Short-Term TSLA Price Movements - 2016

[maoing]

For the first part, it might be true. For the second part, regardless how hard you defend Tesla, actually capital is the major driving factor of the schedule. Given TM's cash situation in the past year due to unexpected heavy model X expense, it's no wonder to see TM setback its GF plan and it will not bode well for the future too. Back to my original post to bring this issue up. I questioned if TM need to raise extra $2B to expedite GF progress together with M3 capital raise, without enough capital, the schedule of GF will be under question for sure.

We no longer know the modular breakdown nor the GWh potential for the Gigafactory since they have expanded the internal floor space and increased the total capacity. Therefore taking square footage of the building is no longer an accurate way of assessing manufacturing floor space.

........................................

Therefore they are not behind at all for the original production plans and they still have time to get in a position to realize the new production plans in a reasonable fashion.

 

[Crowded Mind]

Tesla has never given us a reason to doubt their use of capital, they have deployed it extremely efficiently. I see no reason for that to change. It's not like they haven't thought about how to access the capital to meet the new production schedule. That's like step two of the thought process of moving up the production schedule, right after "hey, maybe we should move up the production schedule." Speed is a fair question. Capital is not the bottleneck though. They have the most reservation dollars for any product in history. They will be able to find capital.

 

[Krugerrand]

Let's assume 2017-2020 was a 4 years plan to bring GF into full function. So common sense told me it's should be 1/4 up in 2017.

First issue we have here is that you've made an assumption. Suggest we start off by not assuming anything and just look at the facts, like it isn't 2017 yet.

It's similar to Tesla's annual guidance, if the Q1 or first half delivery is significantly lower than 1/4 or 1/2 annual guidance, then we'll likely see guidance miss.

Reasoning by analogy rather than first principles.

 

[MitchJi]

The faster ramp is a huge opportunity, that we should be smart enough to take advantage of. I'm surprised that this is a source of controversy. This post is part 1 of my response:

2019 TSLA stock price

Let’s examine a bit more what TSLA stock price might be in 2019 if they’re able to sell 700k cars. I’ll use rough numbers but you can plug in numbers you feel more comfortable with.

700,000 cars x $50,000 (avg selling price due to 150k cars being Model S/X and GenIII selling mostly with 5-10k in options) = $35 billion
18% gross margin = $6.3 billion

9% profit* = $3.15 billion (I’m figuring 50% of gross margin to be profit based on other companies in the industry. However, Tesla won’t be this profitable actually in 2019 because they will be expanding. Yet, I’m using this number because it’s what they should/could be having as profit based on gross margin and revenue, and is helpful for calculating valuation.)

So, now the question is what multiple will investors give Tesla. If Tesla is growing rapidly, which they will be in order to reach 700k cars in 2019, investors will likely give at least 20x profit. So, $3.15b x 20 = $63 billion market cap divided by 150m shares (rough estimate) = $420/share.

Now this is a very conservative estimate of $420/share if Tesla is able to sell 700k cars in 2019. More likely is that investors will give a higher multiple than 20x since Tesla is still rapidly growing. I think a 100x multiple would be excessive and unrealistic. A 50x multiple might be possible but probably unrealistic. I would imagine a 30-40x multiple might be fair and realistic. Let’s use a 30x multiple to be conservative. $3.15 billion profit x 30x p/e = $94.5 billion market cap divided by 150m shares = $630 share price.

So conservatively if Tesla can sell 700k cars in 2019 then the stock price will likely be at least $630/share...

Gigafactory issues?! Really?!

If you believe that you should either listen to the CC, and listen Elon and JB, or buy some J18 puts (without batteries the plan is gooing crash and burn), and prepare to lose your shorts.

In any case there is no need to continue beating this topic to death!

Also wanted to focus on the adjust in the Gigafactory plans. I believe originally you indicated about 15 gigawatt hours per year were earmarked for Energy, and with Model 3 demand clearly robust and likely more robust than you originally planned, I'm wondering if that moves some of those Tesla Energy ambitions to the backburner, does it accelerate the need for a second Gigafactory, or maybe perhaps you found a way to squeeze more out of the existing one?

I think the simplest answer is we have a lot more capacity at that site than the initial 35 and 15 gigawatt hours that we discussed.

That's part of why we've so aggressively made sure we have extra land and extra space around the site, so that we can continue to expand. And we won't need to rob from Tesla Energy plans in order to meet the Model 3 schedule. We definitely have a way to solve both.

And are you willing to provide an update to those initial targets?

Not yet. Maybe in one or two earning calls from now I think we'll be able to shed more light on that. But yes, as JB was saying, we're going to make sure Tesla Energy is not constrained by vehicle needs. The growth rate of Tesla Energy is, on a [too soft to hear] basis, going to be far greater than the growth rate in cars.

From the Q4 2015 Conference Call

Okay. And can you give an update on stationary storage? Is that still trending to your targeted $3 billion to $5 billion (6:02) by 2017?

The gross margin, is it still at your – is it still trending to the 15% target I think you mentioned on the last call?

Production limited thing, if we imagine the most we could possibly make make in 2016, we've already sold out of that. If even a small percentage of the orders are valid we're already sold out of 2016, and well into 2017... So it's mostly about predicting our production rate, and we expect very dramatic increases in the stationary storage production. The reason I feel a bit cautious about giving exact estimates is because when you have an exponential increase, the exact calendar window...

And (bangs head on desk) why do we still get posts stating that the purpose of TE is to hedge M3 battery demand? A business with a medium term projected sales of $3 billion to $5 billion with off the hook demand!

OTOH if you can figure out when the exponential increase is going to happen there will probably be a chance to make some money on short-medium term calls, because the market hasn't figured this out either.

 

[techmaven]

For the first part, it might be true. For the second part, regardless how hard you defend Tesla, actually capital is the major driving factor of the schedule. Given TM's cash situation in the past year due to unexpected heavy model X expense, it's no wonder to see TM setback its GF plan and it will not bode well for the future too. Back to my original post to bring this issue up. I questioned if TM need to raise extra $2B to expedite GF progress together with M3 capital raise, without enough capital, the schedule of GF will be under question for sure.

I don't think anyone is questioning that they need to raise capital. Matter of fact, when Tesla raised the $2.2 billion, I remember asking DaveT why they didn't just go ahead and raise $4 billion to move even faster. I think that may have been a strategic misstep, but that may be only visible in hindsight.

It may have been possible to achieve the original timeline of the Gigafactory without a capital raise if the Model X launch had gone according to plan. It hasn't. So they raised capital last year. Now though, moving the Gigafactory up by 18-24 months means they can't rely on organic growth to fund most of the rest of the build out. That still doesn't make them late.

Obviously, if Telsa had the $2 billion up front for the Gigafactory exclusively, they could had moved faster than they did. Just because they could have moved faster doesn't make them late. When they raised the $2.2 billion, it was clear that they were not expecting to build the Gigafactory as fast as humanly possible, but as fast as Tesla could make it happen given Tesla's cash, product sales, and partner negotiations. With enough capital, they could build the whole thing at once. But that would be unfair hindsight judgement. The very concept of building the Gigafactory was scoffed at and the major automakers were perfectly happy with slow organic growth. It was seen as a reckless use of cash for an small boutique automaker. Today, it is a prudent investment, a wise strategic move to lock up a huge portion of the EV battery production capacity akin to Apple's lock up of NAND flash production capacity in the iPod heydays.

 

[mejojo]

But had to abandon those plans due to Model X delays/issues. So now they have to raise capital in a less friendly environment, but cannot delay because things need to be set in motion now in order to hit their Model 3 goals. So they raise $2B at 215 instead of 300. Sell 9.3M shares instead of 6.7M. Really not a big deal. So that is the real cost of the Model X delays, 6.7% dilution instead of 5%.

Why isn't "dilution" judged by $ raised vs. market cap at the moment? Why exactly is share price relevant unless the number of shares exceed shareholder approvals?

 

[SPadival]

Given TM's cash situation in the past year due to unexpected heavy model X expense, it's no wonder to see TM setback its GF plan and it will not bode well for the future too.

See where? Can you show us where TM setback its GF plan? Or are you now repeating the same old lies over and over again?

 

[Johan]

Why isn't "dilution" judged by $ raised vs. market cap at the moment? Why exactly is share price relevant unless the number of shares exceed shareholder approvals?

1. Stock price is the exact function of market cap divided by number of shares in existence.
2. If you raise capital by issuing stock you sell that stock at market price (closing price) on a given date. If you want to raise a particular sum at a lower price then the other variable of the equation: number of shares issued must increase, thus increasing dilution.

 

[MitchJi]

Obviously, if Telsa had the $2 billion up front for the Gigafactory exclusively, they could had moved faster than they did.

I think that it is obvious that they don't want to move faster, until they complete phase one.

The GF Will Use Custom Cell Manufacturing Equipment:
Tesla and Panasonic will be using custom cell manufacturing equipment at the GF, and that will have a big impact on the cost reductions

Designing and building the custom equipment only make sense financially because of the massive scale of the GF, (they need to build more than one of these production lines). This equipment is designed and optimized to be used in large scale production lines. The first line will probably complete phase one of about seven(?) of the plants cell production capacity. Assuming seven phases it means each line will produce about5 GWh per year, or about 15% of the entire worlds supply of Lithium Ion batteries!

 

[techmaven]

I think that it is obvious that they don't want to move faster, until they complete phase one.

My point is that the measuring stick of how fast they could possibly have moved given all the money up front is not a proper way of measuring to see if they are late. That appears to be one of the ways people are measuring Tesla unfairly. The measuring sticks they gave initially are these: first cell production in 2017, 30% cost reduction for the Model 3 launch in 2017, upwards to 35 GWh of production sometime in 2020 for supporting the production of 500,000 vehicles.

They gave additional metrics for Nevada, but those are of concern specifically to Nevada and really only if they fall behind sufficiently that the incentives are revoked. They are relatively immaterial since most have to do with percentage of Nevada residents, the employment numbers, etc. Investors should care more about actual capacity, when, and what cost.

 

[mejojo]

Just drove down to the LA Airport yesterday from Santa Barbara. 160 miles round trip, my son counted over 40 Model S. It's hard not to be bullish when you see Model S everywhere you look!

Also pulling into a Supercharger location and seeing only one or two open slots. I was actually shut out for 20 minutes at the Burbank location on a Sunday night.

 

[30seconds]

My point is that the measuring stick of how fast they could possibly have moved given all the money up front is not a proper way of measuring to see if they are late. That appears to be one of the ways people are measuring Tesla unfairly. The measuring sticks they gave initially are these: first cell production in 2017, 30% cost reduction for the Model 3 launch in 2017, upwards to 35 GWh of production sometime in 2020 for supporting the production of 500,000 vehicles.

They gave additional metrics for Nevada, but those are of concern specifically to Nevada and really only if they fall behind sufficiently that the incentives are revoked. They are relatively immaterial since most have to do with percentage of Nevada residents, the employment numbers, etc. Investors should care more about actual capacity, when, and what cost.

I believe that first cell production has been moved up to this year and they seem very bullish on exceeding both cost reduction and volume targets.

 

[mejojo]

1. Stock price is the exact function of market cap divided by number of shares in existence.
2. If you raise capital by issuing stock you sell that stock at market price (closing price) on a given date. If you want to raise a particular sum at a lower price then the other variable of the equation: number of shares issued must increase, thus increasing dilution.

I am aware of 1 and 2. Why exactly is it relevant?

The shares you owned before are then a smaller portion of the company, but the company's assets have increased equivalently, so your portion is worth more than it was yesterday. Isn't this a net "nothing", disregarding for the moment the market's reaction to the raise?

 

[Johan]

There is this clear tendency for bearish investors to make assumptions that are not supported by what Tesla themselves have said, and then cry delay or miss when those assumptions aren't met. Recent examples of such assumptions:
- the entire $2.2 Bn raised last time were ear marked for the GF
- The Gigafactory was supposed to be spitting out cells by now, hence it's delayed.

I am aware of 1 and 2. Why exactly is it relevant?

The shares you owned before are then a smaller portion of the company, but the company's assets have increased equivalently, so your portion is worth more than it was yesterday. Isn't this a net "nothing", disregarding for the moment the market's reaction to the raise?

What you're saying is true but it's not the complete picture. If that were the case fully then why not raise 100Bn? The company is worth 100Bn more overnight, so it should all even out right? Except things change such as who owns how much of the company and that the share price reflects the potential for future earnings, not cash on hand. If a company has a lot of cash on hand biut no good way to put it to use, ie invest it to grow the business, then it's not necessarily a positive things in relative terms.

 

[Papafox]

Thanks Fallenone. Yes this is what I am referring to.

I went back and listened to both the 2015 Q2 and Q3 CCs to confirm.

During the Q2 CC they guided for $40-50M in TE revenue in Q4, and 10x that in 2016. This shortfall contributed a little like you mentioned, but not much to the end result. They were looking for 15% gross margins, so only $6M-7.5M contribution to cash flow. So this is not the answer.

In the Q2 guidance for full year was already lowered to 50-55k range. They commented that Model X ramp was extremely challenging. Knowing this, their comments on Q4 FCF+ was still that it was "questionable", and "too close to call". Their comments on 2016 Q1 FCF+ was "certainly we will be". Perhaps at this point they were still counting on 3-5k Model Xs in Q4, and 7k like you mentioned in Q1. This still doesn't really add up for me. Even if they hit the top of their guidance of 55k for full year, on 5k Model Xs in Q4, $130k ASP, 15% GM. That still only adds $97.5M to cash flow, which would've brought them to -$300M for Q4. Far from "questionable" or "too "close to call".

In Q3 guidance after they lowered full year to 50-52k they said they had "aspirations for Q1 FCF+". That Q4 Model X spend was still at peak, and it will come down in 2016. So that fits with the decrease in Q1 2016 capex. However, even if they hit 7k Model Xs in Q1, assuming $120k ASP, 20% GM, that only adds around $180M in cash flow. In reality, using your -4% GM and 2400 untis, they lost around $10M on Model X, so a net gain of $190M. That still only takes FCF for Q1 to -$200M from -$400M.

I know I am doing the math a little different from you, I am just adding in the Model X cash flow with expected GM and units. Is that not a good way to look at it?

I know both Jesselivenomore and Fallenone are very bright, so I won't waste lots of words here. There's something I don't understand about this discussion but would like to understand. If we're talking about Free Cash Flow from 7,000 Model Xs in Q1 why is Gross Margin being used in the computations? Gross Margin is appropriate if money was not spent on cost items such as labor, 3rd party parts, etc., but most of the costs for the Model X vehicles that weren't delivered had already been incurred (workers were already on the payroll, 3rd party parts had already been delivered, aluminum already purchased, etc.). The shortfall from fewer Model X vehicles delivered in Q1 would be much greater than any number that has been multiplied by GM. The revenue from selling those extra Model Xs seems to me to be the issue, not the revenue from selling the Model Xs after being multiplied by GM.

 

[FredTMC]

Just drove down to the LA Airport yesterday from Santa Barbara. 160 miles round trip, my son counted over 40 Model S. It's hard not to be bullish when you see Model S everywhere you look!

Model S isveverywhere here in South Orange County. Passé... Like Priuses.

Now I see MXs almost everyday.

 

[MitchJi]

It just occurred to me that DTU, intentionally pushing the SP down and then having an excellent Q2 so they can push the SP up) followed by a raise is still a possibility. For example maybe in Q2 they can announce that due to X-production and hitting the exponential growth amp of TE (100-400 MW) they can finance the M3 ramp from cash flow until early next year. Then do the raise.

I'm not stating this is likely, but I do think all of the doom and gloom is overdone.

 

[AudubonB]

Mild-Mannered Moderator Input:

From the Land that Time & Global Warming Forgot: In that another, very mild-mannered Mod has nicely asked a certain terribly tangential discussion to end, I have Unapproved some not useful posts that ran roughshod over his request.

'Nuff said now, nicht wahr?

 

[maoing]

No, they should. Building GF as fast as possible to expedite the EV mission was not only the reason raising $2.2B 6 years earlier before 2020, but also the important reason to get huge tax break from Nevada. Actually getting full construction done by 2017, it's plan of record. But later on TM short of cash to build the full size construction, so they change to staging plan and pull in the production schedule in order to mitigate the negative impact.

Here is the link of "incentive agreement" between TM and Nevada. http://www.diversifynevada.com/uploads/reports/Tesla_-_Incentive_Agreement_-_Execution_Package.pdf

On page 30, it specifies the estimated construction completion date and area. Below is the snapshot:

Gf

• maoing
• May 8, 2016

Gf

• maoing
• May 8, 2016

IIRC, back to 2014, folks here were talking about full size construction finished by 2017, Panasonic and other partners will install machinery and assembly line in 2018. Production ramp up will start from 2019ish and achieve full production rate by 2020. It's true that TM pull in the production schedule, but it can't hide the truth that entire plan has been scaled back due to its bad cash situation.

There were a lot more information to restore the initial GF plan back to 2014. I would encourage the folks who believe GF is ahead of the schedule to read through it.

When they raised the $2.2 billion, it was clear that they were not expecting to build the Gigafactory as fast as humanly possible, but as fast as Tesla could make it happen given Tesla's cash, product sales, and partner negotiations.

 

[techmaven]

No, they should. Building GF as fast as possible to expedite the EV mission was not only the reason raising $2.2B 6 years earlier before 2020, but also the important reason to get huge tax break from Nevada. Actually even get full construction done by 2017, it's not plan of record.

Here is the link of "incentive agreement" between TM and Nevada. http://www.diversifynevada.com/uploads/reports/Tesla_-_Incentive_Agreement_-_Execution_Package.pdf

On page 30, it specifies the estimated construction completion date and area. Below is the snapshot:

Gf

• maoing
• May 8, 2016

Gf

• maoing
• May 8, 2016

IIRC, back to 2014, folks here were talking about full size construction finished by 2017, Panasonic and other partners will install machinery and assembly line in 2018. Production ramp up will start from 2019ish and achieve full production rate by 2020. It's true that TM pull in the production schedule, but it can't hide the truth that entire plan has been scaled back due to its bad cash situation.

Yes, originally the idea was the entire shell would be done basically at the end of 2017. But it is still immaterial as you are still talking about the shell of the building. Seriously, the shell of the building. Going by the original Gigafactory PDF:

https://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

The Model 3 launch was 2017. The first phase construction had to be substantially finished in 2015 (which it was). The equipment installation was in 2016. That's already pulled forward one quarter. Production launch and ramp is 2017... which it is. Note the cost reductions that Tesla discussed is based on the first phase, not the entire Gigafactory.

To reiterate, no delay at all.

It is a bit more cash efficient to build the module building shells in a just in time fashion. There is no delay there as long as each phase comes online at same time as it originally was planned. As it stood before the Model 3 unveil, they were still on time. Could they have moved faster? Yes. Were they late? No.

Since those papers were filed, Tesla reconfigured the building. The first phase is bigger. Is that really a problem? It seems to be a problem for you, as you would rather see the 2nd phase building shell started instead of the 1st phase being bigger which results in the entire factory being bigger.

As far as the incentive agreement with Nevada is concerned, the sticking point isn't the end of the construction phase... matter of fact, that helps Nevada if the construction phase lasts a bit longer. Those temporary construction jobs hang around longer which means the economic impact of those jobs hangs around longer. No, its Minimum Capital Investment through a period through June 30, 2024. That and employment, which is estimated to hit the peak of 6,500 in 8 years, or in 2022. Not late.

Now, with the revised schedule, we're likely looking at 3/5 phase's of building shells done by the original construction timeline. What we don't know is what the actual capacity is at that point... which might be close to the original production estimate for all we know. To be clear, we do know they are adding an extra floor in some areas. And maybe some of the additional capacity is actually reconfiguration of the factory layout rather than actual increase in manufacturing floor square footage. In any case, it's up to Tesla to do what's best here.