ERICOPOLY

Are you arguing that Volt is an equal product to Model S, and that a Model S customer would have been satisfied by a Volt?

Well, I intend to go long. These shorts are going to be squeezed (that's not part of the thesis, it's just fun to think of your detractors being skewered).

The conference call is very fun to read. Good luck to the shorts, i believe you are going to need it: Jesse Pichel - Jefferies: If we take days inventory, days receivable and days payable and basically add them up how quickly can you turn into cash? Deepak Ahuja - CFO: I think the way we look at it is that fundamentally we have zero receivables. We delivered a car within a few days of production and we get full payment, but our supplier payment terms are on average about 45 days. So we tend to deliver and receive money before we have to pay to our suppliers. So, I think from your point of view more focus is working capital usage and our working capital actually doesn't needs of working capital don't increase as we ramp our production, it actually helps us in fact, from a cash flow perspective. Elon Musk - Chairman, Product Architect and CEO: I mean you asked question, I think, which is a good one because the capital needs of the business needs to raise equity or something toward capital as it grows. The effect of return for investors is much lower than if it's the other way round. In our case it is the other way round, but the faster we grow the business the more cash we had available. Jesse Pichel - Jefferies: That's what I thought and why kind of question the Bloomberg article.

He makes a good point about offering to lease the Model S in Europe where the fuel costs are so much higher. So, why is that relevant to Tesla because the cost of operation of the Model S is much less than the cost of operation of any other premium sedan by far. It's going to feel like you have a car for free and particularly in places like Europe. I mean it's like $9, $10 a gallon in Europe. That's it, you could spend a couple of hundred dollars filling up your gas tank, or you can spend some negligible amount recharging your car. So, it really amounts to a huge effective discount on the cost of operation of the car (outage) on the premium finance. But the best way to make that apparent is through a lease. So we're going to be very big on leasing in the future. We just haven't needed to do that, because if there's enough demand for the car, where we just help you buy, you just got to buy the whole thing, but you just can't have leasing.

Just my opinion, but Tesla doesn't have the same product economics issue (that Volt has) any more than Ralph Lauren has with selling clothing, or BMW selling the 7 series. I actually want to buy a Tesla S -- however we are a three car family and we already own a Roadtrek van (for the long excursions), or the Suburban (for shopping and ski trips), and a BMW X5. The BMW X5 will be 10 years old when the Tesla Model X is shipping. So we are waiting for that one (makes more sense with the two kids).

They recognize revenue when the customer actually gets the car delivered to them. There are a lot of them ordered -- so no revenue yet, but soon it's going to come gushing in : Elon Musk - Chairman, Product Architect and CEO: Absolutely. One thing I wanted to reemphasize, if you recall what are the things that I've been really emphatic about and those things are that in 2013 we will produce at least 20,000 units and that our gross margin will exceed 25%. I also say that we'll start deliveries at no later than July. Those are the three things that I said that I was highly confident that we would do. There are other things that are sort of nice to have and you'd like to do and maybe just will happen, but those are the important ones. It's worth noting that we start deliveries in June, so we're ahead of July. I think we are going to exceed 20,000 units next year and exceed 25% gross margin and those are things that I think you should really help me, me and Tesla too.

thesis please :D Alright I'll bite. I can't be sure why other people are shorting Tesla. Here are some of the reasons to short it: #1- They are losing a lot of money. GAAP profits, free cash flow, cash flow from operations... all are negative. Whichever way you cut it, the company is unprofitable. #2- Even if it was profitable, the valuation is a little ridiculous. The market cap is $3B versus less than $300M of equity. #3- Some people like to short ridiculously overhyped IPOs. #4- You could argue that the car industry isn't a great industry to be in (for mass market vehicles; Tesla is very niche so this may not apply). Other countries like Japan massively subsidize their auto industries. #5- Just keep going back to #1. They are massively, massively unprofitable. In YE2011 GAAP losses were $253,922M versus revenues of $204,242M. This is disturbingly unprofitable. I may lose money on this position even if Tesla goes to 0. This could take a while because Tesla has been able to use its stock to raise capital. There is cash flowing in from the capital raises (and a little bit from stock-based compensation) that keeps this company alive. I don't think that Tesla being in danger of breaching its loan covenants on the DOE loan is that deadly because (A) the government is stupid for making the loan in the first place and isn't savvy enough to push this company into bankruptcy and become the bully that owns the whole company and (B) capital raises can keep Tesla afloat. From the Tesla Q2 conference call: As we’ve indicated in the shareholder letter, our expectation based on our plans is that we will achieve pretty close to free cash flow breakeven in Q4. In Q3, we will see burn I would say roughly along the same lines as Q2, may be slightly higher, but considering all of that and given our cash resources we feel pretty comfortable that we have sufficient liquidity to get to profitability next year.

I'm asking questions that others that HAVE read the financials completely sure are having as well. I only read 2 10-Q's a year ago or so, obviously I'm not up to date. I don't see why I can't ask questions that will benefit everyone reading this topic when answered. Anyway, I'll stop bothering you. ValueInv seems to have some of the same remarks and I'll leave it to him as he is far more knowledgeable about the subject. His last post was very insightful imo and he gives some clear figures that put things into perspective, no promo-talk. I'll follow this thread closely, I appreciate the discussion. I don't think you can have a meaningful discussion on Dell without the numbers. After all, this is a value investment board. One more important point- Dell is not a turn around story. A turnaround looks to fix an existing business. Dell is not turning around its existing pc business. Instead, they're trying to build new services / software business. When you buy Dell based on the growth story, you are acting like a VC . You're betting on Dell making right acquisitions, integrating them and competing successfully in new businesses in nascent markets. That thesis is not a value investment. I think if you invested in Compellent at the ground level, you might be a VC. But to purchase Compellent and immediately push it into your channel, you are acting more like a reseller (only you now happen to own the product). They had experience selling an EMC storage product, and now they sell a Compellent product instead. The difference in ownership is that you have more control over the engineers. This should help you make customized solutions. In theory anyway. Compellent is a swap in product for their existing sale channels, but how many of their acquisitions are swap in or replacements? Slide 17 shows the overall picture: http://i.dell.com/sites/content/corporate/secure/en/Documents/Consolidated_Deck_web_final.pdf

txlaw, I have followed your posts on Dell and you have elaborated on the thesis as best as you can. thanks for sharing. cheers, Qleap +1

You can charge the model S for free: http://www.engadget.com/2012/09/24/tesla-supercharger/?a_dgi=aolshare_email&a_dgi=aolshare_twitter

That's weird about Bruce. I like to think of the value of the DTA in terms of how much capital it's worth to them. The 10-Q claims that the disallowed DTA subtracts exactly $15.598 billion from Tier 1 common capital as of June 30th, 2012. So if the DTA were not disallowed, then the company estimate for fully phased in 2019 rules Basel III tier 1 ratio would already be at 9.09%. They would already be done right now -- with the 2019 goals. Unless they get required to hold even more, of course.

I'm asking questions that others that HAVE read the financials completely sure are having as well. I only read 2 10-Q's a year ago or so, obviously I'm not up to date. I don't see why I can't ask questions that will benefit everyone reading this topic when answered. Anyway, I'll stop bothering you. ValueInv seems to have some of the same remarks and I'll leave it to him as he is far more knowledgeable about the subject. His last post was very insightful imo and he gives some clear figures that put things into perspective, no promo-talk. I'll follow this thread closely, I appreciate the discussion. I don't think you can have a meaningful discussion on Dell without the numbers. After all, this is a value investment board. One more important point- Dell is not a turn around story. A turnaround looks to fix an existing business. Dell is not turning around its existing pc business. Instead, they're trying to build new services / software business. When you buy Dell based on the growth story, you are acting like a VC . You're betting on Dell making right acquisitions, integrating them and competing successfully in new businesses in nascent markets. That thesis is not a value investment. I think if you invested in Compellent at the ground level, you might be a VC. But to purchase Compellent and immediately push it into your channel, you are acting more like a reseller (only you now happen to own the product). They had experience selling an EMC storage product, and now they sell a Compellent product instead. The difference in ownership is that you have more control over the engineers. This should help you make customized solutions. In theory anyway.

By "keep away from tech", do you mean to say that IBM isn't tech, but rather it's more of a solutions company or a "human platform" company? The Economist article linked above finishes with the following comment: The human platform has an important drawback: it is expensive to maintain and to extend, says Carl Claunch of Gartner, a market-research firm. That also means, however, that it is costly for others to replicate or invade. And given the complexity of the world and how much of it is still to be digitised, IBM's human platform looks unlikely to reach its limits soon. Perhaps not for another 100 years. Do you similarly regard DELL's strategy one of building a human platform? They are sort of similar. Buffett went with the entrenched leader, so he gets a margin of safety in that "costly for others to replicate or invade" part. Then he gets the "human platform unlikely to reach its limits soon" part mostly at low risk. So, DELL could be discussed in terms of what added upside you get vs just buying IBM. Clearly DELL has more potential to grow in terms of market share, both have same opportunity to ride along at the speed of the industry growth. So in buying DELL you are betting on the company growing share and hoping that the PC business sticks around for a while given that it's a fountain of funds for as long as it lasts (even if the Longleaf guys claim not to care that it goes away, I think they obviously do care as it provides ammo to buy more pieces in the services platform).

Here is a quote from the article: Just ask Dell's largest outside owner (at 7.5%), Southeastern Asset Management, manager of the Longleaf Partner family of funds. According to Longleaf's Staley Cates, who I heard live this month at the fund family's annual meeting: "We couldn't give a rip about [PC sales] because they're running off bad revenue and building good revenue." Alright, is Cates ever going to admit that the reason why he bought DELL in 2005 for more than $30 is because of the PC sales biz? The reason for the horrific results he's had from the DELL investment since then is because of the decline of the PC biz? And to say he doesn't "give a rip" about it?

Because they bought Compellent. http://www.computerworld.com/s/article/9200660/If_Dell_buys_Compellent_it_loses_EMC_partnership

I am thinking that 2013 could be a strong year for DELL's computer business. Microsoft ends support for Windows XP on April 8th, 2014. http://windows.microsoft.com/en-US/windows/help/end-support The day that the last security update is potentially delivered should be the deadline by which you have migrated all of your corporate XP machines.

It looks like they initially bought dell for somewhere between $33 and $41 in Q3 2005. Straight from the Longleaf Partners 2005 annual report: In the third quarter we bought Dell, which we have wanted to own for a number of years. The price declined after our initial purchase, hurting the Fund's fourth quarter and full-year return. The bigger discount presents an opportunity to pay fire sale prices for this entrenched brand that is growing revenues and profits at double-digit rates. Dell is overweighted in the portfolio because the company is a high quality business and has management with proven operational and capital allocation prowess. Because of how aggressively Dell is repurchasing its stock, the price weakness is causing value to grow even more rapidly. http://www.longleafpartners.com/quarterly_reports/05q4.pdf

Mid-$20s in 2002. Regarding the buybacks, here is something that was written about them in 2005 (it seems some investors were enthusiastic when it traded between $30 and $40): http://www.controlledgreed.com/2005/11/is_dell_a_barga.html Mason Hawkins, Staley Cates and John Buford write in the fund's management discussion that Dell is an entrenched brandname, has dominant market share, and produces generous free cash flow. They say that Dell's management owns a substantial stake in the company (thereby aligning their interests with shareholders) and is growing value by aggressively buying back shares at depressed prices. (They also say the same about another new holding, Anheuser-Busch.)

Personally I have a little bit of trouble with the way DELL pushes information out to shareholders. I don't trust people who talk like salesmen. http://content.dell.com/us/en/corp/d/videos~en/Documents~Dell_Q2FY13_Results.aspx.aspx Follow that link above and listen to Steve Schuckenbrock. I own shares and I don't really think they are lying, but they verbally communicate in a way that I just don't feel comfortable about. It's the body language and the overly confident tone. I feel like I'm going to drive off the lot with a used car. I'd rather hear the same message from guys with less polish -- they wouldn't look like something isn't quite right. Perhaps it just comes across as unnatural communication because well, it is -- that interview is done in a studio, they've rehearsed the lines... I usually see videos of people fielding questions where they haven't had the time to rehearse the answers.

So what? He didn't make the bulk of his money in his partnership days - he made the bulk of it through Berkshire. Buffett's a pretty smart guy and he must have realized that the easiest path for him to accumulate large amounts of wealth over the long term was not through running his partnership, but taking advantage of the inherent leverage of the insurance business. That depends how you look at it. I'm pretty sure his net worth compounded at the highest annualized pace before he wound up his partnership. He had the "float" of other people's money. Those gains were necessary in order for him to buy his Berkshire shares in the first place -- in that respect this was the most crucial part of his formula. If not Berkshire then what other path? He could have continued to draw other people's money and earned excessive fees as today's hedge fund managers do. Maybe that would have earned him even more money than Berkshire has. Maybe he could be making $2billion a year in hedge fund fees if he were to go that route today. Over the past 10 years he might have raked in $20billion, and if he had been doing this going back 40 years, then I'd say he would have been able to make more than his Berkshire shares have grown. So to answer the question of why more people haven't followed the Berkshire formula, it might be that compensation for talented investors is higher in the hedge fund world. Buffett has been compounding his own money and not making money off of others during the Berkshire days. Hedge fund managers not only compound their own money, but they also make money off of others. And if they aren't that rich to begin with, they soon become so if their own assets are a fraction of the fund size and if the fund size is large then it's just rediculous leverage and scaling.

Right. He needs to put a value on them (prediction is necessary) so they must first be predictable. Therefore... not very volatile as shareholders sleep well sitting on something predictable.

I think this is the one, from two weeks ago: http://i.dell.com/sites/doccontent/corporate/secure/en/Documents/2012_DB_Conf_Transcript_WEB.pdf

BAC is trading at a discount of roughly 173 billion pre-tax dollars below book value (using 28% tax rate). So is there room for negative surprises?

I cant know how stock markets will behave but I dont think Japan is a good example, as their market was hugely overvalued prior to the crash. I found some info here: http://www.vectorgrader.com/indicators/price-earnings Their market trades today at P/E of 23.65. Their market is not expensive however relative to GDP, at 0.57x. I take it that's the reason why their investors put up with the high P/E -- and perhaps also the chronically low inflation rate doesn't demand as much earnings yield.

Unbelievable! They weren't very clear, but perhaps they meant it in the context of another line in the preceeding paragraph: The new method would increase the balance sheets of U.S. banks because of differences in how derivatives are treated. Perhaps, but the U.S. has not passed any tighter restrictions yet...so for all intents and purposes, calculations should be based on existing U.S. & Basel III standards. If and when they do, that may require additional capital, but I think the article is misleading at this point. Banks have until 2019 to complete fully-phased in Basel III requirements, including the 2.5% buffer for large institutions. It's friggin' 2012! Cheers! 5.8% and 5.9% is also getting very precise if they were talking about new rules on derivatives -- the authors would have absolutely no idea what the numbers would be. They don't use qualifiers like "roughly" or "we guess". Where did they get the numbers from? Both JPM and BAC readily posted the Basel III estimate. And the banks used the term "estimate", unlike the authors of this article who are more certain.