AlMc, RobStark, Robert.Boston, thank you very much! These are the exact kind of comments that I was looking for. I appreciate your feedback.
Robert.Boston, yes, I was intentionally exaggerating the case just to test how far the notion makes sense. Your comments about co-location answer the question economically.
Little bit off-topic:
RobStark, I kind of agree with you about establishing direct relationships with the vendor / mining companies. I think that's how typically agricultural products such as grains are aggregated from individual farmers to elevators & co-ops.
However, on a fundamental level I am a proponent of transparent markets. There is a role that the commodities exchange such as LME or NYMEX can play here. For instance, at initial negotiations and/or at contract renewal (or price reset) it helps to know where the general market levels are (plus-minus local transportation basis and maybe product grade basis).
In absence of the exchange you have a similar situation as with railroad shipment contracts where same carrier would charge different rates to different customers or cargo type. Also, should the price of raw materials fluctuate a lot, it makes sense for TSLA to use the exchanges for delta-hedging (or through the customized OTC contracts with the banks where the banks then turn around and hedge themselves with the exchange traded contracts).
Although it may not be feasible to acquire the mining company itself, it may make sense to have deeper interaction with them aside from consumption of raw materials. Mining companies generally run on thin operating margins and are subject to oil price spikes due to heavy consumption of petroleum based products. So perhaps if TSLA or SCTY could provide electric energy supply to the mine it would reduce the mining company's exposure to the oil markets. That would be a win-win situation where TSLA would also save on hedging costs by virtue of not having to deal with the forwards/futures/options trade execution. I don't expect this to be a large item on the income statement, however, maybe 1-2% at most. -- Anyway, I am getting off topic here. Sorry.
Once again, thank you all for the quick feedback!
Robert.Boston, yes, I was intentionally exaggerating the case just to test how far the notion makes sense. Your comments about co-location answer the question economically.
Little bit off-topic:
RobStark, I kind of agree with you about establishing direct relationships with the vendor / mining companies. I think that's how typically agricultural products such as grains are aggregated from individual farmers to elevators & co-ops.
However, on a fundamental level I am a proponent of transparent markets. There is a role that the commodities exchange such as LME or NYMEX can play here. For instance, at initial negotiations and/or at contract renewal (or price reset) it helps to know where the general market levels are (plus-minus local transportation basis and maybe product grade basis).
In absence of the exchange you have a similar situation as with railroad shipment contracts where same carrier would charge different rates to different customers or cargo type. Also, should the price of raw materials fluctuate a lot, it makes sense for TSLA to use the exchanges for delta-hedging (or through the customized OTC contracts with the banks where the banks then turn around and hedge themselves with the exchange traded contracts).
Although it may not be feasible to acquire the mining company itself, it may make sense to have deeper interaction with them aside from consumption of raw materials. Mining companies generally run on thin operating margins and are subject to oil price spikes due to heavy consumption of petroleum based products. So perhaps if TSLA or SCTY could provide electric energy supply to the mine it would reduce the mining company's exposure to the oil markets. That would be a win-win situation where TSLA would also save on hedging costs by virtue of not having to deal with the forwards/futures/options trade execution. I don't expect this to be a large item on the income statement, however, maybe 1-2% at most. -- Anyway, I am getting off topic here. Sorry.
Once again, thank you all for the quick feedback!
