TSLA Market Action: 2018 Investor Roundtable

[Artful Dodger]

Also to head off any lawsuit. Need to show a physical difference to dual motor, not just a software difference. Some short sellers were making noise on this.

No such claim was made for different hardware. Elone tweeted this:

Elon Musk on Twitter - 19 May 2018

"AC induction front & switched reluctance, partial permanent magnet rear. Silicon Carbide inverters in both. Performance drive units are lot sorted for highest sigma output & get double the burn-in."

 

[Drumheller]

The $5,000 thing has turned into a *sugar*-show. First it was a refund for the 3P+ owners. Now it seems the 3P- minus owners are going to get it, too. Now the AWD owners are whining that the difference between what they paid and what the 3P- will be after refund is so small that they might have gone 3P-. etc.

No one should get a refund. A contract was signed and agreed to. Do these people go back to the grocery store and check for sales and then ask for refunds?

I won't be clicking on Elektrek links anymore.

 

[EVNow]

Sure they can build them, but at what price? Tesla is doing their electronics in house with custom ICs. They make their own high efficiency motors and packs. Even if other OEMs hit equivalent performance, they are still paying higher prices to their suppliers.

Nissan makes their own motors too. Leaf has been quite efficient compared to S.

But where Tesla leads is performance. This is why Infiniti never made an EV (though they kept talking about it from 2013).

This is why I think premium OEMs are at more of risk than mainstream.

 

[AZRI11]

No such claim was made for different hardware. Elone tweeted this:

Elon Musk on Twitter - 19 May 2018

"AC induction front & switched reluctance, partial permanent magnet rear. Silicon Carbide inverters in both. Performance drive units are lot sorted for highest sigma output & get double the burn-in."

Shorts were crying on Twitter claiming fraudulent marketing, lies of course. But you know one of them would buy one and then file suit. Press release timed to shorting. I know I'm paranoid, reading to many sh@t posts on Twitter. Back to baseball.

 

[CALGARYARSENAL]

$TSLAQ going full tilt boogie on Twitter since Friday night. Wow. When is the Chairman announcement?

 

[winfield100]

So it isn't even all "index funds" but S&P 500 indexed funds - which should be about ~40% of all passive index funds. (The "total market" funds, the large-cap funds and the tech funds already include TSLA.)

S&P 500 funds are I think about 5% of shares of high tech firms, which on TSLA would be about 7% of the float: a substantial (and temporary) pop of $50-$100 but probably not "technical short squeeze" material.

(BTW., the smartest index fund arbitrageurs are probably already buying, S&P 500 inclusion next year is probable at this point.)



I'm unsure what you find crazy about what I wrote, the 2013 TSLA short squeeze is a simple historic fact:

Shorts often try to argue that 2013 was different in that "days to cover" was higher. What their argument is missing is that today Tesla is a large-cap tech company and about ~80% of the TSLA intraday volume is HFT/algo trading that doesn't offer liquidity to 30 million shares shorts covering. In 2013 was a small-cap/low-mid-cap company with less HFT liquidity skewing the daily volume figures, so 'days to cover' metrics were a lot more representative of true free short-covering liquidity available on the market.

I.e. the true "days to cover" is in reality 5 times larger than listed: instead of the ~3 "days to short cover" listed by NASDAQ, the real number is closer to 15 days - and even that is using up 100% of true liquidity to cover, while in reality any such sustained momentum would attract a lot of momentum traders with which shorts would have to compete.

The real time it will take for shorts to cover at naturally available liquidity is closer to 30-60 days. Anything beyond that rate of flow will bid up the price rather significantly - i.e. a short squeeze.

Also, there are several types of short squeezers:

• A "technical short squeeze" similar to the VW short squeeze of 2008 which was violent and over in 2-3 days is unlikely for TSLA, unless a big investor is really bullish and ties up a significant part of the Tesla float.
• A "fundamentals driven short squeeze" is highly probable after Q3 results: the fundamentals of Tesla just improved immensely (cash generation ability close to Apple's and twice that of Amazon, in a much bigger market with a lot of space to grow), which is unlocking a much broader base of investors. The 2013 Tesla short squeeze was such a fundamentals driven short squeeze.

These estimates of mine roughly match what Ihor Dusaniwsky's daily short interest report is showing:

Shorts covered about ~1 million shares since their peak, while the price was bid up by about ~$60. If we naively assume that a third of the price action was shorts covering and extrapolate that to say 30 million short shares covered, that's a price effect of +$600, quite some rocket fuel which would bring the stock to near $1,000 levels if longs didn't change behavior as prices increase - but in reality longs and even long term investors will probably jump in sooner than that to take profits or to swing-trade once they think the short squeeze has been exhausted, or if they think the price levels are irresistible.

Even without a technical short squeeze some nice intraday price action is also possible at around key price levels of short capitulation: I'd not be surprised to see a massive cascade of stop orders once $390 is breached, to well above $400.

There's also some key upcoming events that will unlock even more tiers of investors, such as the Moody's upgrade and the S&P 500 inclusion next year as @neroden suggested, and of course the upcoming "profitable 18'Q4" event, the "profitable 19'Q1" event, the "profitable 19'Q2" event, etc. The "but will Tesla ever be able to post five profitable quarters in a row!!" short thesis won't have nearly as many followers.

The time frame of the 2013 re-pricing of TSLA was 6-9 months, with the most violent short squeeze portion taking about 2-3 months to play out.

Anyway, all the data suggests that it's pretty probable at this point that there's a lot of pain waiting for shorts and the price levels at which they will be allowed out of their positions will be determined by Tesla shareholders, not by anti-shareholders.

Is there a button for, "i only want to read just this one persons posts for awhile, or maybe 2-3 folks, PLEASE!!!! DEAR SWEET MOTHER OF GHOD

 

[Boomer19]

I had to stop reading the TMC "Performance Upgrade Price Change!" thread. It was really pissing me off. Now the people who didn't order the performance package are also insisting on a $5000 refund, because their Model 3 was "devalued overnight".

now that’s ridiculous.

 

[Singuy]

Just read the Benedict Evan article. So what exactly is the secret sauce of Apple product that Sony or Google cannot do? From a hardware standpoint, Google is just as good or if not better. Many Chinese products like the Oneplus or Huawei Honor are half the price and pushing the envelop. So what's the secret sauce Benedict? What is that secret sauce that makes my wife think her portrait mode now broken on her iPhone is the result of her "probably dropped it too much" and not some shitty bugged out software/hardware?

Probably has something to do with the superior marketing being Apple's most incredible moat? Sometimes a product describes what and who you are and that's what Apple do best. You buy an Apple product because you want to be portrayed as someone young, rich, price is no object, will take no compromise. You buy an Apple product because you don't want to think about other options, comparing this and that from a sea of android phones. You buy an Apple because you want something that just works because you're not some dork who wants to thinker..your time is more valuable socializing because you have friends and you don't live in your parent's basement.

Guess what, the Tesla brand also means a lot more than just a car company. You should really ask yourself why people volunteered their time to help a 50 billion dollar company deliver cars. That's Tesla's competitive advantage. And sure just like Apple, Tesla will not dominate the car marketshare, but it will most likely comment a higher margin and chunk that's more than a car company deserves.

 

[Thekiwi]

I mean, I didn’t argue that. But even if I did, why should people get pissed? Toyota is a $200B company. That’s 4x growth, which is great. And if even if someone argues that Tesla’s valuation should be no more than GM’s or Volkswagen’s, why should people get pissed? Why would it make you angry if people disagree with your investment thesis? Shouldn’t you welcome disagreement, since it helps sharpen your thinking?



I’m invested in Tesla primarily because of self-driving (even though I can’t say with certainty it will arrive; no one knows the future) so my view is kind of the opposite.

Lately, I’ve been thinking about Benedict Evans’ argument that an EV company isn’t any more intrinsically disruptive or valuable than an ICE vehicle company. Without autonomy, what makes Tesla deserve a tech company P/E ratio or P/S ratio (or other valuation multiple)?

The infotainment system is nice, but Apple CarPlay and Android Auto can do the trick in other cars. Tesla is competing against Apple and Google in infotainment software. In newer cars that have big juicy new touchscreens, using CarPlay is like using an iPad. It’s great. Even Fiat Chrysler’s Uconnect is pretty good. A car’s infotainment system also just matters a lot less than a phone’s OS because in a car you’re just driving and using the infotainment for a limited set of apps: maps/nav, podcasts, music, radio, heat/AC, backup camera, etc. Pretty good is good enough.

There is a difference between **a)** Tesla is a wonderful new car brand with great software, great design, a great ADAS, and a lead in electrification that can have sustainable success and **b)** Tesla is a should be valued like a software company with an OS duopoly or cloud triopoly.

(b) is only true if Tesla launches the Tesla Network. (a) increasingly feels to me like the best scenario if Tesla doesn’t launch the Tesla Network. Software companies with duopolies/triopolies have such high valuation multiples because 1) making software doesn’t use up much capital and producing a unit of software costs none, and 2) their market share and thick margins are relatively safe because of their duopoly/tripoly status, thanks in large part to network effects.

I’m not sure about this. I could be wrong. But I think if you subtract autonomy from the equation, it’s hard to argue why Tesla should be valued like a software company. Without autonomy, cars don’t have network effects or duopolies/triopolies/software-like market share consolidation. Car factories use up a ton of capital, and a car (unlike a unit of software) costs a lot to produce.

Maybe Tesla will have outsized market share of the global car market. Okay, but why? What’s to stop incumbents like GM, Volkswagen, Toyota, et al. and upstarts like Lucid, Faraday, BYD, NIO, Dyson, and possibly Apple from **eventually** catching up on batteries and electric drivetrains? Being first doesn’t make you a winner. Palm was making smartphones before Apple. Even if you gain outsized market share in car sales, there’s no reason that will stay entrenched.

I read about a study that found, surprisingly, most of the time there is no such thing as a first mover advantage. First mover advantages tend to be in winter-takes-all or winner-takes-most markets like OS software or social networks or ride-hailing. In manufacturing / consumer goods, there isn’t really a mechanism to support them.

Some argue that ICE automakers will go bankrupt and Tesla will take their sales. Okay, but bankruptcies have happened before. I can see the U.S., Germany, and Japan bailing out their automakers. China is supporting its electric automakers. Governments will bankroll these competitors even if private investors won’t. It’s also possible that private investors will turn over a new leaf and fund electrification / tolerate a temporary transition phase of losses and negative free cash flow. Changing investors’ mind is kind of the point of Tesla, isn’t it?

I think the idea that Tesla will just bankrupt all the other companies and take over the global auto market overlooks a) how willing governments are to bail these companies out and b) the trillions in capital sloshing around looking for new opportunities — the bigger and more attractive the EV opportunity for Tesla turns out to be, the more investors will want a slice of that pie.

This isn’t to say that Tesla can’t achieve 1.5x or 2x or 4x growth. That would still be a great outcome. But 20x, or 30x... or 340x... that is harder to plausibly model.

You already had counter examples to this thesis the first time you posted it a couple of days ago.

Tesla should be valued like any other XYZ company with similar product margins and growth metrics. It doesn’t matter what industry it’s in - only the fundamentals of the company itself matter, not what other participants in its market achieve.

Again, like has already been stated (but you seem to ignore), there are examples in most low margin industries of successfully run companies that achieve above average margins and above average P/E ratios, and have their growth valued accordingly.

 

[Remus]

Benedict Evans makes this argument in his essay “Tesla, software and disruption”:

“Tesla has catalysed the realization that lithium batteries let us make electric cars that are as good as internal combustion engine (ICE) cars, and that if we can get the battery volumes high enough, these cars can eventually be as cheap as ICE cars. ...

Many car industry insiders would say that Tesla has a lead of several years in the engineering and implementation of this. However, lithium batteries and electric motors are not an exotic new technology with lots of primary IP. Nor are there any network effects or ‘winner takes all’ effects. Deterministically, it seems pretty likely that in the medium term (that is, by the time batteries are cheap enough for wholesale conversion of the industry from ICE to electric) both the batteries themselves and the motors and control systems will be mostly commodities. That does not meant there will not still be plenty of science and engineering to them, but rather that just as happened to components for smartphones or PCs (or indeed cars), which also involve a great deal of science and engineering, the entire global electronics industry will be competing to make the best parts, and will sell them to whoever wants to buy.”

If Benedict Evans is correct, that will presumably ultimately compress Tesla’s operating cash flow (OCF) margin.

So this guy thinks that battery, drive train, integration, software control, all of these are easy to replicate. But why all of a sudden full autonomy becomes insurmountable?

The only thing he mentioned about Apple was the app store, that must be where your believe about Apple's competitive advantage comes from. Both of you are wrong about Apple.

 

[Intl Professor]

The courtesy of moving your more gossipy posts to the relevant thread has become too cumbersome for the limited time of moderaters with talent. Thus the burden will fall on my crude methods. Any further mention of Fred bashing, comparison to Musk, etc., shall fall prey to the brutal ax at my disposal—deletion. The system has changed since I was made a mod earlier. Now local mods can ban temporarily. Repeat offenders will suffer that fate and, of course, my favorite infraction—direct attack on a member. I haven't the time to put you in "moderation," a less drastic penalty where peoples' posts are approved before publication.

As many say of these fractious times we need a return to civility and that means the self-restraint of ordinary citizens. Rob Stark could do this. Think of the famous Uncle Sam poster during the war: "That means you."

Alternatively, "Loose lips sink threads."

 

[AudubonB]

MOD:
Do what the Prof says....or else. We're serious.

 

[roblab]

Think of the famous Uncle Sam poster during the war: "That means you."

Alternatively, "Loose lips sink threads."

Uncle Sam posters said "I want you", but of course your are paraphrasing as in "Loose lips can't whistle".

 

[ThereAre4Cars]

I don’t know if I exactly agree. Accounting is the formal language that describes business. Sometimes subtle details matter a lot. Making spreadsheet models has made me realize some kinda big stuff. Like... whither the capital for Tesla Network cars? Oh, yeah... customers. Hm. But I think if all you’re doing is refining and refining so your model gets incrementally more accurate, then yeah that has diminishing returns. Just accept a 20% margin of error and call it a day.

I find spreadsheet models of a pro-forma type income statement with some generic forward modelling is very useful, and of course understanding the basic accounting concepts, particularly if you can break apart and find where specific sub-components are trending to make sure that you aren't missing things in the aggregate. Also you want to focus on hidden variables, revenue is a composite of ASP and units, so model those separately, etc. Keep it simple though.

What's not useful is falling into the trap of trying to understand every little part and then lording your knowledge over others on minutia. Then you [can possibly] get confused about what matters. Accountants tend to think their expertise is what matters but it's usually more like getting the generic questions of where the market is going, how well they fare against competition, what do profit margins look like, etc. big picture.

It could be 1 year or 10 years. I have no idea. I do think there are three exponential trends in autonomy (neural network size, training data, and compute) that might mean overall progress is exponential too. In which case extrapolating past progress forward is impossible.

I don't think exponential is the way to think about things that can't be measured. Each of those subcomponents grows arguably in exponential terms, but the system performance doesn't so this doesn't help you. NN size doesn't correlate directly to any useful metric. A different architecture could be far more efficient and smaller. Most people are confused about this stuff but thats ok I guess.

Worth the $2 billion so I have an easy answer to “But doesn’t electricity come from coal?”

Yeah I mean largely it doesn't matter either way imo, but I don't think solar roofs are all that valuable personally when you have constraints on capital and management bandwidth.

Do you actually check the stock price every day?

Yeah. Although I'm gonna take a break when the VIX goes back down.

 

[ThereAre4Cars]

Q3 operating cash flow (OCF) of $1.4 billion * 4 quarters = annualized OCF of $5.6 billion

$5.6 billion annualized OCF * Honda’s price/OCF of 5.1 = $28 billion

That’s pretty damn good.

Q3 free cash flow (FCF) of $0.881 billion * 4 quarters - annualized FCF of $3.52 billion

$3.52 billion annualized FCF * Honda’s price/FCF of 8.1 = $28 billion

Damn Daniel

What are you trying to do here? The valuation of Honda is determined by its growth rate but you have no growth variables. That makes this useless.

 

[ThereAre4Cars]

Here’s an interesting conversation about autonomous driving from Lex Fridman a AI research scientist at MIT. Other than the fact it’s a pretty fascinating podcast, up there with Elon’s talk with Joe Rogan. It appears Lex would side with @neroden and thinks FSD is more like 5 years out. I haven’t listened to the whole podcast yet, but the part that talks about autonomous driving and Tesla starts at about 55 minutes in.

Neroden is closer on the NN subject than the others here.

 

[alst]

I wonder if we should prepare Elon a list of Twitter handles he can trust.

 

[Pricee2]

We need an update to the "Downfall Video".

 

[ThereAre4Cars]

$TSLAQ going full tilt boogie on Twitter since Friday night. Wow. When is the Chairman announcement?

What do you mean? Are they excited about the P3D thing or still in crisis mode?

I am entertained by the Gasporino related fighting.

 

[neroden]

Holy heck... still catching up on the comments, so maybe someone else already pointed this out, but.... has anyone else done the math on how much money Fred bullied Tesla into giving up? They may have sold, what, 15k performance upgrade packages thusfar (Q3 plus the start of Q4)? 15000 * 5000 = 75 million dollars.

(A) From reading the Model 3 delivery forums -- and I know this is anecdotal -- it looked like more than 2/3 of Performance buyers were getting "P-" (no "upgrade package") rather than "P+"
(B) Given that people seem to overvalue free supercharging, I expect that less than half of the P+ buyers will actually ask for the refund
(C) I thnk that no more than 15000 people have bought *Performance* since Model 3 came out; that would be 15% of buyers which seems high already.

So I'm guessing the exposure is more like 1.25 million dollars. Still.