Short-Term TSLA Price Movements - 2016

[Fallenone]

I think you are getting in the weeds. Elon and JB are on the record indicating that just due to economies of scale they are projecting a minimum 30% reduction in cost. There will be additional reduction due to improved chemistry. Cost includes depreciation. There is no reason to doubt this long standing projection that Elon and JB re-iterated many times.

I'm talking about the short term, not the long term when GF out put is dozens time more than the calculation above.

 

[Yggdrasill]

One word of caution on the cost of TE. Although we know the pack cost on the cars is below $190. But the cells are all imported from Panasonic. Starting Q4 this year, the cell and pack would all be coming from the GF. So it additional to the raw material costs, it will bear the full depreciation of the GF. I forgot how much CapEx is on GF now but I think it would be over 800M by the end of year and maybe 1.2B up till 1H 2017. Assuming they would sell 500M worth of TE in 1H 2017, that's about 1.25 GWh with $400/kWh of selling price. If assume depreciation of that 1.2B asset is over 10 years like Tesla does with most other asset. That would make additional cost of $200/kWh, this is just from depreciation of GF, not including labor, raw material etc. So before we see tremendous ramp up of TE, I think a 25% premium cost over battery pack in cars is way underestimating it. I think this is also why they said "even early phase, TE had positive margin" in Q1 ER.

But for the record, I may doing this depreciation wrong too.

I get a figure closer to 50 $/kWh for the depreciation. 1.2 billion divided by 10 years is 120 million. Half a year worth of depreciation would be 60 million. And if you divide that by 1.25 GWh, that's 48 $/kWh.

As I said earlier, I think the ramp will be more like this:

Q4: 200 MWh
Q1: 1500 MWh
Q2: 2500 MWh

Using 1.5 GWh in Q1 and 25 million in depreciation, that brings the depreciation down to 16.7 $/kWh. 2.5 GWh in Q2 and 30 million in depreciation brings it down to 12 $/kWh.

 

[Fallenone]

I get a figure closer to 50 $/kWh for the depreciation. 1.2 billion divided by 10 years is 120 million. Half a year worth of depreciation would be 60 million. And if you divide that by 1.25 GWh, that's 48 $/kWh.

As I said earlier, I think the ramp will be more like this:

Q4: 200 MWh
Q1: 1500 MWh
Q2: 2500 MWh

Using 1.5 GWh in Q1 and 25 million in depreciation, that brings the depreciation down to 16.7 $/kWh. 2.5 GWh in Q2 and 30 million in depreciation brings it down to 12 $/kWh.

I did the numbers right before a meeting and obviously may have made some mistakes. My point was and is the cost structure between current car packs and short term TE is very different and should be considered. GF no doubt would dramatically lower the cost to two digits when it starts to churn out two digits of GWh per year, but strictly speaking on the short term when production is no where near that level, I caution against assuming a high gross margin on TE.

 

[sinv]

Whoever last week bought those 1000 10/7 TSLA put options at a strike of 200 and another 1000 at the 197.5 strike at the asked price and above, must be pleased by today’s seemingly coordinated effort to push the price under those strikes by today’s close.

You don't want to say that such a small market participant (1.000 puts is nothing compared to the TSLA Volume each day) can take any influence on the stocks base price.

 

[vgrinshpun]

I'm talking about the short term, not the long term when GF out put is dozens time more than the calculation above.

The GF is built in Phases. If we assume that Phase 1 has output of 15GWh and is scaled up within quarter or two, they will be at scale production after the ramp-up. Also, let's not forget that 30% is just economies of scale projections. There will be new chemistry with improved energy density, new form factor with optimized sizing, new pack architecture with improved cooling and cell interconnections... I do not see cost of battery packs leaving GF to be higher than current cost. This is one of the reasons I did my rough calculation based on current cost.

Let's also not forget, that at $250/kWh price that Elon tweeted shortly after TE introduction, he was projecting slight profit out of the gate, IMPROVING with the shift of production to the GF (in response to the Andrea James question during the ER Call following TE introduction).

So in summary, we have enough information to conclude that my rough calculation based on current pack pricing is CONSERVATIVE.

I commend you for the tenacity to dive into the details, but I think that we just do not have enough information to essentially use this detailed approach to *disprove* guidance that was given by Elon and JB.

 

[MikeC]

Re: the leaked email, I know of at least one internal Tesla email to employees that wasn't leaked, so it can't be said that Elon "knew" the email would get out. He must have known that it was a possibility, though.

 

[Yggdrasill]

I did the numbers right before a meeting and obviously may have made some mistakes. My point was and is the cost structure between current car packs and short term TE is very different and should be considered. GF no doubt would dramatically lower the cost to two digits when it starts to churn out two digits of GWh per year, but strictly speaking on the short term when production is no where near that level, I caution against assuming a high gross margin on TE.

I wouldn't expect excellent gross margin in Q4. But Q1 isn't too far away.

Three things to keep in mind:
- The Gigafactory as it stands is the largest battery factory in the world
- Panasonic is the single largest battery cell manufacturer in the world, and has a lot of experience scaling up production rapidly.
- Tesla is the single largest battery pack manufacturer in the world, and has a lot of experience scaling up production rapidly.

I would be very surprised if Tesla/Panasonic aren't able to scale up production to something approaching the nameplate capacity within 2-3 quarters.

 

[ev-enthusiast]

Max pain already down to $205 (Max Pain | Maximum-Pain.com).

 

[Curt Renz]

You don't want to say that such a small market participant (1.000 puts is nothing compared to the TSLA Volume each day) can take any influence on the stocks base price.

Each exchange traded option is related to 100 shares of stock. 1000 puts cover 100,000 shares. The party that last week bought 2000 of the puts expiring today could potentially earn a huge profit, if the share price closes today near the day's low.

 

[Fallenone]

The GF is built in Phases. If we assume that Phase 1 has output of 15GWh and is scaled up within quarter or two, they will be at scale production after the ramp-up. Also, let's not forget that 30% is just economies of scale projections. There will be new chemistry with improved energy density, new form factor with optimized sizing, new pack architecture with improved cooling and cell interconnections... I do not see cost of battery packs leaving GF to be higher than current cost. This is one of the reasons I did my rough calculation based on current cost.

Let's also not forget, that at $250/kWh price that Elon tweeted shortly after TE introduction, he was projecting slight profit out of the gate, IMPROVING with the shift of production to the GF (in response to the Andrea James question during the ER Call following TE introduction).

So in summary, we have enough information to conclude that my rough calculation based on current pack pricing is CONSERVATIVE.

I commend you for the tenacity to dive into the details, but I think that we just do not have enough information to essentially use this detailed approach to *disprove* guidance that was given by Elon and JB.

I agree we don't have enough information to know where TE margins are now and in the next 2 or 3 quarters. That's why I'm trying to think "bearishly" on this topic. And we do have a data point in Q1 letter suggesting TE margins aren't something they want to brag back then. From then to now we haven't seen scale up of TE production, but saw about two fold capex into GF. It is not impossible that TE has negative GM in Q2/Q3 and it could be one reason they are not selling a lot. I will feel much more comfortable about the cost and GM of TE when we really are seeing close to GWh production. The revenue wouldn't be too significant before then too.

 

[tander]

Hard to tell. Considering that this drop came after the best delivery numbers ever, on no negative news, it can turn around tomorrow. But as January demonstrated, the market can be extremely irrational.

I would buy before October 28th, though. I think it's exceedingly likely the Tesla/Solar City announcement will outline a very compelling argument for the merger, eliminating the arbitage and probably giving TSLA a nice bump. Then a few days later we should have the merger vote, removing the uncertainty. Then we get the earnings, with GAAP profitability and positive cash flow.

There are a lot of positives lined up, but probably nothing major before the 28th.

Back in the beginning of Q3, Elon and Jason didn't know for sure if Tesla could pull off profitability in Q3 because of the unknowns of executing over time. They could make that call much more confidently near quarter's end, however.

I agree that leaked memo was pretty positive IMO considering its date, but it was still just a memo, not a press release or financial statement. It seems like there are so many potential positives in the next couple months, especially around the end of Oct. beginning of Nov. time. Seems like with the solar announcement, earnings, more info on merger, cap raise of some sort, m3 final reveal, I would think it might be getting time for model y teases too.

It also seems to me that most of the big analysts have lowered expectations based on FUD of the above, if some of that gets solidified it seems like it would give cause for them to go back to the previous audacious targets or higher.

Curious what they'll do with the SCTY earnings, that usually comes at the end of Oct. too.

 

[TMSE]

The GF is built in Phases. If we assume that Phase 1 has output of 15GWh and is scaled up within quarter or two, they will be at scale production after the ramp-up. Also, let's not forget that 30% is just economies of scale projections. There will be new chemistry with improved energy density, new form factor with optimized sizing, new pack architecture with improved cooling and cell interconnections... I do not see cost of battery packs leaving GF to be higher than current cost. This is one of the reasons I did my rough calculation based on current cost.

Let's also not forget, that at $250/kWh price that Elon tweeted shortly after TE introduction, he was projecting slight profit out of the gate, IMPROVING with the shift of production to the GF (in response to the Andrea James question during the ER Call following TE introduction).

So in summary, we have enough information to conclude that my rough calculation based on current pack pricing is CONSERVATIVE.

I commend you for the tenacity to dive into the details, but I think that we just do not have enough information to essentially use this detailed approach to *disprove* guidance that was given by Elon and JB.

Thanks for the good info on GF. Do we know the different GF phases, output at each phase and the timeline? Thanks.

 

[Yggdrasill]

Thanks for the good info on GF. Do we know the different GF phases, output at each phase and the timeline? Thanks.

Phase one and two are fairly well known. Here's my calculations: Short-Term TSLA Price Movements - 2016

To sum up my working hypothesis:

- Phase one is capable of making around 15.7 GWh of NMC cells and packs, operative around November 2016.
- Phase two is capable of making around 51.8 GWh of NCA cells and packs, at least partially operative more or less in time for Model 3 launch, so ~July 2017.

Note, there is a lot of uncertainty. Phase one might just be 10 GWh, phase two might just be 30 GWh. A lot depends on the exact assumptions. My calculations are based on the 150 GWh figure for the completed factory, where phase one is ~14% and phase two is ~23%, and a 50/50 split between NMC and NCA.

 

[vgrinshpun]

I agree we don't have enough information to know where TE margins are now and in the next 2 or 3 quarters. That's why I'm trying to think "bearishly" on this topic. And we do have a data point in Q1 letter suggesting TE margins aren't something they want to brag back then. From then to now we haven't seen scale up of TE production, but saw about two fold capex into GF. I will feel much more comfortable about the cost and GM of TE when we really are seeing close to GWh production. The revenue wouldn't be too significant before then too.

We'll have to register a disagreement here. Once again the bigger picture is that we know that Elon on record was indicating that there will be slight profit on TE at the price that was set at $250/kWh. He also said that the cost will improve as production is moved to GF. This is right in line with my assumption on *initial* cost (1.25 x $190 / kWh = $238 / kWh) and my assumption that cost will *improve* from this point.

 

[vgrinshpun]

Thanks for the good info on GF. Do we know the different GF phases, output at each phase and the timeline? Thanks.

They are finishing building construction (3 sections complete, 4th in progress) for Phase 1 (about 14% of total, approx. 15GWh of packs), and Panasonic started installing production equipment. According to guidance Phase 1 will start production late this year.

Phase II building construction (I believe 3 Sections out of 4) already started. According to the guidance Phase II will start producing packs before commencement of production for Model 3.

 

[ev-enthusiast]

Funny, company is reporting record deliveries and SP heading south. As far as I can see not very rational. Really watching the next days/weeks to see if there is a hidden black swan out there somewhere

Edit: Amazing, new LOD.

 

[tander]

Funny, company is reporting record deliveries and SP heading south. As far as I can see not very rational. Really watching the next days/weeks to see if there is a hidden black swan out there somewhere

I guess the bear guess is thet more deliveries=more losses since they lose money on each car. Going to be interesting to see what earnings brings.

 

[AlMc]

Funny, company is reporting record deliveries and SP heading south. As far as I can see not very rational. Really watching the next days/weeks to see if there is a hidden black swan out there somewhere

Edit: Amazing, new LOD.

There also could be a hidden white swan. I believe Fred TMC mentioned this today.
Fingers crossed

 

[Fallenone]

Funny, company is reporting record deliveries and SP heading south. As far as I can see not very rational. Really watching the next days/weeks to see if there is a hidden black swan out there somewhere

Edit: Amazing, new LOD.

Bears were wondering the same thing when the first AP fatality was reported and then a big miss on Q2 ER. In this sense, bears and bulls are in the same camp of confusion.

 

[larmor]

I guess the bear guess is thet more deliveries=more losses since they lose money on each car. Going to be interesting to see what earnings brings.

For the bears: I don't think they are losing money on each car as TM thanked MS/MX owners for basically subsidizing M3 development.

FWIW, M3 development has been in parallel- reference many CC questions. TM is about making money, reference prior CC earlier in the year where wheeler was downplaying cash and profit, and was corrected by EM...

This fear about TSLA is unwarranted.