TSLA Market Action: 2018 Investor Roundtable

[LordAstinus]

$TSLA short interest is $8.16 billion, the 4th largest U.S. short behind $AAPL, $AMZN & $QCOM; 32.58 million shares shorted; 25.55% of float. 1.2 million shares covered over the last week as #Tesla's stock price fell 17%. Shorts up $416 million in mark-to-market October profits

Ihor Dusaniwsky on Twitter

The information above refers to end of day yesterday (2018-10-08), at a price of ~$255.

There were 32.39 shares shorted at $291, around 2018-10-03. That's when it seems that most of the net covering happened. Now I think that smart shorts keep covering and dumb shorts are shorting, so almost no net change.

It is my theory that most of the drop from $291 has been caused by some institutional shareholders dumping shares to decrease the risk.

What I think could be consequences, if I'm right about the above:

1. Very robust entry point for new longs.

2. A good portion of the longs that have entered the stock are likely to be stronger, as the current volatility and risk are high, it should require way stronger perceived risk to sell. Another portion have seized the opportunity and may sell after earnings call or if there's a rally before it.

3. On the other hand, the proportion of weak/retail shorts has probably increased, shorting at low prices. These shorts should start feeling the heat if we get close to $300 and may start covering if that resistance is broken. They may cover for fear or simply because of a margin call, as they have shallower pockets than institutional shorts.

4. Even if smart shorts are getting new dry powder, there's a limit on how many shares they can short. They'd be in a way better position if at this stage only 15/20 million shares were shorted. Having 32 million shares shorted, means that they can only short around 10 extra million shares. I believe that at this stage the institutional shareholders have dumped way more than that in the last 3 months and with a significantly weaker sentiment.

5. We may witness a change in sentiment similar to what happened in the annual shareholders meeting, back at the beginning of June, in the coming weeks. If that happens, the 4 points above should favour a stronger rise.


All in all, the situation is better than I thought. A potential risk is that maybe institutional shareholders haven't stopped dumping their shares and are just waiting for it to raise a bit to decrease loses or increase profit during the dump.

 

[Nocturnal]

In for another 24. :/ This stock is either going to let me retire 10 years early or set me back 5 years.

 

[Foghat]

Probably not realistic. I expect US model 3 sales to dip as Tesla begins refocusing on high-margin config buyers overseas rather than pushing down to lower margin versions in the US to maintain demand, until production catches back up. And then you'll start to get competition from the Y, taking away some potential 3 sales.

Now, a $25k MSRP Tesla, that Musk teased about for 3 years from now (read: 4-5 years from now )? Yeah, that could totally do it.

Did anyone notice that blockbuster line to see the Model 3 in Paris?

There is a lot more ramp globally. Way more then 10k/week in my opinion.

Btw, the M3 is already the highest grossing car in America right now.

Another tip, they like to qualify it as top “luxury” or top EV car, but the truth is it is the fastest growing, highest grossing car period this is astronishing as it is also the safest car in the world as well.

It just goes to show how pervasive the “Cramer manipulation” media has roots in our system. It’s so obvious that something must be done. This is not good for the economy, it’s not good for business development in the public market place, it’s not good for honest people trying to achieve great things in this world. Tis time for an ethical renaissance.

 

[Nocturnal]

Did anyone notice that blockbuster line to see the Model 3 in Paris?

There is a lot more ramp globally. Way more then 10k/week in my opinion.

Btw, the M3 is already the highest grossing car in America right now.

Another tip, they like to qualify it as top “luxury” or top EV car, but the truth is it is the fastest growing, highest grossing car period this is astronishing as it is also the safest car in the world as well.

It just goes to show how pervasive the “Cramer manipulation” media has roots in our system. It’s so obvious that something must be done. This is not good for the economy, it’s not good for business development in the public market place, it’s not good for honest people trying to achieve great things in this world.

Outselling the corolla is certainly an accomplishment for a "luxury" car.

 

[ev-enthusiast]

Probably not realistic. I expect US model 3 sales to dip as Tesla begins refocusing on high-margin config buyers overseas rather than pushing down to lower margin versions in the US to maintain demand, until production catches back up. And then you'll start to get competition from the Y, taking away some potential 3 sales.

Now, a $25k MSRP Tesla, that Musk teased about for 3 years from now (read: 4-5 years from now )? Yeah, that could totally do it.

In 2017 Toyota sold 387,081 Camry vehicles in the US (link).
It might take some time to beat that and Tesla will start international deliveries in the meantime, I agree.

 

[bdy0627]

I'm convinced the reversal is COMING, just not convinced that THIS is the move. There is a significant need to retest the 2017/2018 technical lows of 240/244. Without that, it will always be a concern. I'd REALLY like to re-test it and then within five trading days close clearly above 267$.

There is a reason that so many price targets are somewhere between 185-230$, and it's not just FUD trying to push the share price down.

Many/most of those existing price targets have been pretty much in that range for several years, way before that April $244 low. I don't recall seeing any previously bullish targets that have been reduced all the way into that range, but it's possible there could be 1 or 2. For the most part, analysts have remained bearish/bullish over time.

 

[phil0909]

my guess is that it means nothing. The problem is using a proxy like that is weak evidence. Still, I'd be happy if we had short selling at this price. More pain for the shorts later

Seems needlessly unkind. I would wish success for any investor, long or short.

 

[tivoboy]

Probably not realistic. I expect US model 3 sales to dip as Tesla begins refocusing on high-margin config buyers overseas rather than pushing down to lower margin versions in the US to maintain demand, until production catches back up. And then you'll start to get competition from the Y, taking away some potential 3 sales.

Now, a $25k MSRP Tesla, that Musk teased about for 3 years from now (read: 4-5 years from now )? Yeah, that could totally do it.

While I agree, we probably won't see a USA 35K model for easily 6 months (other than possibly a few token cars delivered in Q1/19, I don't think the push will be for high margin cars internationally. There is enough demand domestically for those models and with an international car there is at LEAST A 8-12 week lag between production and revenue due to shipping domestic, shipping by boat to Europe, importation, shipping on the island or continent, prep and delivery. Tesla can cut that in half domestically and realize the revenue IN CQ4 more quickly. That will most likely be their priority into H1/19

 

[brian45011]

I politely but strongly disagree. Its an often repeated narrative that the bond market evaluates risks better and this is certainly true for almost every company but Tesla.

Don't believe a second that a Bond investor is better informed about Tesla versus anybody else. They read the same nonsense and come to the same wrong conclusions from the balance sheet and quarterly numbers as many other. Also forward looking assessments in a high growth company is clearly not their field of expertise. Actually I believe they don't even try.

Cramer is repeating all the times talking about Tesla "Bond investor know better". In the context of Tesla thats just a complete wrong assumptions.

Better is to ignore them for now. In that respect the Bond rates tell us nothing I am afraid.

No problem. Differences in assessing risk is what makes markets. Bond holders are more conservative because most are intent on the return of their capital.

 

[phil0909]

Day 6 after last crazy tweet...big guns coming to Tesla's defense...Don't muck this up Elon!

Who are the guns?

 

[M3Rider]

Ok, I had a (very) quick look at "Smack Check's" estimates with 'bear glasses on', and the biggest problem I can see is the revenue estimate, which doesn't hold up:

• For some reason he uses an unrealistically low Model S+X ASP estimate of $93k. The real number is closer to $104k, as luvb2b's modeling shows, which gives a perfect match for Q1 and Q2 reported numbers. (BTW., luvb2b estimated Q2 revenue at a better than 99% accuracy and posted it to the thread, weeks before the earnings report.) This is one of the biggest contributory factors I can see: $400m inexplicably missing from the income side.
• From this point on the estimates go downhill:
• In the "low" case he estimates $90k ASP for Model S+X, despite Tesla reporting record high S+X orders, i.e. high demand.
• In the "low" case he estimates a Model S/X gross margin of 20%. This is simply not happening:
  • Tesla reported 28% gross margin for Q2,
  • Tesla reported record strong new order inflow for S+X,
  • The 3x unit count of Model 3 shifts some of the costs away from the S+X, further improving S+X gross margins due to fixed costs of shared facilities such as the paint shop shifting the cost accounting towards Model 3, and also better utilization of existing infrastructure.
  • A fully loaded Model 3 Performance overlaps in ASP with the least expensive Model S variant - which probably resulted in a shifting of Model S sales towards higher priced variants. That too improves both Model S and Model 3 margins.
• I.e. maybe, maybe a 25% gross margin for the Model S+X could be seen in a bear scenario - but it would be a major miss.
  
• In the "low" case he estimates a Model 3 gross margin miss of 12.5% instead of Tesla's 15% guidance - despite:
  • Tesla guiding a 30% reduction in labor overhead for the Model 3 in August and other efficiency improvements,
  • much stronger than expected AWD and EAP sales which shifted sales towards higher margin options and higher ASP,
  • several rounds of price hikes to get explosive demand under control, such as AWD price increase from $4k to $5k
  • much better economies of scale due to a 3x increase in Model 3 deliveries.
  • they significantly exceeded guidance in both production and deliveries, which increases margins
• I.e. maybe a 14% gross margin for the Model 3 could be taken as the 'low' point.
• He also doesn't seem to be taking into account significant reductions in both S+X and Model 3 inventory.
• He doesn't seem to be considering the possibility of deferred revenue recognition.
• But the biggest flaw of all, as it relates to the claim you made: he doesn't seem to be performing any cash flow analysis, only income analysis. You cannot come to any conclusions about ability to make future debt payments if you don't estimate the cash position of Tesla. A lot of the GAAP expenses are accounting fictions that matter in terms of GAAP profitability (such as stock compensation or depreciation/amortization) but have little relevance to their ability to pay back debt and grow. Amazon was running very low profits for 20 years and somehow still became a trillion dollar company through strong cash generation.

I.e. the 'low' case would be, if everything went absolutely wrong in Q3: 14% M3 margin, 25% S+X margin, slight S+X ASP drop of say $103k, and all the cost increases in his calculation - but still this would be a narrow loss of maybe -$100m, but with still good cash flow with $400m-$500m.

His 'high' scenario is suffering too, $250m ZEV credits are very unlikely IMO, and the $65k Model 3 ASP just isn't happening, nor do the opex reductions - Tesla guided 'mostly flat' opex and Tesla has a track record of an opex optimist. But the big S+X ASP mistake and revenue shortfall on that side makes up for most of the unrealistic upsides from the 'high' estimate.

Pretty good points. Small correction to

"several rounds of price hikes to get explosive demand under control, such as AWD price increase from $4k to $5k"

It actually went $4k-->$6k, but I think the impact to Q3 from this will be minimal, b/c reservations that ordered 6/27-6/30, which probably was 90% of all waiting for AWD got a $4k price and their numbers were greater than could be accomodated in Q3, which can be easily seen in delivery threads with many of those orders still waiting in October. Tesla did allow a bunch of people to jump the line and get their deliveries 2 weeks after the order(no reservation) - I assume due to logistics issues and just doing whatever is possible to move inventory by Q end.
I think such line jumpers would be limited to 5-10% of deliveries, these could have gotten $5k-6k price. Mostly the effect of price hikes will manifest in Q4.

 

[bdy0627]

The information above refers to end of day yesterday (2018-10-08), at a price of ~$255.

There were 32.39 shares shorted at $291, around 2018-10-03. That's when it seems that most of the net covering happened. Now I think that smart shorts keep covering and dumb shorts are shorting, so almost no net change.

It is my theory that most of the drop from $291 has been caused by some institutional shareholders dumping shares to decrease the risk.

What I think could be consequences, if I'm right about the above:

1. Very robust entry point for new longs.

2. A good portion of the longs that have entered the stock are likely to be stronger, as the current volatility and risk are high, it should require way stronger perceived risk to sell. Another portion have seized the opportunity and may sell after earnings call or if there's a rally before it.

3. On the other hand, the proportion of weak/retail shorts has probably increased, shorting at low prices. These shorts should start feeling the heat if we get close to $300 and may start covering if that resistance is broken. They may cover for fear or simply because of a margin call, as they have shallower pockets than institutional shorts.

4. Even if smart shorts are getting new dry powder, there's a limit on how many shares they can short. They'd be in a way better position if at this stage only 15/20 million shares were shorted. Having 32 million shares shorted, means that they can only short around 10 extra million shares. I believe that at this stage the institutional shareholders have dumped way more than that in the last 3 months and with a significantly weaker sentiment.

5. We may witness a change in sentiment similar to what happened in the annual shareholders meeting, back at the beginning of June, in the coming weeks. If that happens, the 4 points above should favour a stronger rise.


All in all, the situation is better than I thought. A potential risk is that maybe institutional shareholders haven't stopped dumping their shares and are just waiting for it to raise a bit to decrease loses or increase profit during the dump.

This is the third sub $255 drop in the past 6 months. Do you think this one is different than the prior ones in terms of institutional dumping? It seems to me it's mostly hedge funds swing trading along with momentum traders adding to it. It's extraordinary how there isn't really a battle at the reversal each time, particularly at the bottom. Almost as if the major players have silently agreed to trade it that way. It's certainly possible that some large institutions are dumping shares this time, but since we've seen this movie several times recently, it seems more likely to be happening for similar reasons rather than new ones. That's my thought anyway.

 

[tivoboy]

Many/most of those existing price targets have been pretty much in that range for several years, way before that April $244 low. I don't recall seeing any previously bullish targets that have been reduced all the way into that range, but it's possible there could be 1 or 2. For the most part, analysts have remained bearish/bullish over time.

Not for goldman, Jpmorgan or UBS. They have lowered their targets in the last few months. I didn't say they were bullish, but some moved from Hold to Sell or to underweight, and lowered their targets.

Among the others, we saw an increase or 2 added to the SELL ratings, and 2 added to the UNDERWEIGHT rating.

 

[SpaceCash]

How do you know that Elon didn't arrange for his pledged shares to not be lent out? (You can do that but then you have to pay more in interest.)

He should wait for the squeeze to peak, THEN pull his shares and double squeeze it.

Kinda joking but also not at all...

 

[ev-enthusiast]

From Ihors twitter (thanks btw) we got the information that there was quite some short covering going on during the drop.
Maybe a lot of shorts that do not monitor their position so closely are still short?

 

[phil0909]

Did anyone notice that blockbuster line to see the Model 3 in Paris?

There is a lot more ramp globally. Way more then 10k/week in my opinion.

When do you think we will see sales ramp up outside North America?

 

[Fact Checking]

The short thesis on SA is that Tesla was only able to move so many Model S and X by giving huge discounts. I have seen no signs of that happening.

Haven't seen reports of that either, the only inventory reduction related concessions I saw in Q3 were:

• Allowing S+X lease holders out of their leases early, if they take delivery until end of Q4, i.e. lease new units from inventory. CPO units were not included, only new S+X cars on inventory. (Anecdotally these were typically fully loaded 100D S/X units.)
• There were sporadic reports of Tesla offering test-drive Model 3 cars with a mileage of a few thousand, with a discount of ~$2k, if delivery is taken by end of Q3. Date was mid-September, couldn't find the link, but it was Florida.
• Speculation: mid-September Tesla was probably already throttling the east coast logistics chain, as delivery would take 14 days or more. At that point they probably already knew which areas are under-served with Model 3s and they authorized stores in those areas to sell every conceivable inventory Model 3s, including loaner and test drive units.

Both measures would increase ASP and margins, and would reduce inventory, which improves cash flow.

 

[phil0909]

It's extraordinary how there isn't really a battle at the reversal each time, particularly at the bottom. Almost as if the major players have silently agreed to trade it that way.

Sure. Let's assume it's "silent".

 

[bdy0627]

Not for goldman, Jpmorgan or UBS. They have lowered their targets in the last few months. I didn't say they were bullish, but some moved from Hold to Sell or to underweight, and lowered their targets.

Among the others, we saw an increase or 2 added to the SELL ratings, and 2 added to the UNDERWEIGHT rating.

Goldman? He moves back and forth between something like $180 to $190. Been that way for a long while now. Jonas with MS lowered to $290ish I believe. I think you could be right about the other 2 but I don't remember their targets.

 

[Nocturnal]

In 2017 Toyota sold 387,081 Camry vehicles in the US (link).
It might take some time to beat that and Tesla will start international deliveries in the meantime, I agree.

If the 35k M3 is a big hit then maybe Camry can be beat. If that happens any talk of Tesla going bankrupt etc. should be gone for good.