2017 Investor Roundtable:General Discussion

[racer26]

Well everyone has a different standard for what is a lie.

In 2014Q3 conference call, Elon was specifically asked why Model X was pushed back (So btw this is not some triviality but something that goes to the core of Tesla valuation : their ability to execute on a very inspiring vision). Let me quote the relevant passage (bold by me)



So here is a guy who asks for specific engineering challenges. Here is the answer



To paraphrase Elon he is saying that the engineering challenges lie not with making the car, but with making the machine that makes the machine. He reinforces this right away by wording the same thing a little differently



Again here he is saying, we can make the Model X no problem, we just need more time to make the machine that can make Model X's so we can scale at volume.

14 months later, Tesla files a lawsuit against Hoerbiger. And what do we learn here? Two things stood out for me



Tesla was working at the time of the above mentioned conference call working with Hoerbiger on the Model X Falcon Wings : an essential, some may even say the defining, piece of the Model X. And



So Tesla was well aware that the hydraulics system was not meeting specifications.

There you have it. By the time of that conference call, the Model X launch was postponed. No way that Elon was not in on the details why exactly it was being postponed. He likely was the one to make the final call to postpone. It is inconceivable he didn't know that Hoerbiger was failing very, very, very hard end of 2014. Yet he solely blamed the delay on making the machine that makes the machine. I have difficulty seeing how that was not a misrepresentation of what was actually going on behind the scenes when asked a direct question. He could have chosen not to answer the question if that would have meant giving out sensitive information but he did chose to answer the question and he answered it in a way that is not fully consistent with the reality of the timeline as described by Tesla themselves in the later lawsuit.

I admit I expect a higher degree of transparency and honesty from executives that most when investing. The above is one of the reasons why I refused to invest in Tesla for a long period in 2016. Because I felt I could not trust management.

While I can appreciate the attention to detail here, I don't think your final quoted passages from Tesla v Hoerbiger necessarily show that Elon knew at the time of the 3Q14 ER in October 2014 that the falcon-wings were a key problem that was holding up the show. Tesla was continuing to work with Hoerbiger through 2015, and at the time, Elon likely believed that it was an issue that was going to be solved relatively easily, if it was even on his radar.

 

[The Blue Owl]

I admit I expect a higher degree of transparency and honesty from executives that most when investing. The above is one of the reasons why I refused to invest in Tesla for a long period in 2016. Because I felt I could not trust management.

It's possible you are reading intent to deceive that wasn't there. As an engineer, whenever I am asked about specific engineering challenges by a non-expert I answer with the biggest, top-of-mind challenge at that moment. It's very reasonable to assume that Elon, while aware of the issues with the hydraulics supplier, saw the building of the assembly line as the far more complex and risk-prone task. This makes sense; any mistakes there have the potential to literally scale to the entire output. If this risk is not mitigated, or mistakes are left uncorrected for too long, it becomes a Tesla extinction event.

In contrast, supplier issues would seem remote and correctable; just one of many other similar issues with suppliers that Tesla was well accustomed with. While on the critical path, it was a known problem and it was fixable (and it was fixed). He only had a few seconds to answer a question like that, so I am not surprised that he limited his response to the far bigger risk.

 

[techmaven]

There you have it. By the time of that conference call, the Model X launch was postponed. No way that Elon was not in on the details why exactly it was being postponed. He likely was the one to make the final call to postpone. It is inconceivable he didn't know that Hoerbiger was failing very, very, very hard end of 2014. Yet he solely blamed the delay on making the machine that makes the machine. I have difficulty seeing how that was not a misrepresentation of what was actually going on behind the scenes when asked a direct question

Certainly at that point in time, it may very well be that the Hoerbiger designed hydraulics were not considered a critical path item. It was likely going through final testing and they had assumed that someone of Hoerbiger's reputation would be able to deliver. Matter of fact, the central point in the lawsuit is that Hoerbiger feels that it satisfied its contractual obligations and that its design "fulfilled ... specifications" and therefore was entitled to reasonable compensation. Tesla obviously didn't feel that way at some point and worked to replace them. This sounds more like something that wasn't considered a problem and was undergoing normal development testing and it became a problem. We have no insight into Hoerbiger's assurances to Tesla with respect to these mechanisms, other than this:

On numerous occasions, TESLA notified HOERBIGER of the multitude of defects with its product. While HOERBIGER insisted it could fix the problems, HOERBIGER failed to do so.

... from the lawsuit ... pdf hosted by ArsTechnica: https://arstechnica.com/wp-content/uploads/2016/01/1-main.pdf

 

[schonelucht]

While I can appreciate the attention to detail here, I don't think your final quoted passages from Tesla v Hoerbiger necessarily show that Elon knew at the time of the 3Q14 ER in October 2014 that the falcon-wings were a key problem that was holding up the show. Tesla was continuing to work with Hoerbiger through 2015, and at the time, Elon likely believed that it was an issue that was going to be solved relatively easily, if it was even on his radar.

Not even remotely plausible. At the point of the conference call, Tesla already had to push back Model X launch and Elon knew he was going to get grilled on it. Elon is a guy that is prepared to bring a sleeping bag to the factory floor and personally inspect every single vehicle that leaves the line. You really think he would not have asked his team (and suppliers) very probing questions to get exactly his finger on what the reasons are for the very serious conference call grilling he is facing?

It's possible you are reading intent to deceive that wasn't there.

Of course, any potential lie or half truth can be explained away as a mere mistake. And sure, Elon makes them too. But not at this scale. See above. Put yourself in Elons shoes as an engineer. Your team comes back to you and tells you : hey Elon sorry we can't make the deadline. Do you A) let it slide, call the secretary and tell him to put a vague blurb in the shareholder letter that they are going to be late B) ask your team and suppliers very deep and probing questions on what exactly is going wrong so you can correct (first) and also prepare for the analyst question even a 1-D chess player could have predicted

 

[Nate the Great]

Unsure, as to how impactful this is.

Target price hoisted by equities research analysts at Royal Bank of Canada from $245.00 to $314.00 in a report.

Tesla Inc (TSLA) PT Raised to $314.00

 

[schonelucht]

This sounds more like something that wasn't considered a problem and was undergoing normal development testing and it became a problem.

By the time of the conference call. Hoerbiger was already in overtime in a way that made Tesla push back on production. It was already way problematic. Not on some little knob or dial but on your iconic never-seen-before feature. Again, you are free to assume Tesla is an incompetent engineering company that makes this mistakes through sheer ignorance, but my evaluation of the company is that if there is one thing in which it is outstanding and makes the least mistakes, it is in its engineering.

 

[The Blue Owl]

Of course, any potential lie or half truth can be explained away as a mere mistake. And sure, Elon makes them too. But not at this scale. See above. Put yourself in Elons shoes as an engineer. Your team comes back to you and tells you : hey Elon sorry we can't make the deadline. Do you A) let it slide, call the secretary and tell him to put a vague blurb in the shareholder letter that they are going to be late B) ask your team and suppliers very deep and probing questions on what exactly is going wrong so you can correct (first) and also prepare for the analyst question even a 1-D chess player could have predicted

I am not explaining it away as a mistake, because I don't think it was. That doesn't make it deception; it just means his judgment at the time as to what was the most important challenge differs from your judgment many months later.

He didn't let it slide; he did answer the question, and the risk he mentioned was much bigger and more relevant, both for Tesla and for the investors. We don't know how many other issues of the same nature as the one with the FWD were floating around at the time; we are now zooming in on the FWD only because it turned out to be more persistent than he anticipated. However, the assembly line risk was indeed the harder one to deal with, as witnessed by Elon's choice of location for his sleeping bag for weeks on end.

With the benefit of hindsight, all events seem preordained and all participant actions seem calculated. Your general mistrust of Elon colours your interpretation of the same data that others don't regard with suspicion, and that is only fair and par for the course. You take from my interpretation what you will. That's what makes a market.

 

[MitchJi]

How are you concluding this? If the EAP uses only one camera, it can't be claimed that EAP software was delivered. Just to make it clear, I am talking about recognizing revenue from the software only, not hardware.

"Enhanced Autopilot adds new capabilities to the Tesla Autopilot driving experience. The enhancements include going from one to four cameras for greater accuracy, redundancy, and to see fast-approaching vehicles in adjacent lanes."

EAP includes, and is built on top of AP. They can't provide any EAP without getting the AP portion of EAP working.

I don't understand why anyone would claim that it makes any difference to customers when Tesla claims the revenue!

To a large degree that's on people for allowing themselves to be completely ignorant of extremely important and quite frankly very easy life skills like having a even 2/10 financial compency. That, and schools for not covering the basics of money and investment.

I've never liked "but people are stupid" as a reason why 401ks suck. People aren't stupid, they are lazy.

People have limited area's of interest and competence. I watched a documentary about Warren Buffet and his wife asked him to bring her a bowl in bed and after hearing him banging around in the kitchen he came back with a collander. She pointed out that it had holes and after more banging he returned with the collander with a cookie sheet underneath it!

 

[racer26]

Not even remotely plausible. At the point of the conference call, Tesla already had to push back Model X launch and Elon knew he was going to get grilled on it. Elon is a guy that is prepared to bring a sleeping bag to the factory floor and personally inspect every single vehicle that leaves the line. You really think he would not have asked his team (and suppliers) very probing questions to get exactly his finger on what the reasons are for the very serious conference call grilling he is facing?

Really? You don't think its remotely plausible that the Hoerbiger door parts were not the only problem Model X had at the time of the 3Q14 ER, and therefore may not have been viewed by Elon as the most critical of the critical path items at that time? Or alternatively that Tesla had to push back Model X for reasons other than the Hoerbiger door parts, and so it was believed that there would be ample time to solve that particular problem?

I'm certain Elon would have known exactly what all of the problems were. I choose to believe that his choice to disclose that getting the assembly line up to snuff was the biggest problem at the time was fact, or at a minimum what he believed at the time to be the biggest problem, as opposed to intentional deception to mask the Hoerbiger door parts problems.

Your accusation was that this example constitutes a case where Elon has outright lied in an ER. I disagree completely. At best, it constitutes a case where he did not disclose all that he knew. Omission is not lying. Show me an example of something that Elon has said during an ER which he knew to be false at the time he said it.

 

[MitchJi]

Your general mistrust of Elon colours your interpretation of the same data that others don't regard with suspicion...

It's goes beyond his distrust of Elon. Whenever there's a one in a million chance of a negative interpretation he jumps on it. Example when news came out that Panasonic was participating in the Solar panel production, which was pretty obviously good news, he managed to come up with a negative scenario that he espoused and defended at great :groan: length.

 

[jhm]

Perhaps in Musk's mind, a supplier is just a machine that builds the machine. If a certain machine (a supplier) is not functioning well, it may need to be replaced.

 

[MP3Mike]

How are you concluding this? If the EAP uses only one camera, it can't be claimed that EAP software was delivered. Just to make it clear, I am talking about recognizing revenue from the software only, not hardware.

Why wouldn't they be able to claim a portion of the EAP revenue? They obviously have delivered some of the features.

 

[vgrinshpun]

A portion of EAP software was delivered. The EAP portion is undoubtedly upgraded over a period of years and so there is likely a schedule for revenue recognition. The fact that any of EAP was delivered in Q1 allows Tesla to recognize some of that revenue. As I stated before, there is likely a dichotomy between what owners feel about the state of EAP software and what the company can recognize as revenue from EAP software. Especially if they get most of the missing features working next month.

I look at it differently. Based on what I quoted from the Tesla website description (see my post above) the EAP is described as the system that has more than one camera, and that is what differentiates it from the previous generation of AP. So the software that is not using what is advertised as the sensor suite for EAP in my mind can't be recognized. this is the interpretation that I based my conclusion on.

 

[techmaven]

I look at it differently. Based on what I quoted from the Tesla website description (see my post above) the EAP is described as the system that has more than one camera, and that is what differentiates it from the previous generation of AP. So the software that is not using what is advertised as the sensor suite for EAP in my mind can't be recognized. this is the interpretation that I based my conclusion on.

I am not sure about Electrek's info... the AP2 hardware had problems with the calibration of the rear camera. If it only used the one front camera, there would not be a need to calibrate the rear one. Some people had to take thier vehicles into service to have them adjusted. It could be that for lane keeping right now, only one camera is currently used and the rear camera is used for blind spot monitoring. In any case, they still have 4 weeks to go to make it for Q1.

 

[winfield100]

Meanwhile ft is reporting that a few hedge funds have acquired 6k tons of cobalt, more than a sixth of annual production. They are operating on what i told in November and what certain seekingalpha authors told you over a year ago.

are you talking about John Peterson? wasn't he working on something like "foamed Pb Batteries" and featured a 3 wheeled EV trike without an enclosed shell a few years back. He is a contrarian indicator i am following just a tiny bit, as is "Smeigel" and "montana 'the paunchy' skeptic" and Paulo "thousands of articles and just as deep" Santos

 

[vgrinshpun]

Well everyone has a different standard for what is a lie.

In 2014Q3 conference call, Elon was specifically asked why Model X was pushed back (So btw this is not some triviality but something that goes to the core of Tesla valuation : their ability to execute on a very inspiring vision). Let me quote the relevant passage (bold by me)



So here is a guy who asks for specific engineering challenges. Here is the answer



To paraphrase Elon he is saying that the engineering challenges lie not with making the car, but with making the machine that makes the machine. He reinforces this right away by wording the same thing a little differently



Again here he is saying, we can make the Model X no problem, we just need more time to make the machine that can make Model X's so we can scale at volume.

14 months later, Tesla files a lawsuit against Hoerbiger. And what do we learn here? Two things stood out for me



Tesla was working at the time of the above mentioned conference call working with Hoerbiger on the Model X Falcon Wings : an essential, some may even say the defining, piece of the Model X. And



So Tesla was well aware that the hydraulics system was not meeting specifications.

There you have it. By the time of that conference call, the Model X launch was postponed. No way that Elon was not in on the details why exactly it was being postponed. He likely was the one to make the final call to postpone. It is inconceivable he didn't know that Hoerbiger was failing very, very, very hard end of 2014. Yet he solely blamed the delay on making the machine that makes the machine. I have difficulty seeing how that was not a misrepresentation of what was actually going on behind the scenes when asked a direct question. He could have chosen not to answer the question if that would have meant giving out sensitive information but he did chose to answer the question and he answered it in a way that is not fully consistent with the reality of the timeline as described by Tesla themselves in the later lawsuit.

I admit I expect a higher degree of transparency and honesty from executives that most when investing. The above is one of the reasons why I refused to invest in Tesla for a long period in 2016. Because I felt I could not trust management.

We see this in a very different way. Even if the timeline you outlined would work, I can't interpret above as Musk being misleading, let alone outright lying.

So in addition to the objections raised up thread in response to your post, the timeline just does not work. The 2014Q3 call took place in November of 2014. According to the lawsuit you provided the purchase orders issued by Tesla to Hoerbiger span the time between February 2014 and May 2015 and covered tooling expenses, engineering, design and testing. How Tesla could have concluded that Hoerbiger design did not work if it was not tested out by them, let alone Tesla. In the sequence above, PO for testing would be the last of the ones listed above, so it must have been issued after the 2014Q3 call.

 

[winfield100]

It's a fraud I tell you, a complete fabrication, a delusion of the TSLA bulls. No way anyone could build a factory in the desert. Just can't happen. And I have been there and seen it. It's just impossible.

he sez, diving at near lightspeed to skim a neutron star to do a 180 degree slingshot return back to Sol system

 

[vgrinshpun]

I am not sure about Electrek's info... the AP2 hardware had problems with the calibration of the rear camera. If it only used the one front camera, there would not be a need to calibrate the rear one. Some people had to take thier vehicles into service to have them adjusted. It could be that for lane keeping right now, only one camera is currently used and the rear camera is used for blind spot monitoring. In any case, they still have 4 weeks to go to make it for Q1.

Why did you conclude that calibration issues were associated with the rear camera? Elon did not specifically mention whether it was front or one of the other cameras, and the tweets in question came out back in January. I doubt very much that anything to do with the delay of EAP was linked to rear camera.

 

[Mike Smith]

I think we're about to find out what Elon's private conversations with the Steve Bannon were about. I predict Trump unveils a giant clean energy infrastructure plan in his speech (branded as 'new energy' to placate his base). This seems like an obvious way to create jobs as well as help his reputation, and would be very positive for TSLA.

 

[phil0909]

People aren't stupid, they are lazy.

In all fairness, people are both lazy and stupid.