Short-Term TSLA Price Movements - 2014

[vgrinshpun]

I think that a full potential of the Tesla business leasing and forming Tesla Finance as a TSLA catalyst is yet to be realized.

The business lease program, although it could generate additional demand, would put a damper on the income that TM would be able to realize immediately upon signing the business lease: since it will be financed by Tesla, the deferment of income would be on both GAAP and non-GAAP basis, with the cash flow, unlike the leasing for individual program, taking a hit because this would be real lease, not a pseudo-lease. But, as we learned, the briliance of Tesla strategy covers all facets of the company, from engineering, manufacturing and ("non") marketing, to financing. As stated by the Baird analyst, in order to combat the cash flow hit, Tesla Financial is also introducing asset-backed securities, which would allow to realize the cash sooner, if not immediately on sighning the lease:

Additionally, the option of introducing asset-backed securities in the future could provide TSLA with another source of low cost capital. Securitization would also allow TSLA to receive upfront cash for its leases which could be deployed for the construction of the Gigafactory or for the production ramp of the Gen III vehicle.

TMC members with financial background would be welcome to comment, as it is an engineer speaking here, but I believe my reading is correct. I think this is unexpected by a wider market audience and is a big news.

http://www.streetinsider.com/Analys...usinesses+a+Positive,+Baird+Says/9362172.html

 

[brianstorms]

I was wondering if the business lease news was a hint that individual orders are leveling off, either due to softening demand or due to the approaching release of Model X, and some would-be S buyers are holding out to the X which is in theory less than a year away.

 

[Citizen-T]

Additionally, the option of introducing asset-backed securities in the future could provide TSLA with another source of low cost capital. Securitization would also allow TSLA to receive upfront cash for its leases which could be deployed for the construction of the Gigafactory or for the production ramp of the Gen III vehicle.

http://www.streetinsider.com/Analys...usinesses+a+Positive,+Baird+Says/9362172.html

Another play taken from the SolarCity playbook. Very interesting...

 

[justdoit]

That went well. Taking my cost basis out now and playing with the house's money.

Nice. I sold the 210's I bought yesterday b/c wasn't too happy with the close. But on open bought some 220's b/c things were looking good. Still holding on to them. If we can break 216 we should be able to go higher. 216 was also yesterdays high. We're holding pretty steady in the 215 range so hope to have a strong breakout before end of day. If we do, I might consider adding some more.

It really seems like 205 area is a solid base but if we fall below that we could go down quite a bit. So hoping the market is recovering and that this isn't just a dead cat bounce.

- - - Updated - - -

FUD

Telsa's U.S. sales slow as analysts question growth prospects

http://www.latimes.com/business/aut...s-slow-20140408,0,4757765.story#ixzz2yJqJdBgp

 

[SteveG3]

- - - Updated - - -

FUD

Telsa's U.S. sales slow as analysts question growth prospects

http://www.latimes.com/business/aut...s-slow-20140408,0,4757765.story#ixzz2yJqJdBgp

FUD indeed. they are quite selective in the comments from Johnson (analyst at Barclay's) they choose to share. they include some cautionary comments he made about Chinese demand, but exclude the very bullish comments he also made about Chinese demand (I've not had the report to read, but strongly suspect the cautionary comments were said to temper the bullish comments). Here's what the LA Times choose not to include (assuming all media were given the same set of comments from Barclay's):

"We believe Tesla has an opportunity to be the next hot luxury boom in China, similar to Chanel purses or Apple iPhones, with status seekers potentially flocking to it," Barclays analyst Brian Johnson said in the report. "In particular, the Model S appears to be particularly attractive among the elite in the financial-services and technology industries."

Tesla Cars, Like Apple's iPhone, Seen As China Status Symbol - Investors.com


and to the recent "U.S. demand plateauing" storyline... while short-term demand may have plateaued I think it is quite likely to start growing again. Had the fires not happened I think demand would have continued to rise. The shock to demand of the fires (or I might say, media usage of the fires) was always more an emotional than rational response, but now with the responses to the fire from Tesla and NHTSA (as well as nearly 6 months now without another incident) I think there's a catalyst for an uptick in demand. There are other longer term catalysts to demand uptick, which near term might actually be a bit of headwind... coming AWD, and longer range Elon suggested will be available next year (he said this in one of the talks in Europe). There's other subtler catalysts for demand... the people who wanted to wait a year or two who to see that Tesla was not too good to be true, expanding Supercharger network, safety track record becoming more meaningful with more and more miles on the road... Even with Model X coming, I'm quite optimistic we've not hit the high water mark of U.S. demand.

update: and of course, today's business leasing announcement will help demand.

 

[pz1975]

I am not a chartist/technical analyst by any means, but can any of you experts comment on what appears (to these novice eyes) to be a mini head-and-shoulders pattern starting March 27 and continuing to today? It isn't a real H&S I don't think as it should have done this after a big up-phase so maybe there is another name? It just looks like it should mean something with the symmetry. If it is symmetrical, then we could probably see another dip to 205ish in the next day or two, and then a steady climb back up. Or I could be completely off!

 

[Curt Renz]

I am not a chartist/technical analyst by any means, but can any of you experts comment on what appears (to these novice eyes) to be a mini head-and-shoulders pattern starting March 27 and continuing to today? It isn't a real H&S I don't think as it should have done this after a big up-phase so maybe there is another name? It just looks like it should mean something with the symmetry. If it is symmetrical, then we could probably see another dip to 205ish in the next day or two, and then a steady climb back up. Or I could be completely off!

Since what you visualize as a TSLA inverted head and shoulder are both at the same level, it actually appears to be a double bottom which can be quite bullish. This may be confirmed by the fact that the correction from the winter rally is close to the Golden Ratio ideal of 38.2%. In my McGraw-Hill book "The Investor's Guide to Technical Analysis" I discuss both of those chart patterns and the Golden Ratio.

 

[Curt Renz]

Once this hits the news it may have a short term impact beyond the long term accounting effects:
Tesla leasing for companies

I've forwarded that leasing notice along with more Model S information to a number of executives, realtors and other professionals that I know. Other TMC members may want to do the same.

 

[Cosmacelf]

Better not be. Feds are investigating SCTY's accounting treatment of these lease values now.

Apples and oranges. SCTY gets government rebates as a percentage of the total value of the solar installation, whereas for Tesla it is a fixed amount. Also since SCTY does the labor for the installation, there is opportunity to pad the numbers to make the cost appear higher, and thus get a higher rebate.

 

[Curt Renz]

Apples and oranges. SCTY gets government rebates as a percentage of the total value of the solar installation, whereas for Tesla it is a fixed amount. Also since SCTY does the labor for the installation, there is opportunity to pad the numbers to make the cost appear higher, and thus get a higher rebate.

As SolarCity has said, the metric used to determine the tax credit for a consumer is the price paid by the consumer and not the cost to SolarCity: Burying a Dead Horse

 

[TSLAopt]

I thought this article just published by Bloomberg a couple hours ago had a lot of good quotes from Tesla about this new Tesla Finance company being a good tool for them raise more capital to finance expansion

Tesla Plans to Raise More Financing for New Leasing Unit - Bloomberg

 

[InTheShadows]

As SolarCity has said, the metric used to determine the tax credit for a consumer is the price paid by the consumer and not the cost to SolarCity: Burying a Dead Horse

Exactly. Which is why the price of the leases is inflated. They not only get the 30% federal tax credit, they get MACRS depreciation in top of that for the remaining amount. In other words, if their tax rate ends up being 28% you have an additional (.7*.28) 19.6% tax credit to take over the next 6 years for a total tax break of almost 50% of the total project cost. If I install complete systems for 1/2 of what they are charging for their leases... I understand why there may be an investigation.

 

[MikeC]

I thought this article just published by Bloomberg a couple hours ago had a lot of good quotes from Tesla about this new Tesla Finance company being a good tool for them raise more capital to finance expansion

Tesla Plans to Raise More Financing for New Leasing Unit - Bloomberg

That's pretty exciting actually. A potential new income stream with “no material impact to our gross margin in either GAAP or non-GAAP financials” plus it increases demand for the product. We know Elon can disrupt the finance industry.

 

[vgrinshpun]

I think that a full potential of the Tesla business leasing and forming Tesla Finance as a TSLA catalyst is yet to be realized.

The business lease program, although it could generate additional demand, would put a damper on the income that TM would be able to realize immediately upon signing the business lease: since it will be financed by Tesla, the deferment of income would be on both GAAP and non-GAAP basis, with the cash flow, unlike the leasing for individual program, taking a hit because this would be real lease, not a pseudo-lease. But, as we learned, the briliance of Tesla strategy covers all facets of the company, from engineering, manufacturing and ("non") marketing, to financing. As stated by the Baird analyst, in order to combat the cash flow hit, Tesla Financial is also introducing asset-backed securities, which would allow to realize the cash sooner, if not immediately on sighning the lease:

Additionally, the option of introducing asset-backed securities in the future could provide TSLA with another source of low cost capital. Securitization would also allow TSLA to receive upfront cash for its leases which could be deployed for the construction of the Gigafactory or for the production ramp of the Gen III vehicle.

TMC members with financial background would be welcome to comment, as it is an engineer speaking here, but I believe my reading is correct. I think this is unexpected by a wider market audience and is a big news.

http://www.streetinsider.com/Analys...usinesses+a+Positive,+Baird+Says/9362172.html

This Bloomberg article linked by TSLAopt is essentially another look on what Ben Kallo of Baird was attributed to say by the article linked in my original post. The source for both is actually posted on Tesla Motors Investors FAQ page (Tesla - Investor FAQs ). It kind of confirms my reading of the excerpts from the Ben Kallo notice: "Since Tesla sells directly to customers, we cannot recognize full sales revenue for vehicles delivered under our captive leasing program. Therefore, we will not adjust our financials (GAAP or non-GAAP) to show leased vehicles as sold vehicles like we do for the Resale Value Guarantee program in our non-GAAP financials"

It also telegraphs that TM expects to have an EXCESS of cash from strong positive cash flow until they will begin deploy capital for the Gigafactory and Gen III. So in the stroke of brilliant financial strategy, rather than get poor interest income from the excess cash they will use it to finance Tesla Finance, until the time when such capital deployment (Gigafactory and Gen III) will be required. At that time TM will use securitization, or warehouse financial facility, to free the capital deployed for Tesla Financial. This is pure financial brilliance:

"The leases will be funded with a combination of equity and a warehouse financing facility that will be announced shortly. Given Tesla’s solid cash position, strong cash flow from operations and the poor returns available on cash equivalents today, it makes sense for Tesla to use a portion of this cash to support growth by creating Tesla Finance now.

Should the program grow, it would be reasonable that additional layers of warehouse facilities would be added and eventually replaced with private and/or public asset-backed securitization transactions commonly utilized in the industry. Tesla has established the legal structures to support securitization transactions, but that approach is volume driven and not necessary until we begin to deploy Tesla’s capital to support the Gigafactory and Gen III initiatives in earnest."

Tomorrow is looking good.

 

[Cosmacelf]

Exactly. Which is why the price of the leases is inflated. They not only get the 30% federal tax credit, they get MACRS depreciation in top of that for the remaining amount. In other words, if their tax rate ends up being 28% you have an additional (.7*.28) 19.6% tax credit to take over the next 6 years for a total tax break of almost 50% of the total project cost. If I install complete systems for 1/2 of what they are charging for their leases... I understand why there may be an investigation.

But it isn't what it costs Solarcity that matters, it is what they charge customers that matters, ie. the sales price. Since Solarcity 100% finances the installation, they can get away with charging the end user a higher price than what they would have paid had they bought it outright themselves.

 

[mrdoubleb]

Looking at my news feeds this morning I see a big FUD attack with several headlines on how Tesla sales have declined or at least levelled off and how ZEV credits ar being cut and the company desperate needs a cheaper model to sustain growth.

This may drive price down on the short term, but if it cools Q1 expectations, this may be a good thing when we actually get the ER.

 

[Blvr888]

Also wondering, if Alcoa's 1Q results and 2Q outlook on automotive would have an impact...

 

[InTheShadows]

But it isn't what it costs Solarcity that matters, it is what they charge customers that matters, ie. the sales price. Since Solarcity 100% finances the installation, they can get away with charging the end user a higher price than what they would have paid had they bought it outright themselves.

Which could trigger an investigation, potentially for tax fraud. If the national average installed cost is 3.50/watt and solar city is charging 5.50/watt for their leasing system. Their leasing partners get the tax credit and depreciation for that system.

In this scenario the "tax burden" to the government is $2.73/watt for the leased system over 6 years vs $1.76/watt for the average installed system. If they install 1GW of solar (I don't invest in them so their install price and capacity is hypothetical) that's an extra $10m in tax credits and depreciation that their leasing partners get that they should not be getting.

I think this discussion should be moved to the alt energy thread.

 

[dalalsid]

I hear that Tesla Finance can lease cars in Texas! That's a nice backdoor for Tesla in Texas. Just to get lease details I went to the Tesla website and the way they display their "effective" lease and finance costs is my one big gripe with Tesla.

 

[eepic]

This Bloomberg article linked by TSLAopt is essentially another look on what Ben Kallo of Baird was attributed to say by the article linked in my original post. The source for both is actually posted on Tesla Motors Investors FAQ page (Tesla - Investor FAQs ). It kind of confirms my reading of the excerpts from the Ben Kallo notice: "Since Tesla sells directly to customers, we cannot recognize full sales revenue for vehicles delivered under our captive leasing program. Therefore, we will not adjust our financials (GAAP or non-GAAP) to show leased vehicles as sold vehicles like we do for the Resale Value Guarantee program in our non-GAAP financials"

It also telegraphs that TM expects to have an EXCESS of cash from strong positive cash flow until they will begin deploy capital for the Gigafactory and Gen III. So in the stroke of brilliant financial strategy, rather than get poor interest income from the excess cash they will use it to finance Tesla Finance, until the time when such capital deployment (Gigafactory and Gen III) will be required. At that time TM will use securitization, or warehouse financial facility, to free the capital deployed for Tesla Financial. This is pure financial brilliance:

"The leases will be funded with a combination of equity and a warehouse financing facility that will be announced shortly. Given Tesla’s solid cash position, strong cash flow from operations and the poor returns available on cash equivalents today, it makes sense for Tesla to use a portion of this cash to support growth by creating Tesla Finance now.

Should the program grow, it would be reasonable that additional layers of warehouse facilities would be added and eventually replaced with private and/or public asset-backed securitization transactions commonly utilized in the industry. Tesla has established the legal structures to support securitization transactions, but that approach is volume driven and not necessary until we begin to deploy Tesla’s capital to support the Gigafactory and Gen III initiatives in earnest."

Tomorrow is looking good.

Just want to note the end goal of public/private asset-backed securitization is pretty standard for every other auto manufacturer. I think most have 'auto loan' subsidiaries so this is really nothing new, other than Tesla setting up the same way. I don't think it's significant in any meaningful way for the short term but it is another item checked off the list to hit the ground running when Gen 3 is ready.