TSLA - Tesla Motors

[ERICOPOLY]

I drove, with my girlfriend, from Sacramento to Los Altos Hills (near Palo Alto) and back this past weekend.

 

On the road, we tried to look for Teslas versus newer Porches, Mercedes, and BMWs.

 

There were more Teslas versus the others: it appeared as though there were more Teslas than all of the others put together.  Teslas were extremely common.

 

It was very hard to spot a new Porsche.  I think we only saw one new Porsche.  Several times, we saw two Teslas at once.  We passed a car carrier loaded with new Teslas, probably headed for Rocklin.

 

It would be difficult for someone living in the Bay Area environment to believe that Tesla is struggling.

[Gregmal]

I drove, with my girlfriend, from Sacramento to Los Altos Hills (near Palo Alto) and back this past weekend.

 

On the road, we tried to look for Teslas versus newer Porches, Mercedes, and BMWs.

 

There were more Teslas versus the others: it appeared as though there were more Teslas than all of the others put together.  Teslas were extremely common.

 

It was very hard to spot a new Porsche.  I think we only saw one new Porsche.  Several times, we saw two Teslas at once.  We passed a car carrier loaded with new Teslas, probably headed for Rocklin.

 

It would be difficult for someone living in the Bay Area environment to believe that Tesla is struggling.

 

This is an interesting narrative I've heard quite a bit before with Tesla. The question is, do people on the east coast underestimate them because we just dont see them that much, or do the people on the west coast overestimate them because they are so commonplace? Is there also a bit of cultural/lifestyle differences on the east/west coasts that are unique to those areas, or is this simply a case of, "if you build it they will come".

[gary17]

Tesla doesn't own battery patents.  Doesn't have meaningful IP in autonomous driving, or car manufacturing, or any other area.

 

 

If the moat is so weak why haven't we seen lot of of electric cars from other brands - existing automakers have more resources than Tesla had.  What happened?

[ERICOPOLY]

Tesla doesn't own battery patents.  Doesn't have meaningful IP in autonomous driving, or car manufacturing, or any other area.

 

 

If the moat is so weak why haven't we seen lot of of electric cars from other brands - existing automakers have more resources than Tesla had.  What happened?

 

Perhaps they were waiting for Tesla to outsell them on their home turf in Europe.  The following article says that this happened in 2017:

 

http://europe.autonews.com/article/20180220/ANE/180219831/tesla-model-s-outsells-german-luxury-flagships-in-europe

 

"Sales of the Model S in Europe jumped 30 percent to 16,132 last year, according to JATO. Mercedes S class sales grew 3 percent to 13,359. BMW 7 series had sales of 11,735, down 13 percent."

 

"Tesla is competing strongly in Europe's large premium SUV market with the Model X. Its sales in the region last year were 12,000, about the same as the Porsche Cayenne and nearly 2,000 more than the BMW X6, according to JATO data."

 

 

[jm25]

Tesla doesn't own battery patents.  Doesn't have meaningful IP in autonomous driving, or car manufacturing, or any other area.

 

 

If the moat is so weak why haven't we seen lot of of electric cars from other brands - existing automakers have more resources than Tesla had.  What happened?

 

Competitors are launching electric SUVs at better prices - Audi e-tron, Jaguar I-Pace, Mercedes EQ, Porsche Taycan, etc.

[Cardboard]

"It was very hard to spot a new Porsche.  I think we only saw one new Porsche. "

 

That should tell you something.

 

If I had your cash, I would dump the Tesla and go buy a 911 Turbo S. Then tell me how many chicks turn their head when you head downtown vs in your Tesla?

 

Even better with a Rari!

 

Cardboard

[ERICOPOLY]

"It was very hard to spot a new Porsche.  I think we only saw one new Porsche. "

 

That should tell you something.

 

If I had your cash, I would dump the Tesla and go buy a 911 Turbo S. Then tell me how many chicks turn their head when you head downtown vs in your Tesla?

 

Even better with a Rari!

 

Cardboard

 

Very true.

[gary17]

Tesla doesn't own battery patents.  Doesn't have meaningful IP in autonomous driving, or car manufacturing, or any other area.

 

 

If the moat is so weak why haven't we seen lot of of electric cars from other brands - existing automakers have more resources than Tesla had.  What happened?

 

Competitors are launching electric SUVs at better prices - Audi e-tron, Jaguar I-Pace, Mercedes EQ, Porsche Taycan, etc.

I don't see anyone driving any of these cars you mentioned 

So yes they are couple years behind -

[Ahab]

I'm not sure it really matters that "legacy" car companies are behind. Tesla proved that demand existed in the market for EV's and now we see a flood of OEM EV models planned for 2020 onward. Most people not from the West Coast and not wealthy are still perfectly fine with an ICE vehicle. It could still be 5 or 10 years before EV sales reach say 50% of new cars. Tesla has a great brand in its luxury, eco conscious niche, but lacks the capital or manufacturing know-how to put forward a truly mass market product.

On another note, I don't believe comparisons to Apple or Amazon are apt for multiple reasons. With Apple, it made massive improvements to the smartphone, redefining the category and highlighting its usefulness. Even with a bump in cost compared to other phones, it still only sold for $750-$1000, well within the range of a middle class consumer. With Amazon, the company didn't show consistent profitability for many years, but it demonstrated the power of a scalable online retail platform and made customers very happy. In retrospect, both companies had the 'special sauce' for mass market success. Fast forward to today, I don't think Tesla is making a better car or has better software than myriad competitors. I think the 'disruption' ethos in our culture right now is causing many to overestimate the probability of Tesla's success and downplay the efforts of competitors such as GM, Google, possibly Apple, and major OEM's.

 

[Spekulatius]

I just wish the puts were cheaper - $8.75 for December 21 $200 Strike puts is sort off pricy. Tesla looks really bad as a long, but will it fall apart as quickly than the bears think it does? I am not an option expert, but betting on Tesla‘s demise looks expensive to me.

[benhacker]

I just wish the puts were cheaper - $8.75 for December 21 $200 Strike puts is sort off pricy. Tesla looks really bad as a long, but will it fall apart as quickly than the bears think it does? I am not an option expert, but betting on Tesla‘s demise looks expensive to me.

 

It is quite expensive.  This is why I argued earlier for a straight short as the best way to express the view.

 

Eric, I'm in the Silicon Forest, I agree it's hard to explain why a company who's products are appearing more and more is struggling.  Luckily, Elon is doing everything he can to help with the conversation...

 

My buddies VIN # is now assigned to him again now....  Curious if this experience is the same for those who actual send in the full check...

[rb]

 

Eric, I'm in the Silicon Forest, I agree it's hard to explain why a company who's products are appearing more and more is struggling.  Luckily, Elon is doing everything he can to help with the conversation...

It's not that hard to explain actually. If you let me loose 10k on every car I make I could build you a pretty sweet ride. That goes with everything. You can have a product that's very appealing to consumers if you can make losses and your competitors have to make profits.

 

To take this to an extreme, let's say I make a shitty car but I sell it for $0. It's not a great product but I bet you'd see plenty of them around.

[boilermaker75]

I just wish the puts were cheaper - $8.75 for December 21 $200 Strike puts is sort off pricy. Tesla looks really bad as a long, but will it fall apart as quickly than the bears think it does? I am not an option expert, but betting on Tesla‘s demise looks expensive to me.

 

You can take advantage of that by writing calls.

[ERICOPOLY]

The 2nd quarter conference call was on August 1st, a month into the current quarter.  I read it last night

 

From the call:

They were doing 7,000 cars a week (including the S & X models) and they said they expected to be profitable and cash flow positive in Q3.

They said it took a lot of cap ex to grow their model 3 line to handle 0-5,000 cars per week and will take minimal additional capex to grow the line from 5,000 to 10,000 cars.

They expect margins on the Model 3 to be 15% in Q3 and 25% in Q4

They are getting a lot of orders for the all wheel drive dual motor model 3 so the profitability improves

They don't want to raise money because they expect to be self-funded from here on out.  They don't believe that funding themselves out of cash flow will be a constraint on their growth as it would have been in the past.  They feel that now they've reached scale, the free cash flow will materialize.

He also wasn't blaming other people on the call for they enormous costs in the Model 3 line.  They were blaming themselves for the problems they had.

 

 

My take:  it would be pretty bold to lie like this when you're already 1/3 of the way into the quarter, so write calls or short at your own risk.  At least option decay will make it less painful for you if you choose to write the calls instead of making a straight short bet.

 

I have never invested in Tesla but the entire time I have cautioned people that there has got to be a smarter way to make money shorting than to do it on a company with a hugely popular product that people love and want and where the company is led by a guy with a history of executing on some pretty large ideas (just look at Space X).

 

All he has to do here is just learn to build the Model 3 as efficiently as every other automaker manages their lines.  The shorts are essentially betting that he cannot do that.

[Cardboard]

While you are correct that shorting this is dangerous Ericopoly, I disagree with you that it is only a manufacturing issue.

 

Luxury competitors are coming with their own electric vehicles. They have advertising, much better consumer support with existing dealer network, long operating history, etc.

 

I would be very surprised if people who consider such vehicle do not consider alternatives. This is not like a computer or cell phone where you are held by some operating system which you are used to.

 

Cardboard

[oddballstocks]

All he has to do here is just learn to build the Model 3 as efficiently as every other automaker manages their lines.  The shorts are essentially betting that he cannot do that.

 

Or that he can't do that before the debt comes due...

 

If they were financed with 100% equity then yes, this is dangerous. But they have supplier obligations and debt obligations putting a timebox on this.

 

They have to:

1) Generate positive cash flow

2) Raise equity

3) Default

 

Realistically #1 & #2 go together because it's unlikely they can generate enough cash internally for the debt.  Raising with the DOJ stuff is going to be difficult. Potentially there is already something holding up a raise, why haven't they raised already? The cash situation is very bad, yet no raise.

 

They seem like cool cars. Seems like a CA thing, trawling through the Midwest, East, and Canada I've probably seen a few dozen over the past two years.  I think as a high-end niche CA product this makes a ton of sense.  Unfortunately they took on Solar City, took on debt, attempted some weird mass market (at $60k!) roll-out and are facing a financing cliff.  That's the trade.

 

Not knocking CA, I have/had relatives out there.  They think it's normal to drop a few million on a house and that everyone makes obscene money.  Had one aunt move from CA to VA.  She purchased an enormous house on a golf course in a very posh area and continually brags that it cost a fraction of what she received from her CA house sale.  She had been there since the 1970s and got in cheap, good for her.

[JRM]

I just wish the puts were cheaper - $8.75 for December 21 $200 Strike puts is sort off pricy. Tesla looks really bad as a long, but will it fall apart as quickly than the bears think it does? I am not an option expert, but betting on Tesla‘s demise looks expensive to me.

 

You can take advantage of that by writing calls.

 

A slightly in the money synthetic short might be better (sell a call and buy a put at the same strike).  This setup has higher upside with the same uncapped downside. This would also make it possible to get the longest duration options available.  I haven't checked pricing, so the skew may make this trade less desirable.

[ERICOPOLY]

While you are correct that shorting this is dangerous Ericopoly, I disagree with you that it is only a manufacturing issue.

 

Luxury competitors are coming with their own electric vehicles. They have advertising, much better consumer support with existing dealer network, long operating history, etc.

 

I would be very surprised if people who consider such vehicle do not consider alternatives. This is not like a computer or cell phone where you are held by some operating system which you are used to.

 

Cardboard

 

True, however I don't think Tesla is capable of producing all of the EVs that will be desired in the future.  Porsche and others should be growing the market for luxury EVs -- they are talking about adding 400 fast-charging stations in the US before their roll-out.  Through their partnership with IOnity they are adding another 400 in Europe.  My understanding is that a Tesla can utilize those chargers, but the reverse is not true.

 

A Porsche Panamera Turbo S starts at $185,000 and has the same 0-60 time as the upcoming all-electric Porsche Taycan which I believe will be offered for $100,000 less.  They can't be enjoying this.

 

The way things look presently, a Tesla owner will have the broadest network of charging options.

 

So I wonder if Tesla's sales drop off, or if it merely speeds adoption of electric cars.  The Model 3 Performance has the same 0-60 times as the Porsche Taycan.

 

Personally, I like the interior of the Porsche Taycan better.

 

[Spekulatius]

My take:  it would be pretty bold to lie like this when you're already 1/3 of the way into the quarter, so write calls or short at your own risk.  At least option decay will make it less painful for you if you choose to write the calls instead of making a straight short bet.

 

Just keep in mind that the CFO resigned on 9/7. CFO typically don’t like a bankruptcy on their resume. It’s a major red flag for a company in financial trouble.

[Pauly]

 

 

They seem like cool cars. Seems like a CA thing, trawling through the Midwest, East, and Canada I've probably seen a few dozen over the past two years.  I think as a high-end niche CA product this makes a ton of sense.  Unfortunately they took on Solar City, took on debt, attempted some weird mass market (at $60k!) roll-out and are facing a financing cliff.  That's the trade.

 

Not knocking CA, I have/had relatives out there.  They think it's normal to drop a few million on a house and that everyone makes obscene money.  Had one aunt move from CA to VA.  She purchased an enormous house on a golf course in a very posh area and continually brags that it cost a fraction of what she received from her CA house sale.  She had been there since the 1970s and got in cheap, good for her.

 

Maybe more of West Coast thing than strictly CA? In the Vancouver area I see them constantly, S, X and now more and more 3's. I would be surprised if Seattle was any different.

 

[SmallCap]

Tesla is an amazing company that created cars that greatly appealed to an overlapping cross-section of market demand. Their cars are appealing to:

1. luxury car buyers

2. premium performance car buyers

3. Early Tech adoptors

4. Environmentally conscious car buyers

 

They were building for themselves a very nice niche within these markets and I could see them having a long-term success if they stayed in this area.

 

I think they could have even pulled off the Model 3 as a lower priced option for those 4 markets broadening their markets, it would have been a stretch but I think they might have been able to. They miss marketed it as a mass market car.

 

But they decided to get into other areas, primarily Solar City and took on the debt associated with that business. also to a lesser extent, they got distracted with solar roofing, power walls, and other cool things.

 

I don't think I would have had the guts to buy Puts if it weren't for the Solar City debt.

[rb]

A Porsche Panamera Turbo S starts at $185,000 and has the same 0-60 time as the upcoming all-electric Porsche Taycan which I believe will be offered for $100,000 less.  They can't be enjoying this.

 

The way things look presently, a Tesla owner will have the broadest network of charging options.

 

So I wonder if Tesla's sales drop off, or if it merely speeds adoption of electric cars.  The Model 3 Performance has the same 0-60 times as the Porsche Taycan.

 

Personally, I like the interior of the Porsche Taycan better.

Yea but neither the the Taycan nor the model 3 can do this:

 

[Cardboard]

You can also buy Versace or clothes at Wal-Mart and they will protect you both from getting cold and being naked  :o.

 

Anyway, if one is a true enthusiast about speed, power and racing, there is nothing like a true manual shifter with a clutch. So much more fun than anything automatic or semi-automatic. And an EV with no sound, give me a break! That to me is an A to B type of car.

 

Cardboard

[Grant]

My take:  it would be pretty bold to lie like this when you're already 1/3 of the way into the quarter, so write calls or short at your own risk.

 

I just don't see how the numbers add up:

 

• A 15% margin on 65k $60k ASP Model 3 deliveries is $585M in gross profit.
  
• A 25% margin on 12k $82k ASP Model Ses is $246M in gross profit.
  
• A 30% margin on 11k $105k ASP Model Xes is $346.5M in gross profit.
  
• This totals $1,177.5M in gross profit.

 

Last quarter's opex was $1,240.3M. Interest expense was $164M. Could they sell all their ZEV credits? Sure, but a lot of people think the value of ZEV credits has plummeted. They could also recognize some full self driving autopilot revenues if they manage to release a working FSD feature this week (edit: or not). I'm betting the market won't react well to such tricks.

 

They could also pay more salaries in stock in an effort to show a non-GAAP profit. They did some of this in Q2, only increasing non-GAAP opex by 3% (vs. 18% GAAP). However, a lot of employees concerned about Tesla's future might strongly to prefer to be paid in cash.

 

Note that SG&A costs have historically scaled with deliveries, causing some people to hypothesize rework costs are being rolled into SG&A instead of COGS. In any case, it's pretty clear "delivery hell" will increase costs somewhere on the income statement.

 

What about all the rework costs we keep hearing about? Over-worked service centers? Cracked roofs, bumpers falling off when they hit standing water, leaky trunks, touch screen issues, etc.? All this stuff costs money to fix, and Tesla owners aren't paying for it.

 

In January tax credits get cut in half. Whatever the demand is for Teslas today, it will be markedly lower in 2019.

 

I am short the common stock and OTM weekly puts.

[boilermaker75]

 

My take:  it would be pretty bold to lie like this when you're already 1/3 of the way into the quarter, so write calls or short at your own risk.  At least option decay will make it less painful for you if you choose to write the calls instead of making a straight short bet.

 

 

At one time I was long TSLA, but sold for a profit about a year ago. At this time I have no plans to take a position, long or short.

 

I was suggesting writing the calls for those interested in shorting. As you point out the call premium lessons the pain if you are wrong. Plus you have a near-term date when your play is over, the expiration date. If I were writing calls I would be writing the calls that are a few days from expiration. Then repeat next week if things, or my thinking, haven't changed.

 

With a short you could be waiting for years, like Chanos has, till something happens, if it happens in your favor. That is what I like about options, you set the date that determines the play. Then you are right even if the stock hasn't moved yet.