Short-Term TSLA Price Movements - 2016

[McRat]

Tesla Motors needs to prove in 2016 that they can increase production while reducing losses.

Right now, as quantity rises, losses rise also. This is a bad omen.

There are ratios that work for job costing. Tesla does not have the correct numbers yet. Adjustments need to be made so that when unit sales increase, losses decrease. Until then, there is no magic in the world that will fix it other than outside cash, be it from the government, stock sales, loans, or other non-productive income.

But to take over the automotive industry, you need to start making profits on $80k car now before you start planning on making $40k cars at a profit.

 

[Johan]

Tesla Motors needs to prove in 2016 that they can increase production while reducing losses.

Right now, as quantity rises, losses rise also. This is a bad omen.

There are ratios that work for job costing. Tesla does not have the correct numbers yet. Adjustments need to be made so that when unit sales increase, losses decrease. Until then, there is no magic in the world that will fix it other than outside cash, be it from the government, stock sales, loans, or other non-productive income.

But to take over the automotive industry, you need to start making profits on $80k car now before you start planning on making $40k cars at a profit.

Dude. Their automotive gross margins are great. The definitely will MAKE more as quantity rises.

The losses you are talking about comes from investment in growth. Companies in aggressive growth mode are supposed to "lose" money in total, i.e. don't turn a profit, for many years. What in God's name would they do if every quarter they ended up with a profit at this stage of growth - pay dividends???

 

[jesselivenomore]

As far as the stock price in the very short term the problem is with perception.

Because of the Model X issues which are causing cash flow to remain depressed, Tesla is coming to the market asking for funds in a position of weakness(financially). This is counterbalanced by the 400k in preorders but the market is still skeptical over production plans, cash flow projections etc. There may be perceived desperation.

Had the Model X ramp gone smoothly, they would have come to the market to raise capital in a position of strength after showing FCF+.

Could this perception hurt their ability to raise capital? Perhaps the market is struggling to determine this, hence the volatility.

Personally I do not believe it will be an issue. The US is mired in a low/no growth environment, with any top line growth heavily rewarded - FB, AMZN. Meanwhile you have Tesla who is struggling with too much growth, so much so that the only barrier is the capital necessary to satisfy it. I'd imagine they won't have a very hard time securing funds.

I don't think Tesla would want the specter of a capital raise to linger around the stock for too long. Their prior raises have all come within a week or two of an ER. There are a lot of forces influencing perception right now. But once the cap raise is a done deal, perception won't matter anymore, just reality and execution.

 

[McRat]

Dude. Their automotive gross margins are great. The definitely will MAKE more as quantity rises.

The losses you are talking about comes from investment in growth. Companies in aggressive growth mode are supposed to "lose" money in total, i.e. don't turn a profit, for many years. What in God's name would they do if every quarter they ended up with a profit at this stage of growth - pay dividends???

No, they are not making money selling product or services. If that were true, as sales increased, losses would decrease instead of increase.

How long have you been in business with employees and customers, and capital? This is not magic.

Tesla Motors can dominate the auto industry, but not by slashing their wrists to gain sympathy.

1) Invest more in media.

2) Invest more in government.

3) Find a manufacturing friendly government to operate under, not California.

4) Raise prices on Model S/X.

5) Hire a successful small automaker in a foreign nation to produce the TM3.


This will guarantee not only immediate profits and stock price increases, it will nullify the possibility of effective competition.

 

[Johan]

No, they are not making money selling product or services. If that were true, as sales increased, losses would decrease instead of increase.

Excuse my French but are you stupid? Please read your own premise again and consider that it would only be true if their spending (spending which enables further exponential growth) went down as a percentage of yearly revenue, while profits were increasing thanks to increased production and sales.

But to keep growing 50% per year, every year, which is exponential growth, they have to increase their spending exponentially too. Which means accounting wise they will lose money year after year after year while growing exponentially. Then when the company matures they can stop spending for further growth and just sit there, with their enormous growth behind them in a market leader position, and just make tons if money for investors. Like AAPL or GGOGL.

I don't understand how something so basic constantly gets misunderstood?

 

[Johan]

Personally I do not believe it will be an issue. The US is mired in a low/no growth environment, with any top line growth heavily rewarded - FB, AMZN. Meanwhile you have Tesla who is struggling with too much growth, so much so that the only barrier is the capital necessary to satisfy it. I'd imagine they won't have a very hard time securing funds.

Preach. The market has been in love with growth for years now, and will love to throw more money after Tesla. It's very true that their actual "problem" now is they're growing "too fast" in a very capital intensive business. (Manufacturing physical items on large scales require more capital than software for example).

 

[McRat]

...

I don't understand how something so basic constantly gets misunderstood?

It puzzles me how so many "smart" people do not understand how to run a business.

Buy low sell, sell high?

I'm just a small business owner who started with zero capital and never borrowed a dime.

I'm have a C corporation in California (not Delaware), and have never lost money in any quarter since 1994.

This isn't bragging, but I could be the CEO of Tesla Motors and show a profit next quarter. But so could anybody who runs a profitable business with no debt.

It's not that hard. It's just seat time and effort.

It's not what the lotto players want to hear. But it's the truth.

Heck, a housewife runs a business several times larger than Elon does and pays dividends. And has better EV tech in her IP portfolio.

 

[SBenson]

Thanks, this is helpful.

I had gotten the impression that when they said FCF+ in Q1, it would mean FCF+ going forward as well, as their operating leverage increases and scale up in deliveries. If the FCF+ was dependent on $100M in ZEV credits and a temporary decrease in Capex, it seems it would have been a one time deal. While technically that achieves their guidance, going forward would that have been enough to get to full year cash flow positive(this includes ABL?) that they guided for in Q4?(I know this has been abandoned now with Model 3 ramp, but hypothetically)

With Opex at over $500M a quarter, and a planned $1.5B in capex(stated in Q4 ER, I know this is 50% higher now), at what levels of gross margin and deliveries were they expected to generate the money needed?

90k total deliveries

54k Model S ASP $100k GM 25% GP = $1.35B
36k Model X ASP $115k GM 20% GP = $828M

Total GP = $2.18B
plus $1B in ABL = $3.18B

Opex $2B + $1.5B capex = $3.5B

So that is about $300M short of cash flow positive to be made up by TE, service and ZEV? Is that about right?

I believe the aspiration was for 30% GM on S and 25% on X.

I will dig up and post a reference on Monday.

 

[LargeHamCollider]

As far as the stock price in the very short term the problem is with perception...

+1

 

[Johan]

It puzzles me how so many "smart" people do not understand how to run a business.

Buy low sell, sell high?

I'm just a small business owner who started with zero capital and never borrowed a dime.

I'm have a C corporation in California (not Delaware), and have never lost money in any quarter since 1994.

This isn't bragging, but I could be the CEO of Tesla Motors and show a profit next quarter. But so could anybody who runs a profitable business with no debt.

It's not that hard. It's just seat time and effort.

It's not what the lotto players want to hear. But it's the truth.

Heck, a housewife runs a business several times larger than Elon does and pays dividends. And has better EV tech in her IP portfolio.

You seem like a sweat, honest and hard working small business owner, I really mean that. So with all due respect I ask:
Is your business growing 50% year-to-year?
Is it poised to overturn a 100-yeard old multi trillion industry?
Is your company seen as the clear leader in this business segment?

If the answer to all those questions is yes then your business too has the potential to become immensely valuable, just like Tesla. If not then your personal experience from running a small business is not applicable to Tesla.

By the way it's cool that you funded your growth from cash from operations only.

And saying "If I were CEO of Tesla I could make it profitable next quarter" is an attempt at bragging. But even if you were able to do this, so what? It would mean growth was stopping and I guarantee you 100% that the stock price would fall. This is because the market capitalization of a company reflects it's current value PLUS all of it's potential future value and profits. While you may not understand this the market as a whole kind of does, over time at least it's getting there.

 

[jesselivenomore]

I believe the aspiration was for 30% GM on S and 25% on X.

I will dig up and post a reference on Monday.

Yes that is their target GM in the back half of the year. I am using 25% and 20% as their average over the whole year.

 

[McRat]

You seem like a sweat, honest and hard working small business owner, I really mean that. So with all due respect I ask:
Is your business growing 50% year-to-year?
Is it poised to overturn a 100-yeard old multi trillion industry?
Is your company seen as the clear leader in this business segment?

If the answer to all those questions is yes then your business too has the potential to become immensely valuable, just like Tesla. If not then your personal experience from running a small business is not applicable to Tesla.

For the first 7 years, we grew 33% average. Year 1-3, was over 100%. We worked on the EV1, General Atomics Fusion Project, Proton Beam for Loma Linda, F-22 / F-117 refit, etc.

We fired Rolls-Royce, GE Engines, Pratt& Whitney, US Navy, USAF, NASA, JPL, and the CIA from their jobs.

Yes, we are #1 in what we do. Globally. I'm not allowed to say whether Tesla Motors or SpaceX are clients. It's non-disclosure agreement, but yes, we are on their approved list.

It's not that hard. You just decide to be the best at what you do, and put in the seat time to get there. Anyone can do it, but most would rather not.

 

[The Blue Owl]

For the first 7 years, we grew 33% average. Year 1-3, was over 100%. We worked on the EV1, General Atomics Fusion Project, Proton Beam for Loma Linda, F-117, etc.

We fired Rolls-Royce, GE Engines, Pratt& Whitney, US Navy, USAF, NASA, JPL, and the CIA from their jobs.

Yes, we are #1 in what we do. Globally. I'm not allowed to say whether Tesla Motors or SpaceX are clients. It's non-disclosure agreement shiit. Ask them if you are curious.

Congratulations on founding and running a successful business. It's harder to do than to talk about doing it, and you have done it.

It's not that hard. You just decide to be the best at what your do, and put in the seat time to get there. Anyone can do it, but most would rather not.

I'm not sure why you included this statement. Are you suggesting that Tesla would rather not be the best at what they do?

 

[Johan]

For the first 7 years, we grew 33% average. Year 1-3, was over 100%. We worked on the EV1, General Atomics Fusion Project, Proton Beam for Loma Linda, F-22 / F-117 refit, etc.

We fired Rolls-Royce, GE Engines, Pratt& Whitney, US Navy, USAF, NASA, JPL, and the CIA from their jobs.

Yes, we are #1 in what we do. Globally. I'm not allowed to say whether Tesla Motors or SpaceX are clients. It's non-disclosure agreement. Ask them if you are curious.

It's not that hard. You just decide to be the best at what you do, and put in the seat time to get there. Anyone can do it, but most would rather not.

Very impressive, I'm sorry I was being condescending by assuming you were a small business owner. Apparently you are a large businesses owner (if you are the owner) or director.

But I still fail to see how your experience, which was likely in another field of business than automotive design and manufacturing, is relevant to Tesla.

Reading your story makes me think: that guy must have really been clever to see that kind of low hanging fruit that could be picked so accessibly (not saying easily) that he was able to find all his growth from operations and outcompete all those legacy companies you mention. But what Tesla are attempting us not low hanging fruit.

 

[McRat]

...

Are you suggesting that Tesla would rather not be the best at what they do?

I'm saying it is time to stop running Tesla Motors like a hobby business. Make profits right now. Use those profits to grow.

Tesla makes great cars right now. So prove they are viable right now.

Offload TM3. Do not capitalize the project yet. Get the 3 in the black, then take it back over.

 

[Johan]

Make profits right now. Use those profits to grow.

If you want them to do this, which is exactly what they are doing, you can't at the same time chastice then for ending up with an accounting loss every quarter. Also, they want to grow even faster than funding their entire growth from operations, which is why they've gone to the market for capital.

 

[McRat]

Very impressive, I'm sorry I was being condescending by assuming you were a small business owner. Apparently you are a large businesses owner (if you are the owner) or director.

But I still fail to see how your experience, which was likely in another field of business than automotive design and manufacturing, is relevant to Tesla.

Reading your story makes me think: that guy must have really been clever to see that kind of low hanging fruit that could be picked so accessibly (not saying easily) that he was able to find all his growth from operations and outcompete all those legacy companies you mention. But what Tesla are attempting us not low hanging fruit.

I'm no rocket scientist, but I do work with them.

All my business does is dimensional inspection services. If I can do dimensional inspection better than your company can do it, then I survive.

My clients can do exactly what I do without me. I just have to do it better and cheaper than they can. So they "fire" their own staff and use our lab instead.

Tesla Motors can make a car cheaper and better than their segment competition today, But, they need to make a car cheaper and better than their competition tomorrow. Things will be very different in January 2018.

 

[gigglehertz]

McRat, I hear you about staying within a budget and paying as you go. I'm as financially conservative as I am socially liberal. I worked for a chain of sporting goods stores in the PNW that took on too much debt to expand right before the great recession and ultimately went bankrupt. The problem Tesla has is it's upending the transportation industry on it's own. In order to do that they have to build out a worldwide network of charging stations, service centers, and stores pretty much all at once. They could have expanded slowly from California but their wealthy early adopters were spread out worldwide. You can't sell an EV in an area without infrastructure in place. Also the gigafactory is crucial to driving down costs and make EV's mass market. How many years should they have waited, content with low volume of sales, until they could save up $5 billion dollars to pay for it? Unfortunately it's a chicken and egg problem. As SCTY investor I feel your pain, but unless some multibillionaire leaves all his/her money to Elon this is the way it has to be.

 

[Johan]

I'm no rocket scientist, but I do work with them.

All my business does is dimensional inspection services. If I can do dimensional inspection better than your company can do it, then I survive.

My clients can do exactly what I do without me. I just have to do it better and cheaper than they can. So they "fire" their own staff and use our lab instead.

Tesla Motors can make a car cheaper and better than their segment competition today, But, they need to make a car cheaper and better than their competition tomorrow. Things will be very different in January 2018.

What are you talking about? You're moving the goal posts now too. Now suddenly you bring up the "there will be lots of competition in the future" argument. That will just suddenly appear out of nowhere? Or from the incumbent large car manufacturers, who will fund this transition to EVs from their profits from selling ICE cars thus putting themselves out of business? That's as silly as improbable.

 

[McRat]

What are you talking about? You're moving the goal posts now too. Now suddenly you bring up the "there will be lots of competition in the future" argument. That will just suddenly appear out of nowhere? Or from the incumbent large car manufacturers, who will find this transition to EVs from their profits from selling ICE cars thus putting themselves out of business?

Tesla Motors needs to move to profitability ASAP. It will be best in the long run.

I wrote several paragraphs about why this is important in May 2016, but it was boring.

It can be done. Tesla CAN be profitable AND grow. Anyone who says otherwise is short-sighted.