2017 Investor Roundtable:General Discussion

[AnneBoleyn]

As Tesla Tops Ford, Elon Musk's Net Worth Rises $1.8 Billion To All-Time High

Tesla: Recreating the American Dream
By A.B. (2017)

Forbes quotes, “Nonetheless, shareholders continue to demonstrate overwhelming optimism, a sentiment further buoyed this week when the company announced its best-ever quarterly production and delivery results” (Kirch, 2017, para 3).


Why is this you may ask? This is my opinion, and maybe it’s just that, but I think most of you may agree. When I think about Tesla, I think it has brought something to the table we haven’t seen for decades… It has inspired us, it has revolutionized the way people see car companies, and it has given us dreams of something bigger, something inspiring… something we can all be a part of. When the Model T came out, it transformed the way people viewed transportation and every household wanted one. By 1927, there were 15 million models. It was part of the American Dream. At that time, Ford was not just a company to make money, it was something every American believed in, they were proud to own one. I think we can agree nearly 100 years later, Tesla is bringing forth the same sentiment.

Tesla is being criticized for being “over-valued,” but they are not just selling a car, they are selling an idea, a belief systemin something better. Can you put a price on that concept? People are tired of commercialism, tired of being told what to buy, and are disillusioned with mainstream America; perhaps, it is for this reason Tesla does not even advertise?

Tesla has said “American’s keep believing, we are bringing you the car you only dreamed could exist, and pretty soon we’ll be taking you to Mars.” They are exciting the same response Americans felt when we rallied behind NASA to go to the moon. They may be taking “one giant leap in technology” but they are also taking “one small step back” in idea, back to the time of the American Dream.

This is even more prominent with the up and coming Model 3, as every American can now be a part of this phenomenon. Musk has seen the need for people to believe in a product again, and embarked on a golden opportunity to do so by making a car the average person can afford, but also be proud to own.

This is not your typical tech stock or even sophisticated car company, it is something rare and exciting, indeed a revolutionary idea holding true to an antique concept none of us are even old enough to remember: The American Dream.

- A.B. April 9, 2017

These were my thoughts after reading the attached article so wanted to share

 

[neroden]

It grandfathers in pre 2020 model year BEVs from ever paying registration surtax.

It also hikes ICEv surtax starting Jan 1 2018 from $25-$175.

Correct me if I'm wrong, but the post-2020 $100 EV registration fee is *in addition to* the standard increase in the registration fee of $25-$175, which *also* applies to EVs.

If the $100 is *instead of* the standard fee, then of course it is totally reasonable, but as I read the law, it seems to be *in addition to*.

 

[neroden]

aha. thank you for helping us remember. here it is.
Elon Musk to Tesla employees: Let's make a profit!
"I thought it was important to write you a note directly to let you know how critical this quarter is," he wrote in the email. "The third quarter will be our last chance to show investors that Tesla can be at least slightly positive cash flow and profitable before the Model 3 reaches full production."

Subtle point here. That letter referred to positive cash flow *and* profit.

It's quite possible for Tesla to achieve GAAP profit and sitll have massively negative cash flow.

I'm not sure how much that would affect market reaction; they might focus on the cash flow, not the accrual-accounting profit.

 

[luvb2b]

To say that Musk stole SolarCity is bit of a reach.

is it? we're talking about a guy who got a major auto manufacturer to sell him a factory located steps away from silicon valley for $50 million. he stole when an opportune moment presented himself. why couldn't he have done the same with solarcity?

when we look back at this acquisition, i believe it will be seen as "the great solarcity robbery." elon carefully planned this acquisition with inside understanding of how the business works and until recently i just didn't get it. stay tuned i hope to slowly explain the whole robbery over the coming days.

With careful planning based on inside information from an individual known as "The Ulsterman" (named as Patrick McKenna in 2014), the robbers got away with over £2.6 million (equivalent to £49.1 million today). The bulk of the stolen money was never recovered. Though the gang did not use any firearms, Jack Mills, the train driver, was beaten over the head with a metal bar.

The plan to intercept and rob the overnight Glasgow-to-London mail train was based on information from Patrick McKenna, a postal worker from Salford who had detailed knowledge of the amounts of money carried on Royal Mail trains. McKenna was introduced to two of the criminals who would carry out the raid — Gordon Goody and Buster Edwards — by London solicitor's clerk Brian Field. His name was kept secret, and he was known to the robbers only as "The Ulsterman".[4] The raid was devised over a period of months by a core team: Goody and Edwards, along with Bruce Reynolds, Charlie Wilson and Roy James, Reynolds assuming the role of "mastermind" for the robbery.

The train was stopped at Bridego Bridge, and the robbers' "assault force" attacked the High Value Packages (HVP) carriage. Frank Dewhurst was in charge of the three other postal workers (Leslie Penn, Joseph Ware and John O'Connor) in the HVP carriage. Thomas Kett, assistant inspector in charge of the train from Carlisle to Euston was also in the carriage. Dewhurst and Kett were hit with coshes when they made a vain attempt to prevent the robbers' storming of the carriage. Once the robbers had entered the carriage, the staff could put up no effective resistance and there was no police officer or security guard on board to assist them.

There is some uncertainty regarding the exact cash total stolen from the train. £2,631,684 is a figure quoted in the press, although the police investigation states the theft as £2,595,997 10s, in 636 packages, contained in 120 mailbags—the bulk of the haul in £1 and £5 notes (both the older white note and the newer blue note, which was half its size). There were also ten-shilling notes and Irish and Scottish money. Because a 30-minute time limit had been set by Reynolds, eight out of 128 bags were not stolen and were left behind. Statistically, this could have amounted to £131,000 or 4.7% of the total.[11] It is alleged that the total weight of the bags removed was 2.5 long tons (2.5 t), according to former Buckinghamshire police officer John Woolley.[10]​

@luvb2b I haven’t spent much time looking at SCTY’s finances for the past couple quarters but I did have a few questions about your findings and conclusions that SCTY will add net income to TSLA in Q1 2017.

hello davet. thanks for posting your valuation discussion, i watched good portions of it. i especially think techmaven had some nice unique insights.

regarding that post, there are many ways i could be wrong there. so, even though i don't expect tesla can jump from $300-400 as easily as it did $30-40, it's not impossible either. the sales pace will increase by > $20 billion, if you get a 3x increase in market cap (last time we got a $2b increase in sales and 10x increase in market cap)... well that's a pretty high price level. remember in 2013 roughly 1/4 of the move came around the first positive earnings report. if that happened again, well there's your $400. i don't see it as likely, but not impossible.

i had a nice reply typed out to you which got eaten by my browser. so now my response will be massively abbreviated.

you're way off on the opex. 1. back out the silevo one time gain. 2. include preproduction expense which is hires at factories not yet producing. 3. you've correctly excluded restructuring charges. 4. you left out the scty expenses in tesla's 10k.

fix all these your annual opex of $726m annualizes to a annual rates that are $200-250m higher.

your annualized gross profit is also reasonably off. 1. q1 16 was a disaster. a lot of expense cuts and restructuring took place after that. 2. there was an intentional mix shift to solar loans which drives revenue recognition and therefore structural increases in gross profit for the same level of activity. 3. q4 gross profits ran at triple the rate of q1, once you combine the financials to a full q4 using tesla and solarcity disclosures.

fix all those and your annual gross profit of $251m normalizes to annual rates $50-150m higher.

you're thinking, with even more opex added and less than that added in gross profit, how does that get me to more profit?

you're mistakenly assuming gross profit is the primary driver of gaap earnings.

the primary driver of gaap earnings is the losses that go to noncontrolling interests.

the solarcity business model involves spending money up front to make sales and installations that pay off over time. you see this play out on the balance sheet, where despite operating income being negative the parent's equity continues to grow faster than the amounts of contributed capital.

the accounting adjustment made for this flows through the noncontrolling interest line on the income statement. if you dumped all those spe's and vie's in the market today, and then split the proceeds amongst solarcity and the tax equity investors/instiutions etc/other spe/vie owners, how much does solarcity get? and how did that amount change vs the prior quarter? i've posted a few comments about this already and i think @MitchJi and @neroden have thoughtful insights to add. you should also read the sa note from pauloh whyamishortos.

i don't want to pollute your model with my own ideas more than i already have. work through your stuff in more detail and let me know what you see then.

I’m looking at SCTY’s 2016 10-K (SOLARCITY CORP (SCTY) 10-K and 10-Q SEC Filings :: Last10K.com)...

I’m looking at operating expenses… just Sales and Marketing ($442M), General and Admin ($229M), and R&D ($55M). Total would be $726M.

So we need to add SCTY quarterly operating expenses to TSLA’s operating expenses for Q1. However, in Q4 it appears that TSLA started to integrate these expenses already, thus we see a substantial jump in opex between Q3 and Q4. However, since the acquisition closed mid-Q4, it appears TSLA only added to their quarterly statement partial SCTY expenses for the quarter. So for Q1 2017, we’ll have the first quarter where we see a fully integrated quarterly statement of a full quarter of SCTY’s opex. Now, it appears that SCTY has cut some jobs but still has a very large headcount of over 12,000. I haven’t worked out the numbers, but perhaps their OpEx for the 3 items I listed above might be lower than $726M on an annual basis, but it’s unclear. So, if we use $726M and divide that by 4, then we’ve got a $181.5M per quarter of OpEx that’s added to Tesla’s OpEx.

In Q3 2016, TSLA didn’t have SCTY’s OpEx, thus when TSLA sold close to 25k cars (with the help of ZEV as well) they were able to show a profit. However, in Q4 they started to add SCTY’s OpEx, and now in Q1 2017 they’ll have to include a full quarter of SCTY’s OpEx (ie., very roughly $180M) and in order for SCTY to contribute positively they’ll need to contribute at least that amount in gross profit.

So, for gross profit SCTY reported $251M for the entire year 2016. They experienced a lot of growth during the year, so I’m supposing that a lot of that gross profit was in the later quarters. Nevertheless, I’m finding it difficult to find where you’re seeing that SCTY will contribute more than $180M in gross profit for Q1 (to cover all SCTY’s operating expenses).

(btw, your post 2017 Investor Roundtable:General Discussion was most impressive!)

 

[AudubonB]

To say that Musk stole SolarCity is bit of a reach...

In addition to it being a reach, one ought remember that Mr Musk directly injected a lot of capital into SCTY in early 2016 - my recollection is that was at a price of around $48 but I'm too lazy to look it up. I do remember thinking over the next months that that marked the worst investment decision I had noticed him make. Hindsight is great stuff.

 

[AcesDealt]

Meh -- rooftop solar is still just a kludgy bad idea. Bad angles, bad aesthetics, harder maintenance, lower efficiency, more difficult installation, more difficult sales, more difficult to fully utilize output. I think it will continue to be a marginal business and not anywhere near the principal investment thesis.

 

[AcesDealt]

Global cobalt production was 93kTons last year which is good for about 7M cars at 60kwH if that's all it was used for. I find it a little bit concerning that in order to actually ramp up to 7M (~8% of global auto sales) from here, global cobalt will have to basically double. I doubt that's easy to do quickly.

There's definitely room for Tesla to be extremely successful within the window of cobalt available (if they sell 1M cars annually *ever* they are probably a good investment here), but it might be a significant headwind on EVs in general. I hope somehow information about this comes out once the model 3 settles down, and it wouldn't surprise me if Tesla throws some capital at this (maybe via some guaranteed large orders to derisk new mining or similar -- if I was a miner I'd hate to spin up a 5+ year process of getting a new mine in place only for Tesla\Battery industry to say 'yeah we found something that doesn't need cobalt').

 

[Reciprocity]

Global cobalt production was 93kTons last year which is good for about 7M cars at 60kwH if that's all it was used for. I find it a little bit concerning that in order to actually ramp up to 7M (~8% of global auto sales) from here, global cobalt will have to basically double. I doubt that's easy to do quickly.

If there is demand, miners will go get it. As you stated, the demand will double the total global production in the next 3-4-5 years? Its not like its a rare metal.

One nice thing about Lion batteries is that they are recyclable. I can imagine a part of each Gigafactory has a group of machines that just break down batteries into their constituent parts. If the cars use them for 10 years and storage another 10 years after that, you only need enough cobalt for 20 years, the rest can be recycled. Of course in 20 years, you will need 20 million cars worth of batteries.

Spacex might just need to bring some cobalt asteroids back to earth in 40 years if we run out.

 

[AcesDealt]

If there is demand, miners will go get it. As you stated, the demand will double the total global production in the next 3-4-5 years? Its not like its a rare metal.

One nice thing about Lion batteries is that they are recyclable. I can imagine a part of each Gigafactory has a group of machines that just break down batteries into their constituent parts. If the cars use them for 10 years and storage another 10 years after that, you only need enough cobalt for 20 years, the rest can be recycled. Of course in 20 years, you will need 20 million cars worth of batteries.

Spacex might just need to bring some cobalt asteroids back to earth in 40 years if we run out.

You are wanting to ignore the tricky details.

Not everyone agrees with the EV ramp we hope for, and the mines have noticeable real world delays just like gigafactories or even worse given environmental licensing. Not everyone believes cobalt will always be the chemistry (Goodenough's solid state breakthrough which is probably an error was nevertheless not a cobalt chem). Cobalt is traditionally colocated and mined 10:1 with copper or nickel, which multiples how much cobalt price has to increase to induce more supply. Half of current cobalt comes from the tenuous Congo which is susceptible to disruption (and has been disrupted within the last 15 years).

I find cobalt a far more relevant concern than most issues discussed here, but like anything there's a limit to how far you can get talking about it.

Recycling and SpaceX of course are not material. Incidentally, the asteroid mining is cool but I think those people (Diamandis et al) mostly plan on using those metals IN space not bringing it back.

 

[AudubonB]

MODERATOR NOTE:

Please confine discussion of natural resources to the long-open thread, The Resource Angle

Thank you

And on edit
AcesDealt: Moderators' inputs are not to be opined upon. Open warning for you and others.

 

[Bgarret]

Tesla unveils its new ‘sleek and low-profile’ exclusive solar panel made by Panasonic

"For years, Zep solar engineering’s team has been working on new mounting systems to deploy modules faster, reduce installation cost and make solar systems look sleeker. Now those engineers have joined Tesla to work on the mounting system for the solar roof tiles and other modules.

[..]As for the modules themselves, we learned that they are 325-watt and Tesla claims that they “exceed industry standards for durability and lifespan”, but we don’t have the full specs yet."

Really sexy.

Anyone else smell a solar roof announcement coming to the website soon? Update the visuals on the website for "regular" solar panels right before you announce the solar roof reservations/pricing info, so if eyeballs that aren't yet in the market for a solar roof are drawn to the website, they can pursue another, attractive solar option.

 

[MP3Mike]

Not *fair* because anything which fines people a flat fee for owning an electric car is not fair (should be a mileage/odometer fee). This is a registration fee on top of the regular registration fee. So it's a fine for daring to own an EV. At least it's not an outrageously large fee, but it's still not *fair* to people who don't drive much.

The problem with an odometer fee is that you are charged for miles driven in other states which people would complain about. (That is the nice thing about gas tax is you are likely buying gas in all of the places you drive to support those roads.)

Then you get to a in-state mileage fee which is where they give you a GPS device to put in your car to track the miles driven. People like this even less, as they don't want to be tracked. (Oregon has been piloting this as a way to make things "fair" between BEVs, Hybrids, ICEs, etc.)

 

[AudubonB]

That odometer fee dilemma is no different from those facing all taxes that have interstate ramifications. States long since have reconciled themselves to same and, to a great degree, State X is done unto Y as Y is to Z and Z is to X....etc. Your specific statement that "one likely is buying gas in all of the places..." is prominently specious in the smaller East Coast states where there is considerable daily commuting from one state to another - most gasoline purchases would very specifically be done asymmetrically: either in the commuter's home state as that is where s/he has more time to patronize a gas station, or has developed an affinity for 'that convenient store'; OR in whichever state has the less expensive gas. And most personal vehicle driving in the US is done by commuters.

Most importantly, though, the KISS principle favors the odometer solution.

 

[erthquake]

Not *fair* because anything which fines people a flat fee for owning an electric car is not fair (should be a mileage/odometer fee). This is a registration fee on top of the regular registration fee. So it's a fine for daring to own an EV. At least it's not an outrageously large fee, but it's still not *fair* to people who don't drive much.

With a 30 cent gas tax, if you compare an EV to a 25 mpg car, you now have to drive 8325 miles per year to break even on taxes paid to California. If you were comparing to a 50 mpg car, you now have to drive 16650 miles per year to break even.

I consider this abusive to low-mileage drivers. We have to stop this trend of fines for merely owning an EV. A per-mile odometer tax would be totally fair.

I agree with you, but an odometer tax is more difficult to implement since it requires more government effort to collect and verify mileage data. We will eventually get there. This a relatively low-impact way to prevent the FUD argument that EVs are unfairly favored, even though I believe EVs should be incentivized.

 

[mmd]

Tesla unveils its new ‘sleek and low-profile’ exclusive solar panel made by Panasonic

"For years, Zep solar engineering’s team has been working on new mounting systems to deploy modules faster, reduce installation cost and make solar systems look sleeker. Now those engineers have joined Tesla to work on the mounting system for the solar roof tiles and other modules.

[..]As for the modules themselves, we learned that they are 325-watt and Tesla claims that they “exceed industry standards for durability and lifespan”, but we don’t have the full specs yet."

Really sexy.

Will be good to see it on red tile roof. On black shingles or concrete tiles, they look almost same to me. Not that I actually view it from that angle. I rarely see my solar panels.

But the problem is cost. Few months back, I checked prices and sizes of these panels when researching the solar roof idea. Panasonic panels are 40% to 80% more expensive per watt.
Besides, what is the cost,durability and ease of installing these more embedded panels? If the roof needs to repaired or replaced during the life of the panels, then those factors become important .

Panasonic panels: 4 330 W panels cost $1805 => $1.37/W
Panasonic (4pcs) HIT Power VBN330SA16 330W Mono BLK/WHT Solar Panel | eBay

Amerisolar 4 pack of 250 W panels is $750 => $0.75/watt
New Lot of 4 Amerisolar UL LSolar 250 Watt 24V Polycrystalline PV Solar Panels | eBay

American solar => $0.95/Watt
American Solar Wholesale 250W 10 pieces (2500 watts) Poly Solar Panels | eBay

Don't you assume that lithium ion cells are becoming near commodity items? Lithium-ion is likely following the trend of solar panels. Manufacturers are extremely competitive and are differentiated in panel technology. But the panels in reality are fungible in actual use. The winners produce the lowest cost per watt.

Seems you replied to me by mistake?

 

[Krugerrand]

is it?

You might find it interesting to pull up last year's investment thread and read what most everyone was saying about the Solar City merge. Not one person (here or in the media), EVER, hinted at it being a 'steal'. EVER. And only a few people, myself included in that extremely small group, understood the move and were 'okay' with it. All this after-the-fact discussion is super amusing to me.

 

[racer26]

Will be good to see it on red tile roof. On black shingles or concrete tiles, they look almost same to me. Not that I actually view it from that angle. I rarely see my solar panels.

But the problem is cost. Few months back, I checked prices and sizes of these panels when researching the solar roof idea. Panasonic panels are 40% to 80% more expensive per watt.
Besides, what is the cost,durability and ease of installing these more embedded panels? If the roof needs to repaired or replaced during the life of the panels, then those factors become important .

Panasonic panels: 4 330 W panels cost $1805 => $1.37/W
Panasonic (4pcs) HIT Power VBN330SA16 330W Mono BLK/WHT Solar Panel | eBay

Amerisolar 4 pack of 250 W panels is $750 => $0.75/watt
New Lot of 4 Amerisolar UL LSolar 250 Watt 24V Polycrystalline PV Solar Panels | eBay

American solar => $0.95/Watt
American Solar Wholesale 250W 10 pieces (2500 watts) Poly Solar Panels | eBay


Seems you replied to me by mistake?

My understanding is that the Panasonic and silevo panels are substantially better in terms of performance degradation under heating.

Basically, while the nameplate ratings are similar, or even higher costs per watt, the cheaper panels performance falls off dramatically when the panels heat up in the sunlight, where the Panasonic and silevo panels don't lose nearly as much performance, making their real world cost per kWh produced substantially better.

 

[SPadival]

is it? we're talking about a guy who got a major auto manufacturer to sell him a factory located steps away from silicon valley for $50 million.

I am not sure if I linked before to this podcast on the history of the NUMMI plant. Here it is anyway:

NUMMI 2015

 

[luvb2b]

i remember the public exchanges on it. they are hilarious with the benefit of hindsight.
Tesla-SolarCity a 'no brainer,' but is it a good deal?

i did not study the deal back then. after studying it closely i am certain others would have figured out then what i now see.

also we now have the benefit of the 2 respective 10k filings which are very informative.

let me pose a question: how much of the purchase price would have to be earned back in the first year to make solarcity a steal? would 20-25% be high enough?

ps i got the 50 million figure wrong for nummi- it was 42 million.

You might find it interesting to pull up last year's investment thread and read what most everyone was saying about the Solar City merge. Not one person (here or in the media), EVER, hinted at it being a 'steal'. EVER. And only a few people, myself included in that extremely small group, understood the move and were 'okay' with it. All this after-the-fact discussion is super amusing to me.

 

[Mike Smith]

let me pose a question: how much of the purchase price would have to be earned back in the first year to make solarcity a steal? would 20-25% be high enough?

You have to factor in how many extra TE products Tesla will sell because of Solar City, and it doesn't have to prove anything this year to become a steal anyway. The future opportunities in solar are going to be enormous and this puts Tesla in position to play a major part.