Short-Term TSLA Price Movements - 2016

[TMSE]

Was just reading some old SEC filings from TSLA about Elon's CEO option grant. One of the conditions sticks out to be as a pretty significant one as far as the ordinary shareholders go.

He gets the right to buy 527,490 shares for $31.17 each time that:

TSLA Market Cap = $3.2B + ($4B * previous vests)

AND one of the following 10 conditions is met: Italics are completed, Underlined are the next two I expect he'll complete, bold is the one I'm most interested in talking about.

• Successful completion of the Model X Engineering Prototype (Alpha);
• Successful completion of the Model X Vehicle Prototype (Beta);
• Completion of the first Model X Production Vehicle;
• Successful completion of the Gen III Engineering Prototype (Alpha);
• Successful completion of the Gen III Vehicle Prototype (Beta); (expected sometime late 2016/early 2017)
• Completion of the first Gen III Production Vehicle; (expected mid-late 2017)
• Gross margin of 30% or more for four consecutive quarters;
• Aggregate vehicle production of 100,000 vehicles;
• Aggregate vehicle production of 200,000 vehicles; (expected late 2016)
• Aggregate vehicle production of 300,000 vehicles. (expected mid-late 2017)

To get the full grant, he has until August 2022 to achieve a TSLA market cap of $43.2B AND have all 10 conditions met.

TSLA's current market cap is around 31B. To achieve all the goals based on the current ~146M outstanding shares, share price would have to be ~$295.

Thus, the way I figure it, the last option he gets, will be worth at least ($295 - $31.17) * 527,490 shares = ~$139.1M to him, and potentially a lot more than that, because I think that by the time all of the milestones are achieved the share price will be significantly higher than $295.

According to this source: Auto & Truck Manufacturers Industry Profitability by quarter, Gross, Operating and Net Margin from 1 Q 2016
1Q 2016 average gross margins in the auto industry are around 20% and have been climbing in recent quarters. Historically, average gross margin was more like 11-13%.

The 1Q 2016 SEC Filing here: Tesla Motors - Quarterly Report

30% is pretty ambitious. That SEC filing also notes a 2014 executive option grant with similar conditions. The executives have a lot of incentive on the table to achieve it.

The filing says gross margin in 1Q 2016 was 22%, down from 27.7% in 1Q 2015.

If TSLA can achieve 30% for 4 consecutive quarters as required by Elon's 2012 grant, and for 3 not necessarily consecutive years as required by the 2014 grant, it would make them one of the most profitable automakers, and do wonderful things for the rest of us shareholders.

Great discovery! Thank you!

I have a hunch that gross margin (GM) will be the white swan for Q2 and definitely for Q3. A lot of folks, bulls and bears alike, are expecting disastrous Q2 due to reduced shipments. They are baking in same or worse GM as in Q1.

My take is that Q2 will have 28% and Q3 will have over 35% GM due to:
1) MX development ended in Q1,
2) Model 3 reveal and the overwhelming customer response made suppliers/vendors start treating Tesla as a tier1 strategic customer. I will be surprised if Tesla hasn't extracted atleast 5 to 10% discount on current purchases, and
3) Production is in full steam, likely at 2200/week now.

 

[dakh]

Good point about the vertical integration. It's expensive to do it that way though.

Re the batteries, look up coloumbic efficiency. Batteries gaining capacity is not something I've ever heard of, but I'm not an expert. The experts do measure battery life via ratio of returned charge aka coloumbic efficiency, so I'd guess that gaining charge is not possible. I haven't done the numbers, but how far does a 50% DOD move a truck over 10k cycles?

My understanding is it's a porous structure where lithium ions are moving. That's why silicon is getting added to graphite, but it also would reduce cycle life since silicon is expanding and contracting. It could be that the structure settles in mechanically after a number of cycles and capacity goes up initially. I have heard this being mentioned before -- someone reported that capacity increases after a full charge cycle at max C on a fresh cell. Not charging to full capacity limits mechanical deterioration on these cells so I wouldn't be surprised if what you're talking about (coloumbic efficiency, huh?) goes way up if you don't use the last 10-30% of capacity.

 

[VanE]

Musk's language is a bit awkward. I believe he is speaking conceptually, not literally, about moving riders into a different vehicle. The point is to illustrate design differences. The objective is to make compelling vehicles that improve overall all ridership. Not to divert existing riders to new vehicles, but to get more people into mass transit.


Pop Quiz for everyone

Which would be better for mass transit route outcome where demand is moderate (120 potential riders per hour)?
A. Busses at 20 minute intervals (3 per hour) with 25 passengers average on board
B. Busses at 5 minute intervals (12 per hour) with 9 passengers average on board
Let's also assume that those of the 120/h who do not ride a bus take a car.

What sort of bus would best serve A vs B?

Well, B is capable to pick up 44% more passengers per hour, so it would be definitely be B.

But even if the capacity was the same, I would say that B is by far the best option. Because the buses won't have a pre-determined route anymore the smaller busses would be able to transport passengers WAY more efficiently. I don't have the mathematical know-how to make an educated guess about how much more efficient the smaller busses would be, but I guess they could shave of tens of percents of the average transporting time, simply because every bus has to make less stops off route and they're able to optimize better which bus will pick you up.

 

[Oil4AsphaultOnly]

Great discovery! Thank you!

I have a hunch that gross margin (GM) will be the white swan for Q2 and definitely for Q3. A lot of folks, bulls and bears alike, are expecting disastrous Q2 due to reduced shipments. They are baking in same or worse GM as in Q1.

My take is that Q2 will have 28% and Q3 will have over 35% GM due to:
1) MX development ended in Q1,
2) Model 3 reveal and the overwhelming customer response made suppliers/vendors start treating Tesla as a tier1 strategic customer. I will be surprised if Tesla hasn't extracted atleast 5 to 10% discount on current purchases, and
3) Production is in full steam, likely at 2200/week now.

You and I have a history of being overly optomistic, so consider my dislike a masochistic conflageration!

 

[dakh]

Well, B is capable to pick up 44% more passengers per hour, so it would be definitely be B.

But even if the capacity was the same, I would say that B is by far the best option. Because the buses won't have a pre-determined route anymore the smaller busses would be able to transport passengers WAY more efficiently. I don't have the mathematical know-how to make an educated guess about how much more efficient the smaller busses would be, but I guess they could shave of tens of percents of the average transporting time, simply because every bus has to make less stops off route and they're able to optimize better which bus will pick you up.

Yep and I would be mighty surprised that they didn't do some rough modeling on where the sweet spot would be on bus size. Therefore claims that SMP2 is naive in that respect are, well, naive.

 

[bookfast]

My understanding is it's a porous structure where lithium ions are moving. That's why silicon is getting added to graphite, but it also would reduce cycle life since silicon is expanding and contracting. It could be that the structure settles in mechanically after a number of cycles and capacity goes up initially. I have heard this being mentioned before -- someone reported that capacity increases after a full charge cycle at max C on a fresh cell. Not charging to full capacity limits mechanical deterioration on these cells so I wouldn't be surprised if what you're talking about (coloumbic efficiency, huh?) goes way up if you don't use the last 10-30% of capacity.

Coulombic efficiency, my bad. Yes I think you are right about DOD affecting it

 

[DaveT]

I wish to hear thoughts from @DaveT and @jesselivenomore on SMP 2.0

I recorded a 55 minute video last night with my thoughts on the new master plan, but the audio was bad quality so I'm not going to post it. But if you're interested, just PM me and I'll send you the link.

 

[DaveT]

I bought all of my TSLA shares 3.5 years ago. I sold some (one-third of my holdings) for the first time today. Please forgive me, but it had nothing to do with the company or the market. It was to pay cash for a new home I’ve had built. Closing will be on Monday. Thank you Tesla Motors.

Congrats, Curt! Well done. Enjoy your new house.

 

[bookfast]

I haven't done the numbers, but how far does a 50% DOD move a truck over 10k cycles?

I was curious so looked into this. Trucking fleets avg about 10mpg, and let's compare to 40mpg for a car. The truck needs 4X energy per mile. A 60kWh S goes 200miles, so a 240kWh truck goes 200mi. 1200kWh pack X 10k charge cycles X 50%DOD = 5M miles. Way more than enough lifetime. It did help me realize that 1200kWh battery should be about big enough. Assuming 80% DOD, range may be ~800 miles, or 13 hrs

 

[gene]

Thank you, Johan. Yes, I had the builder install in the garage the proper wiring and outlet to charge a Tesla car. Along with the construction supervisor I inspected the outlet on Tuesday, and it appears correct. I'll move into my new home on Monday while awaiting my Model 3.

Kurt, actually, the new Model S 60 is quite a bargain and you could be enjoying it right now. It's nice to have the huge cargo space and rear opening for loading as well.

 

[AlMc]

I bought all of my TSLA shares 3.5 years ago. I sold some (one-third of my holdings) for the first time today. Please forgive me, but it had nothing to do with the company or the market. It was to pay cash for a new home I’ve had built. Closing will be on Monday. Thank you Tesla Motors.

Yes. Congratulations. Hopefully you will only need to sell a few more for your model 3.

 

[mmd]

I was curious so looked into this. Trucking fleets avg about 10mpg, and let's compare to 40mpg for a car. The truck needs 4X energy per mile. A 60kWh S goes 200miles, so a 240kWh truck goes 200mi. 1200kWh pack X 10k charge cycles X 50%DOD = 5M miles. Way more than enough lifetime. It did help me realize that 1200kWh battery should be about big enough. Assuming 80% DOD, range may be ~800 miles, or 13 hrs

10 mpg sounds too good. I think you are confusing the mpg of pick-up trucks with big rig mpg, or may be using mpg of big rig with no load. Big rigs are usually 5.5-6.5 mpg while hauling loads, but can be doubled with aerodynamic and other minor changes, like in the Airflow bullet truck. A much simpler solution than installing huge battery packs and supporting charging infrastructure. A plug-in hybrid version could increase this mpg a bit more.
AirFlow Trucks More Than Doubles Big Rig Fuel Economy - Gas 2

While traditional big rigs expend as much as 50% of their power just pushing air out of the way, the AirFlow BulletTruck has a much more aerodynamic design that allows it to slice through the atmosphere with ease. While hauling a 65,000 pound load from Connecticut to California, the BulletTruck big rig managed to average 13.4 MPG, more than double the 6 MPG or so most big rigs average while on the road. That’s even better than the Supertruck, another aerodynamically-enhanced big rig with better fuel economy.

 

[PaulusdB]

I bought all of my TSLA shares 3.5 years ago. I sold some (one-third of my holdings) for the first time today. Please forgive me, but it had nothing to do with the company or the market. It was to pay cash for a new home I’ve had built. Closing will be on Monday. Thank you Tesla Motors.

Thanks for this -unasked for- full disclosure, C.
We tend to forget that the most important part of investing is profit taking. Kudos to you.
Your major sell off didn't cause $TSLA to tank too badly. So, the world is a better place now, especially for you.

 

[jhm]

You left out the correct response:

C. Hyperloop.

I see hyperloop as an alternative to air travel or road trip. My dream vacation would be to take Hyperloop from my home in Atlanta to Disney World, other wise a 8 hour drive using Superchargers.

 

[bookfast]

10 mpg sounds too good. I think you are confusing the mpg of pick-up trucks with big rig mpg, or may be using mpg of big rig with no load. Big rigs are usually 5.5-6.5 mpg while hauling loads, but can be doubled with aerodynamic and other minor changes, like in the Airflow bullet truck. A much simpler solution than installing huge battery packs and supporting charging infrastructure. A plug-in hybrid version could increase this mpg a bit more.
AirFlow Trucks More Than Doubles Big Rig Fuel Economy - Gas 2

I just looked up some fleet averages and found 6.5, 8, and 10 listed. Took 10 to be conservative. The less efficient you assume, the more batteries you need, the more the truck costs. I didn't want to unfairly represent the cost of the battery, since I had been arguing it might be cheaper to build an electrified road.

 

[madodel]

Answer to some who questioned how long Mr.. Musk will remain at Tesla.

 

[ggies07]

Answer to some who questioned how long Mr.. Musk will remain at Tesla.
View attachment 186631

 

[2Pearls]

I'm (really) new here, so forgive me if it hasn't already been brought up, but I suspect it's the effort and risk involved working with others not fully invested (politically) their ideas, sinking or delaying a plan unexpectedly. Elon seems to prefer being in control of as many variables as possible.

Look at how vertically integrated Tesla and SpaceX are, look at how they responded to a slow supplier earlier this year - "Our bad, we're not vertically integrated enough". They can't force line installs along major interstates without actually owning them. They can, however build an electric truck and let the market decide if they want it. If no one wants to buy them, too bad for them, and start hauling freight autonomously. Point is, batteries are getting better, and they're looking to be at the forefront of that effort. Better to be ready to execute when the battery tech is there, than just get started at that point. Or, leverage their battery tech and production ahead of everyone else.**

Else, they go the overhead line way... until some well paid lobbyist (or 50) gets the project delayed a couple years in a state or two, then they have to sink more money into politics. That's a lose-lose game, IMO.


** I've been doing tests on some Tesla cells circa 2015, and aging wise, they don't act like "normal" lithium-ion. Mine came from a car with ~40k miles, and after "abusing them" a bit more (high/deep discharges, fast charges), they're still gaining capacity. My early suspicion is they're designed to reverse-age for the first several years/couple hundred cycles. Further, just limiting full charges to ~80% capacity does mind-blowing things for cycle lifespan - something really easy to do if you have predetermined freight routes - if you only need 40% capacity to deliver a load, don't charge past 50-60%.

One of the better posts I have read in a long time, thanks for contributing. Much better than some of the other posts like... Is Tesla going up or down today, adding nothing of value! Thanks for keeping some of us interested and informed.

 

[Jeffsale]

I love the idea of using renewable energy Stirling engines powered by solar

 

[woof]

I love the idea of using renewable energy Stirling engines powered by solar

Explain why you love this idea. The efficiency of such a setup is way below using PV solar to generate electricity and drive an electric motor, and even in that setup there's not enough enough solar energy striking the small area of a vehicle to even get it to move. Super lightweight experimental solar cars like Solar Racer excluded...but they only weigh about 200 kg sans driver.