of tax increase on income
Significant chance of beating a low risk market investment roi

Peace of mind.... priceless

Am I missing something here? It seems to me that putting on ones roof is better than adding an extra IRA or Roth once one has maxed out other retirement funding options.

Thoughts?

Fire Away!

 

[neroden]

1. Service center density: while some of this will be necessary, it's already been done to a certain degree as a preparation for the Model 3 and can now be utilized. Service center problems seem to be concentrated on a few geographical hot-spots. I also think that Model 3 service intensity might be lower than expected.

Really hasn't.

Tesla has to double the number of service centers in the US just to have geographic coverage. Service center problems are *nationwide*, in that people who live too far from a service center are finding service difficult, and no, mobile service doesn't solve the problem.

There is no plausible alternative to doubling the number of service centers. After that, they're close to done (a few big-city centers need to be larger, but really that's it). But they have to do the doubling.

 

[NicoV]

That was a rhetorical question, no?

Actually not rhetorical. Maybe it’s irresponsible to let 2 young drivers drive a Model 3. OTOH, if they ever get hurt driving the Prius, I will blame myself for not replacing it with a Tesla that could have saved them.

 

[Mader Levap]

Might the downside be some people will actually belief these Shortsville Times sarcasms as real?

They can put in account description "Parody account" or something. If someone is still stupid enough to fall for it even with this kind of disclaimer, they are beyond help anyway.

I like touch of that one pro-Tesla bright person that posted this. Oh irony!

Strangely i agree with Don Bailey. Sending any M3s to China this year even for showrooms, simply doesn't make sense.

Right now they are in delivery hell, not production hell. They can spare few M3 for other purposes.

 

[ggr]

Quick question: around when can we expect Q3 deliveries numbers?

It's usually two working days after EOQ, and since Oct 1 is a Monday, I expect after hours on the 2nd. But if I was TSLA management, I'd try really hard to release the good news on Monday night or before market open Tuesday.

 

[shootformoon]

I'm in Chicago land and frankly you're not wrong. Solar is not that great. Until you add an electric car or two. My rates were awesome at 10.5c/KWh before solar and about 4.5c after. When you migrate $400/month in fuel cost to $200/month in New electricity cost, on top of the original $150/mo. Solar starts to look real good. Now I pay less than $100/mo. And that covers two EVs and my home. Net savings around $275/mo. $35k system, half paid for by invectives (Fed tax credits and srec program) leaves about $17,500/12 mo /$275 savings per month = just over 5 year pay pack. The system will generate for 25+ years and electricity rates always go up, so the long term value is more then $60k+ in total net payback even though there will be some degrading of production.

Elon was right. People will eventually understand why acquiring solar City was important and required.

Residentual solar is only a tiny part of the equation. Super and mega charging, if converted to solar and battery, would give Tesla a cost closer to 5c/KWh, allowing for 30% GM for megachargers. If all where converted, Tesla would instantly become the largest most profitable utility on the planet with a highly captive customer. Don't be fooled, Tesla does not have to put the panels on the chargers, they can work deals with utilities to provided offsets and energy in smart ways so that an equivalent amount of charging is offset by smarter grid tech. In theory, 50,000 solar + powerwalls could be used to offset supercharging for a large City, and much of the mega charging will be done at the customers distribution centers and where they unload at say a local Walmart. Tesla will install solar + battery in partnership with customers. And they will be happy to do it, because the batteries and solar will be used for then entire distribution hub or store and will save them even more then switching to Tesla semi alone.

Tesla's biggest issue today is not demand, it's opportunity loss due to but being able to expand fast enough. Model 3 is totally consuming every cell they can make. Semi will require 100GWh for 100k semis per year. That is almost 5x the cells they make today at GF1. Staying public was probably the only way to realistically get the funding required for this kind of expansion.

I agree that the entire energy generation, storage and usage strategy by Elon is cost effective and sustainable. What i still have doubts is the solar panel part. solar panel is really commodity now and tesla does not have the scale to be cost competitive. In the picture you described, there is no point to use tsla solar panel, any competitive solar panel on the market now can fit in the picture. GF2 is under used for sure and I am not opportunistic about it any time soon. On another thought, why they not consider move some of the battery production and some m3 production line there? freemont has no space anyway.

 

[LordAstinus]

Quick question: around when can we expect Q3 deliveries numbers?

1st - 3rd October. Around 8:30am or 16:10 (pre and post-market).
1st and 2nd of October more likely.

 

[KarenRei]

It's usually two working days after EOQ, and since Oct 1 is a Monday, I expect after hours on the 2nd. But if I was TSLA management, I'd try really hard to release the good news on Monday night or before market open Tuesday.

Great - after hours is good for me. I'm time-shifted from NYC and my broker is only available during local business hours, so after hours means I can plan out sell points to set for the next day Doesn't really matter which day, so long as it's after hours.

(I'm operating on the premise of beating market expectations, causing a temporary surge, which the shorts will then FUD back down - because we've seen this story a million times)

ED: I could deal with pre-market timing for the release as well. Just so long as it's not late day while the market is open

 

[KarenRei]

Really hasn't.

Tesla has to double the number of service centers in the US just to have geographic coverage. Service center problems are *nationwide*, in that people who live too far from a service center are finding service difficult, and no, mobile service doesn't solve the problem.

There is no plausible alternative to doubling the number of service centers. After that, they're close to done (a few big-city centers need to be larger, but really that's it). But they have to do the doubling.

Here in Iceland, while we have the second highest EV adoption rate in the world (after Norway), few people buy Teslas because the nearest service centre is a week's round trip ferry ride away.

You just can't have such a low density of service centres if you want to become a true international mass market car. Its just not acceptable. Tesla needs to keep expanding its market, and to do so, it needs to expand service.

 

[Intl Professor]

Ever heard of somebody dying of rainstroke?

I think the deaths from rainstroke Florence have reached about 65 or so and still counting.