2017 Investor Roundtable:General Discussion

[Waiting4M3]

Tesla making cars subject to Moore's Law? Yes!

Speaking of Moore's law, Tesla reminds me of Intel in the 80s-90s. They did manufacturing better than everyone else, one reason is because they optimized their chip design and manufacturing process together. So even years after every other chip makers in the US outsourced to cheaper fabs in Asia, Intel continues to make money making chips themselves, because they have the price/performance/yield edge.

Tesla is doing exactly the same, design the machines that build the machines, and design cars that can take advantage of it. While all other car makers have to go to Mexico, Tesla can make money making them in the USA.

 

[ggr]

That's a good point. I hadn't looked into the details of exactly who they sold them to. If it was FCA and Ford, well, you're right, both of them have done zilch to make EVs, so it should be possible to sell to them again.

Why do you say they've done zilch? FCA has the Fiat 500e, and Ford has the Focus Electric. I've seen a surprising number of each around SoCal; I must say the Fiats are everywhere. Maybe not enough to cover their internal ZEV needs, but more than zilch, even if Marchionne would rather you didn't buy them.

 

[kenliles]

Thanks @racer26

That's a good point. I hadn't looked into the details of exactly who they sold them to. If it was FCA and Ford, well, you're right, both of them have done zilch to make EVs, so it should be possible to sell to them again.

Precient -
FCA/Ford funding Tesla into profits and S&P500 for the M3 launch

 

[AlMc]

Maybe Tesla shouldn't overhype, overpromise & take money from customers for AP functions that don't exist, its been happening since the D event.

I am long TSLA and support EM and the Tesla mission statement but nothing Lump has posted in the link above is untrue.

AP 2.0 is not up to AP 1.0 yet. It was suppose to be by the end of 2016. I accept that *sugar* happens and would not be part of this suit if I had an AP 2.0 equipped vehicle but it is delayed beyond self imposed deadlines

 

[neroden]

i view the index s&p addition trade as a live possibility. i contemplate a 30-50pt boost to the share price around the time it happens.

Is this a WAG or do you have a model for it? I worked out that index tracker funds control assets equal to at least 4% of the total float of the S&P 500 -- which means if Tesla gets added, they have to buy at least 4% of the float (however S&P computes the float).

I'm not sure how S&P computes the float (I know they exclude Elon's shares, but I don't know whether they consider the Tencent stake to be "floated" or not, for instance). Basically 4%+ of the float of TSLA will be taken out of the market in (close to) a single day, however.

So I'm not sure how much that will raise the price. There are old studies which showed that adding a stock to the S&P 500 tended to raise a stock by 4% on average, but that was before the *massive inflow* of money into S&P tracker funds in the last few years.

(This could also be an event which causes margin calls on short-sellers.)

 

[Zhelko Dimic]

well i can't argue with anything you've said.
there are also a few other factors that work towards better margin, namely less forex effect and mix shift towards model x.
i guess i would be more concerned about failing to hit guidance if they didn't hit their production numbers. reaching the topside of their production guide to me implies operationally things went more or less on plan. that may or may not turn out to be a wise bet.

1. Something I forgot to include - most logical explanation. Cost dropped due to higher productivity of the worker.
As Tesla increased production, especially Model X, it's likely that's happened mostly through production optimization, i.e. similar number of worker produces more cars. I doubt they had massive hiring spree to produce more X's

It's been known that X production has been suboptimal - at first they've desperately looked just to scale it, and have probably achieved it through brute force method.

Lowest hanging fruit would be to then optimize this line into gross margin approaching Model S. They may have been well on their way (or have achieved it) as they provided guidance in Q1

2. I already said this elsewhere - they may have renegotiated better parts pricing for X/S with benefits starting to accrue through Q1. Q1 would have benefits of using some old price, some new price supplied parts.

 

[luvb2b]

The High Estimate is $.83 in Q1 and $4.13 for 2017, which seems in-line, if not a little conservative for the scenario @luvb2b is spinning.

whoa nellie! i'm only trying to ferret out last quarter's earnings. i've no edge on full year 2017 earnings which carry numerous unknowns. however, i do feel if tesla can report a profit this quarter, they would have a good chance to do so again the next.

Is this a WAG or do you have a model for it? I worked out that index tracker funds control assets equal to at least 4% of the total float of the S&P 500 -- which means if Tesla gets added, they have to buy at least 4% of the float (however S&P computes the float).

it's just about a wag. look at ulta which was a recent momentum stock added to the s&p - that one had about a 7% move. however ulta also already had a lot of earnings momentum participation and institutional participation due to solid earnings growth. a fund indexed to the s&p 500 would at least be able to justify holding ulta.

tesla has no earnings. lousy cash flow. and it's debt basically trades at junk levels. it's not a name crowded with earnings growth momentum funds or large cap funds that get benchmarked to the s&p. this is what i think is typical:
american funds' growth fund investments

the fund owns 0.1% telsa and 2.26% netflix (a similar size company). there's room to take their tesla holdings up by a factor of 10 and get to only 1% weighting.

once tesla is in the s&p, i believe 3 things happen:
1. numerous funds which are actively managed large cap funds benchmarked to the s&p 500 have to consider holding tesla.
2. once it has earnings (which will get it into the s&p) the credit ratings and cost of debt may improve and earnings momentum funds can consider it.
3. the shares bought by the index funds are mostly taken off the market and makes supply of shares tighter overall.

these 3 effects together i think get you better than the 7% move you saw in ulta - something like 10-15%. there's my wag.

 

[neroden]

Is there any analysis on how Elon/Tesla may choose to breakdown battery capacity between Auto vs Energy? One factor I can think of, according to their plan to reduce carbon emission, is which would get the most bang for the buck in terms of removing carbon dioxide production.

According to this, EV emits 0.23kg less CO2 per mile vs gasoline car. A 85kwh MS, at 12000 mi/yr, 85kwh of battery saves you 2,760kg of CO2.

According to this, on average electricity sources produce 1.22lb (0.55kg) of CO2 per kwh of power generated, peakers probably produce a lot more CO2 per kwh. If the same 85kwh battery is put to energy storage and displaces peakers, and if it is cycled once per day, it eliminates the need to generate 85kwh of electricity per day, we get 0.55 * 85 * 365 = 17,063kg of CO2.

So it seems that battery putting into TE would drastically be more efficient in cleaning up CO2 than TA. My question then is, how will this effect long term Gigafactory allocation to TE vs TA?

I looked up the numbers for peakers in Lazard's LCOE:: 117 lb / MMBtu and about 9650 Btu/kwh according to Lazard, so 1.129 lb / kwh (0.51 kg). However, they do NOT run daily. Maybe every other day or so.

I also plugged in specific car numbers. On my Tesla Model S in my zip code, the CO2 savings is .30 kg/mile.

Doesn't alter your conclusion; displacing peakers is better than displacing cars.

Actually, gas combined cycle has 6600 Btu/kwh, so 0.35 kg / kwh. Even displacing this is better than displacing cars, if you can trust the UCS numbers for gas cars. (They might be lowballing them.)

 

[neroden]

Why do you say they've done zilch? FCA has the Fiat 500e, and Ford has the Focus Electric. I've seen a surprising number of each around SoCal; I must say the Fiats are everywhere. Maybe not enough to cover their internal ZEV needs, but more than zilch, even if Marchionne would rather you didn't buy them.

Hmm. How many ZEV credits do those get? I must admit I've been ignoring them because of their miniscule batteries and obvious compliance-car status. The Focus Electric looks liks it was designed specifically to qualify as a Type II ZEV to get 3 credits.

So, if they're getting 3 credits per car, they're required to actually produce EVs amounting to 1% of annual sales (credits equal to 3% of sales). Are they actually selling more Focus Electrics than that?

They can supply credits up to 6% of annual sales out of PZEVs, which they are probably doing. The total requirement is 14%, so 14 - 6 - 3 = 5% of annual sales in credits remain to be generated, which they are most likely to buy, unless they produce a lot of Focus Electrics (Focus Electrics would have to be 2.6% of annual sales)

 

[esk8mw]

Ha, I love how the suit is framed as a class action everywhere to scare people - yes, it's technically a class action, but there's 3 participants! Max actual damages are $15,000!

Tesla's response to Electrek astutely points out that the plaintiff's lawyer is in it for attorney's fees (i.e., hoping the court forces Tesla to pay the lawyer an assumed hourly rate for the casework). A settlement might not be forthcoming given the tiny amount at stake - the lawyer will push for a trial. It's not a case where millions of dollars of punitive damages are on the table.

In all likelihood, the plaintiffs' primary motivation is to harm Tesla, not recover money. It could even be an effort funded by outside interests, I don't rule anything out given the billions at stake on the short side of this stock at its all time high and the many industry incumbents staring down the barrel of disruption.

While the plaintiffs and their lawyer have different interests here, they are aligned on one thing - dragging the case to a trial. I'm not the least bit worried about this case as a TSLA shareholder but I'm quite interested in seeing how the suit unfolds, how much effort goes into publicizing the claims, etc.

 

[MP3Mike]

Ha, I love how the suit is framed as a class action everywhere to scare people - yes, it's technically a class action, but there's 3 participants! Max actual damages are $15,000!

But if it gets certified as a class action everyone that purchased EAP/FSD is automatically a participant unless they proactively decline. (That is how class action suits work. A small number of people come forward and everyone else gets dragged along for the ride.)

Wasn't it a single claimant in the tuna fish class action suit that caused the big "settlement"? (That nobody, but the lawyers, have seen any benefit from yet.)

 

[sundaymorning]

But if it gets certified as a class action everyone that purchased EAP/FSD is automatically a participant unless they proactively decline. (That is how class action suits work. A small number of people come forward and everyone else gets dragged along for the ride.)

Wasn't it a single claimant in the tuna fish class action suit that caused the big "settlement"? (That nobody, but the lawyers, have seen any benefit from yet.)

If customers begin to apply for the suit, Tesla can opt to refund them the $5k out of good faith and they'll never get to enjoy autopilot. It'll be easy for them to switch it "off", and when these three customers finally come to their senses and realize what they're missing out when things get rolling, they'll need to pay Tesla to switch it back "on".

 

[ggr]

But if it gets certified as a class action everyone that purchased EAP/FSD is automatically a participant unless they proactively decline. (That is how class action suits work. A small number of people come forward and everyone else gets dragged along for the ride.)

Wasn't it a single claimant in the tuna fish class action suit that caused the big "settlement"? (That nobody, but the lawyers, have seen any benefit from yet.)

I don't know the actual law, but most class actions in which I've been "in class", you have to actually opt IN. In at least one, there were three options:
1. Become a plaintiff in the class action, and take whatever settlement the class gets. (Requires a reply.)
2. Reserve the right to sue separately from the class action. (Requires a reply.)
3. Do nothing, and it will be up to the court to decide whether you get anything or not.

I don't like class actions generally, so quite often I intentionally don't reply. I think once (out of maybe 5-7 notifications) I actually got a cheque for a few dollars that I didn't ask for.

 

[schonelucht]

Ha, I love how the suit is framed as a class action everywhere to scare people - yes, it's technically a class action, but there's 3 participants! Max actual damages are $15,000!

Thanks for your quick input. So the real issue we should be looking at in this action is how much this will cost Tesla in reputation towards being the leader on autonomous drive development with only very minor financial consequences?

 

[schonelucht]

If customers begin to apply for the suit, Tesla can opt to refund them the $5k out of good faith and they'll never get to enjoy autopilot. It'll be easy for them to switch it "off", and when these three customers finally come to their senses and realize what they're missing out when things get rolling, they'll need to pay Tesla to switch it back "on".

Is that how it works in the US? That would be markedly different from our laws : once you have sold something (or even once you have made a lawful offer) you really need to deliver at the agreed price (unless it was clearly an unwitting error, like a misplaced zero on the invoice etc). You can't then 2 months later be like : sorry, you don't get it here is your money back without consequences.

 

[mmd]

Ha, I love how the suit is framed as a class action everywhere to scare people - yes, it's technically a class action, but there's 3 participants! Max actual damages are $15,000!

Tesla's response to Electrek astutely points out that the plaintiff's lawyer is in it for attorney's fees (i.e., hoping the court forces Tesla to pay the lawyer an assumed hourly rate for the casework). A settlement might not be forthcoming given the tiny amount at stake - the lawyer will push for a trial. It's not a case where millions of dollars of punitive damages are on the table.

No offense, but can you tell us if you've worked as a trial lawyer or class action lawyer? IIRC, you prepare SEC filings for companies, which is quite far from dealing with class actions. Am I mistaken? I ask, because you are throwing your weight as a lawyer in this opinion.
BTW, how does "working for money" invalidate the allegations brought forward? Do you work for free?

A single person can bring a class action lawsuit if it is believed that there are potentially other plaintiffs. Pointing to "only 3 customers " is not a good defense. Your comment makes me wonder, if you worked with class actions.

How a Class Action Lawsuit Works - AllLaw.com

What is a Class Action?
A class action is the best option for suing one or a few defendants when there are too many potential plaintiffs to include everyone in a standard personal injury lawsuit. One or a few “representative plaintiffs” file the suit and conduct the litigation, while the other potential plaintiffs are only contacted so that they have the chance to “opt out” of the lawsuit (i.e. not participate in the results), or be instructed on how to receive their share of a damages award.

If a defendant settles the case or loses at trial, everyone who was injured by the defendant’s actions is given a percentage of the damages or, if it is too difficult to identify and contact all of the “victims”, a fund is made available to provide damages to anyone who can demonstrate they were harmed by the defendant’s actions.

More creative solutions can also come out of a class action settlement. For example, several department stores agreed to give away free makeup for a limited time to settle a class action that alleged the stores secretly worked together to keep cosmetic prices artificially high.

Also see: Class action - Wikipedia

In a typical class action, a plaintiff sues a defendant or a number of defendants on behalf of a group, or class, of absent parties.[1] This differs from a traditional lawsuit, where one party sues another party for redress of a wrong, and all of the parties are present in court. Although standards differ between states and countries, class actions are most common where the allegations involve a large number of people who have been injured by the same defendant in the same way.[1] Instead of each injured person's bringing his or her own lawsuit, the class action allows all the claims of all class members—whether they know they have been injured or not—to be resolved in a single proceeding.[1]

Is that how it works in the US? That would be markedly different from our laws : once you have sold something (or even once you have made a lawful offer) you really need to deliver at the agreed price (unless it was clearly an unwitting error, like a misplaced zero on the invoice etc). You can't then 2 months later be like : sorry, you don't get it here is your money back without consequences.

In this case, money back would mean returning the whole purchase price, not just the EAP or FSD price. Otherwise, buyers are now stuck with a car that they may not have bought. They could have bought Volvo XC90 with co-pilot, or whatever else for whatever other reasons. Or not bought anything.

 

[Chris Fox]

Speaking of Moore's law, Tesla reminds me of Intel in the 80s-90s. They did manufacturing better than everyone else, one reason is because they optimized their chip design and manufacturing process together. So even years after every other chip makers in the US outsourced to cheaper fabs in Asia, Intel continues to make money making chips themselves, because they have the price/performance/yield edge.

Tesla is doing exactly the same, design the machines that build the machines, and design cars that can take advantage of it. While all other car makers have to go to Mexico, Tesla can make money making them in the USA.

That's a good point. Something I think has been totally overlooked is Tesla discontinuing metal roofs in its vehicles. The only options now are glass roofs that are attached the the body at the very end. With no roof, robots will easily be able to access the interior of the car will be able to install the dash, upholstery, and seats.

 

[ValueAnalyst]

I am long TSLA and support EM and the Tesla mission statement but nothing Lump has posted in the link above is untrue.

AP 2.0 is not up to AP 1.0 yet. It was suppose to be by the end of 2016. I accept that *sugar* happens and would not be part of this suit if I had an AP 2.0 equipped vehicle but it is delayed beyond self imposed deadlines

What functionality specifically is missing that was there with AP 1.0?

 

[ValueAnalyst]

whoa nellie! i'm only trying to ferret out last quarter's earnings. i've no edge on full year 2017 earnings which carry numerous unknowns. however, i do feel if tesla can report a profit this quarter, they would have a good chance to do so again the next.



it's just about a wag. look at ulta which was a recent momentum stock added to the s&p - that one had about a 7% move. however ulta also already had a lot of earnings momentum participation and institutional participation due to solid earnings growth. a fund indexed to the s&p 500 would at least be able to justify holding ulta.

tesla has no earnings. lousy cash flow. and it's debt basically trades at junk levels. it's not a name crowded with earnings growth momentum funds or large cap funds that get benchmarked to the s&p. this is what i think is typical:
american funds' growth fund investments

the fund owns 0.1% telsa and 2.26% netflix (a similar size company). there's room to take their tesla holdings up by a factor of 10 and get to only 1% weighting.

once tesla is in the s&p, i believe 3 things happen:
1. numerous funds which are actively managed large cap funds benchmarked to the s&p 500 have to consider holding tesla.
2. once it has earnings (which will get it into the s&p) the credit ratings and cost of debt may improve and earnings momentum funds can consider it.
3. the shares bought by the index funds are mostly taken off the market and makes supply of shares tighter overall.

these 3 effects together i think get you better than the 7% move you saw in ulta - something like 10-15%. there's my wag.

Over the years, I've learned that extreme emphasis on quarterly earnings and what index funds will do may lead to wrong conclusions. For example, your logic leaves out the hedge funds that may be holding TSLA in anticipation of inclusion in S&P500 and will liquidate right after.

I intend to hold this stock all the way up to $2,000 and will reassess at that time. We may get there in 2018 or 2020 or 2022; in any case, it's a great return.

 

[JBRR]

Reading through the TSLA 2016 10-K, this passage stood out to me;

"Gigafactory 1 is being built in phases so that Tesla, Panasonic, and other partners can begin manufacturing immediately inside the finished sections and continue to expand thereafter. Gigafactory 1 is currently expected to attain full production capacity by 2020, which is anticipated to be sufficient for the production of approximately 500,000 vehicles annually as well as for the production of our energy storage products."

This doesn't rhyme with how I have understood their 2020 guidance.
Should I chalk this up to a poorly written 10-K?

tsla-10k_20161231.htm