TSLA Market Action: 2018 Investor Roundtable

[Cosmacelf]

Just a warning. If the convertible bonds get converted into shares, there will be a) dilution and b) a bunch of people selling their newly acquired stock. The point being that the stock may not float much above 360 in the prior few months before and after the maturity date until this overhang is cleared. Then again, the number of shares may not be very material to a $50B market cap company.

 

[Bullish_Bear]

Someone please tell me more about Tesla’s convertible bonds? The size and maturity dates?Thanks.

 

[sundaymorning]

Botched recall by bmw.

BMW delay contributed to death - inquest

 

[pz1975]

Botched recall by bmw.

BMW delay contributed to death - inquest

This would be front page news on every “news” website for days if this was Tesla.

 

[bdy0627]

380 in the past was based on expectations that have yet to be realized.

380 in the near future would be based on realization of expectations and would therefore establish a reset for future potential, but it also would actually be based on successfully accomplishing the achievement of the "unachievable" so with the evaporation of a short case, an even greater expectation could conceivably be achievable. That is what I think would launch the epic squeeze.

Keep in mind that many shorts have an extremely strong conviction that Tesla is fundamentally a walking dead man financially. One or even 2 quarters probably will not alter their conviction. They will continue to believe that Tesla will fail but that it will now take longer for that outcome. By mid next year, they will be getting feverishly excited about competition soon starting to crush Tesla's demand and margins just as Tesla sets off on a massive new round of "cash burn." They will have their reasons to strongly doubt that the positive quarters will continue in the future. They will believe Tesla achieved 2 good quarters through unsustainable means.

This is just to say that I think it's very unlikely that shorts will be going away even with a couple of positive quarters. The reality is that Tesla will soon need a lot more money to fund its upcoming plans. It will spend money to increase model 3 production up to 10,000 per week, and it will need a lot of money to at least partly fund the China GF and an European GF coming soon. It will also need lots of money to further develop and produce the model Y and Semi products. The shorts with high conviction will see those moves as further massive cash burn just as the competition is finally getting ready to eat Tesla's lunch. The media is likely to further those beliefs at times as they have been doing lately.

I don't think you're wrong to think that the stock will be taking off soon and heading to new highs, but I would be prepared for the possibility of it coming back down sharply as shorts re-enter and perhaps increase their efforts at the higher stock price. High volatility is almost certain to continue for the foreseeable future.

 

[bambam4171]

I hope they don't invest into a GF in Europe with manufacturing of the the Model 3 in mind. I hope they start right away with the Model Y. Europe loves stations wagons, SUV's, CUV's but no sedan's.

 

[jhm]

Keep in mind that many shorts have an extremely strong conviction that Tesla is fundamentally a walking dead man financially. One or even 2 quarters probably will not alter their conviction. They will continue to believe that Tesla will fail but that it will now take longer for that outcome. By mid next year, they will be getting feverishly excited about competition soon starting to crush Tesla's demand and margins just as Tesla sets off on a massive new round of "cash burn." They will have their reasons to strongly doubt that the positive quarters will continue in the future. They will believe Tesla achieved 2 good quarters through unsustainable means.

This is just to say that I think it's very unlikely that shorts will be going away even with a couple of positive quarters. The reality is that Tesla will soon need a lot more money to fund its upcoming plans. It will spend money to increase model 3 production up to 10,000 per week, and it will need a lot of money to at least partly fund the China GF and an European GF coming soon. It will also need lots of money to further develop and produce the model Y and Semi products. The shorts with high conviction will see those moves as further massive cash burn just as the competition is finally getting ready to eat Tesla's lunch. The media is likely to further those beliefs at times as they have been doing lately.

I don't think you're wrong to think that the stock will be taking off soon and heading to new highs, but I would be prepared for the possibility of it coming back down sharply as shorts re-enter and perhaps increase their efforts at the higher stock price. High volatility is almost certain to continue for the foreseeable future.

Nice points to help understand the short view. Sustainable cash flow (and profit) verses cash burn comes down to an appetite for growth. I do believe that Tesla is reaching a scale where profitability would be sustainable at slow growth, but to have transformative growth into much greater scale cash burn is the rocket fuel needed. But transformative growth is at this point purely optional, which to my view means that we really have arrived at sustainability. If shorts want to fantasize about how transformative growth puts the whole enterprise at risk, that is their interpretive choice.

For me, I like to buy Tesla at bargain whenever the stock gets beaten up. So what I am interested in is future low prices. Short of black swan events, Tesla will not see below $100 again and very unlikely that we'll see below $200 ever again. I think we are getting near the place where we will never see below $300 again. This is where locking in some minimal scale like 5k Model 3 and 2k Model S/X per week becomes crucial. I think it gets us to a place where sub-$300 just won't be seen. Adding another 5k/wk units easily adds another $100/sh to this floor price.

Now this floor price is not a full valuation of the stock. Rather it has to do with how far down can bears beat the price before long term bargain hunters like me put the brakes on a bear run. Our last data point was going down to about $250 when weekly production of Model 3 was about 1200 and struggling to climb. Again boosting this to 5000 easily adds $50 to $100 to the floor price. But by definition the trading price will mostly be above this floor price (or else it is not really a floor). So we are nearing a place where we should start seeing some new ATH.

If I were inclined to short, I'd have my eyes set on when Tesla sets a new ATH. To my way of thinking, it makes much more sense to short at $400 and wait for it drop to $330 than to short now at $320 and hope for a return to $250. What's funny is that if shorts just strategically backed off for a while, they could see a whole new hype cycle emerge. The price could shoot up to $500 or so, and then shorts would have a really nice opportunity to short it from $500 down to $350. But as it stands, these shorts are so aggressive, it is nearly impossible for the price to get genuinely hyped up. Scorched earth shorting is just dumb that way.

 

[defc0n]

Nice points to help understand the short view. Sustainable cash flow (and profit) verses cash burn comes down to an appetite for growth. I do believe that Tesla is reaching a scale where profitability would be sustainable at slow growth, but to have transformative growth into much greater scale cash burn is the rocket fuel needed. But transformative growth is at this point purely optional, which to my view means that we really have arrived at sustainability. If shorts want to fantasize about how transformative growth puts the whole enterprise at risk, that is their interpretive choice.

For me, I like to buy Tesla at bargain whenever the stock gets beaten up. So what I am interested in is future low prices. Short of black swan events, Tesla will not see below $100 again and very unlikely that we'll see below $200 ever again. I think we are getting near the place where we will never see below $300 again. This is where locking in some minimal scale like 5k Model 3 and 2k Model S/X per week becomes crucial. I think it gets us to a place where sub-$300 just won't be seen. Adding another 5k/wk units easily adds another $100/sh to this floor price.

Now this floor price is not a full valuation of the stock. Rather it has to do with how far down can bears beat the price before long term bargain hunters like me put the brakes on a bear run. Our last data point was going down to about $250 when weekly production of Model 3 was about 1200 and struggling to climb. Again boosting this to 5000 easily adds $50 to $100 to the floor price. But by definition the trading price will mostly be above this floor price (or else it is not really a floor). So we are nearing a place where we should start seeing some new ATH.

If I were inclined to short, I'd have my eyes set on when Tesla sets a new ATH. To my way of thinking, it makes much more sense to short at $400 and wait for it drop to $330 than to short now at $320 and hope for a return to $250. What's funny is that if shorts just strategically backed off for a while, they could see a whole new hype cycle emerge. The price could shoot up to $500 or so, and then shorts would have a really nice opportunity to short it from $500 down to $350. But as it stands, these shorts are so aggressive, it is nearly impossible for the price to get genuinely hyped up. Scorched earth shorting is just dumb that way.

Agree completely, and if ~ 500 is hit, a correction back to ~ 350 is extremely likely. Shorting right now doesn't make any sense to me in terms of risk/reward. Especially since macros don't appear to be at great risk now either.

 

[kbM3]

To me, TSLA right now has:

1. Almost certainly a huge investor in China (cough Tencent cough) to fund the next gigafactory.
2. Soon to be cash flow positive in upcoming quarters.
3. Some of the best selling models in their class and best performance specs.
4. What appears to be the beginning of a breakout in its chart.
5. Very high level of short interest.
6. Macros starting to once again picking up where they left off, along with strong economy / gas prices.

The probability of a large rise over the next several weeks is extremely good. Also, a friendly reminder that historically I’ve been quite bearish in TSLA the past year or so, until the fall below 250.

The main risk, and what increasingly appears to be a very small one as each day goes by, is if the model 3 has a huge problem that requires a recall.

The upcoming price levels I’m looking at now are:

- 352, almost a sure bet at this point fairly soon
- 380, its been there before, why not again?
- 420, risky bet, but believable with profitability
- 500, if all the stars align and the hype train keeps it going

Haven’t decided what my move is going to be. I’m thinking I’ll want to stick around for 2018Q4 - 2019Q1 as that should be peak hype with sales and revenue.

I’ll revisit as news and sentiment becomes available.

Could the TenCent announcement be the reason for Elon’s short burn of the century announcement?

The Not-a-flamethrower party and the China GF announcement are in awful close proximity.

 

[Cosmacelf]

Someone please tell me more about Tesla’s convertible bonds? The size and maturity dates?Thanks.

It's on page 24 of the latest 10-Q (Tesla - Quarterly Report)

Basically, in the next year, Tesla has to pay $230M November 1st 2018 for the Solarcity 2.75% convertible bond that has a conversion price of $560 (not gonna convert).

It then has to pay (or convert) $920M March 1, 2019 for the Tesla 0.25% convertible bond that has a conversion price of $360 (could convert).

Tesla usually entered into complicated swap or option transactions to mitigate the effect of conversion dilution. I know they did that for the Solarcity bonds, and presumably they did that for the Tesla bonds too. I have no idea how those work in practice.

Incidentally, the Tesla bond market was full of low risk great deals for those willing to park oodles of money into Tesla bonds to get great interest rates. Those days might be behind us now, though.

Here's the full debt chart from the 10-Q showing future debt obligations (you have to do google searches and SEC lookups to find conversion strike prices):

 

[Hogfighter]

Keep in mind that many shorts have an extremely strong conviction that Tesla is fundamentally a walking dead man financially. One or even 2 quarters probably will not alter their conviction. They will continue to believe that Tesla will fail but that it will now take longer for that outcome. By mid next year, they will be getting feverishly excited about competition soon starting to crush Tesla's demand and margins just as Tesla sets off on a massive new round of "cash burn." They will have their reasons to strongly doubt that the positive quarters will continue in the future. They will believe Tesla achieved 2 good quarters through unsustainable means.

This is just to say that I think it's very unlikely that shorts will be going away even with a couple of positive quarters. The reality is that Tesla will soon need a lot more money to fund its upcoming plans. It will spend money to increase model 3 production up to 10,000 per week, and it will need a lot of money to at least partly fund the China GF and an European GF coming soon. It will also need lots of money to further develop and produce the model Y and Semi products. The shorts with high conviction will see those moves as further massive cash burn just as the competition is finally getting ready to eat Tesla's lunch. The media is likely to further those beliefs at times as they have been doing lately.

I don't think you're wrong to think that the stock will be taking off soon and heading to new highs, but I would be prepared for the possibility of it coming back down sharply as shorts re-enter and perhaps increase their efforts at the higher stock price. High volatility is almost certain to continue for the foreseeable future.

Well said. You can also add the ‘Tesla will be losing the $7,500 rebate at the precise time that competition is ramping’ bear argument to the list.

I’d be quite surprised if Mr. ‘Let’s Make America Great’ allows US customers to get a rebate on purchases of foreign cars, but Not Tesla’s.

 

[shrspeedblade]

Well said. You can also add the ‘Tesla will be losing the $7,500 rebate at the precise time that competition is ramping’ bear argument to the list.

I’d be quite surprised if Mr. ‘Let’s Make America Great’ allows US customers to get a rebate on purchases of foreign cars, but Not Tesla’s.

I thought this too, but on reflection when I asked myself, "Is he dumb enough to hand even more of our fastest-growing car market to Toyota, Honda, and Volkswagen?" I didn't like my own answer.

 

[Rarity]

Almost certainly a huge investor in China (cough Tencent cough) to fund the next gigafactory.

But what would Tencent get out of it, who would be paying them, and at what rate? I'm intrigued, but can't readily imagine something that would be so advantageous to Tesla shareholders.

 

[ls7corvete]

But what would Tencent get out of it, who would be paying them, and at what rate? I'm intrigued, but can't readily imagine something that would be so advantageous to Tesla shareholders.

Improvement in their investment in TSLA in addition the lease rates they negotiate with Tesla directly. I assume it would not be a gift, just a landowner situation.

 

[jhm]

Well said. You can also add the ‘Tesla will be losing the $7,500 rebate at the precise time that competition is ramping’ bear argument to the list.

I’d be quite surprised if Mr. ‘Let’s Make America Great’ allows US customers to get a rebate on purchases of foreign cars, but Not Tesla’s.

Comes with $7500 government training wheels for automakers that haven't figured out how to make a good EV yet. Not sure this is going to be a ringing endorsement for lagging EV makers.

 

[ValueAnalyst]

Elon Musk on Twitter

First 1000 Boring Company Flamethrowers being picked up today!

ValueAnalyst on Twitter

Just in time for the short burn of the century.

 

[-=buzz=-]

This is just to say that I think it's very unlikely that shorts will be going away even with a couple of positive quarters. The reality is that Tesla will soon need a lot more money to fund its upcoming plans. It will spend money to increase model 3 production up to 10,000 per week, and it will need a lot of money to at least partly fund the China GF and an European GF coming soon. It will also need lots of money to further develop and produce the model Y and Semi products. The shorts with high conviction will see those moves as further massive cash burn just as the competition is finally getting ready to eat Tesla's lunch. The media is likely to further those beliefs at times as they have been doing lately.

Keep in mind, that the current R&D budget is able to support continuous improvement of two in production models, bringing to market one car, prototyping two more and almost finish designing the Y. (Plus unknown state of the pickup)
They don't need to increase the budget much to keep the pace on future products. Especially considering that they now have sizeable parts bin of refined components.
They don't need to invest 1 billion $ to create a new drivetrain to fit a new requirement. Get the current parts and increase size by 50% or just use two or more of the same. (see Semi)

On the other hand I think financing new gigafactories remains challenging without stretching timelines or outside investment.

 

[DocZ]

I love Tesla and recently bought $30k worth of stock but I am extremely skeptical of the “short burn of the century”. I just don’t see it. They have A LOT of upcoming capital intensive projects. As long as that remains the case, shorts will always question Tesla’s financial position, and rightfully so

 

[sundaymorning]

If I were inclined to short, I'd have my eyes set on when Tesla sets a new ATH. To my way of thinking, it makes much more sense to short at $400 and wait for it drop to $330 than to short now at $320 and hope for a return to $250. What's funny is that if shorts just strategically backed off for a while, they could see a whole new hype cycle emerge. The price could shoot up to $500 or so, and then shorts would have a really nice opportunity to short it from $500 down to $350. But as it stands, these shorts are so aggressive, it is nearly impossible for the price to get genuinely hyped up. Scorched earth shorting is just dumb that way.

You make great points, here’s a different perspective:

It’s easier to knock Tesla when Model 3 isn’t at 5k a week. But once 5k and then 10k is at steady state Tesla is no longer the same kid that gets easily pushed around.

Getting to $500 now through 1st Quarter may seem like a good time to dial back on TSLA exposure, but will you realistically sell if Tesla was producing 10,000 Model 3s a week sometimes during the second quarter 2019? And then Powerwall/packs being pumped out at 25% margins....If the economy continues as it is performing right now, I’m not sure if revisit $350, unless there were some combinations of freakishly negative events culminating like the previous quarter (which could develop).

Also we don’t know the extent of the Chinese partnerships yet, if Tencent were upping their investment in Tesla in the Shanghai factory it would put bulls in a position of immense strength. Currently, there are still lots of developments that may add to the bull thesis, and I think we’re beginning to scratch the surface of why Elon thinks there’s going to be a squeeze. By the time we get all the facts and information together the conversation just might be “when do we get to $700”? then revisiting $500 might seem more reasonable. In all I agree with your assessment with the information we have NOW, but may disagree 3-6 months from now. Very interesting times ahead.

 

[ValueAnalyst]

Flying Tesla?

Elon Musk on Twitter

SpaceX option package for new Tesla Roadster will include ~10 small rocket thrusters arranged seamlessly around car. These rocket engines dramatically improve acceleration, top speed, braking & cornering. Maybe they will even allow a Tesla to fly …