TSLA Market Action: 2018 Investor Roundtable

[azaz]

He says:
If Tesla makes real $ 4 quarters in a row (IE without resorting to accounting games and related BS) I will admit I’m wrong about this company. Until then, you’re stuck with me.

where?

 

[tivoboy]

Why would they need to roll the debt forward? They have enough cash to pay it off now, they will have even more after Q4 and the beginning of 19Q1.

Debt is GOOOOOD, if it's cheap. At this point, some corp for that at 475bps would be a nice deal. I'd take that. They might be able to convince people they can pay it. Or put in another conversion option for 475$ in two years. Debt can be good..

 

[M3Rider]

20% exceeds Q3 guidance. 20% does not exceed Q4 guidance. This is kind of basic reasoning that only Q4 matters but if you don't get it, you don't get it... I won't fight your emotions.

Q4 guidance was w/o lower price MR, so today's 20% IS a better number.

 

[Right_Said_Fred]

Now the long wait to the start of the conference call.

Long wait? Reading all the comments here makes time fly.

 

[ThereAre4Cars]

I must be a masochist for trying to point out a simple truth about model 3 gross margins during celebrations. I'm gonna stop and I'll try it again when things cool off. I'm certainly not saying they are BAD, just neutral at best. Great quarter in every other respect that I can figure out.

Heck even Ford going up is going to help us I bet.

 

[Kuhz]

Time for some Teslaquila

 

[EV forever]

Now the long wait to the start of the conference call.

Any recommendations for a good live blog to follow? I will not be able to listen to the call.

 

[BenPrice]

Ford misses guidance and raises 5.75%

This is what happens when you give one family a bunch of money.

Except they didn’t earn it. Some dude decades ago did. Now we can prop bullshit up

 

[UnknownSoldier]

Any recommendations for a good live blog to follow? I will not be able to listen to the call.

I usually use the MarketWatch live blog. I know, I know. They still have a good live earnings blog despite everything else being horrible there.

 

[CorneliusXX]

I must be a masochist for trying to point out a simple truth about model 3 gross margins during celebrations. I'm gonna stop and I'll try it again when things cool off. I'm certainly not saying they are BAD, just neutral at best. Great quarter in every other respect that I can figure out.

Heck even Ford going up is going to help us I bet.

Booooooo.

 

[MP3Mike]

Debt is GOOOOOD, if it's cheap. At this point, some corp for that at 475bps would be a nice deal. I'd take that. They might be able to convince people they can pay it. Or put in another conversion option for 475$ in two years. Debt can be good..

Says the short that wants to keep holding large debt repayments over TSLA's head.

 

[wipster]

I have an eye Dr appt at 6 PM. Weighing cancelling and risk vision loss in order to listen to the 6:30 call instead.

Decisions, decisions...

I see I see said the blind man as he picked up his hammer and saw...

And in your case, heard too!

 

[KarenRei]

But... but... what about the Whompy Wheels?!?

 

[njzimmic]

Should I sell my remaining position which is at $295.00 or hold and wait and accumulate more shares??

 

[Electroman]

I have just gone through the update letter with a fine comb, including the numbers, and WOW.

There's not a single negative note compared to realistic expectations. The China tariffs were expected and a -$50m hit from them is much lower than expected.

Some highlights:

• They only sold $50m in ZEV credits - I.e. below last year's levels, and still made a record quarter.
• Very little "accounts payable" cash generation: the 1.3b generated from operations is genuine and sustainable (!)
• Inventory levels are picture perfect.
• Opex got reduced (!), this is a beat as well.
• Model 3 gross margin above 20% - this is way above guidance and was the main driver of this jaw-dropping quarter and profitability.
• Capex lower than expected, despite GF3 investments.
• They are guiding to pay back bonds in cash in Q4, and paid back $80m+ bonds in cash this quarter already.
• In Q3 Tesla already earned enough cash to pay back the $920m March 2019 notes (!), the "Cash Crunch" bear thesis is dead.
• If Moody's was consistent they'd have to upgrade Tesla's credit rating to investment grade right now.
• Customer up-sales from <35k cars is ~50% of trade-ins, this indicates an at least twice as large addressable market for the Model 3 in the U.S. as we speculated about so far (!).
• They expect even better Model 3 sales in Europe, because the mid size premium sedan market is twice as large there. (!)
• They expect to start assembling the first Model 3's in the Shanghai Gigafactory in 2019 already (!), which should be fantastic for China sales and margins, as these units will have 0% Chinese import tariffs.
• Guidance for Q4: similarly robust cash generation expected - this is good news in term of future Gigafactories and revenue growth.
• No equity raise needed or planned, convertibles get paid in cash not shares, no dilution!

I'm absolutely stunned!

Lots of kudos to @luvb2b for calling this correctly: that was a masterpiece of a model.

You forgot to add key item to your list : customer deposits increased. So backlog is intact.

 

[Johan]

Sold!.. $331, full position. You guys can ride it without me.. good couple days trade.

For everyones sake, I hope it goes to 420 tomorrow!

Well done for taking profit! That's about the highest print so far.

 

[humbaba]

Says the short that wants to keep holding large debt repayments over TSLAs head.

Well, to be fair to @tivoboy holding debt can be profitable. An easy game is playing with other people's money: take out a loan and as long as you have a return higher than the interest you come out ahead by the difference.

Whether or not it is warranted for Tesla? There's so many perceptions, such as the one that you mentioned, that it becomes hazier. But he is on solid economic ground.

 

[RobStark]

From the letter

"Production in China will be designated only for local customers."

I know a lot of Australians, New Zealanders, and other Asians were saying they would not buy or strongly reconsider Model 3 if only Made in China versions were available locally.

 

[Zaxxon]

"In order to significantly increase the affordability of Model 3, we have decided to accelerate our manufacturing timeline in China. We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing."

While I like this, it also worries me some. What happened the last time they accelerated manufacturing this much? Model 3 production hell.

Key words are 'portions of'. They're not going to fully produce cars in China in 2019. That's crazy talk. Probably final assembly, that sort of thing.

I love that this shareholder letter was clearly written to take apart the naysayer arguments:
-Minimal ZEV credits. Can't say the net income came from ZEV.
-Shows Model 3 the #1 vehicle by revenue
-Calls out stable production despite introduction of AWD and reduction of labor hours. It's tough to get too worked up about missing production goals when the product mix and margin skyrocketed (way past Q3 guidance for margin).
-Nukes the 'parking lot' theory directly
-Calls out the crazy trade-up trend for Model 3, as well as the fact that Europe's market for the 3's vehicle class is > 2X the US's, and that orders are coming in the next two months for Europe/China.
-Directly addresses the vehicle efficiency deficiency of new 'competition' (eg I-Pace).
-Reaffirms guidance for profitability in Q4
-Cash/equiv = $3.5B, and guided to increase significantly in Q4 while paying off $230M in notes during Q4. What was that about March notes?

Other things I like:
-They guide for increased Model 3 production/deliveries, but do not tie themselves to a specific wildly-optimistic number. With such a positive report, I'm glad they didn't include unnecessary poison pills like that.
-Reaffirms that they plan to increase service infrastructure investment in Q4. I was a tiny bit afraid that they were going to keep up with the minimal expansion for another quarter, and I don't think they could afford to do that given the sales volume.

If I had to find a complaint, it's that... Uhh, OK, how about that the solar roof is still clearly not ramping in any significant way. Yeah, that's the ticket. Hang your hat on that, shorty air force.

At the risk of creating a disturbance in the force, I'm whipping this puppy out once more...

 

[Ulmo]

I must be a masochist for trying to point out a simple truth about model 3 gross margins during celebrations. I'm gonna stop and I'll try it again when things cool off. I'm certainly not saying they are BAD, just neutral at best. Great quarter in every other respect that I can figure out.

Heck even Ford going up is going to help us I bet.

Here "neutral" is comparing a rosy and reasonable projection (because it's a rosy car) to an even more rosy actuality. That's like saying "I'm really healthy today, even better than yesterday!" is neutral, because I was really healthy yesterday.