2017 Investor Roundtable: TSLA Market Action

[ValueAnalyst]

Elon is a risk taker, but 2008 and 2012 changed his view toward cash position. Unexpected evens frequently happen. It's better to have extra cash reserve. If Tesla didn't issue this $1.5B bond, the cash position would drop to $1B by end of 2017, that's scary. This borrowing is first a derisk move, it's great. Elon already hinted it in the CC. If Model 3 goes smooth as expected, Tesla can get started with the new Gigafactories in a few months. 2018 will be a busy year.

What's your estimate how soon these Gigafactories can start coming online?

Gigafactory 1 broke ground in 4Q14 and started production Jan 2017, so two years, but next round may be more efficient.

I think Model Y production may start in 2Q19 in very small units at Gigafactory 1 & Fremont, and scale up at Gigafactories 3-6 by end-2019.

Similar to how Tesla is starting Solar Roof production at Fremont then Gigafactory 2 after two quarters.

So I think 500k cars in 2018 and 650k cars in 2019 seems reasonable, since Model 3 will be 10k/week by 4Q18 plus 100k-120k for Model S/X.

I am ecstatic about today's debt capital raise. Additional Gigafactories can't come quick enough.

 

[ValueAnalyst]

After much cheering for more debt yesterday from a number of posters, wish granted.

This, along with higher than expected ASP for Model 3, Tesla is making great progress. Subsequent Gigafactories can't come quickly enough.

More anti-selling is needed for Model 3. Model S/X have more than 25% gross margin NOW, so anti-selling should continue through 1Q18.

I expect Tesla to break ground on Gigafactories 3 through 6 by 4Q17, and initial phases should start coming online by 2H19.

I also expect Tesla to announce more Gigafactories through 2019 as Gigafactories 2 scales up and Gigafactories 3-6 start coming online.

Elon earlier this year said "8 to 10, maybe 20" gigafactories, and investors will be surprised how quickly Tesla gets there.

REMEMBER:

Any dollar invested in Gigafactories (one-time capex) start producing 5x more in ANNUAL gross profit just few years later.

Cash flows from Gigafactory 1 is enough to finance FIVE MORE Gigafactories.

How many Gigafactories do you think cash flows from Gigafactories 1-6 will be enough to finance?

The answer is NOT 10.

 

[Starno]

Last attempts from the shorts to make it through...

 

[LargeHamCollider]

Buying the dip is fun!

Edit: 10 J19s

 

[elasalle]

REMEMBER:

Any dollar invested in Gigafactories (one-time capex) start producing 5x more in ANNUAL gross profit just few years later.

Cash flows from Gigafactory 1 is enough to finance FIVE MORE Gigafactories.

How many Gigafactories do you think cash flows from Gigafactories 1-6 will be enough to finance?

The answer is NOT 10.[/QUOTE]

When will GF1(Nevada), GF(0) Fremont and GF(2) Buffalo be running at full capacity?

 

[D-egg-O]

Buying the dip is fun!

Edit: 10 J19s

Bought 25 J19s

 

[froggy]

Its amazing to me that shorts are still clinging on...time and time again, Tesla and Elon have proven they are cash aware and capable of raising more and more cash; from a variety of sources. As long as Tesla continues to execute on its plan (+/- a year); and as long as they continue to demonstrate ridiculous (>40% per annum) growth, they will have near unlimited access to the capital markets in a variety of forms, and they dont need to show a profit for years, and the stock will rise. Shorts should look at the financial performance history of Amazon (which lost money for years) to decide whether Tesla is still a good short... This debt raise is fantastic news in financially de-risking the company, whatever the chances of Tesla running out of money were, they are now significantly reduced... and if I were short, I would cover before its too late.

 

[ValueAnalyst]

Where are the mythical "smart shorts" that are occasionally mentioned on this forum? Unicorns?

Some shorts are already seeing the writing on the wall and covering their positions. This is evident in data.

Some shorts are genuine people who made unlucky decisions, and now that more data is available, they are free to change their positions.

The primary problem for the stubborn shorts is that a few shorts changing sides may put them in a very difficult position.

 

[vgrinshpun]

I'm pretty sure somebody doesn't just roll out of their bed and blast out an e-mail for a $1.5 billion capital raise.

More likely that they send the e-mail **before** they went to bed, 3:03am, PT.

 

[Krugerrand]

Is that good, or bad, from an investor's perspective?

And why would they need to do that, given that they already have $3billion cash in the bank?

Have you not been paying attention? So they can start paying us a dividend in 2018.

But seriously, aren't they expected to burn through $2Bish of that just in 2H of this year ramping the Model 3? Then while doing that they have to finish their SuperCharger, SC, Gigafactory et al plans for this year. An additional $1.5B gives a little more wiggle room and allows them to stay working on Y (or whatever it's being called now) that Elon wants out either end of 2018 or beginning of 2019.

 

[ValueAnalyst]

When will GF1(Nevada), GF(0) Fremont and GF(2) Buffalo be running at full capacity?

2020 is my estimate. Gigafactories 3 through 6 should start coming online 2H19, and full capacity by 2022.

 

[Waiting4M3]

n additional $1.5B gives a little more wiggle room and allows them to stay working on Y (or whatever it's being called now) that Elon wants out either end of 2018 or beginning of 2019.

I think MY pull-in is the main new info that came out of the Q2ER that's most likely to correlate with this debt raise. Tesla has ~$17B of M3 revenue @ 25% GM = $4B+ cash from selling M3 in 2018 to fund MY, but most of it will come from Q2'18 and later. Raising this $1.5B now allows them to start cranking on MY without having to wait for M3 ramp to complete. If they start building a MY production line in GGF1 in Q2, and like Elon said the ramp gets pulled in to 6 months instead of 1 yr for the M3, can we possibly see the MY by the end of '18? Maybe I'm getting too optimistic, but it's so tempting.

 

[Alketi]

Do we have an understanding of where Tesla is spending the ~$2B(?) in second half cap-ex?

They presumably have the Model 3 production line already in place. Construction seems to have paused on the Gigafactory. They're still building Superchargers. Parts for Model 3? What else?

 

[Waiting4M3]

Do we have an understanding of where Tesla is spending the ~$2B(?) in second half cap-ex?

They presumably have the Model 3 production line already in place. Construction seems to have paused on the Gigafactory. They're still building Superchargers. Parts for Model 3? What else?

The production line is in place, but my guess they still need to install more tools to expand the production rate. Same for GGF, tool install is not visible from the outside but it's most of the cost.

 

[esk8mw]

IIRC @esk8mw had a pretty good discussion on the limits of how many shares are able to be distributed to employees. My understanding of what he/she had said is that the board has to determine whether to issue more shares, and ultimately the stockholders can vote on whether more shares can be issued. I could be completely wrong on this (why I pinged @esk8mw). So there should be a limit.

That's pretty close to correct. Basically, the Company drafts a stock plan requesting X amount of shares as a pool to grant. This plan has to be filed with the proxy and approved by a majority of stockholders. If approved, Tesla can grant up to that amount of shares to employees, but no more. If they want to grant more, they must come back to shareholders with another request for more shares and a majority must approve, otherwise they can't issue more shares to employees.

One key point is that forfeited shares (99% of the time) are permitted to come back into the plan. So, you'll see tons of grants and expenses, but many of these get reversed out when people terminate before the grant is vested. Tesla grants deep into its workforce, it's a very high turnover company and just about everyone is leaving behind equity when they quit/get fired, so the grant figures you are seeing greatly overstate what's actually going out to employees.

Thus, you'll typically see companies come back to seek stock plan approval (often requesting more shares) about every 5 years (though that's mainly for Code Section 162(m) purposes, I won't get into that unless you want me to).

You can see all past share approvals on Form S-8 in EDGAR if you want to see exactly what has been authorized for grant in the past. Each stock plan share pool has to be registered with the SEC, there's a filing fee, a prospectus has to be drafted for participants, etc. There's nothing being hidden and you won't wake up one day and find that employee grants greatly diluted the stock or something.

 

[ValueAnalyst]

Do we have an understanding of where Tesla is spending the ~$2B(?) in second half cap-ex?

They presumably have the Model 3 production line already in place. Construction seems to have paused on the Gigafactory. They're still building Superchargers. Parts for Model 3? What else?

The production line is in place, but my guess they still need to install more tools to expand the production rate. Same for GGF, tool install is not visible from the outside but it's most of the cost.

Tooling and equipment, superchargers, service centers, automation, but also don't forget Gigafactory 2. That will ramp up simultaneously.

Regarding Gigafactory 2 - Elon previously had said "very slow" ramp, but was slightly more ambitious in the most recent earnings call.

 

[MitchJi]

I think about this differently.

Gigafactory costs are heavily weighted towards later years of construction, because the majority of the cost is tooling and equipment.

$1.5 Billion should be enough for initial phases of construction, starting in 4Q17 and through 2018, for four to five Gigafactories.

Tesla will be able to finance the rest with internal cash flow.

On the first Gigafactory I believe that Tesla arranged for Panasonic to pay for most or all of the cell manufacturing equipment.

I have a question, did Tesla ever explain why they are planning to produce more gwh of packs than cells at the Gigafactory?

 

[ValueAnalyst]

On the first Gigafactory I believe that Tesla arranged for Panasonic to pay for most or all of the cell manufacturing equipment.

I have a question, did Tesla ever explain why they are planning to produce more gwh of packs than cells at the Gigafactory?

Tesla didn't, but IIRC, some here indicated cells that are manufactured by Panasonic in Japan are being assembled into packs at Gigafactory 1.

@techmaven may be able to chime in here.

It's difficult to estimate what the battery manufacturing capacity will be at subsequent Gigafactories.

Sizes may be different, we don't know the extent of alien dreadnaught improvements, or how much vertical integration etc.

I'm very excited about Gigafactory-related announcements later this year.

I think Tesla may have to include few pieces of the puzzle in next month's Semi presentation, because otherwise people will go:

"Where will you manufacture 1+ MWh batteries?!" And I'll go

 

[Reciprocity]

Tesla didn't, but IIRC, some here indicated cells that are manufactured by Panasonic in Japan are being assembled into packs at Gigafactory 1.

On the first Gigafactory I believe that Tesla arranged for Panasonic to pay for most or all of the cell manufacturing equipment.

I have a question, did Tesla ever explain why they are planning to produce more gwh of packs than cells at the Gigafactory?

Yeah I keep seeing that it is grinds on my brain. Why do they estimate more GWh for packs then cells. Maybe imported cells? If demand is high enough for both Energy and Autos, it might make sense to import some cells from Japan. The modules (that go into packs and TE) are made at GF1, so maybe they are automated enough to have it make sense to bring cells from Japan.

Elon said that they did not want to move 18650 packs from Fremont to GF1, might have to if they need the room. The higher pack GWh could be based on them assuming they will need to move 18650, though they feel like there is a slight chance they can avoid it. Obviously it would be better to make everything in Fremont, but they already had to move the model 3 drive units to GF1, so maybe imported cells whether they be 18-650 or 21-70.

 

[Stretch2727]

Do we have an understanding of where Tesla is spending the ~$2B(?) in second half cap-ex?

They presumably have the Model 3 production line already in place. Construction seems to have paused on the Gigafactory. They're still building Superchargers. Parts for Model 3? What else?

The cash payments will generally lag from the installation and set up of factory equipment. The negotiated terms with the equipment suppliers will determine this. Many times they are anywhere from 15 days to 3 months. On the earnings conference call there was some passing reference to this, but it was when a few people were talking so I don't think it was really made clear.