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

[Sofie]

Are you ready for this?

Along with the 19B in cash at June 2022 . . . Tesla will:
- generate $4.0b in cash in Q3 2022
- generate $5.5b in cash in Q4 2022
- generate $6.0b in cash in Q1 2023
- generate $7.0b in cash in Q2 2023
- leaving them with about $42b in cash at June 2023

. . . .and by using Moody's "qualitative" metric . . if the Cybertruck has not yet launched by June 2023 . . . .Tesla debt will still be rated junk.

Would it be possible for someone to debate them regarding their conclusion, Tesla, a lawyer, Elon, one of us, anyone?
It seems like someone needs to speak up professionally and in public audience about the absurdity of this.
It’s like calling someone something they’re not and then not giving them the respect to explain themselves in opposition of the accusation.

 

[NickFie]

In other words, "We're creating a completely arbitrary excuse" - would be nice if they had the guts to set an actual metric that would make them chance the rating...

It’s not about Tesla. The company is unlikely to tap the capital markets any time soon, so they are unaffected by the rating.

It IS about the ratings business and legacy auto companies. Their financial metrics are far worse, likely prospects dim, unless one has absolute confidence in the CEOs’ assertions.

The “large and diverse product range” metric allows legacy auto to retain investment-grade ratings while excluding Tesla shares from competing for a lot of investors’ transport sector portfolios.

Rating companies get to continue earning money rating bonds as legacy auto struggles to go electric. They also decline the privilege of pushing legacy auto over the financial cliff.

As others have observed, leading up to the 2008 financial meltdown, mortgage-backed securities, containing very dubious mortgages, all earned investment-grade ratings.

 

[PeterJA]

[Elon] did not say it will be able to "drive itself nearly anywhere, at any time of day, at any legal speed, with zero human interventions and greater-than-human safety".

Yes he did, repeatedly. It's the definition of autonomous driving.

Also, "look, it still makes mistakes" does not persuade me that fixing the mistakes will take years. I'm more optimistic than you maybe because I've followed the history of AI neural nets. They have improved faster than many folks expected.

 

[unk45]

Both Ford’s and GM-Cadillac’s moves leave me completely confused. The Chinese Wall between auto manufacturers and dealerships not only has been in place in the US for just about a century, but it is what has been flummoxing Tesla, as all here are consistently aware, in its attempts to have direct sales in all 50 states.

The GM move is a very slightly disguised effort to eliminate poor performance dealers. GM several years ago wanted to eliminate Buick entirely in the US since the Brand has a large majority of it’s sales in China. For the moment the brand continues, probably a BEV only sooner than will be other GM brands. GM sources suggest that there is some growing conflict in senior GM executives and board members regarding corporate direction. Dealer realignment is part of that, so expect smaller GM dealers regardless of brand to be excised, usually by demanding high dealer investments and buyouts of dealers that refuse. This process has been going on for a few years.

 

[willow_hiller]

It's the definition of autonomous driving.

Technically speaking, there are different levels of autonomous driving. SAE levels 1-2 are classified as ADAS, and levels 3-5 are classified as autonomous.

So there's plenty of room to be autonomous without needing to be able to handle every road under every condition. And even level 5 has room for the autonomous software making mistakes; it's just meant to be able to place itself in a "minimal risk condition" following a mistake.

 

[Singuy]

Sure, but Moody's isn't even saying Tesla's execution is in question and they bring up none of those type of risks.

In their rationale for the last rating in January, they described a high-quality investment-grade company, and then inexplicably slapped a Ba1 junk rating on it. Moody's:

• Stated flat-out "Moody's anticipates liquidity to remain very good".
• Acknowledged Tesla's "positive outlook", "swiftly expanding presence", upcoming "steep increase in vehicle deliveries", high cash balance, high and increasing cash flow, and rapidly declining financial leverage.
• Predicted rising EBITA margin, "prudent" financial policy, and Tesla capitalizing on "robust growth in global demand for battery electric vehicles".

The only concerns provided were:

1. Declining ZEV credit revenue and EV competition in 2023 being risky for margins due to remaining "narrowly reliant on primarily two models"
2. Limited availability on Tesla's $2.3 billion asset-based revolving credit facility

As of this week, we can now add:

3. Vague qualitative factors (i.e. "because we feel like it")​

This is either gross incompetence or corruption. Even regarding their main point, they neglect to mention the upcoming future models and the fact that Tesla has successfully deployed 4 total vehicles models which were all category-killers by a huge margin. Model Y is the best-selling car in the world by revenue already. It's not a big stretch to assume Tesla can leverage its advantages across other vehicle form factors. Tesla is making EVs with a skateboard architecture, so having different cabin shells on top of the skateboard is relatively easy. Plus, Tesla's biggest competitive advantages are in motors, batteries, software and user interface, which would be exactly the same if they started making vans, compact hatchbacks, minivans, large boxy SUVs, etc. Only the size and the shell on top really changes much.

This matters because:

• Many potential investment funds are being sidelined by requirements for good credit ratings.
• Big portions of the economy depend on having effective credit rating agencies. This is a systemic risk affecting all of us. People in power need to do a better job and be called on on BS when they publish it. A big factor in the Great Financial Crisis of '07-'08 was the utter failure of credit rating agencies such as Moody's to properly weigh risks of subprime mortgage-backed securities and other related "assets", and this failure hurt all of us.
• Artificially depressing the TSLA price makes shareholders get diluted more by stock-based compensation expenses.
• If Tesla does want to raise money in the future to fund e.g. full-throttle growth of a Robotaxi fleet or in-house virtual power plants, it will cost more due to worse terms on corporate debt or worse dilution from an equity offering.

The qualitative factor about product breathe is not made up. From the autoline video I posted, the S&P guy said that in this industry, it is a known fact that high product diversity and constant refresh cycle sustain demand and increase brand loyalty. Subaru is kind of the only company that doesn't follow this mantra, however they don't make very meaningful sales and they chalk it up as a cult following. This is data collected from the past half a century. This is why he was so surprised that Tesla sustained demand and increased brand loyalty with no refresh schedules and with only 4 model of cars. This is brand new data. Is it going to be the norm going forward? Is it Tesla only? Is it such an outlier that it'll revert back to the mean? Nobody knows and they don't know what to do with this data but to have a wait and see approach.

 

[Artful Dodger]

The “large and diverse product range” metric allows legacy auto to retain investment-grade ratings while excluding Tesla

Bingo. That explains in a single sentence why Moody's dances on the head of a pin with their flimsy arguement. Thanks for your insight.

Cheers!

 

[WADan]

It’s the long weekend, so I have not kept up with the chatter in this thread.
Sorry if this has been posted.

Report: People are more interested in buying Apple Car rather than a new Tesla — 9to5Mac

“Apple is the 3rd highest brand consideration with 26% of customers stating they would ‘Definitely Consider’ an Apple branded vehicle in the future; just behind Toyota (38%) and Honda (32%), followed by Ford (21%) and Tesla (20%). However, Apple’s strength doesn’t end here,” says Strategic Vision President Alexander Edwards. “What should be concerning to others is that Apple generates a greater amount of Love than any other automotive company, double that of strong brands like Honda, Toyota, and Tesla.”

“What’s interesting in this survey is that over 50% of Tesla owners would “definitely consider” buying a future Apple Car.”

Personally, I don’t think Apple will make a car or Tesla will make a cell phone!

 

[hacer]

The qualitative factor about product breathe is not made up. From the autoline video I posted, the S&P guy said that in this industry, it is a known fact that high product diversity and constant refresh cycle sustain demand and increase brand loyalty. Subaru is kind of the only company that doesn't follow this mantra, however they don't make very meaningful sales and they chalk it up as a cult following. This is data collected from the past half a century. This is why he was so surprised that Tesla sustained demand and increased brand loyalty with no refresh schedules and with only 4 model of cars. This is brand new data. Is it going to be the norm going forward? Is it Tesla only? Is it such an outlier that it'll revert back to the mean? Nobody knows and the don't know what to do with this data but to have a wait and see approach.

By that logic when Tesla does have several more models AND stellar financials and an even more massive pile of cash then the ratings agencies will tell us "it is a known fact that TV, radio, and print ADVERTISING sustain demand and increase sales..." so then they won't be upgrading until Tesla spends billions on advertising.

 

[Singuy]

It’s the long weekend, so I have not kept up with the chatter in this thread.
Sorry if this has been posted.

Report: People are more interested in buying Apple Car rather than a new Tesla — 9to5Mac

“Apple is the 3rd highest brand consideration with 26% of customers stating they would ‘Definitely Consider’ an Apple branded vehicle in the future; just behind Toyota (38%) and Honda (32%), followed by Ford (21%) and Tesla (20%). However, Apple’s strength doesn’t end here,” says Strategic Vision President Alexander Edwards. “What should be concerning to others is that Apple generates a greater amount of Love than any other automotive company, double that of strong brands like Honda, Toyota, and Tesla.”

“What’s interesting in this survey is that over 50% of Tesla owners would “definitely consider” buying a future Apple Car.”

Personally, I don’t think Apple will make a car or Tesla will make a cell phone!

"Definitely consider" is kind of a low bar to pass. I "definitely considered" every brand of car before picking a Tesla minus those out of my price range.

 

[ByeByeJohnny]

"GM booked a total of $274 million in costs during 2020 and 2021 related to the effort to buy out Cadillac dealers who were not prepared to invest $200,000 to $500,000 per store in the equipment and training to support the brand's shift to an all-electric vehicle lineup, planned by 2030."

I'm sure that the buying experience at these newly equipped and trained dealerships will be sooo different....Lipstick on a pig.

I see there's been some discussion regarding this after the above quoted post. I still don't get it though.

Car manufacturer and dealerships were made separate because 'protect consumers', or something.

Now manufacturers are paying dealerships to buy them back and getting sell back their rights as a dealership to the manufacturers.

Are the manufacturers then gonna close those dealerships? Because if not, what is the difference of them now owning these dealerships compared to Tesla starting and having their own dealerships?

What am I missing here?

 

[PeterJA]

Technically speaking, there are different levels of autonomous driving. SAE levels 1-2 are classified as ADAS, and levels 3-5 are classified as autonomous.

So there's plenty of room to be autonomous without needing to be able to handle every road under every condition. And even level 5 has room for the autonomous software making mistakes; it's just meant to be able to place itself in a "minimal risk condition" following a mistake.

True, but clearly Elon was not talking about level 2 last week.

Elon Musk: focused on getting self-driving Teslas in wide release by year-end

Tesla chief Elon Musk said on Monday he aimed to get the electric auto maker's self-driving technology ready by year-end and hopes it could be in wide release in the United States and possibly in Europe, depending on regulatory approval.

www.reuters.com

 

[Gigapress]

The qualitative factor about product breathe is not made up. From the autoline video I posted, the S&P guy said that in this industry, it is a known fact that high product diversity and constant refresh cycle sustain demand and increase brand loyalty. Subaru is kind of the only company that doesn't follow this mantra, however they don't make very meaningful sales and they chalk it up as a cult following. This is data collected from the past half a century. This is why he was so surprised that Tesla sustained demand and increased brand loyalty with no refresh schedules and with only 4 model of cars. This is brand new data. Is it going to be the norm going forward? Is it Tesla only? Is it such an outlier that it'll revert back to the mean? Nobody knows and they don't know what to do with this data but to have a wait and see approach.

I get that, and it’s true.

Credit ratings are supposed to be about liquidity and creditworthy behavior. If Moody’s is going to declare Tesla will continue to have “very good” liquidity and “prudent” financial management with a strong conservative balance sheet and then list a bunch of concrete reasons why, there’s no excuse for throwing that out the window for a credit rating due to somehow framing it as a negative that Tesla is busy setting all-time revenue records with the Model Y instead of making other new models. Manufacturing and logistics have economies of scale. Doubling down on a winning product with reliable growing demand is a winning move.

 

[willow_hiller]

True, but clearly Elon was not talking about level 2 last week.

Agreed. I kinda take the language on this page as Tesla's intermediate goals for FSD: Autopilot

"The system is designed to be able to conduct short and long distance trips with no action required by the person in the driver’s seat."

Notice this still implies that there will be someone in the driver's seat. So this could be fulfilled with a level 3 system that would be fully autonomous but still request assistance from a driver in a pinch.

"When you arrive at your destination, simply step out at the entrance and your car will enter park seek mode, automatically search for a spot and park itself. A tap on your phone summons it back to you."

If this feature doesn't require monitoring, it could be considered level 4 for parking lots only.

Obviously in the long term the goal is a level 5 robotaxi, but the consumer-level FSD features as advertised could be level 3/4.

 

[jerry33]

I see there's been some discussion regarding this after the above quoted post. I still don't get it though.

Car manufacturer and dealerships were made separate because 'protect consumers', or something.

Now manufacturers are paying dealerships to buy them back and getting sell back their rights as a dealership to the manufacturers.

Are the manufacturers then gonna close those dealerships? Because if not, what is the difference of them now owning these dealerships compared to Tesla starting and having their own dealerships?

What am I missing here?

My understanding is that originally car dealers were one dealer represented one manufacturer for a certain territory. This gave the manufacturer a lot of power over the dealer because the manufacturer could stop sending cars to the dealer if they were displeased for any reason. The dealer laws were made to protect the dealer from this situation. Today most cars are sold through very large dealers where the owners have dealerships of every kind of car and many span multiple states. This type of dealer could lose several brands of cars and still not be hurting. The appearance of competition is maintained, but in fact there is really no competition as the proceeds go to the same few owners. The "protect consumers" rhetoric is because the original purpose of the law is so out of date that even the most bought judge would have to call them on it.

 

[Singuy]

I get that, and it’s true.

Credit ratings are supposed to be about liquidity and creditworthy behavior. If Moody’s is going to declare Tesla will continue to have “very good” liquidity and “prudent” financial management with a strong conservative balance sheet and then list a bunch of concrete reasons why, there’s no excuse for throwing that out the window for a credit rating due to somehow framing it as a negative that Tesla is busy setting all-time revenue records with the Model Y instead of making other new models. Manufacturing and logistics have economies of scale. Doubling down on a winning product with reliable growing demand is a winning move.

Yes, but like I said there's risk involved when Tesla is not diversified enough. Having more models of cars is diversifying because what if there's a car model that no longer have high demand. How much trouble would GM and Ford be if they never diversified into trucks and only relied on sedan sales? Remember how Hummer went under because they offered like 2 gas guzzlers during a time when people hated gas guzzlers? Where would porsche be if they never diversified into SUVs, now accounts for over 50% of their revenue even though their fans were crying and screaming when they were announced?

Remember that companies usually taps into credit when they are expanding or contracting. Contraction is where credit agencies take into consideration of all those qualitative measures to see if the company can service their debt as more sugar hits the fan.

 

[JRP3]

Also, "look, it still makes mistakes" does not persuade me that fixing the mistakes will take years. I'm more optimistic than you maybe because I've followed the history of AI neural nets. They have improved faster than many folks expected.

Yet much much slower than Elon expected.

 

[ZsoZso]

Why does Moody's deserve Investment Grade status?

View attachment 848653

FCF = Free Cash Flow
TTM = Trailing Twelve Months

OK, but how many different product models do they have ?
That's the mos important criteria as we learned

 

[Usain]

Yes he did, repeatedly. It's the definition of autonomous driving.

Also, "look, it still makes mistakes" does not persuade me that fixing the mistakes will take years. I'm more optimistic than you maybe because I've followed the history of AI neural nets. They have improved faster than many folks expected.

Nobody dies if the AI gets the math problem wrong (which it still sometimes does in your video). As Elon did say,

Generalized self-driving is a hard problem, as it requires solving a large part of real-world AI. Didn’t expect it to be so hard, but the difficulty is obvious in retrospect. Nothing has more degrees of freedom than reality.

Elon did not say, "drive itself nearly anywhere, at any time of day, at any legal speed, with zero human interventions and greater-than-human safety". Elon did not say they would reach full autonomy by the end of the year. That's simply not what he said at all.

If you know of an AI breakthrough that will lead to full autonomy in months instead of years, please share.

But even when Tesla thinks the problem is solved, I don't think they will let us take our hands off the wheel for at least another year after it quits making mistakes like running stop signs.

 

[Usain]

True, but clearly Elon was not talking about level 2 last week.

Elon Musk: focused on getting self-driving Teslas in wide release by year-end

Tesla chief Elon Musk said on Monday he aimed to get the electric auto maker's self-driving technology ready by year-end and hopes it could be in wide release in the United States and possibly in Europe, depending on regulatory approval.

www.reuters.com

Yes, he was. He said "FSD in wide release by the end of the year." Elon has already explained that this only means, "safer than a human". It doesn't mean "no humans required".

FSD beta is level 2. FSD beta in wide release will also be level 2.