Short-Term TSLA Price Movements - 2016

[Johan]

Even though Elon made a point of the X being more complex than the S and warned about extrapolating the X-xperience to the model 3, in reality it really is super important now for them to demonstrate the ability to get the X right. Manufacturing is supposed to be their core competence, remember?

 

[lango]

Thesis update

Look. I am sorry that I am very rude and insensitive, and goodness knows nobody likes a know it all. Yet the fact remains that I continue to call this stock on-point without fail where making money or not losing money by being right with clarity in advance can perhaps stand against a multitude of social skill shortcomings in an investment forum?

The current stock movement is not irrational. Tesla in the cold light of day has committed a strategic error with respect to the stock market and in respect to any classic model of fundraising. My first instinct is to question why they could not wait to lay a strong quarter and a strengthened business plan on the markets simultaneously because why on Earth do they need to do more right now than to plan their CapEx and OpEx for Model 3 and raise the actual cash later in the year on an ATH run.

The answer to that I think is that they need to have it in the bank to nail down supplier commitments and uncommitted suppliers at this stage would cause a delay on the critical path.

So they have a real problem, not an imaginary one.

Now I said that this was not irrational. Conversely the market response is classically rational. Yet rationality is not the bottom line. Spock is not the Captain of the Enterprise for a very good reason because it is entirely possible to be 100% logical and 100% wrong - as in good or bad - right and wrong - kind of wrong. People respond much more powerfully to right and wrong than they do to logic including sufficient people in the viscosity of Tesla that command an awful lot of money. Like Fidelity, like Draper Fischer Juvetson, like Y-Combinator and Sequoia Capital, like Musk himself and not just a few of his friends - like Larry Page that he just credited for turning him on to Bioweapon defense mode in Tesla vehicles. Some of these people are so rich that making another $million is meaningless compared to doing something to be proud of.

So I would predict that Tesla will escape from its presumed capital trap with some huge amount of stunningly cheap bond financing that nobody else could possibly raise under the circumstances.

While the opportunity seems to exist for bad actors to leverage Tesla with miserable financing terms, the simple truth remains that not all actors are bad and for good actors of wealth that would be only to glad to bury bad actors of wealth: There is an absolute killing to be made in return for the leap of faith involved in giving Musk a few $Billion right now. Given the choice of trying to screw Musk over and letting Musk make you much richer Option B is actually much better and un calculated by the TSLA Bears, Musk is entirely free to simply ignore the Option A crowd because he has other options.

Then TSLA will go up, maybe it even hits the $400 before the end of 2016 after all.

As for an entry. Unlike the GF unveil trigger for a Q3 Squeeze there will be little or no pre-announced date for this raise. One day you will look at the stock at up it went $30 because the Street found out first. Here at $214 is as good a place as any. Thursdays are good days for fundraisers - no better idea or way of finding out. All that can probably be said is that it will happen in May and the longer they wait while people speculate on Tesla's doom the worse it will get so now would be good.

JC

I think they are just sticking to their goal of accelerating sustainable transport as fast as possible, and for that they need to maximize the low cost higher volume car cumulative production and not trade a delay for less equity dilution and also the risk of even lower share price some months out is real. By committing the company to these raised targets they also have to inform the markets about them. Can't have two goals if you want the suppliers and employees 100% committed.

Interesting point about the supplier contracts. It is likely that you have to do a down payment when you order and sign a contract with large quantities of a part, and it is obvious the price per part goes down with volume and the prepayment goes up. So given this Tesla might face large prepayments to suppliers before Model 3 production starts in addition to the line cost and employee cost. So this is definitely a potential problem that they need to pay these prepayments very soon. All else equal I think the probability of a raise happening soon has gone up a lot after the ER.

 

[MitchJi]

The way Elon talked about the July 1st date as both a date to be taken very seriously, yet a highly improbable date for actual production start makes me think that we as investors must take the 500k run rate exiting 2018 very seriously, yet as something that is highly unlikely to actually occur.

The July date is a date for suppliers to prove that they can produce the parts. It is not intended to be a production date. I misread your post, because I assumed you were referring to the 100-200k by the end of 2017 number. I don't think that it's even related to the 500k by the end of 2018.

Elon's first goal was to produce compelling EV's. Outselling BMW and Mercedes etc. is way beyond my expectations.

To do this they have a clear roadmap for producing battery packs for worst case approximately half of the price that LG Chem charges GM, once again exceeding my expectations.

Now his goal is to "Tesla is going to be hellbent on becoming the best manufacturer on Earth”. That seems easier to achieve, at least to the degree necessary to ramp production to 500k per year than the accomplishments above.

BMW has a plant that completes a mini every 70 seconds. It's not rocket science.

DaveT talked about the SP becoming less volatile. It will IMO be more volatile if they continue to miss short term production goals.

The other factor that could reduce the volatility is is they can self-fund a substantial portion of the ramp, which seems likely to me when the MS-MX lines are humming and TE is contributing.

 

[CyberDutchie]

This is just classic. MS (like others) is essentially refusing to even model TSLA using Tesla's own projections, and instead predicts it will grow at a small fraction (e.g., 25% or less) of the Company's own relatively near-term projections (2 years).

So even if Tesla completely muffs it and sells "only" 250,000 cars in 2018, it will be on track to double the projections. If Tesla hits the targets, it will quadruple those projections (or more). And investors don't have to sit around until 2020 waiting for this to play out. This is a tough week if you are long on a short-term trade, but for a long-term (or medium-term) investment, wow.

I mean, we are talking about mass producing a car, not sending a rocket to Mars or something crazy like that! : )

There were some other observations from Adam Jonas, some of them positive but not enough appearently for changing their forecast (yet) or price target which remains unchanged at $333.

2. Model S demand appears to be progressing well and may be even improving since the Model 3 unveil. This is a surprise to us. In fact, we had expected demand for the Model S to potentially face material cannibalization risk from the pre-order excitement surrounding the Model 3. While such cannibalization may happen at a later date, so far the 45% YoY growth in Model S orders in 1Q appears strong.

3. Cash consumption of the operations in 1Q was modestly worse than we anticipated, but not significantly so. The formal revision of FY guidance for free cash burn was widely anticipated by the market and in our forecasts. 2Q forecasts for volume and gross margin appear broadly in line with our forecasts. That said, the reiteration of the FY guide of 80 to 90k units appears too aggressive in our opinion and we reiterate our FY forecast of just over 70k units (~16k Model X and ~55k Model S).

4. Potential capital raise was an open part of the conversation on the conference call. The 2-year pull-forward of Model 3 launch ramp and 50% upward revision of capex spend in 2016 naturally raised questions of the need to bring in outside capital, which Elon Musk acknowledged: “It's going to make sense for us to raise some amount of money. Some combination of equity and debt and to make sure the company has a good buffer of cash on hand. I think it is important for de-risking the company.”

5. Tesla views its captive manufacturing expertise as a critical component to its business model and appears to be increasing its bet on vertical integration. Tesla stated that it is actively seeking out the world’s best manufacturing talent to join Tesla. This follows a number of key hires in recent months in a number of disciplines in tech hardware including microprocessor guru Jim Keller to run Tesla’s autopilot effort.

 

[mrdoubleb]

I think this SP reaction to the ER may lead to a history repeating itself situation. Remember how TLSA jumped on that Q1 2013 delivery figure, but by that time people on the sidelines (yours truly included) were trying to jump on a Falcon 9 in the middle of liftoff? The market wants cold hard black numbers to validate the promises.

Well, based on Elon's relieved / upbeat /triumphant sigh yesterday when talkin about finally leaving X issues behind, they will get it on July 1-3, when Q2 deliveries are announced and Tesla meets/slightly beats the 17k delivery target. That should reinforce 80-90k deliveries this year. If not earlier, that should put us back on track towards 300 (i expect that after this downward move, we will stabilize in the 230-250 range like before ER, there is no reason not to, no new negative data points are known)

And then the continuous updates on hitting M3/GF milestones, plus increased S/X deliveries through the end of the year should keep adding fuel to the fire so at some point this thing will take off...

 

[Irishjugg]

No DTU today, I guess.

DTU has never been a one day thesis. The expectation for the up portion was somewhere between Q2 ER and Q3. Down was expected starting around Q1 ER and to continue at a steady pace after that. DTU seems to be happening as predicted, however yesterday's news likely pushed back the up date, potentially several months.

 

[FredTMC]

This is just classic. MS (like others) is essentially refusing to even model TSLA using Tesla's own projections, and instead predicts it will grow at a small fraction (e.g., 25% or less) of the Company's own relatively near-term projections (2 years).

So even if Tesla completely muffs it and sells "only" 250,000 cars in 2018, it will be on track to double the projections. If Tesla hits the targets, it will quadruple those projections (or more). And investors don't have to sit around until 2020 waiting for this to play out. This is a tough week if you are long on a short-term trade, but for a long-term (or medium-term) investment, wow.

I mean, we are talking about mass producing a car, not sending a rocket to Mars or something crazy like that! : )

Yeah I don't understand Adam Jonas at all. How he can not expect some increase to occur is beyond belief... Possibily Morgan Stanley may be getting shutout from the coming Cap Raise... Just a guess. What Chinese Wall (investment bank / stock analysis)?

 

[lango]

The problem is that gross profit isn't net profit. Currently Tesla is burning nearly $300M/quarter and they just announced capex going up by 50%, which means something like $200M extra in cash burn per quarter. Even with the gross margin improving slightly every quarter for the S and X that cash flow won't be close to cover the capex anytime soon. This is pretty much a fact and accepted by nearly everyone (outside this forum at least).

The current cash drain is not $3M per day, this was the case during Model X production ramp and no sales of TE products and will be changed the moment they do 1800 cars a week. Might not be > 0 as that depends on other costs. I think it is pretty obvious that once both S and X are produced in numbers with high degree of vertical integration that those lines will be highly profitable. It won't cover Capex for Model 3 of course, but the question is how much it will cover and how big the Capex will be.

 

[Lump]

3. Cash consumption of the operations in 1Q was modestly worse than we anticipated, but not significantly so. The formal revision of FY guidance for free cash burn was widely anticipated by the market and in our forecasts. 2Q forecasts for volume and gross margin appear broadly in line with our forecasts. That said, the reiteration of the FY guide of 80 to 90k units appears too aggressive in our opinion and we reiterate our FY forecast of just over 70k units (~16k Model X and ~55k Model S).

.

 

[MitchJi]

Even though Elon made a point of the X being more complex than the S and warned about extrapolating the X-xperience to the model 3, in reality it really is super important now for them to demonstrate the ability to get the X right. Manufacturing is supposed to be their core competence, remember?

Manufacturing is going (or for bears supposed) to become one core competence.

 

[Intl Professor]

We were extremely suspicious of the 900K number but the person assured us that they had the land 'to expand' at the Fremont site.
So, while robotics and less space needed for transmissions and ICE engines, etc, will help, more square footage will need (or has been?) added to get to 900K/year.

Thanks.

 

[maoing]

Interesting to see Adam Jonas predicted annual guidance miss too for 2016. From today's market reaction, I guess market doesn't believe what Elon says but instead need Elon to deliver what he said. The Q1 order increase 45% over 2015 Q1 is not demand growth. 2015 Q2 delivery 11500 (assume Q1 order delivered in Q2), so a 45% growth means 11500 * 145% = 16675 which less or flat at best to 2015 Q4.

 

[SBenson]

A non-bull, non-fan-boy perspective: Tesla is putting guidance game on steroids while it is ever missing targets right in front of eyes. It is wiping out all near term targets of profitability/cashflow and is showing totally unrealistic shiny candy as the objective (which even Bulls have a hard time believing) for raising capital.

How did Musk think that market will take this up favorably? Pretty much none of the analysts believe the story. Many of the bulls are having a hard time believing it (including me). This is played terribly.

Edit: I wish things played out the way Julian expected. Show strong steady quarters, proving the Business out, while wiping the shorts out as a nice side effect and do the raise an a new ATH.

 

[tanner]

Interesting to see Adam Jonas predicted annual guidance miss too for 2016. From today's market reaction, I guess market doesn't believe what Elon says but instead need Elon to deliver what he said. The Q1 order increase 45% over 2015 Q1 is not demand growth. 2015 Q2 delivery 11500 (assume Q1 order delivered in Q2), so a 45% growth means 11500 * 145% = 16675 which less or flat at best to 2015 Q4.

Wrong... They had to slow production in Q1 to fix X issues. Q1 numbers should not be used to factor demand.

 

[The Blue Owl]

A non-bull, non-fan-boy perspective: Tesla is putting guidance game on steroids while it is ever missing targets right in front of eyes. It is wiping out all near term targets of profitability/cashflow and is showing totally unrealistic shiny candy as the objective (which even Bulls have a hard time believing) for raising capital.

How did Musk think that market it will take this up favorably? Pretty much none of the analysts believe the story. Many of the bulls are having a hard time believing it (including me). This is played terribly.

Edit: I wish things played out the way Julian expected. Show strong steady quarters, proving the Business out, while wiping the shorts out as a nice side effect and do the raise an a new ATH.

I think Julian's explanation for why that hasn't occurred is true. Pretty much everyone is in agreement that they need to raise money yesterday if they are to have a prayer of hitting the new targets on time (Earth time, not some relativistic rocket time).

Musk may have not seen any path to an ATH under the circumstances, so he gave up on convincing the analysts. The only parties he needs to convince are his employees and his lenders. The rest just doesn't matter right now.

 

[FredTMC]

A non-bull, non-fan-boy perspective: Tesla is putting guidance game on steroids while it is ever missing targets right in front of eyes. It is wiping out all near term targets of profitability/cashflow and is showing totally unrealistic shiny candy as the objective (which even Bulls have a hard time believing) for raising capital.

How did Musk think that market it will take this up favorably? Pretty much none of the analysts believe the story. Many of the bulls are having a hard time believing it (including me). This is played terribly.

Edit: I wish things played out the way Julian expected. Show strong steady quarters, proving the Business out, while wiping the shorts out as a nice side effect and do the raise an a new ATH.

Analysts are rightly cautious on this huge guidance boost from tesla. Still, we have FOUR Price Target upgrades today from major analysts.

 

[Julian Cox]

I think they are just sticking to their goal of accelerating sustainable transport as fast as possible, and for that they need to maximize the low cost higher volume car cumulative production and not trade a delay for less equity dilution and also the risk of even lower share price some months out is real. By committing the company to these raised targets they also have to inform the markets about them. Can't have two goals if you want the suppliers and employees 100% committed.

Interesting point about the supplier contracts. It is likely that you have to do a down payment when you order and sign a contract with large quantities of a part, and it is obvious the price per part goes down with volume and the prepayment goes up. So given this Tesla might face large prepayments to suppliers before Model 3 production starts in addition to the line cost and employee cost. So this is definitely a potential problem that they need to pay these prepayments very soon. All else equal I think the probability of a raise happening soon has gone up a lot after the ER.

It is quite common in automotive for the customer to pay for supplier side tooling. Apart from anything else, this is the one way to guarantee the supplier does not use your tools to supply your competitor - or else.

It may not be necessary for Tesla to literally cash flow much or even any of this up front but I think it would be quite important to show suppliers that Tesla is in a healthy position to be able to pay once the job is completed - and to do that before the job starts. Otherwise they would effectively be asking suppliers to speculate on TSLA - which they could do instead of making any tools if they were in the business of stock market speculation and not automotive tooling.

Suppliers are set up to speculate that their competence is up to the task of meeting specifications and deadlines on parts. Not on whether customers will have good stock market conditions to raise the cash to pay them if they succeed.

Edit: I have to say as a funny thing that just occurred to me. They said on the ER they would look for mostly bonds and some equity. And I thought - why even discuss equity when you are obviously tanking the stock? Then it just occurred to me that it would make a shead load of sense to meet the supplier teams in person and part pay them in TSLA options incentives effectively Covered by TSLA equity. In which case tanking the stock deliberately to give suppliers a motivational run up at upside from job start to job finish, and an implicit penalty of tanking their own TSLA options incentives if they are late or the work is shoddy. This is insanely, insanely, insanely outrageously brilliant. Like epic supply chain management innovation worthy of A Game Musk at full force.

 

[tanner]

Analysts are rightly cautious on this huge guidance boost from tesla. Still, we have FOUR Price Target upgrades today from major analysts.

None of which are helping the SP.

 

[WarpedOne]

while it is ever missing targets right in front of eyes.

So what? What is this obsession on "hitting" targets?

You shoot for the stars and hit the moon.
So what if they abysmally miss the target by say 1/3?
That is still 330.000 cars in 2018 already. Is it really that hard to look at the forest, not the trees?

Yes, they were late with roadster, S and X.
So what? All those cars were pure success.

Were they late?
Cry me a river.

 

[Jayjs20]

Well, it's sub-212 now. I thought today would have turned out better.