Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[StarFoxisDown!]

https://twitter.com/x/status/1490728167480479750

In general I agree with what this Twitter poster is saying. Based on that guidance of CAPEX through 2024, there's no possible way Tesla can spend enough of the free cash flow coming in on factories or new projects such as Optimus over the next 2-3 years. So then reality of the situation is:

A) Tesla sits on the cash
B) Stock buybacks
C) Dividends
D) Acquisitions

My vote would be B and D. D in very selective cases where Tesla sees they can achieve more vertical integration by buying a supplier

Edit: Doh and beaten. Serves me right for typing too much

 

[Artful Dodger]

From the 2021 Annual report (10-K)

Dividend Policy​

We have never declared or paid cash dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future.

Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

 

[Buckminster]

https://twitter.com/x/status/1490728167480479750

In general I agree with what this Twitter poster is saying. Based on that guidance of CAPEX through 2024, there's no possible way Tesla can spend enough of the free cash flow coming in on factories or new projects such as Optimus over the next 2-3 years. So then reality of the situation is:

A) Tesla sits on the cash
B) Stock buybacks
C) Dividends
D) Acquisitions

My vote would be B and D. D in very selective cases where Tesla sees they can achieve more vertical integration by buying a supplier

Edit: Doh and beaten. Serves me right for typing too much

E) Not sell vehicles and stick em on Tesla Robotaxi Network

 

[StarFoxisDown!]

E) Not sell vehicles and stick em on Tesla Robotaxi Network

Even then.......lets say optimistically Robotaxi is ready by 2024, the scale of Tesla's free cash flow will still be too much for even Robotaxi's to absorb. And it's not like the transition to Robotaxi's would be this long, drawn out thing. It's a flip of a switch for Tesla. So the cash/profits return start immediately.

Which is then going to make Tesla's cash position balloon up even more.

 

[henchman24]

I really don't understand the hatred of covered calls on Tesla. The options market almost always over prices volatility and there is a lot of excess premiums that can be pulled from the stock. I personally have hesitancy going months and years out, but within a short term, it is pretty rare that Tesla moves more than 20-25% in a week (typically once per year) and the premiums there can add up quickly to an excess 10-15% even if you don't try to time it much. If you time it with green spikes, you can easily double that... the big downsides are the once a year roll might be costly and the one that is bigger to me... the holding period changes that can result.

 

[Budding]

I really don't understand the hatred of covered calls on Tesla. The options market almost always over prices volatility and there is a lot of excess premiums that can be pulled from the stock. I personally have hesitancy going months and years out, but within a short term, it is pretty rare that Tesla moves more than 20-25% in a week (typically once per year) and the premiums there can add up quickly to an excess 10-15% even if you don't try to time it much. If you time it with green spikes, you can easily double that... the big downsides are the once a year roll might be costly and the one that is bigger to me... the holding period changes that can result.

What do you mean by holding period changes?

 

[henchman24]

What do you mean by holding period changes?

Tax Implications of Covered Calls - Fidelity

Profits and losses from covered calls are considered capital gains. Gains and losses can come from the stock, from the covered call, or from a combination of the two.

www.fidelity.com

 

[StarFoxisDown!]

I really don't understand the hatred of covered calls on Tesla. The options market almost always over prices volatility and there is a lot of excess premiums that can be pulled from the stock. I personally have hesitancy going months and years out, but within a short term, it is pretty rare that Tesla moves more than 20-25% in a week (typically once per year) and the premiums there can add up quickly to an excess 10-15% even if you don't try to time it much. If you time it with green spikes, you can easily double that... the big downsides are the once a year roll might be costly and the one that is bigger to me... the holding period changes that can result.

The hatred/disdain for covered calls comes from the fact that you're essentially adding to the unnatural trading action for TSLA. You're joining the house in a rigged casino. Which the more options volume that happens, the more it becomes a game of gambling at a casino. Some people consider options to be unethical because of how rigged it can be and how much it distorts natural trading. It gives huge amount of incentive to create unnatural trading, in both ways.

I would gladly trade in all my LEAPS for just regular stock if it meant options trading went away. Just my opinion. I won't bother responding if anyone quotes me cause it's easily something that goes off topic.

 

[henchman24]

The hatred/disdain for covered calls comes from the fact that you're essentially adding to the unnatural trading action for TSLA. You're joining the house in a rigged casino. Which the more options volume that happens, the more it becomes a game of gambling at a casino. Some people consider options to be unethical because of how rigged it can be.

I would gladly trade in all my LEAPS for just regular stock if it meant options trading went away. Just my opinion. I won't bother responding if anyone quotes me cause it's easily something that goes off topic.

That is an awfully high horse there!

The whole market is subject to options and they can be used for good and bad.

 

[Budding]

Tax Implications of Covered Calls - Fidelity

Profits and losses from covered calls are considered capital gains. Gains and losses can come from the stock, from the covered call, or from a combination of the two.

www.fidelity.com

Thanks, so if I understand this, a non qualified CC would suspend the holding duration. So my 2 year old shares cannot become short term just because I sell a CC, right?

 

[AudubonB]

Two Insights from Tesla's Inventory Details:
I just started looking at the 10K. I went straight to the Inventory details because I had seen a pattern developing in Q2 & Q3.

View attachment 765947

Raw Materials
While Cost of Goods Sold (COGS) grew 49%, Raw Materials grew by 87% and now sits at a whopping $2.8B. Raw Materials should increase as your production grows but the $2.8B in raw materials is high even taking into account the 49% growth and the Austin/Berlin launch inventory. I suspect, Tesla increased its safety stock on key components by at least $600m.
Key Take Away: Tesla enters 2022 with a better stock position to deal with shortages than 2021 (edited to correct years mentioned).

Work In Progress (WIP)
WIP grew 121% vs PY and this cannot be the automotive division as Tesla did not double it's manufacturing lines and we don't see thousand of unfinished cars anywhere. My guess is that this increase is related to Energy and its Megapacks. We have seen many megapacks sitting around at the Sparks GF. I suspect, these Megapacks are waiting for a part. This is the reason why Energy sales and margins were so disappointing in Q4.
Key Take Away: Once the missing parts arrive and megapacks delivered, we could see a nice bump in sales possibly adding $0.25 to EPS for the Qtr.

A very commendable discovery.
Here's a Q: I think Raw Materials should be but I don't know if GAAP mandates they be marked-to-market? Given the significant changes in raw materials prices in this new environment, that distinction now is an important one and it would raise that 87% from a far lower number.

 

[AudubonB]

That is an awfully high horse there!

The whole market is subject to options and they can be used for good and bad.

If you promise to provide a cogent, correct demonstration as to how they can be used for good I promise I shall not Mod-delete your response. Just this once.

 

[kabin]

For meme or high volatility stocks I've found the option market regularly under prices volatility. Professional and retail traders try to roll options for credit and chase the stock's price but get taken to the cleaners on a regular basis. Other than that, I agree covered calls are good way to lowering cost basis for normal stocks aside from needing more time to close the covered call since volatility rises and premium gets pumped into your trade when SP drops.

 

[henchman24]

Thanks, so if I understand this, a non qualified CC would suspend the holding duration. So my 2 year old shares cannot become short term just because I sell a CC, right?

In the money vs at the money vs out of the money matters too. A non-qualified CC that is out of the money won't change the holding (it won't get preferential tax treatment though), but a non-qualified CC that is in the money will change the holding period. It can get more complicated than that with under 1 year holdings, but yeah general... high level that is the basic idea.

 

[Prunesquallor]

That is an awfully high horse there!

The whole market is subject to options and they can be used for good and bad.

Imagine if sports team members and coaches (both sides) bet on the outcome of a match, and then during the match colluded to beat the spread.

 

[henchman24]

If you promise to provide a cogent, correct demonstration as to how they can be used for good I promise I shall not Mod-delete your response. Just this once.

How is this a good and bad thing? Different perspectives will lead to different viewpoints. On an outright scams like Nikola and Lordstown, shorting the company via options and causing the stock price to take a hit could be a good and moral thing to do. It allows the market to act more efficiently and quickly potentially protecting some investors from buying rainbows and unicorns. Yet for employees who are actually working hard trying to make these promise come true (who likely have stock options), that impacts their livelihood. Impacting a person negatively is a moral wrong and bad. To me, it is impossible to attribute it to a solely good and bad thing... as with many things in life it sits in a grey area that isn't easy to define as fully good or fully bad and depending on viewpoints it could be both at the same time.

We allow for a lot of chatter on buying call LEAPS and buying those options for leveraged gains on the stock, but those don't exist without somebody selling them.

 

[henchman24]

Imagine if sports team members and coaches (both sides) bet on the outcome of a match, and then during the match colluded to beat the spread.

So in this case, what is Tesla? Wouldn't they be the actual teams? One that can't be involved in these trade.

 

[jbcarioca]

Here was Lars Moravy's (Vice President, Vehicle Engineering) during the Q1 2021 earnings call giving a response to an Analyst on how Tesla could get vehicle costs down:

". . . when you look at some of the other advancements that we're including in the Model Y, factories into Austin and Berlin, we've reduced the body part count by as much as 60%, and the parts cost money. So we continue to find optimizations there as well as we get the economies of scale when we start to talk about the volumes we're considering worldwide with four factories building the same vehicle. So both of those things on the vehicle side will improve our COGS as well, and powertrain continues to be integrated into that".

I keep thinking that I am underestimating how quickly Tesla will get to strong margins at Austin and Berlin. This could be a positive surprise.

These findings are entirely supported by known changes due to more, larger pressings, including the Gigapesses. t latter get all the commentary, but there has been a rapid and concerted effort to reduce parts counts. Teardowns. such as those of Munro, show these as they are evolving. That suggests that each iteration in a new factory will be less expensive to build, more efficient to operate and yield better margins.

When looking at the financials this is all clearly visible in pure economic terms. All the people who insist that Grüneheide cannot be as efficient as another location keep neglecting the rate of Tesla mastering of vertical integration, while simultaneously learning to quickly adapt to new techniques, suppliers and/or parts as they need to do to keep growing and thriving.

This is all very difficult to understand because ti does not resemble anything we've ever seen before. When in doubt, just remember that Elon's version of First Principles brought reusable orbital class rockets. Then think about the evolution of, say, the Model S from 2012 to 2022. Critics say they're the same and are aging. Realists remember what a 2012 S85 was like and compare it to a Plaid. Then realize that the Plaid has a lower parts count, a lower production cost, higher efficiency and improvement in every aspect of usability, performance and features. FWIW, compare the absolute prices when addicted for inflation. Even not adjusted my P85D+ cost the almost the same dollars as my 2021 S Plaid. We all know the margins have improved greatly during that evolution.

So, @The Accountant shows that the excellence is displayed in every aspect of the business.

No wonder the SEC wants to investigate. Elon is still collecting more options and becoming weather. Does he care? Maybe, but he seems to have more important motivations. Being obnoxious to naysayers must be a bit irresistible for him.

 

[Artful Dodger]

the scale of Tesla's free cash flow will still be too much for even Robotaxi's to absorb

No, this is obviously incorrect. If Tesla maintains a 30% margin on their automotive products, that product line alone allows Tesla to purchase 3 out of every 10 cars produced, while keeping automotive gross profits near zero (minimizes income taxes while growing the robotaxi fleet) .

Even more important is that Tesla's purchase of its own cars for robotaxi fleet use is a longterm backstop for demand, and will ensure that ASPs remain strong throughout the decade.

 

[jbcarioca]

https://twitter.com/x/status/1490728167480479750

In general I agree with what this Twitter poster is saying. Based on that guidance of CAPEX through 2024, there's no possible way Tesla can spend enough of the free cash flow coming in on factories or new projects such as Optimus over the next 2-3 years. So then reality of the situation is:

A) Tesla sits on the cash
B) Stock buybacks
C) Dividends
D) Acquisitions

My vote would be B and D. D in very selective cases where Tesla sees they can achieve more vertical integration by buying a supplier

Edit: Doh and beaten. Serves me right for typing too much

You have ignored quite a few options. Just ones mentioned already by Tesla from time to time:
1. HVAC integrated products for houses and other buildings;
2. New vehicle classes;
3. Trains, Planes...
4. Energy intermediation (they already have entered, but we ignore it, this is one fo the largest single human revenue categories);
5. Energy production (probably mostly solar);
6. Then there all those that have not yet been discussed;
7. Sure, toss in Robotaxi, Semi, Cybertruck, Optimus etc.

And the list goes on. Every time we underestimate how comprehensive the Tesla mission is we imagine they'll not be capable of finding productive uses for all the FCF. I have no idea what they'll actually do, but I am certain they're far from done in revolutionizing sustainable planetary improvements.