Short-Term TSLA Price Movements - 2016

[Johan]

Check out the price action on SCTY. Started out low like TSLA, but has gained some traction. It is only 0.4% down while TSLA is 1.2% down and more volatile. Let the shorts attack TSLA. It's SCTY (low exchange worth $201 per Tesla share) that long-term buyers want. I think when SCTY reaches parity with TSLA, then TSLA shorts will feel real pressure. So long as SCTY is well below parity with TSLA, the shorts know that the short-term price of TSLA is vulnerable.

Is it your belief too that when the terms of the deal are presented in a more definitive way, such as the exact conversion ratio and evidence suggesting a very high or almost certain probability of the deal happening, that TSLA and SCTY will trade in exact lock-step (with the given ratio)?

 

[supratachophobia]

Don't know if this is posted before, but this is extremely well written and with great insight:

Leave Tesla Alone

No it isn't. He suggests distracted driving isn't as big of a proven as it is and fails to make the connection that deaths are down because cars are safer, not because we are paying more attention.

 

[NOLA_Mike]

So basically demand with just the 75 and 90 was not enough to use the full potential of the assembly line and without the 60 Tesla would miss its full year guidance? Great, so now they have substituted a sales guidance miss with lower overall margins. In an environment where 'cash is king'.

Elon has stated in the past that they have "...many levers..." to pull at their disposal to stimulate demand. If customer feedback is "I want a cheaper Model X with 60 kWh battery" and that is easily within Tesla's ability to provide then Tesla would be stupid not to listen.

So let's assume this is one of the demand levers. They pull the lever, demand picks back up to where they need it to be to accommodate production capacity and business goes on. I think people who assume this is a desperation move (and I'm not saying you do, just on my soap box now) are way off base. There are no known facts to suggest this is true.

Mike

 

[Curt Renz]

Trading down with broad market

Automaker stocks are being hit today. Tesla is currently holding up somewhat better than Fiat Chrysler, but not quite as well as General Motors or Ford.

 

[schonelucht]

Maximize profit is the objective with the fixed resources already in place. so expand demand as long as
marginal revenue exceeds marginal cost.

Of course, it is better to sell a car than to sell none. But it would still be better to a sell a high margin car than a low margin one.

There's an argument swirling around that gross margins will be hurt. In actuality I think it will be a net zero effect because people WILL buy options because the base of the car is lower which would make up for it.

That math just doesn't work out. Let's say gross margin on the base is 15% and 40% on the options. For a 75D that means on the base margins drop from 11k to 2k (loss of 9k). To have a zero effect, the buyer needs to add in 22.5k of additional options that they would not otherwise have picked.

 

[jhm]

Is it your belief too that when the terms of the deal are presented in a more definitive way, such as the exact conversion ratio and evidence suggesting a very high or almost certain probability of the deal happening, that TSLA and SCTY will trade in exact lock-step (with the given ratio)?

The offer set a lower and upper conversion rate, 0.122 to 0.131. So without some sort of counteroffer, the deal should go through within that range. Will it go through? That depends on whether sufficient shareholders in both companies accept Musk's vision for the combined company.

So currently SCTY is priced below the exchange range, about 0.11. The market will read this as a sign that the market does not accept Musk's vision for the combined company. So it is my belief that this gap is putting a credibility strain on TSLA. Close the gap, and the market will believe the deal will happen and boost both stocks. So I am advocating that Tesla investors should be buying SolarCity because it's cheap and it will bring bullish confidence to the combined enterprise.

 

[aznt1217]

Of course, it is better to sell a car than to sell none. But it would still be better to a sell a high margin car than a low margin one.



That math just doesn't work out. Let's say gross margin on the base is 15% and 40% on the options. For a 75D that means on the base margins drop from 11k to 2k (loss of 9k). To have a zero effect, the buyer needs to add in 22.5k of additional options that they would not otherwise have picked.

Nobody on here knows the gross margin on options. Aside from things like volume and efficiency that occurs from increased demand. You really can't back track it. On an X you can easily make up for the 9k between things like a seat configuration and leather seating if you really wanted to go apples to apples on a sale that Tesla wouldn't have had if the customer now considers a Tesla due to the lower entry point.

 

[austinEV]

I agree that the 60X is obviously to stimulated demand and that isn't a bad thing. Of course they have to modulate demand.

I personally just wish they would start a modest ad compaign and be done with it. Get the long reservation lists going again so we can have another conversation. The old argument against ads were that they didn't need it, didn't dare make longer reservation lists for fear of upsetting buyers. I don't think they have that risk anymore, so buy some artfully produced TV spots. It will have some broader benefits too. I think the industry, particularly the ad-supported media will stop treating TM like literal aliens and they can control their message better with the general public. Right now they are letting their enemies define them which cannot go on forever. I kind of think they passed the point where it was optimal to get out in front of their messaging already. There is a small but ever growing segment that will "politically" identify tesla as negative. Start a charm campaign.

 

[Irishjugg]

So you think "obviously" is a stretch. So you're thinking demand is robust enough to get them to Model 3 without any further margin killing moves?

Yep. It's pretty obvious when Tesla principals make SEC scrutinized statements to investors in quarterly reports describing QoQ and YoY demand growth. For the falling demand idea to be correct, they would all need to be lying in a felony sort of way. That's not very likely.

Margin killing is also a gross miss characterization of reality. Even with pessimistic assumptions about cell and pack cost, the worst case scenario is roughly 2% loss to gross margin. This also ignores the fact that the margin on future upgrades to 75 kWh are staggeringly good, and that the entire GM loss can likely be recovered completely even with low double digit conversion rates.

Having 400k people in line for a lower priced car changes strategy. Some will splurge to get an S or X at the right price, so offering a lower priced version with the potential for a high margin update is fantastic, not a negative as I keep seeing you suggest.

 

[pGo]

X60D is a good move. The SUV market is the largest out there (not sure why). People are willing to spend more on SUV's (not sure why either). By lowering the entry cost for the X, people can now truly compare it with the X5's of the world. In addition, it doesn't deter people from the showrooms because the press previously reported it being 150K+.

There's an argument swirling around that gross margins will be hurt. In actuality I think it will be a net zero effect because people WILL buy options because the base of the car is lower which would make up for it.

We are yet to see this. I am skeptical that Tesla will be able to meet 30%GM on MS and 25%GM on MX with the introduction of the lowered price models. MS 60 is in high demand if you look at current trends.

 

[MitchJi]

Assuming the Model 3 debuts in early 2018 and it takes Tesla 6 years to produce a cumulative 400,000 Model 3s, Tesla is booked till 2024.

That would be an epic failure. That's not going to happen. Elon is planning for about 100-200k in 2017 and about 350k in 2018.

Don't forget the first (about 50-100000) M3's late 2017. I heard or read it (said by Elon Musk) somewhere.

He said 100-200k late 2017.

So basically demand with just the 75 and 90 was not enough to use the full potential of the assembly line and without the 60 Tesla would miss its full year guidance? Great, so now they have substituted a sales guidance miss with lower overall margins. In an environment where 'cash is king'.

In principle I agree with this. The only counter argument is that it's likely that Elon has forfeited one of the incentive goals of his incentive package: To achieve a high automotive gross margin for consecutive quarters. Was it 25% or even 30% - I don't remember.

I think that this means that they have reduced pack prices enough that they can do this and still hit their margins.

 

[drinkerofkoolaid]

The offer set a lower and upper conversion rate, 0.122 to 0.131. So without some sort of counteroffer, the deal should go through within that range. Will it go through? That depends on whether sufficient shareholders in both companies accept Musk's vision for the combined company.

So currently SCTY is priced below the exchange range, about 0.11. The market will read this as a sign that the market does not accept Musk's vision for the combined company. So it is my belief that this gap is putting a credibility strain on TSLA. Close the gap, and the market will believe the deal will happen and boost both stocks. So I am advocating that Tesla investors should be buying SolarCity because it's cheap and it will bring bullish confidence to the combined enterprise.

Based on the threads that were made on TMC a few weeks ago when Elon first announced the offer, and the multiple comments from "experts" saying they don't understand SolarCity, not to mention the meme worthy articles that basically included comments from pundits questioning Elon's sanity, I'm going to go on a limb and say the market still doesn't understand why a Tesla-SolarCity merger is a very good idea. Also, I wouldn't be surprised if Tesla ends up offering closer to $30 per share.

 

[jhm]

Margin killing is also a gross miss characterization of reality. Even with pessimistic assumptions about cell and pack cost, the worst case scenario is roughly 2% loss to gross margin. This also ignores the fact that the margin on future upgrades to 75 kWh are staggeringly good, and that the entire GM loss can likely be recovered completely even with low double digit conversion rates.

I would add that the upgradable 60 kWh battery saves Tesla on the warranty expense. The 80% capacity level is much lower on the 60, and it will get much less abuse from overcharging or running too low. So a portion of the cost of underutilized cell capacity is made up for by lower warranty liability.

 

[Irishjugg]

The 60Kw is purely a move to lower the price of the vehicle

Correct.

it's an attempt to create some quick demand until next quarter.

This is an opinion and not supported by any reported facts, and should not be presented as a true statement like you are doing. It is an assumption of yours and extremely likely to not be correct.

 

[drinkerofkoolaid]

Very interesting this isn't getting any media coverage. PG&E Launches Distributed Energy Resource Projects With GE, SolarCity, & Enphase Energy

 

[Thumper]

60kw should be just fine for people wanting a commuter car or a soccer taxi.

 

[jhm]

Based on the threads that were made on TMC a few weeks ago when Elon first announced the offer, and the multiple comments from "experts" saying they don't understand SolarCity, not to mention the meme worthy articles that basically included comments from pundits questioning Elon's sanity, I'm going to go on a limb and say the market still doesn't understand why a Tesla-SolarCity merger is a very good idea. Also, I wouldn't be surprised if Tesla ends up offering closer to $30 per share.

Sure, this is all the bearish spin that is being deployed to suppress both stock prices. The essential stance is to undermine confidence in Musk's vision for both companies. Moreover, they need to maintain a pricing gap to perpetuate the view that the market does not follow Musk's vision.

Tesla is not offering cash for SolarCity, just shares of Tesla. So if the deal comes in at a value of $30 per SCTY share, that will be because Tsla is priced at over $229.

 

[X Yes?]

Correct.


This is an opinion and not supported by any reported facts, and should not be presented as a true statement like you are doing. It is an assumption of yours and extremely likely to not be correct.

Yes, it it is my opinion that this move pulls demand forward from future quarters.

My opinions have been much more accurate than Tesla opinions, as of late. I'm opining about cash needs, capital raises, margins, GAAP (or non GAAP) profitability, production targets, deliveries, stuff like that.

 

[MitchJi]

A lot of Model 3 are being spotted on the road every day. I suspect Tesla's suppliers will be producing the Model 3 well before mid 2017.

I love your optimism but Elon said "will we start production in July 2017? Of course not. BTW what's in the cool aid you're drinking?

Based on the threads that were made on TMC a few weeks ago when Elon first announced the offer, and the multiple comments from "experts" saying they don't understand SolarCity, not to mention the meme worthy articles that basically included comments from pundits questioning Elon's sanity, I'm going to to go on a limb and say the market still doesn't understand why a Tesla-SolarCity merger is a very good idea.

The market doesn't understand that (and apparently you don't either) that Elon said that they would explain the reasons in detail after they complete their due diligence.

 

[X Yes?]

We are yet to see this. I am skeptical that Tesla will be able to meet 30%GM on MS and 25%GM on MX with the introduction of the lowered price models. MS 60 is in high demand if you look at current trends.

The skew towards high priced Model X's (and S's)in the mix was key to GM growth. Where does guidance go now?