TSLA - Tesla Motors

[A Dhandho Investor]

 

@Skabooshka for instance better predicts M3 production than Bloomberg via its VIN-tracker.. He  has indicated that current M3 production rate is about 4k / week but that Tesla might post higher "production" rates in its Q3 report as it seems that Tesla is now also using Fremont to re-processing cars that were already built before.

https://twitter.com/skabooshka/status/1045587110994927616

 

 

They will produce higher than 4k/week numbers at times because they are ramping up in "bursts".  The company I think said it was going to make about 55,000 cars in Q3 which is just a bit more than 4,000 a week.  They achieve a new peak week of production and identify the bottlenecks, then they scale down again while they work on fixing the problems.

 

Tesla has explained this.

 

It is extraordinary that they have ramped up this fast this quickly and people are making a big deal that they are running into problems.  It is to be expected that they will run into a lot of problems but they are getting through them as production ramps up.

 

I read the comments of one of the departing Tesla executives and the reason given was that he felt like he was being ignored at Tesla.  Fully translated, that probably means "Elon Musk will only listen to himself".

 

I agree with the point that they are ramping up in bursts. However, the point that he wants to make is:

- they produced 5k cars in the burst week at the end of Q2 (of which 80% required rework btw)

- in the last week of Q3 (the current burst week) they are currently producing at a number of 4K/week

 

Because the 4K number would not fit in the narrative that they are ramping up production, he believes that Tesla will include reproduced cars in this week’s production to arrive at a number of let’s say 6k, so that they can continue their narrative that they are ramping up production..

[ERICOPOLY]

 

I agree with the point that they are ramping up in bursts. However, the point that he wants to make is:

- they produced 5k cars in the burst week at the end of Q2 (of which 80% required rework btw)

- in the last week of Q3 (the current burst week) they are currently producing at a number of 4K/week

 

Because the 4K number would not fit in the narrative that they are ramping up production, he believes that Tesla will include reproduced cars in this week’s production to arrive at a number of let’s say 6k, so that they can continue their narrative that they are ramping up production..

 

It doesn't surprise me that "burst" cars need a rework -- what other types of "problems" would need addressing after a week of significantly higher burst production?  Cars parked out in the desert or whatnot for later rework seem to logically fit their burst narrative.  Put this another way... if the cars came out perfect during a "burst" week, for what other reasons would they need to scale back production again?  Yes, they are fixing bottlenecks so that future burst weeks can be even higher, but when doing so they will introduce regressions.  Some of the bottlenecks have been addressed (as described in the conference call) came about by redesigning parts so that they would be easier on the production line crew.  I can only imagine that some of their tweaks and reworks will sometimes break things in the product.  They only just started volume production this year and so if they noticed thousands of cars built with a problem they didn't find previously, they'll park those cars in the desert and scale back production to a level where they can build the cars without those problems for a period until they feel they can safely go back to another burst week.

 

Why did Tesla only provide guidance for 55,000 cars in Q3 (4,000 per week) if they had a pre-conceived plot to actually report 6,000 cars per week?  The narrative is that they are cooking the books to pump up the stock price -- so why not actually do that by promising 6,000 a week instead of 4,000?

 

I don't have experience building cars but I have experience building software.  It takes one mistake by a developer fixing a problem that, if not done right, leads to a product that has far more problems than the previous build.  It sounds like the type of experience that Tesla is reporting:  2 steps forward, once step back.  one step forward, 2 steps back.  4 steps forward, two steps back. 

 

Anyways, as others have pointed out, they didn't raise capital when they could have.  The company is saying that they won't need to.  Anyone trying to keep the stock afloat for a few more years would have raised the capital instead of just flying the airplane straight into the dirt, right?  They chose to rely on internally generated cash flow -- they just might really be expecting it to materialize or else they would have raised the capital already.

 

[SHDL]

https://www.bloomberg.com/news/articles/2018-09-30/at-hopping-tesla-outlets-musk-s-volunteer-army-is-out-in-force?srnd=premium

 

I think this is literally the first time I have ever seen customers of a certain product become so passionate about it that they decide to go work for the company that produces it over a weekend, presumably for free, to help with deliveries.

[ERICOPOLY]

I listened to the Q1 call last night.  Musk was so defensive that he would not even dignify questions with answers.  Then Q2 was a bloodbath.

 

He was pretty cool on the Q2 call.  Relaxed and apologetic.

 

He might be someone with a terrible poker face who telegraphs the cards he is holding due to how much his identity is tied to Tesla.  I wonder if his behavior on future calls will be a useful indicator.

[Guest cherzeca]

most line of credit agreements have a material adverse change clause.  wonder if the banks told musk to settle if he wants to draw on the line again.  if I was the bank relationship manager, I sure would have. why kill your career over musk's ego?

[rb]

https://www.bloomberg.com/news/articles/2018-09-30/at-hopping-tesla-outlets-musk-s-volunteer-army-is-out-in-force?srnd=premium

 

I think this is literally the first time I have ever seen customers of a certain product become so passionate about it that they decide to go work for the company that produces it over a weekend, presumably for free, to help with deliveries.

Well that's just Silicon Valley weapons grade bullshit that makes for good copy but it really can point that there are serious problems with the company.

[A Dhandho Investor]

It doesn't surprise me that "burst" cars need a rework -- what other types of "problems" would need addressing after a week of significantly higher burst production?  Cars parked out in the desert or whatnot for later rework seem to logically fit their burst narrative.  Put this another way... if the cars came out perfect during a "burst" week, for what other reasons would they need to scale back production again?  Yes, they are fixing bottlenecks so that future burst weeks can be even higher, but when doing so they will introduce regressions.  Some of the bottlenecks have been addressed (as described in the conference call) came about by redesigning parts so that they would be easier on the production line crew.  I can only imagine that some of their tweaks and reworks will sometimes break things in the product.  They only just started volume production this year and so if they noticed thousands of cars built with a problem they didn't find previously, they'll park those cars in the desert and scale back production to a level where they can build the cars without those problems for a period until they feel they can safely go back to another burst week.

 

Why did Tesla only provide guidance for 55,000 cars in Q3 (4,000 per week) if they had a pre-conceived plot to actually report 6,000 cars per week?  The narrative is that they are cooking the books to pump up the stock price -- so why not actually do that by promising 6,000 a week instead of 4,000?

 

I don't have experience building cars but I have experience building software.  It takes one mistake by a developer fixing a problem that, if not done right, leads to a product that has far more problems than the previous build.  It sounds like the type of experience that Tesla is reporting:  2 steps forward, once step back.  one step forward, 2 steps back.  4 steps forward, two steps back. 

 

I don't necessarily disagree with what you are saying, the only remark that I have is that every forward looking statement, press release, or message (either from the company itself or that is leaked via InsideEV or Electrek) that puts the company in a positive daylight needs to be taken with a large bag of salt. e.g. if they communicate that they are still ramping up production and that in the last week of Q3 they produced 6k M3s, I would really question that information.

 

That is also evidenced by the agreement with the SEC, that requires an additional supervision committee within the BoD, which is rather remarkable for a 50 billion $ company. A couple of good summaries:

https://twitter.com/lazygetter/status/1046330591925293056

 

edit: another example, where Musk lied about model 3 production numbers in order to be able to raise debt:

 

 

Anyways, as others have pointed out, they didn't raise capital when they could have.  The company is saying that they won't need to.  Anyone trying to keep the stock afloat for a few more years would have raised the capital instead of just flying the airplane straight into the dirt, right?  They chose to rely on internally generated cash flow -- they just might really be expecting it to materialize or else they would have raised the capital already.

 

There seems to be a reason why they cannot raise capital, because do you believe that they can generate sufficient cash flow internally to:

- further ramp up model 3 production

- produce the Semi, Model Y, Roadstar 

- pay off debt

- expand their distribution network (to tackle the 'delivery' hell they have encountered this quarter)

- expand their service network (as Elon indicated that they are planning to take that inhouse)

 

Is it due to the ongoing SEC / DoJ investigations (ao with respect to the Solarcity acquisition, for which they maybe "fabricated" a Q3 2016 profit?), misrepresentations regarding the number of Model 3 reservations? I don't know, but the fact that Elon specifically indicated that they definitely do not plan to raise capital imo points in the direction that they simply cannot raise capital.

 

Edit: very good thread related to this:

 

 

[A Dhandho Investor]

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.

 

Just to come back to these statements from the Q2 call: on Saturday, Musk apparently sent an email to all employees that they are "very close to profitability". So even with all the lay-offs in Q2, the product pushing in Q3 (including discounting, one year free supercharging for model 3 owners), lack of investments in distribution, service centers, etc, they will at best only be marginally profitable in Q3. I don't think that bodes well for Q4, when deliveries will probably be lower, warranty costs will start to show up, etc..

 

 

[SHDL]

https://www.bloomberg.com/news/articles/2018-09-30/at-hopping-tesla-outlets-musk-s-volunteer-army-is-out-in-force?srnd=premium

 

I think this is literally the first time I have ever seen customers of a certain product become so passionate about it that they decide to go work for the company that produces it over a weekend, presumably for free, to help with deliveries.

Well that's just Silicon Valley weapons grade bullshit that makes for good copy but it really can point that there are serious problems with the company.

 

What I find funny about this story is how people can read it as either good news ("Wow, look at all this enthusiasm!  Surely Tesla will have no trouble selling as many cars and raising as much money as they want to!") or bad news ("Really?  They need VOLUNTEERS to come in and help with their deliveries!?").  It's like that drawing where some people see a young lady with an umbrella and others see an old woman with a huge nose.

[Cardboard]

"Five years later, Tesla is presently selling more sedans in the US than is BMW."

 

Almost nobody wants sedans Ericopoly.

 

When Obama came to power, he introduced regulation to improve ICE efficiency and did it ever worked! A 5 seat SUV is now consuming the same gasoline as a Civic did at the time.

 

So now consumers, women absolutely love SUV's as they are really practical and you can see better, have turned to them in a big way.

 

There is a reason why Ford will only keep the Mustang and cross-over Focus:

 

http://fortune.com/2018/04/26/ford-no-longer-making-sedans/

 

Cardboard

[oddballstocks]

"Five years later, Tesla is presently selling more sedans in the US than is BMW."

 

Almost nobody wants sedans Ericopoly.

 

When Obama came to power, he introduced regulation to improve ICE efficiency and did it ever worked! A 5 seat SUV is now consuming the same gasoline as a Civic did at the time.

 

So now consumers, women absolutely love SUV's as they are really practical and you can see better, have turned to them in a big way.

 

There is a reason why Ford will only keep the Mustang and cross-over Focus:

 

http://fortune.com/2018/04/26/ford-no-longer-making-sedans/

 

Cardboard

 

This is the trend I see in Mid-Atlantic suburbia as well.  To the point where I mentioned recently to my wife "does anyone buy a sedan anymore?"  There just aren't many on the road.

[benhacker]

SHDL,

 

https://www.bloomberg.com/news/articles/2018-09-30/at-hopping-tesla-outlets-musk-s-volunteer-army-is-out-in-force?srnd=premium

 

I think this is literally the first time I have ever seen customers of a certain product become so passionate about it that they decide to go work for the company that produces it over a weekend, presumably for free, to help with deliveries.

 

This is why many of us refer to Tesla as a religion.  Tesla is the new religion for atheists.

 

https://www.bloomberg.com/news/articles/2018-09-30/at-hopping-tesla-outlets-musk-s-volunteer-army-is-out-in-force?srnd=premium

 

I think this is literally the first time I have ever seen customers of a certain product become so passionate about it that they decide to go work for the company that produces it over a weekend, presumably for free, to help with deliveries.

Well that's just Silicon Valley weapons grade bullshit that makes for good copy but it really can point that there are serious problems with the company.

 

What I find funny about this story is how people can read it as either good news ("Wow, look at all this enthusiasm!  Surely Tesla will have no trouble selling as many cars and raising as much money as they want to!") or bad news ("Really?  They need VOLUNTEERS to come in and help with their deliveries!?").  It's like that drawing where some people see a young lady with an umbrella and others see an old woman with a huge nose.

 

Tesla is also a Rorschach test.

 

Stock price is so funny.

 

This is literally following all the moves I've seen in penny stocks and promotes.  But it is a $50b+ company.

 

Musk kills the Q3 guidance over weekend while seeming to violate the spirit of SEC deal (I know he has time to put in place their measures).  Stock up 15%.

 

Seems like we are just entering the period where all of his statements will start to catch up with him.  So many catalysts over the coming quarters, and I feel like Q3 should be HWM for foreseeable future of P&L... My buddy still doesn't have his car, and his coworkers have friends (who are not reservation holders) who are getting AWD deliveries.

 

Keep the faithful in their seats by making them think the seating in heaven is limited... smart.

 

 

[Liberty]

https://electrek.co/2018/10/01/tesla-production-record-q3-deliveries-crazier/

 

A source familiar with the matter has told Electrek that Tesla produced a record ~80,000 vehicles this quarter. [...]

 

Depending on how Tesla decides to present its production data (factory gated, rolled off the line, etc), our data could be off, but it’s unlikely to be off by more than 1 or 2 percent.

 

Among those 80,000 vehicles, Tesla produced about 53,000 Model 3 vehicles during the quarter. That’s an impressive 187% increase over the last quarter.

 

Overall, Tesla produced almost as many cars this quarter as the last two quarters combined.

[ERICOPOLY]

"Musk apparently sent an email to all employees that they are "very close to profitability". "

 

It can be read a couple of ways. 

 

A) . They are very close to profitability if only everyone hustles with free delivery volunteers this weekend

B).  There are only a few days left before the books are closed on a profitable quarter

 

We will see.

 

There was other news that they are cranking out 10,000 drive units per week at their Gigafactory 1 plant.  That's important as inverter supply was cited as a prior bottleneck.

[A Dhandho Investor]

https://electrek.co/2018/10/01/tesla-production-record-q3-deliveries-crazier/

 

A source familiar with the matter has told Electrek that Tesla produced a record ~80,000 vehicles this quarter. [...]

 

Depending on how Tesla decides to present its production data (factory gated, rolled off the line, etc), our data could be off, but it’s unlikely to be off by more than 1 or 2 percent.

 

Among those 80,000 vehicles, Tesla produced about 53,000 Model 3 vehicles during the quarter. That’s an impressive 187% increase over the last quarter.

 

Overall, Tesla produced almost as many cars this quarter as the last two quarters combined.

 

 

Eric, as expected, the article also contains this tidbit, that would lead the investor to think that they can product M3s at a rate of ~6K cars / week:

 

Friday, we published our latest report showing that Tesla achieved its Model 3 production goal for a record quarter with just over 2 days still to go.

 

Now that the quarter is over, our same source says that Tesla rallied to produce over 2,000 cars during those two and half days – bringing the total to around 80,000 vehicles.

 

In contrast, this was Skabooska's take on Tesla's production during last weekend:

[ERICOPOLY]

"Inventory glut" from Skabooska

 

Are you concerned they don't have real buyers?

 

I'm not concerned at all about that.  BenHacker has a friend who has been waiting forever.

 

You will have rising inventory if your production rate surpasses the delivery rate.

[Liberty]

You will have rising inventory if your production rate surpasses the delivery rate.

 

Musk has talked about them not having enough delivery trucks recently. Looks like their delivery infrastructure can't keep up with the rate of change in production (something else that both sides will interpret their own way: "Oh, they're so incompetent they can't even deliver the things" vs "Well, who else is growing car deliveries around the continent at 50-100% CAGR and not getting any problems?").

 

 

[SHDL]

Stock price is so funny.

 

This is literally following all the moves I've seen in penny stocks and promotes.  But it is a $50b+ company.

 

I’ve heard interesting stories through multiple channels which suggest that a significant chunk of the company’s stock is bought/held by:

 

a.  Growth-focused mutual funds who want TSLA in their portfolios partly because it helps them market their funds to investors who have very favorable images about Tesla (the company) in their minds. 

 

b.  Individual investors who keep putting big chunks of their monthly savings into the stock in part because they want to support Elon Musk’s Mission to Save the World.

 

If this is true, then that means we have a group of shareholders who have essentially decided that they’re ready to justify any/most losses from buying/holding TSLA as either marketing expenses or charitable contributions.

 

Now I have no idea how big this group really is, but I imagine that it can in principle be pretty big indeed, given, for instance, how many dollars go into marketing and charitable giving each year (100s of billions in the US alone I believe).  And the bigger this group is, the smaller (what might be called) the “effective float” of the stock is, and the more likely the stock will trade like a penny/nano/micro/small cap.

 

That is my own hunch/speculation as to why the stock trades the way it does (and my explanation for why I think that selling calls on this, for instance, looks way too risky to me). 

 

At any rate, I share the view that this is all very extraordinary.  For me it’s the perfect pastime.

[A Dhandho Investor]

You will have rising inventory if your production rate surpasses the delivery rate.

 

Musk has talked about them not having enough delivery trucks recently. Looks like their delivery infrastructure can't keep up with the rate of change in production (something else that both sides will interpret their own way: "Oh, they're so incompetent they can't even deliver the things" vs "Well, who else is growing car deliveries around the continent at 50-100% CAGR and not getting any problems?").

 

 

 

Actually, the explanation that is mostly used among shorts is the fact that Tesla is so cash strapped that Union Pacific held these cars 'hostage' until it finally got paid by Tesla, after which UP released the cars. With respect to the car trailers it is probably a combination of logistics people leaving and Musk that needs to sign off on all expenses > 1 million. So it mostly boils down to their low cash level (pushing suppliers and accounts payable to the extreme) instead of pure incompetence.

 

[ERICOPOLY]

"Five years later, Tesla is presently selling more sedans in the US than is BMW."

 

Almost nobody wants sedans Ericopoly.

 

When Obama came to power, he introduced regulation to improve ICE efficiency and did it ever worked! A 5 seat SUV is now consuming the same gasoline as a Civic did at the time.

 

So now consumers, women absolutely love SUV's as they are really practical and you can see better, have turned to them in a big way.

 

There is a reason why Ford will only keep the Mustang and cross-over Focus:

 

http://fortune.com/2018/04/26/ford-no-longer-making-sedans/

 

Cardboard

 

It is true that their SUV mix has grown at the expense of their sedans, but it is still a nearly even split among the two:

 

"BMW’s lineup of Sports Activity Vehicles accounted for 53.6 percent of BMW brand sales in August 2018. "

 

https://www.press.bmwgroup.com/usa/article/detail/T0284604EN_US/bmw-group-u-s-reports-august-2018-sales?language=en_US

 

Regardless, Tesla is currently outselling all BMW models put together in the US, not just sedans.

 

 

 

[peterHK]

 

 

It is true that their SUV mix has grown at the expense of their sedans, but it is still a nearly even split among the two:

 

"BMW’s lineup of Sports Activity Vehicles accounted for 53.6 percent of BMW brand sales in August 2018. "

 

https://www.press.bmwgroup.com/usa/article/detail/T0284604EN_US/bmw-group-u-s-reports-august-2018-sales?language=en_US

 

Regardless, Tesla is currently outselling all BMW models put together in the US, not just sedans.

 

Except that Tesla has 2 years of pent up demand to work through whereas BMW doesn't. Pretty easy to sell at these rates when that situation exists, but what will the run rate be once that's been normalized and everyone else has an EV on the road?

[ERICOPOLY]

We'll just have to wait and see with regards to that.

 

Six years ago, they were working through their pent-up demand for the Model S:

 

https://www.fool.com/investing/general/2015/04/03/tesla-motors-inc-reports-record-model-s-deliveries.aspx

[Grant]

How many deposits did the Model S have?

 

I don't expect a drop in demand until Q1, when tax credits get cut in half. While all available data indicates the 3's big demand backlog is getting worked through, there may be a mad rush to get the full tax credits before 2018 ends.

[A Dhandho Investor]

We'll just have to wait and see with regards to that.

 

Six years ago, they were working through their pent-up demand for the Model S:

 

https://www.fool.com/investing/general/2015/04/03/tesla-motors-inc-reports-record-model-s-deliveries.aspx

 

So you probably have a good explanation for:

-the drop in VIN registrations in September: https://www.bloomberg.com/graphics/2018-tesla-tracker/

- the drop in M3 configurations reported to one of the Tesla bulls who is keeping track of which cars are being configured: https://twitter.com/jaberwock2/status/1046846065671118849

 

 

 

 

[ERICOPOLY]

We'll just have to wait and see with regards to that.

 

Six years ago, they were working through their pent-up demand for the Model S:

 

https://www.fool.com/investing/general/2015/04/03/tesla-motors-inc-reports-record-model-s-deliveries.aspx

 

So you probably have a good explanation for:

-the drop in VIN registrations in September: https://www.bloomberg.com/graphics/2018-tesla-tracker/

- the drop in M3 configurations reported to one of the Tesla bulls who is keeping track of which cars are being configured: https://twitter.com/jaberwock2/status/1046846065671118849

 

I don't have inside information.  I feel as though if I don't provide you with an answer it will be heralded as proof that the Model 3 will not be produced again in volumes attained just a few weeks ago.

 

Seriously.