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

[jerry33]

So, that goes back to my question how Tesla gets to ever increasing record sales for the next 4 quarters (2 quarters with no credits)?

The difference in credits now is so small that it won't impact sales. Also there are still state credits in some states. The 7500 to 3750 was a big drop. The rest are pretty much a non-issue. 1/3 more miles (or better), better performance, a charging network, and a proven product.

 

[jhm]

Go buy waste management stock and enrich yourself

Actually, it's one of my better holdings.

 

[KSilver2000]

More service center and supercharger density would drive sales. Better supercharger coverage on major highway routes would make a big difference. From the conference call, it seems like Tesla is staying focused on mapping this out.

Looking at the supercharger map of existing and planned, there’s a crap ton of SC stations planned in already dense areas.
I don’t get why having such a large SC network, especially in suburbs, is really that important besides it being a form of advertising. Is it to cater to all those with free supercharging because I bet the vast majority of kWh pumped through those chargers are to free SC cars right now. And, at least, in my area, they’ve priced retail SC rate much higher than charging overnight at home. So, I doubt many are paying for it.

 

[jerry33]

So kind of an embarrassing question but what is causing them to still lose money? Is it just they need to produce more cars and thus more money in and lower cost per unit?

Growth companies lose money (in GAAP) because they are investing in plants, equipment, and expertise, which are either direct expenses or deprecating items. A steady state company has many assets that they still use but are fully deprecated and spend little on R&D or new facilities. Cash flow is the main indicator for growth companies, not GAAP profits.

 

[sparcs]

I didn't know Lexus, Acura, BMW, Audi or Mercedes offered anything similar.

All they have is slow cars that guzzle fuel or super slow cars that drink a gallon every 30 miles. Can you even compare them?

The pricing of an EV matters a lot. People will do the math and make a gas vehicle comparison. Especially in large portions of the USA where gas prices are very low. On top of that they'll be looking for supercharger convenience, reasonably located service, etc.

 

[jerry33]

I know Seeking Alpha, but any hints of truth to this article?

https://seekingalpha.com/article/4277442-tesla-going-miss-gone

They make it sound like positive cash flow was only due to a "one time" inventory flush. Thoughts?

According to SA, Tesla should have been bankrupted ten years ago, then nine years ago, then eight years ago, and so on.

 

[Steve m]

I know Seeking Alpha, but any hints of truth to this article?

https://seekingalpha.com/article/4277442-tesla-going-miss-gone

They make it sound like positive cash flow was only due to a "one time" inventory flush. Thoughts?

Inventory decreased by about 450 million but free cash flow improved by 1.5 billion. So inventory reduction was responsible for about 1/3rd of the improvement.

Tesla built over 9k more model 3s and sold 26k more Q2 over Q1.

 

[Krugerrand]

Having attended the shareholder's meeting, I instantly realized JB was leaving when he and Drew were brought onstage by Elon. It was obvious, and it was my first thought.

Hearing Elon joke about S and X spelling SEXY just now on the call and hearing him say S/X in the same breath are not that important in the long term is really shocking. Makes me think their days are numbered.

I’ve suggested in the past a few times that S & X could be discontinued and that went over like a rock. I still think it’s a distinct possibility and sooner rather than later. Can we say appreciating asset via collector item?

 

[KSilver2000]

The difference in credits now is so small that it won't impact sales. Also there are still state credits in some states. The 7500 to 3750 was a big drop. The rest are pretty much a non-issue. 1/3 more miles (or better), better performance, a charging network, and a proven product.

1/3+ more miles within 11 months? I highly doubt that. Maybe software changes to get an extra ~5% range.

Better performance? Same thing as above.

A charging network? Okay. But, looking at the map, if most planned SC stations are in already dense SC areas, and there’s no more free SC, it’s really all just more advertising.

Proven product? Not sure what they can change to the existing cars to prove any more.

 

[dww12]

Looking at the supercharger map of existing and planned, there’s a crap ton of SC stations planned in already dense areas.
I don’t get why having such a large SC network, especially in suburbs, is really that important besides it being a form of advertising. Is it to cater to all those with free supercharging because I bet the vast majority of kWh pumped through those chargers are to free SC cars right now. And, at least, in my area, they’ve priced retail SC rate much higher than charging overnight at home. So, I doubt many are paying for it.

Apartment dwellers. I know lots of people who can’t go EV because of it. I know I wouldn’t if I could not charge at home.

 

[EVNow]

There is also no one reason you can point to that explains why they aren't making record profits off the back of those deliveries. It's all lease accounting treatment, inventory flushing, additional expenses while ramping, etc, etc. No one point is worth more than about 100m but together it looks like Tesla can't make big money selling cars.

IMO that is a poor reading of the financials.

Tesla has some $1.1B operational cost. Gross profit needs to exceed this + about 200M in interest to make GAAP profit. It doesn't matter whether the production/delivery is a "record" or not. After all you expect a growing company to be making records every quarter - that doesn't mean it should be profitable every quarter. Every quarter in 2018 was a new record, for eg. Depending on model mix (and thus ASP & margin) you get profits or loss.

Here is one more way to think about it. Tesla shouldn't sell high priced options in the beginning of a new model. It should sell the entire mix of trims - that way you won't have high ASP/margin in the beginning, along with profits - setting high expectations. Then you start selling lower priced trims when ASP/Margin go down and those high expectations are quashed.

Once there is a particular "stable" mix of trims and thus ASP & Margin - we can figure out a break-even volume. Above that we get profit. We have not reached this "stable" mix of trims and thus ASP & Margin, so we can't actually tell what volume needs to be for regular profits. Moreover, by the time we get to a stable mix, we'll have chaos again as new factories open (GF3) and then new models (Y). So, again we'll have this yo-yo of losses and profits. For eg., we could have,
'19 Q2 - $1 loss
'19 Q3 - break-even
'19 Q4 - $1 profit
'20 Q1 - $1 loss
'20 Q2 - break-even
'20 Q3 - $2 profit
'20 Q4 - $4 profit
'21 Q1 - $1 profit
etc

But wait, there is more. FSD. New features can be released anytime, recognizing sizeable old deferred revenues causing more churn. Then, there is the FCA deal .... uncertainties are endless.

 

[jerry33]

Looking at the supercharger map of existing and planned, there’s a crap ton of SC stations planned in already dense areas.
I don’t get why having such a large SC network, especially in suburbs, is really that important besides it being a form of advertising. Is it to cater to all those with free supercharging because I bet the vast majority of kWh pumped through those chargers are to free SC cars right now. And, at least, in my area, they’ve priced retail SC rate much higher than charging overnight at home. So, I doubt many are paying for it.

In high density areas people are complaining that the SCs are filled and they have to wait to charge. (My understanding of the situation). I too would like more locations for north-south driving in the prairie states.

 

[jhm]

I don't know if anybody commented on it yet, but the planned TWH level of battery production mentioned yesterday is not unrealistic. But it's a very long term goal, likely ten years out to get to the full TWH level, with an initial hundreds of GHW in five years or so.

One TWH is 1000 GWH. Current capacity is about 28 GHW. So about 35x as noted by Electrek.

Now, Tesla is producing about 400k vehicle run rate off the current 28 GWH capacity, plus some relatively small energy storage capacity. Ignoring the energy storage, 10x (or 280 GWH) would give about 4M vehicle run rate. Elon estimates Model 3 and Y to be about 1.5 - 2M. Add in pickup, S, X, roadster, and semi, that gets you to almost 4M, not counting further future growth or additional vehicles.

Tesla has stated several times that energy storage business would eventually be as big as vehicles. So another 280 GWH energy storage. That's almost 600 GWH combined in the future. So 1000 GWH (or 1 TWH) is not unrealistic, especially considering further growth in autos (beyond 4M vehicles) and energy into the next decade and beyond.

I'd also point out that growing at a rate of 50%, takes 28 GWh capacity to 1 TWh in jus 9 years. Musk is talking about 50% to 100% annual growth. We are talking about reaching 1TWh scale 5 to 9 years.

 

[jerry33]

1/3+ more miles within 11 months? I highly doubt that. Maybe software changes to get an extra ~5% range.

Better performance? Same thing as above.

A charging network? Okay. But, looking at the map, if most planned SC stations are in already dense SC areas, and there’s no more free SC, it’s really all just more advertising.

Proven product? Not sure what they can change to the existing cars to prove any more.

Obviously you didn't understand what I was getting at. I must not have written it clearly.

The best of the competition is in the low 200 mile range, the best of Tesla is over 300. 1/3 better miles.
Tesla's performance beats the competition by a fair amount.
Being able to drive long distances without worry in most places due to the charging network.
Model S has been out for seven years now with lots of satisfied owners. Most of the others haven't been out nearly that long.

 

[avoigt]

Growth companies lose money (in GAAP) because they are investing in plants, equipment, and expertise, which are either direct expenses or deprecating items. A steady state company has many assets that they still use but are fully deprecated and spend little on R&D or new facilities. Cash flow is the main indicator for growth companies, not GAAP profits.

True also fully overlooked is that with GF3 heading for completion they have now 3 large factories globally and only Europe is missing which they will be able to fund likely out of CF at that stage. Once that is done cap ex will fall dramatically margin will skyrocket and they will print money as they can scale them up and improve productivity.

 

[sparcs]

Looking at the supercharger map of existing and planned, there’s a crap ton of SC stations planned in already dense areas.
I don’t get why having such a large SC network, especially in suburbs, is really that important besides it being a form of advertising. Is it to cater to all those with free supercharging because I bet the vast majority of kWh pumped through those chargers are to free SC cars right now. And, at least, in my area, they’ve priced retail SC rate much higher than charging overnight at home. So, I doubt many are paying for it.

How else would people fill up in these areas if the supercharging locations are full? Especially if I am traveling from out of town and not wanting to drive a half hour out of the way.

Tesla is selling more vehicles every quarter so supercharger usage will keep going up. They're going to have to stay ahead.

 

[FreqFlyer]

Just heard the investor call, the statement that stands out to me is when EM states Tesla is in essence hitched to the Model 3, not S and X. I got the impression EM was in a way down playing the role the S and X.

X is relatively new and S competes in a segment thats shrinking. Model 3 and Y is where its at financially for Tesla.

 

[KSilver2000]

I didn't know Lexus, Acura, BMW, Audi or Mercedes offered anything similar.

All they have is slow cars that guzzle fuel or super slow cars that drink a gallon every 30 miles. Can you even compare them?

You seem to be suggesting Tesla’s are price inelastic.

In high density areas people are complaining that the SCs are filled and they have to wait to charge. (My understanding of the situation). I too would like more locations for north-south driving in the prairie states.

I hear that. Thus why some of the stations here are defaulted to 80%, which can be changed though. But, these are all mainly by locals with free charging. Why would someone without free SC complain about waiting 10-15 minutes to pay 2x-4x what they can pay at home?

 

[Singuy]

So kind of an embarrassing question but what is causing them to still lose money? Is it just they need to produce more cars and thus more money in and lower cost per unit?

Please excuse my ignorance

Okay so let's start from the beginning.

Tesla had no sales in the beginning. But they have an idea. They need lots of money for this idea. Elon plus a bunch of investors pulled money together pay workers, pay for buildings, and pay for robots. The cost of all this capex was done by using borrowed money (like bonds with interest). The bonds are interest only loans with a due date. But you need to account quarterly how much you would have paid to return this money back. Imagine you borrowed for a house but don't need to pay it back in 5 years..but you calculate the monthly mortgage against your income to see if you are in the red or black as If you are making monthly payments.

So this is what capex depreciation is like on the balance sheet and pits it against all the positive cash from operations. So in essence they "lost money" if their was a mortgage payment on the capex that was installed years ago. But all the positive money from operations can go into a bank because they don't need to pay for the mortgage yet.

You see how there are bonds payment due from the past and in the future. Those are the mortgages calling for their payment. Tesla needs to have enough money in the bank at that time to pay it back. That's when the "actual loses" are tallied up. But there are many "mortgages" with different due date. So Tesla just need enough cash to pay for these mortgages(bonds) back on those dates. Hopefully they have enough positive cash from operations to satisfy all maturity time in the future as they ship cars. This is what "sustainability" is.

So Tesla can also use borrowed money to pay for borrowed money because they are showing growth and good cash flow (not sustainable). Interest rate climb to ridiculous amount if they constantly borrow but show terrible cash flow to the point of insolvency.

Hope this clears it up.

 

[FreqFlyer]

Interesting too how one of the execs stated every 6 months Freemont changes. Thats in important,especially if the Y takes off as expected and 3 sales lessen. The ability to ramp up Y and re arrange valuable floor space shows the flexibility of Tesla over other car manufacturers. Cannot imagine Toyota doing that at Georgetown, KY where the Carmy is built.