TSLA Market Action: 2018 Investor Roundtable

[Fact Checking]

It's a computer model. They just set it up and let it run, occasionally making updates which they detail on the blog (on the same page as the tracker). They don't manually adjust the numbers at all.

That is my impression from watching the Bloomberg Model 3 Tracker since its inception as well: unusually transparent in its methodology, reliable and non-opinionated. Most of the legitimate criticism the tracker got in the past can be explained with the phase delay their smoothing introduces to VIN registrations - which is a natural property of lagging averages.

Troy's tracker is a tad more accurate for production estimates, and the other data products of his surveys are very valuable, but both trackers are pretty accurate in my experience.

Also, the people running the model are separate from the people writing FUD-for-clicks at Bloomberg. Bloomberg is a big organization with sometimes competing agendas - the Tracker guys are honest and on the good side IMHO.

 

[dqd88]

Before the Hydrogen folks in Utah, I wanted to create the Nikola brand for the sub Model 3 car.

BMW Group is Mini, BMW, Rolls Royce, and BMW Motorcycles. Plus the M Series Brand.

I think a Rolls Royce competitor is pointless. Neither EVs nor Tesla need more of a halo effect.

I would go for Musk mainstream cars. "Musk" already has a lot of brand equity.

Maybe an L Series for a high performance sub brand.

Toyota seems to do just fine with Toyota and Lexus. There isn't much brand awareness around the F Series performance brand.

Cool! Are you an engineer? Entrepreneur?

Halo effect? Hmm... if that means what I think... then I'd disagree. EV per se doesn't need that effect. But EV best fits now with luxury because of EVs inherent qualities (interior space, speed, handling, safety)... these are attributes one would find in luxury... plus the cost to produce is high... so it only make sense. And then, the more EV is seen as luxury, the more people will see it as superior to ICE. It needs to really be seen that way... will work much better in long run for mass adoption... though may take a bit longer. If you rush it too much then you'll just get crappy cheap EVs that no can make money on (oh yeah like Bolt)... and that does not move the needle to mass adoption.

Have you seen the startup EV companies - Lucid, Faraday, SF Motors, Karma - yes some are on life support... but the design is very good... these companies get that you must exploit EV features and that those line up with a luxury price point. Its impossible to start a cheap/econo EV company from ground up.

 

[RobStark]

They should def shop it around the way Amazon shopped around HQ2.
Elon was in Indiana recently, I wonder if it was to scope out a potential site. That wouldn't be a bad proximity.

Not that Tesla should be encouraging bad behavior but Indiana gave Tesla an exclusive exception to the franchise dealer law with unlimited number of stores Tesla can install.

Having Texas Tesla stores in a grey area where the DMW commissioner chooses not to be a Dick but the next can come down hard on Tesla is a bit worrisome.

 

[Analyst007]

Dear together,

I am an Analyst working at Deloitte and I am a little bit disappointed by the fact that TSLA only reacted by a mere 20% upward when taking into consideration that they've completely vanished the bear thesis.

I am planning to sell at 400 USD but I am not quite sure if we get to that price within the next 3 months.

 

[RobStark]

Cool! Are you an engineer? Entrepreneur?

1)Are you? 2) How is that relevant?

Halo effect? Hmm... if that means what I think... then I'd disagree. EV per se doesn't need that effect. But EV best fits now with luxury because of EVs inherent qualities (interior space, speed, handling, safety)... these are attributes one would find in luxury... plus the cost to produce is high... so it only make sense. And then, the more EV is seen as luxury, the more people will see it as superior to ICE. It needs to really be seen that way... will work much better in long run for mass adoption... though may take a bit longer. If you rush it too much then you'll just get crappy cheap EVs that no can make money on (oh yeah like Bolt)... and that does not move the needle to mass adoption.

Have you seen the startup EV companies - Lucid, Faraday, SF Motors, Karma - yes some are on life support... but the design is very good... these companies get that you must exploit EV features and that those line up with a luxury price point. Its impossible to start a cheap/econo EV company from ground up.

The two bolded statements contradict each other.

Tesla Model S and Model X makes a Rolls Royce competitor irrelevant to make EV seem luxurious and superior.

Lucid is planning for Air to start at a price below Model S.

Easier and just as effective for Tesla to offer a max lux package if they wanted to go in the lux direction.

They seem to be going opposite by dropping leather interiors.

 

[BLSmith2112]

I am planning to sell at 400 USD but I am not quite sure if we get to that price within the next 3 months.

You'll want to have a time horizon longer than that if you think short term thinking is going to gaurentee you $400. Macros, shorts, etc., could all hold it back until February or even summer of 2019 before anything changes lol. Invest, let it ride, and forget about it.

 

[Thekiwi]

What are some examples?

Consumer companies with high margins in commoditized industries:

Nike, Starbucks, Dyson, Tiffany & Co, McDonald’s, LVHM, Coke...and Apple*

These are all high margin companies in commodized low margin industries - succeeding from good management and strong brand.

(* = the App Store is a relatively recent moat they added in 2008 - High margin Macs & iPods existed before that on the strength of the brand, and every other phone vendor has an App Store from google which offers a similar App Store selection so its not that big a moat for Apple, also new products like Watch, Apple Music, ApplePay etc are not relying on any app ecosystem for adoption but instead on Apple brand, service and compatibility with other Apple products)

 

[dqd88]

the Tracker guys are honest and on the good side IMHO.

I was wondering about that - couldn't tell.

 

[strangecosmos]

@Fact Checking So, in Q3, Tesla's operating cash flow was 20% of revenue. What would you estimate it will be in Q4? Doesn't Tesla benefit a lot from the fact that it delivered thousands of cars in Q3 that were produced in Q2? So, Q2 bore the cost of producing those cars, and Q3 reaped the cash flow from selling them.

 

[dqd88]

1)Are you? 2) How is that relevant?

Not relevant. You said you had considered starting a car company so I was curious. Not everyday that I run across that.

No, I'm not.

 

[dqd88]

Mind summarizing the current short thesis, if there's any coherence to the arguments?

I would also love to see a SA comments selection about Q3 results from @KarenRei as well - the ones she quoted from the SEC settlement discussion were worth gold!

Here's a couple comments from SA that sorta encapsulate alot of what I've been seeing from the shorts. Please share thoughts FC (mainly on the 2nd comment, which was a reply to the first) if you have time.

BrutalHonesty
Comments2192 | + Follow
Paulo, I suggest you wait for the 10-Q before you come to any judgement here. There are so many things that don't add up that it is not unlikely that the numbers recently reported do not represent fully the reality of what occurred during the quarter. As you certainly know, there are many ways to manipulate the numbers in the short-term and we will have to wait and see how clean the numbers really are.
I have a hard time, after watching so many high level executives leave somewhat recently, including their Chief Accounting Officer after only a month (giving up a $10 million pay package), that TSLA has clear sailing from here on out. Time will tell.
26 Oct 2018, 01:09 AM Reply 1 Like
jz10
Comments2495 | + Follow
I agree. Auto shipments went up 70% compared to Q2, but depreciation only increased by 25%. What is the justification for that?Also, their account receivable increased massively this quarter. This needs an explanation.Another thing is the OpEx. They can only burn their customers for so long. This level of OpEx is not sustainable if they want to maintain their brand. It's insane to spend $60-70k on a car and get this level of service.This profit of theirs is not sustainable. They are playing with depreciation and OpEx to make this quarter look good. Even a 20% increase in OpEx would have wiped out their profit for this quarter.

EDIT: adding another SA comment in response to Andrew Left 180... pure gold...
"Without funding, Left has got to know that Tesla is going BK and perhaps in a masterstroke, he's actually pumping it so that it is too risky for an offering to be underwritten."

 

[X Fan]

Jaguar Land Rover is owned by Indian Tata Motors
Bentley is owned by VW Group
Rolls Royce and Mini are owned by BMW
Vauxhall is owned by Peugot

McLaren and future BEV maker Dyson go by the wayside?

Well, Tata is probably a go but my thinking is that BMW’s brands would just be gobbled up by VW or Mercedes. I also believe long term that Aston Martin won’t make it.

The French are toast.

 

[Thekiwi]

@Fact Checking So, in Q3, Tesla's operating cash flow was 20% of revenue. What would you estimate it will be in Q4? Doesn't Tesla benefit a lot from the fact that it delivered thousands of cars in Q3 that were produced in Q2? So, Q2 bore the cost of producing those cars, and Q3 reaped the cash flow from selling them.

Just like the cars produced at the end of Q3 will be delivered and cash received in Q4. Inventory at end of each quarter was similar so there was likely very little consequential difference. In fact Musk mentioned that becuase quarter ended on a Sunday that they didnt receive some cash for that days deliveries due to banks not processing on a Sunday - so the effect was actually negative for cashflow in Q3.

 

[Fact Checking]

I actually don't think it's wildly unreasonable to believe that Tesla is overvalued.

Tesla Q3 cash flow: +$1.4b from operations on $6.1b of revenue - a 23% rate, twice as high as Amazon's and only matched by Apple - and Tesla is growing into a 10-20x larger market than Apple if we count automotive only.

But let's ignore growth and the fact that the Fremont Model 3 ramp-up is only 40-50% complete, i.e. let's ignore that there's twice as much economies of scale benefits yet to realize.

Let's also assume that Tesla growth stops here and now and "only" reaches Q3-alike results every quarter going forward: +$1.4b cash per quarter going forward.

That's $5.6b of cash generated on a 12 months trailing basis, on $24.4b of revenue, which with 171m shares is $32.7 per share, which is 9.6x at the current $314 share price.

(Most of Tesla's debt is paid off by just 1 year of cash generation.)

As a comparison: the Apple P/E ratio on a cash basis was 19x in 2017, Amazon's 27x (and that was before the doubling of share price).

Tesla's cash P/E ratio of 9.6x makes Tesla objectively, extremely, mind-bogglingly undervalued even if we exclude all growth premium and ignore the EV market near-vacuum it is expanding into ...

 

[BioSehnsucht]

No, we can't.

Elon for President, Fact Checking for VP!

We'd have to pass the 61st Amendment first.

 

[Ellec]

That is my impression from watching the Bloomberg Model 3 Tracker since its inception as well: unusually transparent in its methodology, reliable and non-opinionated. Most of the legitimate criticism the tracker got in the past can be explained with the phase delay their smoothing introduces to VIN registrations - which is a natural property of lagging averages.

Troy's tracker is a tad more accurate for production estimates, and the other data products of his surveys are very valuable, but both trackers are pretty accurate in my experience.

Also, the people running the model are separate from the people writing FUD-for-clicks at Bloomberg. Bloomberg is a big organization with sometimes competing agendas - the Tracker guys are honest and on the good side IMHO.

The recent glut of VIN registrations, 51,910 so far in Q4 within first 4 weeks, seems not to have moved the needle that much on Troys or Bloomberg's tracker. If VIN registration continues at this pace we could see 150k in Q4, how that tranforms to actual cars produced is not clear, but it's a good indicator they are aiming high.

 

[dqd88]

Just one more data point.

Talked to a pre-school teacher today. Her husband got a 3 a couple of weeks back. Asked her how it is - says she hasn't driven it much. Prefers her current Audi since it sits higher.

All the men who design cars have completely ignored how it feels for women (who are generally shorter) to drive low cars. This is the reason diversity is such an asset in any business.

To tag on that, another anecdote... My friend in Ohio has an X and also was leasing a BMW X5 that his wife mostly drove. When the BMW lease was up... he suggested getting a 3... but she did not want an EV... she has range anxiety. So she got a Lexus.
She is from a rural area. He is a city boy.
They were driving the X once to visit her family out in the countryside and they ran out of power; had to get towed. Not enough superchargers in rural Ohio. But I imagine that scarred her and now she prob has PTSD about it. But it is interesting that he's more "green" minded that she is. I don't know if there's a correlation there with gender; I'm sure there's correlation w/ rural vs urban.

One more... another friend applied for a Model X (loves Tesla)... but was denied. Credit not good enough. Got a Range Rover

 

[Anstandswauwau]

Just to state the obvious: I'm not Elon, nor a Tesla insider or employee, nor am I affiliated with Tesla or with any of Elon's companies directly or indirectly, in any shape or form. I'm not a public figure, I'm a Tesla and SpaceX fan living in Europe, as my "location" tag and the time stamps of my comments already reveal.

To be honest, this was pretty obvious to me but I didn't want to spoil the "fun" for others But I'm happy that you've finally addressed the elephant in the room.

Having that said, I hope you enjoy your day off

 

[Fact Checking]

@Fact Checking So, in Q3, Tesla's operating cash flow was 20% of revenue. What would you estimate it will be in Q4? Doesn't Tesla benefit a lot from the fact that it delivered thousands of cars in Q3 that were produced in Q2? So, Q2 bore the cost of producing those cars, and Q3 reaped the cash flow from selling them.

No, that's incorrect: direct CoGs (cost of goods) is tracked by individual VIN and thus "follows" the car from one quarter to another. So no big income sheet effects.

Inventory levels were flat between end of Q2 and end of Q3 so there was no significant cash advantage from that. See my more detailed estimates in this comment. So no big cash flows sheet effect either.

The +$1.4b cash in Q3 was genuine, sustainable cash flow and I expect Tesla to at minimum repeat that in Q4 - i.e. revenue of $7b or higher, with improving margins. (Net FCF might be a bit lower due to long term convertible debt repayments in cash plus continued voluntary capex to invest into revenue growth.)

 

[Ellec]

Tesla Q3 cash flow: +$1.4b from operations on $6.1b of revenue - a 23% rate, twice as high as Amazon's and only matched by Apple - and Tesla is growing into a 10-20x larger market than Apple if we count automotive only.

But let's ignore growth and the fact that the Fremont Model 3 ramp-up is only 40-50% complete, i.e. let's ignore that there's twice as much economies of scale benefits yet to realize.

Let's also assume that Tesla growth stops here and now and "only" reaches Q3-alike results every quarter going forward: +$1.4b cash per quarter going forward.

That's $5.6b of cash generated on a 12 months trailing basis, on $24.4b of revenue, which with 171m shares is $32.7 per share, which is 9.6x at the current $314 share price.

(Most of Tesla's debt is paid off by just 1 year of cash generation.)

As a comparison: the Apple P/E ratio on a cash basis was 19x in 2017, Amazon's 27x (and that was before the doubling of share price).

Tesla's cash P/E ratio of 9.6x makes Tesla objectively, extremely, mind-bogglingly undervalued even if we exclude all growth premium and ignore the EV market near-vacuum it is expanding into ...

Great post FC, regarding growth (which obviously is going to happen)
Tesla has just been through extremely difficult growing pains ramping Model 3, but they are out of the other side. With the knowledge and skills they have, they can replicate Giga/Assembly in Asia and Europe for Model 3, cheaper, faster and without as much pain.

So this could add (Conservatively as they are bigger markets than the US) another $1.4B in each region to their cash flow ~$4B per quarter.

They then add the Model Y with similar rapid scaling in each region, assuming this sells more than Model 3 at slightly higher ASP, that could add $1.8B per region, per quarter, taking them to nearly $10B a quarter. Add Pickup and it quickly becomes an insane cash generator.
They can pay all debts, build a cash cushion and fund multiple product lines at once at this stage. Imagination will be the only limiting factor.