Articles/megaposts by DaveT

[Mario Kadastik]

Didn't Musk say 40K in shareholders meeting? Not sure why there is ever a question on it.

What I remember was that he wanted to end 2014 with yearly rate of 40k (i.e. 800 / week), this does not mean producing 40k in 2014 (meaning average 800 / week). That's the main difference I think because if he really says now production guidance of 40k, then this means that starting from 600 / week to get to 800 / week average would imply in linear growth that they exit at 1000 / week, which is 200 higher than previously guided.

 

[DaveT]

Didn't Musk say 40K in shareholders meeting? Not sure why there is ever a question on it.

I just went through the video again and here's the transcript at 14:38 in the video. Elon said he anticipates 40k worldwide demand for the Model S, but that’s different than guiding for 40k cars delivered in 2014 (which is much more ambitious).

Elon Musk: And we’re seeing continued strong demand for the Model S. With demand in North America in the 15000 range, it’s a little above 15000. And it continues into Q2. And we think we’ll have a pretty good Q2 that’s comparable to Q1 on a unit volume basis. Going into Q3 we’ll have some incremental demand from Europe because we’ll start shipping cars, they’ll get on a boat in late June and arrive in July. We think we’ll have pretty good demand in Europe as well. In fourth quarter, we’ll start shipping to Asia. If things go really well, assuming that they don’t take a turn for the bad, then it would be reasonable to extrapolate U.S. demand by roughly a factor of three. This is speculative, I’m not saying this will be the case. I think in my opinion likely we’ll see demand demand of at least 40,000 units worldwide if the U.S. demand is 15,0000, maybe better than that. I think it’s going to be more like 40[k], but it’s saying 30[k] here (presentation slide). Anyway.

 

[austinEV]

Perhaps we should start a thread devoted exclusively to forming a timeline of who said what when. That is, laying out a timeline of all sources, official(company docs, earnings CC) and semi-official (interview questions, offhand remarks). We could track statements of GM, cars/week, cars for 2013, 2014, 2015, model X entering production, model E entering production etc. Seems like you guys do (great) hard work sifting around.

I keep imagining a chart of cars/week statements made over time. Once made, you could draw a trendline and have SA do 20 articles about it.

 

[tslafan123]

Thanks for the clarification. Appreciate it.

 

[sleepyhead]

DaveT - Great OP as usual and I am glad that you are pointing out to the "investors" that analyst estimates don't really mean squat and the only thing that matters in the long run is what kind of gross margin Tesla achieved, but more importantly what kind of guidance they give out.

I just wanted to add, for all of the "traders" here that tend to buy weekly call options to play the earnings (myself included), that analyst estimates are very important and make up 50% of the equation as far as tomorrow's share price goes.

FSLR is the best example here: they doubled EPS estimates and that was imo 50% of the reason the stock went up 18% the next day. The other 50% was due to slightly raised GM guidance but more importantly to a 250MW power plant sale announced simultaneously with ER. I am fairly confident that if FSLR missed or only met earnings it would not go up 18% as it did. I have my doubts it would have gone up at all the next day.

Media, analysts, and retail investors focus on analyst estimates and it will play a big role in the after hours price as well as tomorrow's price.

Other than that I agree that the long term investor should not focus on the financial results from this quarter outside of the GM number.

I am also not certain that Tesla will even give out Q4 guidance. I hope they do, but I think chances are less than 85% you stated; imo more like 60%. But I have not been following TSLA for that long, so I am not sure what their tradition has been. If they do announce FY14 guidance that will mean that supplier constraints have been resolved or are on the verge of being resolved. Therefore, any FY14 guidance will be good news since that means that there is visibility. But I agree that the number has to be at 40k to make a big impact.

 

[justdoit]

I just went through the video again and here's the transcript at 14:38 in the video. Elon said he anticipates 40k worldwide demand for the Model S, but that’s different than guiding for 40k cars delivered in 2014 (which is much more ambitious).

Elon Musk: And we’re seeing continued strong demand for the Model S. With demand in North America in the 15000 range, it’s a little above 15000. And it continues into Q2. And we think we’ll have a pretty good Q2 that’s comparable to Q1 on a unit volume basis. Going into Q3 we’ll have some incremental demand from Europe because we’ll start shipping cars, they’ll get on a boat in late June and arrive in July. We think we’ll have pretty good demand in Europe as well. In fourth quarter, we’ll start shipping to Asia. If things go really well, assuming that they don’t take a turn for the bad, then it would be reasonable to extrapolate U.S. demand by roughly a factor of three. This is speculative, I’m not saying this will be the case. I think in my opinion likely we’ll see demand demand of at least 40,000 units worldwide if the U.S. demand is 15,0000, maybe better than that. I think it’s going to be more like 40[k], but it’s saying 30[k] here (presentation slide). Anyway.

Wow, so they are planning on shipping to Asia in Q4? I wonder if that includes China. I would hope so because if they're opening a show room now then hopefully they can get some cars shipped there before end of the year.

 

[DaveT]

I’m adjusting my final scenario percentages in this last hour before Q3 earnings is announced. Mainly because of three reasons:
1. Elon mentioning doubling production rate by end of 2014
2. Article about Beijing store stating that Tesla is looking to sell 40,000 cars in 2014, doubling from 20,000.
3. Elon mentioning in the same German interview that they’re looking to see German orders come in at a 200-300/week rate. Combine that with an already roughly 200/week European rate and that’s approaching 500/week (or 25k/year for Europe). So just, U.S. (now roughly 500/week and will likely grow into 2014) and Europe will be over 50k cars/year. And that’s not even including Asia. I think Tesla is getting more comfortable with seeing demand for Model S being at over 50k cars in 2014. That said, I think this will give them confidence to guide 40k and still be conservative.

Q3 Earnings Scenarios:
Scenario #1: FY 2014 guidance given at 30,000-33,000 cars
Likelihood: 2%

Scenario #2: FY 2014 guidance given at 35,000 cars
Likelihood: 10%

Scenario #3: FY 2014 guidance given at 40,000 cars
Likelihood: 60%

Scenario #4: FY 2014 guidance given above 40,000 cars
Likelihood: 13%

Scenario #5: FY 2014 guidance not given
Likelihood: 15%

As you can see I’ve dramatically increased the likelihood for #3, and if I had to pick one scenario it would be 40k guidance. I think this will be good for the stock and will likely take us over $200 in coming weeks, depending on how other parts of the earnings report goes (ie., GM, # cars, etc).

DaveT - Great OP as usual and I am glad that you are pointing out to the "investors" that analyst estimates don't really mean squat and the only thing that matters in the long run is what kind of gross margin Tesla achieved, but more importantly what kind of guidance they give out.

I just wanted to add, for all of the "traders" here that tend to buy weekly call options to play the earnings (myself included), that analyst estimates are very important and make up 50% of the equation as far as tomorrow's share price goes.

FSLR is the best example here: they doubled EPS estimates and that was imo 50% of the reason the stock went up 18% the next day. The other 50% was due to slightly raised GM guidance but more importantly to a 250MW power plant sale announced simultaneously with ER. I am fairly confident that if FSLR missed or only met earnings it would not go up 18% as it did. I have my doubts it would have gone up at all the next day.

Media, analysts, and retail investors focus on analyst estimates and it will play a big role in the after hours price as well as tomorrow's price.

Other than that I agree that the long term investor should not focus on the financial results from this quarter outside of the GM number.

I completely agree that analyst estimates affect investors, so maybe I downplayed analyst estimates a bit too much. But in the end it’s really about the investors and their decisions whether to hold or sell. I think usually analysts and investors line up very closely with expectations. However, I think there are some companies that have extremely wide divergence of beliefs regarding them, meaning some people hate them and some people are infatuated with them (ie., TSLA). Often, highly-shorted stocks with a big fan base are like this. In these cases, I think analyst estimates don’t reflect accurately the expectations of investors, who for the most part are super enthusiastic and much more so than the typical analyst covering the company.

My take on FSLR’s recent ER is that they actually reported earnings that surprised FSLR investors, and that those earnings also happened to beat analyst estimates as well. But the key is they beat the expectations of FSLR investors, and that’s why the stock went up and was able to keep its gains. If they reported earnings that beat analyst estimates but didn’t beat investor expectations, I think the stock would have seen some downward price action. Again, usually investor and analyst expectations are in line, but I think FSLR (as a highly shorted stock) carries a decently large divergence of beliefs where the people invested in the company tend to be a lot more enthusiastic than the typical analyst covering it.

I am also not certain that Tesla will even give out Q4 guidance. I hope they do, but I think chances are less than 85% you stated; imo more like 60%. But I have not been following TSLA for that long, so I am not sure what their tradition has been. If they do announce FY14 guidance that will mean that supplier constraints have been resolved or are on the verge of being resolved. Therefore, any FY14 guidance will be good news since that means that there is visibility. But I agree that the number has to be at 40k to make a big impact.

I agree my 85% likelihood that FY 2014 guidance will be given is quite high, but I think I'll keep that number because it appears from past quarterly and annual reports that Tesla tends to give guidance at least a year out.

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Wow, so they are planning on shipping to Asia in Q4? I wonder if that includes China. I would hope so because if they're opening a show room now then hopefully they can get some cars shipped there before end of the year.

The 2013 shareholder meeting was held in early June, and I think a lot has changed since then. They pushed back the start of European deliveries from Q2 to Q3 and I think they've pushed back the start of Asia deliveries from Q4 2013 to Q1 2014.

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Here’s my plan in processing Q3 earnings. I’m not going to look at the after-hours TSLA price (or TMC’s reaction) until I’ve had adequate time to process the earnings letter and conference call. So, I’ll probably be offline from 1pm to at least 4pm PST because I don’t want the after-hour price to influence how I process and view Q3 earnings. I want to spend a good 1-2 hours reading through the letter, analyzing numbers, and processing any implications the letter/call give. See you guys later tonight.

 

[sleepyhead]

Here’s my plan in processing Q3 earnings. I’m not going to look at the after-hours TSLA price (or TMC’s reaction) until I’ve had adequate time to process the earnings letter and conference call. So, I’ll probably be offline from 1pm to at least 4pm PST because I don’t want the after-hour price to influence how I process and view Q3 earnings. I want to spend a good 1-2 hours reading through the letter, analyzing numbers, and processing any implications the letter/call give. See you guys later tonight.

That sounds like waiting for Christmas and then when it finally comes you wake up and run to the Christmas Tree. But instead of opening your presents you sit there study the box shape and size, shake the presents, maybe even pull out a tape measure, weigh the box on the scale, and study box (without opening it) for about two or three hours just to find out what's inside.

But seriously I admire your dedication and restraint. Good luck and thanks for doing this in order to come up with an unbiased opinion.

I will look at after hours as soon as I am done with the shareholder letter.

 

[callnaveen]

Thank you Dave, Good luck.

 

[sleepyhead]

Your numbers were pretty spot on DaveT. Unfortunately no 2014 guidance, so there was nothing to keep the rally going. Interesting to see how the market reacts tomorrow.

 

[FluxCap]

Your numbers were pretty spot on DaveT. Unfortunately no 2014 guidance, so there was nothing to keep the rally going. Interesting to see how the market reacts tomorrow.

It is staggering how accurate you have been over 3 quarters, DaveT. Massive kudos and gratitude for all your research and sharing.

Too bad the oil lobby and shorters set up the news cycle as a miss below the astronomical production numbers being thrown around today.

I think people are pissed at the no 2014 guidance comment. I am hoping that despite the letter, maybe Elon will throw us a bone of some kind on the call. We shall see.

 

[justdoit]

Even though there was no specific numbers for 2014 guidance, everything in that letter seemed like things were progressing as planned if not better and faster. So I don't see a reason why that 40k number still doesn't stand and I'm pretty sure this will come up on the call. There were so many good things in that letter. My favorite was that Model X development was accelerated.
- Panasonic battery deal being a floor not ceiling
- GM to 25% if not higher in Q4
- Pioneering new vehicle approach to servicing (to be announced later)
- Supercharger expansion on track
- Model X dev accelerated (if it's mentioned on the call that they will start shipping earlier that'd be awesome)

Those are just a few.

 

[DaveT]

Initial Q3 ER reaction

Here’s my initial reaction to TSLA’s Q3 earnings letter and call. (I’m going to post this first and then look at the after-hours price for the first time today.)

Overall, TSLA reported strong earnings with as-expected revenue, earnings, gross margin, etc. They continue to execute well and show that they are able to manage growth.

However, the big issue facing them is production constraints that limit them from scaling production this year. This seemed to be the theme of the conference call and shareholder letter. This issue is not a big deal to the long-term TSLA investor, as long-term buy-and-hold investors plan to hold the stock long-term as Tesla ramps up production to meet growing demand. Everything looks fairly good for Tesla in the long-term.

However, the short-term (ie., next few months) for TSLA is a different story. The lack of clear FY 2014 guidance shows possible weakness or lack of confidence on when or how they will be able to scale production. They also made it clear that ramping production would happen sometime next year, not this year. Even the timeframe for next year was left ambiguous, perhaps another sign of lack of confidence from the management.

Without specifics on production ramp and without clear reiterations of growing worldwide demand (ie., no mention of 50k worldwide demand), it leaves room for a lot of ambiguity in terms of Tesla’s revenue growth rate in 2014 and beyond. This will likely add to the volatility of the stock in the short-term.

Currently TSLA’s stock chart is somewhat in a broken state (historic uptrend broken) and is now consolidating. It looks like Q3 earnings hasn’t provided what was needed to restart the uptrend, but will likely give enough support for consolidating at recent stock price levels.

There is risk of TSLA over-correcting. I’m still processing those risks, and might write about them later. If TSLA over-corrects, then I think it could be an excellent buying opportunity as we know that sometime in 2014 they’ll get their production issues ironed out and the stock will likely have the support then to rise in price. This Monday, Jan 2016 LEAPs are available and if TSLA over-corrects, then buying 2016 LEAPs could be a good stock-replacement strategy (but I’d watch out for any tax consequences as I’d only want to trade out stock I’ve held for over a year in a non-tax-deferred account. Tax-deferred account would be a different story as you wouldn’t have tax consequences.).

I think there could be some opportunity to trade the volatility but you’d need to be really good at trading. For most people, even though there’s risk of over-correcting, it’s probably a good idea to hold common stock and to hold for the long-term. You can wait out the bumps as Tesla grows into the company we know it can become.

Overall, I’m a bit discouraged in the short-term with Q3 earnings. I wish Tesla management would have given more specifics on their production ramp in 2014 and given more tangible figures for how demand is growing. The ambiguity and lack of guidance can aid in the sideways trading of the stock. In the long-term, Tesla management continues to display that they’re working through their growing pains and are continuing in their vision toward the electrification of vehicles.

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Update: After posting this above, I looked at the AH price for the first time today. Arghh. I can understand it why the stock was hit after-hours. It goes back to my first post on this thread about investor expectations (vs analysts). Investors in high-growth stocks usually have higher expectations, and today it was difficult for Tesla management to meet or exceed them (especially with constantly highlighting production constraints but not giving specific unit guidance. My initial emotional reaction to the letter and call were actually very negative and disappointing). I managed to collect my thoughts and look at the bigger picture before writing the post above as I think my post above reflects a more accurate picture of the situation (vs spewing my disappointment).

Update2: If only they would have given 2014 guidance... even if it was just 35,000 cars, I think that would have given some much needed stability.

 

[Paul Carter]

Even though there was no specific numbers for 2014 guidance, everything in that letter seemed like things were progressing as planned if not better and faster. So I don't see a reason why that 40k number still doesn't stand and I'm pretty sure this will come up on the call. There were so many good things in that letter. My favorite was that Model X development was accelerated.
- Panasonic battery deal being a floor not ceiling
- GM to 25% if not higher in Q4
- Pioneering new vehicle approach to servicing (to be announced later)
- Supercharger expansion on track
- Model X dev accelerated (if it's mentioned on the call that they will start shipping earlier that'd be awesome)

Those are just a few.

re: underlined above: I got so excited by this in the letter but on the call basically told that this doesn't mean what you and me both thought. Only a few in 2014 and "full" ramp up in Q2 2015. To me its no change from last quarter.

 

[RationalOptimist]

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Update: After posting this above, I looked at the AH price for the first time today. ...

That's impressive discipline, Dave.
Don't be too down.
Even though Elon clearly sounded tired, there was a lot in the call that was brand new. I thought he lit up describing the potential for the gigafactory. My take away is that THAT is the means by which a $35k car with range (and good GM) can be built... and it's starting to get real. And it will not be possible for other companies to reasonably or rapidly emulate. I also heard him say more clearly than I've heard before that model E is going to be an awesome car.
The only issue that, to me, could have been really damaging... alleged signs of falling US demand... was brushed aside.
Patience....

And meanwhile, thanks again for all the effort you put in here, Dave....

 

[aznt1217]

Good discipline. I nearly put a sell order in for the AH to get into some other plays... but then I thought this is crazy. I'm listening to the call now and I like what I hear. I think it's right that they didn't give FY14 projections. Demand will be high but if they can't work out the production kinks to fulfill the orders, he'd be doing all of US a disservice. Once they get through the production problems they'll have a better idea. That and I think they want to see the progress of London, Germany, and China after a few weeks of reservations to look at projections.

The finance team will be at various meetings and information will be disseminated and smart money will pick it up. We saw a lot of institutional investors leave... they'll be getting in.

 

[justthateasy]

Dave, thanks for posting your thoughts about Q3 as it helps put the overall Tesla Motors story into perspective.

You brought up the two points that really irked me about the letter and conference call. First the theme about production constraints and second, the lack of any 2014 guidance.

As great a visionary and CEO as Elon Musk is, I think there are times when he needs to take a page out of Steve Jobs's playbook and develop a reality distortion field of sorts. It would have been best to refrain from bringing up production constraints and instantly shoot it down if it's ever brought up. I like Elon's candor from time to time but often, he is too honest.

Update2: If only they would have given 2014 guidance... even if it was just 35,000 cars, I think that would have given some much needed stability.

I completely agree with this. Some sort of guidance would have been a lot better than nothing. Had we gotten this, I still think the stock would be down, just not as bad as it is.

 

[DaveT]

You brought up the two points that really irked me about the letter and conference call. First the theme about production constraints and second, the lack of any 2014 guidance.

As great a visionary and CEO as Elon Musk is, I think there are times when he needs to take a page out of Steve Jobs's playbook and develop a reality distortion field of sorts. It would have been best to refrain from bringing up production constraints and instantly shoot it down if it's ever brought up. I like Elon's candor from time to time but often, he is too honest.

I just think that Elon has been focusing and thinking about this battery constraint problem a lot of late, and it must be at the top of his mind (ie., production constraints, giga factory, etc). So, he's just sharing what's on his mind and the problem(s) he's focused on solving.

I wish though Elon would remember that he's talking to a bunch of mostly quantitative analysts who need to latch on to numbers to plug into their models. By focusing on production problems and not giving tangible 2014 production targets, Elon is allowing these analysts (and others) to focus on production constraints (rather than production ramp numbers and growing demand) and come up with their own 2014 forecasts which will naturally be around 30,000 cars (especially with all the talk about production constraint).

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That's impressive discipline, Dave.

I chose not to look at after-hours or anybody's reaction (other than my wife who was sitting across from me at Starbucks) because I realize that my interpretation of earnings can be influenced too early before I've fully digested the shareholder letter and conference call (this is what happened to me at Q2 ER). So this time around, I was able to read the shareholder letter a dozen times, listen to the conference call, take a bunch of notes, and organize my thoughts on price action into various scenarios and odds before looking at the after-hour price.

 

[FluxCap]

I just think that Elon has been focusing and thinking about this battery constraint problem a lot of late, and it must be at the top of his mind (ie., production constraints, giga factory, etc). So, he's just sharing what's on his mind and the problem(s) he's focused on solving.

I wish though Elon would remember that he's talking to a bunch of mostly quantitative analysts who need to latch on to numbers to plug into their models. By focusing on production problems and not giving tangible 2014 production targets, Elon is allowing these analysts (and others) to focus on production constraints (rather than production ramp numbers and growing demand) and come up with their own 2014 forecasts which will naturally be around 30,000 cars (especially with all the talk about production constraint).

Spot-on as always Dave. When I heard Elon speak I heard a man with way too many pressures on him that is a genius and extremely capable, but still needs management reinforcements that he can truly delegate to, like a savvy COO that can discuss things publicly in a more delicate manner.

I am so very disappointed in him for being pressured into the possible battery-factory reveal by Andrea, which was clearly not intended to be leaked to the degree he did because it was nowhere in the letter. She said 'Wow' for good reason on the call. He should have held this information closer to the vest.

If he wants Tesla to change the world, he has to set expectations properly and he didn't do that last night. The stock may reflect this in the near-term, and short-term positions are now much more volatile and dangerous going into Q1 2014, I think.

I'm still long Tesla 2016-2017 but I'm holding off on adding new short-term bullish plays until the dust settles from this messily-handled earnings release that, as Julian said, is among "the worst telling of the best stories ever told."

Thanks again for all you do and have done for/with us Dave.

 

[Gtoffo]

Spot-on as always Dave. When I heard Elon speak I heard a man with way too many pressures on him that is a genius and extremely capable, but still needs management reinforcements that he can truly delegate to, like a savvy COO that can discuss things publicly in a more delicate manner.

I am so very disappointed in him for being pressured into the possible battery-factory reveal by Andrea, which was clearly not intended to be leaked to the degree he did because it was nowhere in the letter. She said 'Wow' for good reason on the call. He should have held this information closer to the vest.

If he wants Tesla to change the world, he has to set expectations properly and he didn't do that last night. The stock may reflect this in the near-term, and short-term positions are now much more volatile and dangerous going into Q1 2014, I think.

I'm still long Tesla 2016-2017 but I'm holding off on adding new short-term bullish plays until the dust settles from this messily-handled earnings release that, as Julian said, is among "the worst telling of the best stories ever told."

Thanks again for all you do and have done for/with us Dave.

I totally agree with everything that has been said here. I think Elon is one of the greatest minds alive in business today, but this is still the first time for him managing a public company like Tesla, he still needs to learn a lot.