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

[gerebgraus]

Where do you get the idea that there's a battery bottleneck at Freemont?

@Carsonight has reported that GF1 has current max. capacity is 10,000 packs/week. Chatter of production start of Model y are strong, actually, the fact that they no longer send packs to China is another sign. Total pack supply of <10,000 for Model 3 and Model Y seem low.

 

[HG Wells]

@Carsonight has reported that GF1 has current max. capacity is 10,000 packs/week. Chatter of production start of Model y are strong, actually, the fact that they no longer send packs to China is another sign. Total pack supply of <10,000 for Model 3 and Model Y seem low.

If model Y production is that soon then stock will SOAR !

 

[gerebgraus]

If model Y production is that soon then stock will SOAR !

My feeling is that this is already included in the stock price. On the other hand, prospective new Model 3 owners hope for price cut due to seasonal and post-subsidy expiration weakness might get disappointed.

 

[Singuy]

Solar Roof update.

A member on reddit posted this video, his drone shot of solar roof V3 being installed. I asked him all the questions pertinent to the installation on reddit and here's the response.

"So far we are on day 6 of the install. We had some rain here in the Bay Area that caused a delay or two. They have 2 more days left. I guess the time depends on the existing roof and some other factors. So here are the specs for my roof.

- 2400 square feet

- Existing roof was wood shake with a thin fabric and small wood pieces (lathe?) across the rafters

- 2 story home with about 6 different "sections" or areas of varying sizes and angles

Tear off took about 3 days with placing the plywood panels down along with having to spend time prepping for rain. Another 2 days for the double layered underlayment of Firestone material. Then the actual Solar Glass pieces take about 3 days.

Keep in mind that they cannot start in our city until 8am per noise ordinances and its gets dark around 5pm, so the work time is pretty short.

We placed the deposit down in June of 2018. First proposal was a V2 roof for an insane amount of money around July 2019. We signed in October of 2019 and they offered to start late December of 2019 but we opted for early January 2020 since we were out of town for the holidays."

 

[Prunesquallor]

Does the FCA agreement use all of the credits Tesla will likely generate?

My estimate said it would take around 170,000 ZEVs to zero out FCA's 2020 penalty. If they were smart, they would have arranged to grab every Tesla credit in the EU.

 

[woof]

BTW, why does Tesla China use its own separate domain, tesla.cn ? - this throws off statistics on the tesla.com domain.

Most likely due to the Great Firewall.

 

[woof]

Or one of you take surgery and become ElectroGirl!

You mean ElectroWoman.

 

[MC3OZ]

@Carsonight has reported that GF1 has current max. capacity is 10,000 packs/week. Chatter of production start of Model y are strong, actually, the fact that they no longer send packs to China is another sign. Total pack supply of <10,000 for Model 3 and Model Y seem low.

You need to factor in the speed of the Model Y ramp ... 10K packs per week may mean 3-4K Model Ys which would be fine though to say June-July.

After that more packs are coming from somewhere, and we will find out where on the battery investor day...

China is making their own packs, some constraints, bottlenecks and teething problems there would not surprise..

 

[LJS22]

My feeling is that this is already included in the stock price. On the other hand, prospective new Model 3 owners hope for price cut due to seasonal and post-subsidy expiration weakness might get disappointed.

China factory, lack of competition, profitability/cash flow, and short covering are the movers lately.

If they are 6-9 months early on model Y production then that will provide additional boost as a narrative against Tesla is timeliness and being able to start production early is a difficult thing across the auto industry. This will be a signal that Tesla may be extending their advantages to the assembly line. The speed of China and Model Y won’t be ignored.

 

[Artful Dodger]

So if this is true ...

VW were already gonna lose money on every EV they sold.
Now they are gonna have costs to take care of them for a year+ so the batteries don't degrade.
Then they are gonna have to sell them with an even bigger loss after they've been sitting for a year.
On top of that they will now have to either pay the EU fees or buy credits from someone.
Almost forgot, they will almost certainly have to halt production for most of 2020 which will incur huge costs by itself.

If only I wasn't morally opposed to shorting ...

Buying PUTS is not short selling...

 

[FrankSG]

I've looked into Amazon as a case study of how a reduction in valuation allowance can play out.

Amazon's EBT in 2004, 2003, and 2002, was as follows:

View attachment 502055

In Q4'04 Amazon's income statement looked like this:

View attachment 502056

They posted these additional comments in the Q4'04 quarterly report:



As a result, this is how Amazon's valuation allowance changed in 2004:

View attachment 502059

In recent years, it seems like Amazon's valuation allowance has once again gone up significantly:

View attachment 502060

Judging from reading their 10-K, it sounds like the increase in recent years is due tax assets in different jurisdictions in which they're not sure yet they will be able to recognize them.

Four observations from all of this:

1. The valuation allowance decreased by a $622M from 2003 to 2004, but only $350M was recognized. I have been unable to find out where the other $272M went.
2. In the case of Amazon, a very large part of their valuation allowance was due to "tax-deductible stock-based compensation", that did NOT show up on the P&L.
3. Jurisdictions play a role in being able to reduce valuation allowance. Being overall profitable, doesn't mean no more valuation allowance.
4. If one considers Amazon's 2003 income break-even, Amazon started to reduce valuation allowance after it's first full year of GAAP Profits.

How these relate to Tesla and S&P 500 inclusion:

1. The fact that nowhere near all of Amazon's $1.5B valuation allowance was recognized on the P&L, does not bode well for Tesla's chances of recognizing enough for S&P 500 inclusion.
2. It seems likely that the same thing would happen in Tesla's situation. Maybe @The Accountant knows more about how these "tax-deductible stock-based compensations tax assets" are recognized, but it seems like it would not be on the P&L.
3. I don't know enough to comment on how jurisdictions will hurt or help Tesla in recognizing their valuation allowance. Does anybody else have any input here?
4. I've never invested in or followed Amazon, but if there are any early 2000's Amazon investors reading this, it'd help to know what Amazon's prospects looked like at the end of 2003 and 2004.

Amazon 2004 10-K

Amazon Q4'04 Quarterly Report

Amazon 2018 10-K

Here is another release of VA case study. This time I've looked at Twitter, who released VA much more recently than Amazon in 2018.

I still believe this to be somewhat unlikely in terms of leading to S&P 500 inclusion after Q4 financials, because of three uncertainties:

1. Exactly what conditions need to be met for accountants to determine "more than 50% likelihood of being recognizable" of the NOLs? What factors influence the decision, and how important are certain factors relative to others?
2. If Tesla as of Q4'19 fulfills these conditions, by how much will the VA be reduced? DTAs aren't all created equally, and Tesla may only qualify to release part of the VAs. Amazon also showed us that some could not end up on the P&L.
3. Will the S&P 500 add Tesla to its index if the TTM profitability requirement was met because of a reduction in VA?

I'll try to shed a bit more light on #1 and #2 in this post by looking at Twitter.

Twitter's profitability leading up to VA releases

Twitter first started releasing VA in Q2'18, and released the largest chunk in Q3'18, so first let's look at Twitter's profits and EBT leading up to Q2'18.

We all know Twitter barely secured S&P 500 inclusion after Q1'18.

Twitter 2017 Net loss: -$108,063k
Twitter 2017 Q1 Net loss: -$61,559k
Twitter 2017 Q2-Q4 Net loss: -$108,063k + $61,559k = -$46,504k
Twitter 2018 Q1 Net income: $60,997k
Twitter 2018 Q1 TTM Net income: $14,493k

So Twitter just barely secured S&P 500 inclusion and TTM GAAP Profitability after Q1'18, but they waited another quarter before beginning to release VA.

Judging from the podcast about VA that @The Accountant posted yesterday, it sounds like objectively verifiable evidence is stronger than evidence that cannot be objectively verified. I'd imagine Tesla's order backlog could be a stronger piece of evidence than a forecast of user and ad revenue growth was in the case of Twitter, but I'd nonetheless imagine that past evidence of profitability is going to weigh the heaviest. Tesla's TTM EBT after Q4'19 is likely still going to be negative approximately $500M, so this could be a headwind. But it's not inconceivable that Q3'19's cost reductions & margin improvements, and a 2020 forecast based on current order backlog and order rates, could be strong enough enough evidence towards future profitability to release VAs.

All in all, I feel like this could go either way. An accountant who has had experience with VA releases might be able to weigh in better on the exact requirements, but it seems like a lot of judgement is required. If true, and if it could go either way, it might depend on whether Tesla thinks the potential scrutiny over the timing of the VA release is worth an early S&P inclusion. I feel like Elon would love the early S&P 500 inclusion to screw over the shortzes, but I think Elon today might be wiser and might not rush the S&P 500 inclusion.

Twitter's VA Releases

Next, let's look at the VAs that were released:

Q2'18

Q2 marked our third consecutive quarter of GAAP profitability with net income of $100 million, net margin of 14%, and diluted EPS of $0.13. Last year, we reported a GAAP net loss of $116 million, net margin of (20%), and diluted EPS of ($0.16). Approximately $42 million of net income or $0.05 of diluted EPS in Q2 was from a net tax benefit primarily driven by the release of a deferred tax asset valuation allowance for Brazil. We expect to have an additional net income tax benefit due to valuation allowance releases for the US in Q3. We expect to remain GAAP-profitable throughout 2018 even when excluding both the Brazil and US valuation allowance releases.

Q3'18

Q3 marked our fourth consecutive quarter of GAAP profitability with net income of $789 million, net margin of 104%, and diluted EPS of $1.02. Excluding the release of deferred tax asset valuation allowances of $683 million, we generated Q3 net income of $106 million, net margin of 14%, and diluted EPS of $0.14. Last year, we reported a GAAP net loss of $21 million, net margin of (4%), and diluted EPS of ($0.03). Please note that going forward, as a result of the US Tax Act, our GAAP tax rate will be higher than our tax rate for our actual cash tax liabilities until we utilize all of our net operating loss carryforwards. Due to the mechanics of the Global Intangible Low-Taxed Income (GILTI) provisions, we will continue to calculate GAAP taxes on worldwide earnings in the US without the benefit of foreign taxes paid.

Q4'18

Twitter VA Releases:
Q2'18: $41,688M
Q3'18: $683,606M
Q4'18: $119,835M
Total: $845,129M

Next, let's take a look at how the VA on Twitter's balance sheet changed:

A reduction of $810,464M, very closely matching the numbers that got added to the P&L. Presumably the $845M that was added to P&L all came directly from the balance sheet, but there were some new VAs that had to be added to the balance sheet in 2018 on new DTAs.

This bodes much better for Tesla than the Amazon case study where only a small portion of the VAs ended up on the P&L. The only uncertainty I have about this is that I am unsure how Tesla's jurisdictions will influence this. Tesla most likely incurred most of its losses in the US where it has built most of its factories, but where will Tesla have to pay tax for cars sold in China and the EU? If Tesla has the option to transfer these earnings to the US, does it have to transfer the cash as well? That would seem like a bad idea, because it's going to need local cash in the EU and China to build Giga 3 and Giga 4. On the other hand, maybe Tesla's US profits alone could be enough to release VAs? I don't have the answers to these questions, but maybe @The Accountant or other tax professionals can provide further insight in to how this works.

Another Interesting piece of information

One other interesting thing I found when researching Twitter is this from the Q2'19 10-Q:

Our provision (benefit) for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. In the six months ended June 30, 2019, we recognized tax benefits of $1.21 billion related to intra-entity transfers of intangible assets that will have deferred future benefits, for which we established deferred tax assets.

This looks unrelated to VA, and looks like they are simply putting new tax strategies to work, but it's still interesting.

Conclusion

All in all, I think the Twitter case study bodes better for Tesla than the Amazon case study did. The main reason being that Twitter released ~65% of its entire VA allowance related to US taxes in a single quarter in Q3'18.

However, the timing bodes less well for Tesla, because Twitter released this large chunk after its fourth consecutive quarter of GAAP Profitability, and two quarters after achieving TTM GAAP Profitability and S&P 500 inclusion.

Tesla's case is different for a number of reasons, so we could see fireworks on the 29th, but there are still a large number of factors that are hard for anyone outside of Tesla to gauge the impact of.

Sources:
Twitter Q1'18 Quarterly Report
Twitter Q2'18 Quarterly Report
Twitter Q3'18 Quarterly Report
Twitter Q4'18 Quarterly Report
Twitter 2017 10-K
Twitter 2018 10-K
Twitter Q2'19 10-Q

 

[StealthP3D]

4) Elon might the human I love & respect the most out of all 7 billion on this planet, but I don't take every single word he says literally. Just like I didn't take "FSD as safe as a human by mid 2020" literally when they were about to raise capital, I didn't take "Energy will be bigger than Automotive long term" literally. I took it as Elon wanting to convey that TE is being severely undervalued by the analysts and the market, and has way more potential than they were (and still are) giving it credit for at the time. I've been able to confirm this with data, logic, and reasoning, but I have thus far been unable to confirm the TE opportunity is bigger than Tesla's Automotive opportunity (excluding autonomy). I acknowledge I could be wrong, and will change my mind when presented with more evidence, although even then I don't think TE could ever come close to competing with Automotive + Autonomy + AMaaS in size of the respective opportunities.

I disagreed because I believed Elon meant it literally when he said he believed the energy side of the business will be bigger than automotive. But you are correct when you say he's not infallible. No one is infallible. But I'm curious if you think you have better data on this particular point or whether you simply believe you can analyze it better.

Wait, strike that, I guess you think Musk was speaking in non-literal riddles. There is a bigger chance that he is simply wrong, and you are right, than the chance that he was speaking non-literally. He is well known to say what he actually believes.

I'm going with Musk on this one because he has more data and a proven ability to parse that data. Time will tell who was right. Get back to me then. I make money as an investor by knowing who to believe and going with what works.

 

[StealthP3D]

All in all, I feel like this could go either way. An accountant who has had experience with VA releases might be able to weigh in better on the exact requirements, but it seems like a lot of judgement is required. If true, and if it could go either way, it might depend on whether Tesla thinks the potential scrutiny over the timing of the VA release is worth an early S&P inclusion. I feel like Elon would love the early S&P 500 inclusion to screw over the shortzes, but I think Elon today might be wiser and might not rush the S&P 500 inclusion.

This is a confusing enough subject without complicating it with fuzzy thinking. I'm skeptical of this theory resulting in 2019 GAAP profitability but I am not ruling it out altogether. I actually think it more likely that Tesla will be announced inclusion into the S&P 500 before Q2 results through other means. This could happen because other one-time revenues created GAAP profitability or the S&P 500 board votes to waive the profitability requirement (which is within their discretion).

However, the fuzzy thinking is that S&P 500 inclusion would be necessary to "screw over the shortzes". Because if Tesla shows full-year 2019 GAAP profitability, the "shortzes" are screwed over regardless of S&P 500 inclusion or not.

 

[EVNow]

Here is something to keep an eye on. First reported instance of a car called for update by Tesla I've seen - but is taking a few days ...

​

Update :

Anyone got HW3 retrofit yet?

It took 4 days. That is not something that can be easily scaled up. Hope they can reduce the time ...

 

[wipster]

What makes more money now....the automotive industry or the fuel that makes them go?

But the product used to make the fuel is also used to make a lot of other items...
On the same hand, that's also the case here isn't it...

 

[MC3OZ]

Another possible trigger for a short squeeze is Battery and Drive-train Investor day... it might trigger a stock bounce for a number of reasons, depending on what is actually shared...

We don't know if we will ever get a squeeze, but over the next 6-12 months there are a number of possible triggers, and it will not be a big surprise if any one of them happens... it will not even be a big surprise if a number of them happen more or less at the same time...

 

[wipster]

You mean ElectroWoman.

How about ElectroPerson?

 

[StarFoxisDown!]

Update :

Anyone got HW3 retrofit yet?

It took 4 days. That is not something that can be easily scaled up. Hope they can reduce the time ...

That is a very isolated anecdotal peice of evidence to draw a conclusion on. Was with a friend last night and we were going to grab food in his X and he mentioned how they retrofitted his X with Hardware 3.0 when he brought it in for another issue. Got the X back in the same day.

 

[Zaxxon]

Update :

Anyone got HW3 retrofit yet?

It took 4 days. That is not something that can be easily scaled up. Hope they can reduce the time ...

4 days is not at all typical from what I've seen. A couple hours is more like it.

Edit: @StarFoxisDown! beat me to it...

 

[ByeByeJohnny]

Yeah, just to add.

Today I've seen several reports on Reddit about model3s that got them done in a few hours.