General Discussion: 2018 Investor Roundtable

[ls7corvete]

Tesla needs cash. Gross margin/profit is "how much cash can Tesla get from each Model 3 it makes?" It affects their ability to raise more money on equity markets - the higher the gross margin, the more willing new investors will be to give them money. The debt rating also affects their ability to raise cash via debt.

The entire short/bear thesis centers on Tesla's current cash position and burn rate in a capitally intense industry.

Everything else is secondary. As an example investors realize Tesla is behind level 4/5 AVs, they might knock down the stock price by valuing them as an automobile company rather than a tech company. Which makes Tesla's inevitable equity raise more dilutive.

Or... take the Semi. The Semi is going to require a huge investment to start manufacturing. That investment has to come from somewhere. Again, we're back to cash.

The Model 3 is also secondary to my bear thesis. I don't care how many Model 3s/week they can make - I care how much cash each Model 3 production line can generate each week.

Either the gross margin is good or it is not, the recent change in credit ratings is not going to change that. Unless you are implying that Moody's has more imformation about the GM than has been announced otherwise.

AV/FSD is just one area that Tesla is developing. Feel free to downgrade them on that if you like, but they many other prospects.

 

[MattEnth]

Either the gross margin is good or it is not, the recent change in credit ratings is not going to change that. Unless you are implying that Moody's has more imformation about the GM than has been announced otherwise.

AV/FSD is just one area that Tesla is developing. Feel free to downgrade them on that if you like, but they many other prospects.

Again, it's all about cash. Model 3 gross margin gets at a more fundamental question of "how much cash can each Model 3 production line generate?"

"They have many other prospects," yeah, sure. But all of them require cash that they don't have. Want to build that semi line? Need cash. Want to ramp up Roadsters? Need cash. Want to make a big push getting autonomous vehicles on the road? Need cash. Want to ramp up that solar tile production? Need cash.

That's why the downgrade is so significant (and why I started my short position anticipating it). It cuts out an entire method of financing at the scale they need. The likely way they raise cash now is by diluting existing shareholders. They burned $675 million in cash in Q4, and are expected to have burned >$750 million in cash in Q1.

I will give Tesla credit that their financing moves last winter were brilliant (specifically the Roadster deposits and selling off old Tesla leases). But I'm not sure how many of those tricks Tesla has up its sleeve.

But it's worth restating: the short/bear thesis is 100% about cash. It's not about Elon Musk or his vision. It's not about the brand and how cool the cars are. It's not about competitive advantages or production output. It's all about cash.

 

[sundaymorning]

Again, it's all about cash. Model 3 gross margin gets at a more fundamental question of "how much cash can each Model 3 production line generate?"

"They have many other prospects," yeah, sure. But all of them require cash that they don't have. Want to build that semi line? Need cash. Want to ramp up Roadsters? Need cash. Want to make a big push getting autonomous vehicles on the road? Need cash. Want to ramp up that solar tile production? Need cash.

That's why the downgrade is so significant (and why I started my short position anticipating it). It cuts out an entire method of financing at the scale they need. The likely way they raise cash now is by diluting existing shareholders.

When you make 300 M3/ month your cash grows. When you make 1000/ month it grows a bit more. When you make 2,500/ week you’re making big piles of it. When you make 5,000/ week your pile is Cha Ching!! When it’s 10,000/ week you’re swimming in it.

 

[ls7corvete]

Again, it's all about cash. Model 3 gross margin gets at a more fundamental question of "how much cash can each Model 3 production line generate?"

"They have many other prospects," yeah, sure. But all of them require cash that they don't have. Want to build that semi line? Need cash. Want to ramp up Roadsters? Need cash. Want to make a big push getting autonomous vehicles on the road? Need cash. Want to ramp up that solar tile production? Need cash.

That's why the downgrade is so significant (and why I started my short position anticipating it). It cuts out an entire method of financing at the scale they need. The likely way they raise cash now is by diluting existing shareholders. They burned $675 million in cash in Q4, and are expected to have burned >$750 million in cash in Q1.

I will give Tesla credit that their financing moves last winter were brilliant (specifically the Roadster deposits and selling off old Tesla leases). But I'm not sure how many of those tricks Tesla has up its sleeve.

That could be. And obviously you have aquired a small fortune so far. We will see how it ends.

 

[MattEnth]

When you make 300 M3/ month your cash grows. When you make 1000/ month it grows a bit more. When you make 2,500/ week you’re making big piles of it. When you make 5,000/ week your pile is Cha Ching!! When it’s 10,000/ week you’re swimming in it.

It requires cash to go from the 1.4k/week they have now to the 10k/week they aspire. Where is that cash coming from? And how do they balance those investments with all the other things they want to do?

Your comment makes it sound like each "step" on the ramp is free. It's not. Going from 0-->1.5k/month caused Tesla to post a $675 million loss in Q4. Going from 1.5k/month to 1.5k/week is expected to cause Tesla to post a $750 million loss this quarter.

How much money will it cost them to go from the 1.5k/week they're at now to "swimming in it"?

 

[mmd]

Regarding the Model 3 ramp... are we sure they are producing 7 days a week? Everyone seems to interpret the 200-300 number as translating to 1400-2100 per week, but that requires 7 days a week for the math to work out.

I figured S/X are produced in 2 shifts 5 days a week. Doesn't mean M3 can't be different, just wondering if this has ever been confirmed.

I feel like this is another "burst rate" trick, like the one at the end of Q4. Tesla produces 200-300 cars a day for few days, working 24/7 and pulling in many workers from Model S & X. Pretty sure this isn't sustainable.
Tesla's Push to Prove the Haters Wrong Only Proves Them Right

But what I'm really curious about, is why this leaked email carries Doug Field's (corrected) signature and not Elon's. Is Tesla thinking that Elon has lost some credibility and decided it will be more believable if the email was from Doug Smith? Even Silicon valley prominents like Wozniak has openly said, he no longer believes anything Elon says. If it is what I'm thinking, how will it affect Tesla's ability to raise more capital with new stories?

On a separate note, what do you folks think about next cap raise? Will it be debt or equity? I think it is coming in the next 1-2 months.

PS: Mods, feel free to delete if it looks provocative. I'm just trying to gauge the opinions of the bulls.

 

[sundaymorning]

It requires cash to go from the 1.4k/week they have now to the 10k/week they aspire. Where is that cash coming from? And how do they balance those investments with all the other things they want to do?

Your comment makes it sound like each "step" on the ramp is free. It's not. Going from 0-->1.5k/month caused Tesla to post a $675 million loss in Q4. Going from 1.5k/month to 1.5k/week is expected to cause Tesla to post a $750 million loss this quarter.

How much money will it cost them to go from the 1.5k/week they're at now to "swimming in it"?

To put it into simpleton terms, I owe the bank a huge mortgage, how do I pay that off? I work my a$$ off. When there’s an emergency, I ask for a loan. It won’t matter if my credit is 800, 700 or 500 points, the bank will make the loan happen for me base on my equity and ability to repay them. Tesla’s equity is the massive deposits of M3 and the 500,000 and growing reservation holders. That 500k reservation number in equity is worth $21 billion (average selling price of $42k). Now imagine if Tesla does 1 million per year, that number jumps to $42 billion for M3 alone. Don’t make it complicated, or perhaps you want it to be complicated?

Banks are in the business of making money, they make it by giving loans. Tesla is in the business of making cars, they have the #1 product. Now put the two and two together, simple....

 

[Krugerrand]

I feel like this is another "burst rate" trick, like the one at the end of Q4. Tesla produces 200-300 cars a day for few days, working 24/7 and pulling in many workers from Model S & X. Pretty sure this isn't sustainable.
Tesla's Push to Prove the Haters Wrong Only Proves Them Right

But what I'm really curious about, is why this leaked email carries Doug Smith's signature and not Elon's. Is Tesla thinking that Elon has lost some credibility and decided it will be more believable if the email was from Doug Smith? Even Silicon valley prominents like Wozniak has openly said, he no longer believes anything Elon says. If it is what I'm thinking, how will it affect Tesla's ability to raise more capital with new stories?

On a separate note, what do you folks think about next cap raise? Will it be debt or equity? I think it is coming in the next 1-2 months.

PS: Mods, feel free to delete if it looks provocative. I'm just trying to gauge the opinions of the bulls.

It’s Doug Fields.

 

[Waiting4M3]

I am not sure what the debt rating has to do with the GM of the M3.

debt rating can not influence the margin on the M3, but good margin on the M3 could make debt rating irrelevant, Tesla won't need to borrow money if the rates aren't to their liking.

 

[ggr]

I feel like this is another "burst rate" trick, like the one at the end of Q4. Tesla produces 200-300 cars a day for few days, working 24/7 and pulling in many workers from Model S & X. Pretty sure this isn't sustainable.
Tesla's Push to Prove the Haters Wrong Only Proves Them Right

But what I'm really curious about, is why this leaked email carries Doug Smith's signature and not Elon's. Is Tesla thinking that Elon has lost some credibility and decided it will be more believable if the email was from Doug Smith? Even Silicon valley prominents like Wozniak has openly said, he no longer believes anything Elon says. If it is what I'm thinking, how will it affect Tesla's ability to raise more capital with new stories?

On a separate note, what do you folks think about next cap raise? Will it be debt or equity? I think it is coming in the next 1-2 months.

Whether they knew it would be leaked or not, the primary audience of the email was Tesla production workers, so it makes perfect sense to me that it should come from the head of production.

In the couple of most recent quarterly calls, they (Elon and Deepak) have repeatedly said that they won't need to raise more capital. They can get to 5k/week using only money they've already spent. Don't forget there's now significant revenue coming from the S and X sales. So long as they can be even slightly positive gross margin on 5k/week Model 3s, they can fund the expansion from that.

PS: Mods, feel free to delete if it looks provocative. I'm just trying to gauge the opinions of the bulls.

Mod: No, this is the kind of post that we like and need! I don't agree with it all, but want to hear it. --ggr w/ mod hat.

 

[22522]

Margin focus is limiting.

What matters is return on investment.

There is the inventory investment and the factory investment. Once Tesla makes and delivers cars faster than it pays for the parts, cash swings positive.

It is really about total contribution dollars. Tesla needs to make a lot of cars, not a lot of margin.

 

[Sudre]

I like how @valuebuyer ....... I don't think I'd call this a "solid ramp," especially when compared to their competition.

Everyone has already pointed out Tesla's ramp of Model 3 is already surpassing all the other EV manufacturers.... you know.... those "big guys".

Just a simple FYI because you appear to be a relatively new short. Your entire argument has been made way back in June of 2010 by very smart investors that now say, "never short Tesla". Those shorts back in 2010 are now gone. Many licking their wounds and all with huge losses. Be careful. I know you have seen the charts but I want to point out that TSLA ramps up much faster than Tesla ramps up.

"Out of cash" or not. If Tesla announces anything near the 2500/week they claim I am going to vertically land and load the BFR. (no truck backing up for me too slow) You will wake up Monday morning (or whenever) and pre-market will have you in bad shape. I think that announcement is what many bulls are simply waiting for. If it's too low I and any real bull won't bother selling we will just continue to orbit until the right moment, meanwhile you will just keep doubling down until the wrong moment.

 

[Waiting4M3]

Margin focus is limiting.

What matters is return on investment.

There is the inventory investment and the factory investment. Once Tesla makes and delivers cars faster than it pays for the parts, cash swings positive.

It is really about total contribution dollars. Tesla needs to make a lot of cars, not a lot of margin.

That's not necessarily true, it only holds if they're ramping, or if the margin is positive.

Scenario 1: if the production rate is flat, and margin is 0, each week they will just take money coming in from 5k customers, and pay for the parts that went into 5k cars the previous week, there is no extra cash.

Scenario 2: If the production is ramping but margin is still 0, then they will take $ in from 6k customers, and pay for parts that went into 5k cars the previous week, they still get positive cash flow even though they don't make money, the schtick runs out of juice when the ramp hits the max rate that the line is capable of, and reverts back to scenario 1

Scenario 3: If the production is ramping AND margin is positive, then they get extra cash by both taking in money from more customers than the # of cars that they have to pay for from the previous week, and also from the positive margin. When the ramp runs its course and hits the max, then it reverts to next scenario 4

Scenario 4: If the production rate is flat and margin is positive, then each week they take money from 10k customers, pay for the parts used in 10k cars from the previous week, and make the margin.

 

[Esme Es Mejor]

Again, it's all about cash. Model 3 gross margin

Question: what do you think will happen to the gross margin as Tesla goes from 1500 in Q4 to ~10k in Q1? Since there are both fixed and marginal costs, what happens to gross margin when those fixed costs get spread among more cars?

 

[22522]

Is there anyone here that thinks that variable cost margin is negative?

Or the incremental cost of making one more unit is contribution dollar negative?

 

[ls7corvete]

Is there anyone here that thinks that variable cost margin is negative?

Or the incremental cost of making one more unit is contribution dollar negative?

The FUD is implying it, I doubt they are actually dumb enough to beleive it.

 

[MattEnth]

Re: Gross margin. Of course it will improve with throughput, which is why it's so important to see how much. It's hard to forecast given Tesla's forecasting credibility issues, thus any new information is meaningful.

Also: An Update on Last Week’s Accident

In the moments before the collision, which occurred at 9:27 a.m. on Friday, March 23rd, Autopilot was engaged with the adaptive cruise control follow-distance set to minimum.​

 

[Esme Es Mejor]

Is there anyone here that thinks that variable cost margin is negative?

That’s what I’d like to hear from the bears/shorts. They claim to be all about cash & math, but I’ve yet to see any convincing math from them. If they have any reason to believe Tesla won’t achieve their stated margins, I’d love to hear it. But so far, nothing.

 

[Esme Es Mejor]

Re: Gross margin. Of course it will improve with throughput, which is why it's so important to see how much. It's hard to forecast given Tesla's forecasting credibility issues

That’s dishonest.

Timelines have been inaccurate, but margin forecasts have been excellent. Gross margin was negative during the first quarter of the Model S ramp, single-digit positive the next quarter, double-digit positive the next quarter, and 20%+ every quarter after that except one (which, I believe, was the beginning of the Model X ramp).

With the beginning of the Model 3 ramp, gross margin has dropped into the teens. It’s certainly possible that Tesla will fail to achieve their margin goals, but their entire history suggests the opposite.

So, if you care about your financial future, give some serious thought to why this ramp will be different from previous ramps. Bulls made the mistake of thinking timelines would be different with this ramp, but bears seem to be making the mistake of thinking margins will be different with this ramp. I don’t think they will be.

 

[Zaxxon]

It’s Doug Fields.

No, it's not*.

* - Speaking as someone with a name prone to similar near-constant misspelling.