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

[mongo]

CEO Performance Award Impact on P&L and Dilution

@Cosmacelf @M3Rider @mongo traded comments on this topic.
Although their conclusions were correct, I thought I would summarize it here:

P&L Impact
Telsa records to the P&L an expense for the CEO Award benefit when it is considered probable of being met. There are 12 different tranches of award levels and as each level becomes probable, an expense is recorded (in SG&A for the CEO award). See excerpt from the 2018 10k:

Stock-based compensation expense associated with the 2018 CEO Performance Award is recognized .........beginning at the point in time when the relevant operational milestone is considered probable of being met​

The 12 tranches have Revenue, EBITDA and Market Capitalization targets. The Q4 SG&A increase was driven by an expense for the CEO Award as it became more probably that Elon will meet higher levels of the Revenue and EBITDA tranches (targets).

Dilution
Although there is a P&L charge, no dilution has occurred at this time because the award is not yet granted (no options or shares issued)

Upon Issuance of Options
Once Elon achieves the award, options will be granted.
At this time there should not be much of a P&L impact because the company has been recording expenses already as the awards became probable. However, earnings per share will decline because the options will likely be considered dilutive. So when they compute the "Dilutive" EPS number, there will be more shares in the denominator. (Earnings/Shares = EPS)

Thank you.
Can you explain how the 72 million figure was determined?

Spoiler: guess

Closest numbers I can fudge are four quarters dividing an award with net 200 share payout on 1.67 million shares.

 

[Artful Dodger]

I know many folks here are aware of it, but it’s interesting to (re)read Heinlein's “Friday”, where Daniel Shipstone “sciences the *sugar*” out of the battery problem.

Lol, I have that book in paperback, read it back in '84... real question is "when did ELON read it?"

Cheers!

 

[AquaMan]

Prediction for this morning's action at market open, in order:
1) It shoots up.
2) It shoots back down within the first hour.
3) It climbs gradually up throughout the day, but finishes the day below $650.
4) Next day it's above $650 again.

Is this advice? Yes. But I'm a complete idiot, and you shouldn't listen to me. If I'm wrong I'll pretend I never posted this. If I'm right, I'll gloat. So I'm just reserving gloating rights.

 

[Artful Dodger]

I contend that fair market cap is already about $250 Billion and will not consider selling a large percentage of my holdings til then.

too fiddy? ur jok'n rite? Dat's jus' 4 tranches into Elon's CEO plan. And there's tranches every $50B all the way up to SIX FIFE ZERO...

RECALIBRATE!

 

[Artful Dodger]

Frighteningly, it looks like the CO2 ppm data.

"Mr Crusher, give us a superior curve"
- Cmdr Will Riker

 

[Tslynk67]

Fingers crossed these go ITM today

I owe you a beer, in fact a crate of beer - even better at the time were $1 2021 650's, which I bought 10 of (unfortunately sold 5 a few weeks back), but still holding 5 - they're worth serious money now and without your heads-up I would have been totally oblivious.

So a YUGE THANK YOU!!

 

[Krugerrand]

Gene Munster:

"The key question remains: how much is a foundational company in the future of transportation worth? We think more than the current $110B."
Tesla: How Much Is the Future of Transportation Worth? | Loup Ventures

Besides ARK, who’s even attempted to answer that question?

Practically everyone is out of their element when trying to conceptualize Tesla and its future value. EMPIRE. That’s where you *start*. Mark my words.

 

[Don TLR]

With the massive increase in share price and the CNBC talking heads no longer shouting "Bankwupt" every chance the could, will this bring in even more buyers. I've heard from random people, what will you do if they go out of business, and still have one at work who always puts Tesla down, maybe this will change a few more minds.

 

[Right_Said_Fred]

Besides ARK, who’s even attempted to answer that question?

Practically everyone is out of their element when trying to conceptualize Tesla and its future value. EMPIRE. That’s where you *start*. Mark my words.

Did ARK raise their price target yesterday? I remember reading something like that, but I'm afraid it got lost in all the excitement. They announced a few weeks ago they had run the numbers again and would come out with a higher bull case target. Did they already publish it?*

* They may have to adjust it again after Battery & Drivetrain Investor Day

 

[Bobfitz1]

I do wonder if Starlink can be back-haul for 5G towers and Supercharger WifFi .. They run fibre to a lot of mobile towers, with StarLink you can possibly save that step.

I was thinking the same. I'd guess there are plenty of hills and ridges that would be desirable cell tower locations except for the expense of laying fiber. Using Starlink instead should expand coverage in areas where there are significant gaps. Another example where a new technology changes the economics of the existing landscape in ways that will increase demand for the service.

 

[SoGA Fan Club]

Vehicle in garage ignites house fire in Northwest Austin

And it wasn’t even a Tesla (I know that area and there are none on that road).

We also know it wasn't a Tesla because if it were, they'd have said it in the article, and this event would have also been national news. As it is, pretty much just a local, nothingburger fire.

 

[bhtooefr]

That's not the angle of the range thing that I'm personally reading too much into, but yes, that's interesting.

The angle I'm reading too much into is this:

View attachment 505931

Musk specifically said on the call that that was 4.1 mi/kWh, and the graph says EPA miles per kWh.

315 miles / 4.1 mi/kWh = 76.8 kWh. At first glance, that seems about right.

But then I take a look over at the EPA fuel economy data file - 4.1 mi/kWh is ~24.4 kWh/100 mi, which seems really low.

A Model 3 Long Range AWD P18 (which is more efficient than the regular Long Range AWD) is 27.1018 kWh/100 mi. At 332 miles range (advertised 322, but Tesla derated it to match the LR AWD), that's 90.0 kWh (the EPA measures at the plug, not the pack, so any charging losses get counted in the EPA figures).

OK, I think I've figured out what's going on, and it's not what I was suspecting.

I can use the I-Pace and e-tron numbers Tesla used. Tesla's claiming about 2.8 mi/kWh, or 35.7 kWh/100 mi, for the I-Pace, and 2.45 mi/kWh, or 40.8 kWh/100 mi for the e-tron. The 2020 I-Pace is rated at 44.3076 kWh/100 mi, the 2019 e-tron is rated at 45.5672 kWh/100 mi.

I think I can safely say, based on that, that Tesla's estimates in the ER are pack to wheels, not plug to wheels. That explains the capacity number I got being almost exactly the Model 3's usable capacity... So, if I normalize to the Model 3 pack's energy used during charging (because we have no reason to believe a different pack), the actual number is 3.5 mi/kWh, or ~28.6 kWh/100 mi. That should be about 118 MPGe, FWIW.

 

[Fact Checking]

531,040 shares of TSLA traded in the Pre-Market by 08:00 EST

This is now up to 1.1 million shares traded in the pre-market - very high volume.

Recap of what happened in the two trading days after Q3 earnings:

Just a quick recap of what happened in after-hours and pre-market trading after the stunning Q3 results back in October:

View attachment 505916​

The yellow areas are after-hours and pre-market trading. So after Q3 results TSLA popped from $255 to $308 (up +20%), then moved back to $298 in pre-market trading, a -3.3% drop.

On the next day, I suspect it was options market makers/writers or big shorts who executed a heroic 20 million shares effort to keep the price under control and forced the price into a tight band of $289-$304 with a $299 closing price.

TSLA popped to its new range only after that day:

View attachment 505917​

Markets are fundamentally imperfect, and price discovery is never instantaneous - in the case of Tesla it took something like 2 years after the writing was on the wall in 2018 already.

So while history seldom repeats, keep this in mind - but also keep it in mind that I could be wrong and this is not advice.

My guess is that options writers are trying to keep as many 1/31 options (expiring tomorrow) from moving into the money as possible.

 

[davepsilon]

While it's only a week or two since this was brought up and discussed my memory is already fuzzy on the details so anyone wanna spell out the implications since we seem to have hit the threshold?

Apparently Tesla had issued calls and puts(?) at various prices to hedge some of the convertible debts they took on in the last couple of years. As I remember it the price point where Tesla would make the maximum back from those was supposedly $609 if I remember correctly?

Now being above that price what does this mean? Will Tesla sell their positions because they can't get more valuable? Where would this end up in the accounting? Does this mean Tesla can just give this money to the debt holders instead of giving them stocks to avoid diluting the stock numbers?

This has to be good for us shareholders but will it have any effect on Q1 results?

Do I even remember any of this correctly or is it from some weird dream? I have started to have dreams about stockcharts that look like rocket launches so could be.

Tesla issued convertible bonds several times with different strike prices. For each bond they bought calls at a much higher strike price to limit the $ value of dilution for share prices well above the bond conversion strike price. This purpose likely affects the accounting treatment which may lead to it not hitting the P&L line and thus not being taxed. But this purpose also means there is less incentive to play financial games with them. If they are sold they cannot do their job to protect against dilution from further share price increases. It would be very expensive to rebuy the convertible bonds now since the conversion price is deep in the money and rolling them to higher strikes seems unnecessarily risky for their purpose so I think Tesla will just ride it out with the current hedges all the way to bond maturity.

That’s my understanding of it.

 

[Fact Checking]

Did ARK raise their price target yesterday? I remember reading something like that, but I'm afraid it got lost in all the excitement. They announced a few weeks ago they had run the numbers again and would come out with a higher bull case target. Did they already publish it?*

* They may have to adjust it again after Battery & Drivetrain Investor Day

Yes, AFAIK ARK increased their 5-year TSLA price target from $4,000 to $6,000.

 

[KarenRei]

Aaargh, fighting my inner grammar-Nazi...

Well, if you want to be a Grammar Nazi, I'm perfectly willing to be Grammar Neville Chamberlain and let you get away with it. Although some mod might be a Grammar Winston Churchill and go after you for it.

 

[Bobfitz1]

Sorry if another member has raised this question already. What might be new or better in the MY that can account for estimated range going up by 35 miles? That is not a "we tweaked the motor control algorithms" to get a few percent better efficiency scale improvement! Perhaps one last significant improvement to their pre Maxwell battery chemistry making it's first appearance in MY?

 

[EinSV]

This is now up to 1.1 million shares traded in the pre-market - very high volume.

Recap of what happened in the two trading days after Q3 earnings:



My guess is that options writers are trying to keep as many 1/31 options (expiring tomorrow) from moving into the money as possible.

One difference between Q3 and Q4 is that short sellers are currently under a significant amount of stress due to the huge share price run-up. Covering due to margin calls, hedge fund position size guidelines and good old fashioned capitulation could provide more of a tailwind this time. We will find out soon enough ....

 

[LST]

Sorry if another member has raised this question already. What might be new or better in the MY that can account for estimated range going up by 35 miles? That is not a "we tweaked the motor control algorithms" to get a few percent better efficiency scale improvement! Perhaps one last significant improvement to their pre Maxwell battery chemistry making it's first appearance in MY?

I guess the new production technique, the moulding of the whole underbody (or at least part of it) must reduce weight quite dramatically. So that could account for the better range.

 

[StealthP3D]

5G covers that much more effectively. Starlink is more likely to be at a supercharger providing local wifi to parked movie watchers.

I do think Starlink is a natural fit for providing wifi at Supercharger locations.

But it baffles me that you think people will be watching movies (much) while charging. Our Model 3's charge so fast there is simply not time to pick a movie to watch, let alone watch it. Our Model 3's don't need a charge until we have been driving for hours on the Interstate and by then we need to relieve our bladders and get a quick snack. By the time we are able to do that, the car is charged and ready to go on the next leg of our journey.

When are people going to find time to watch movies while Supercharging?