TSLA - Tesla Motors

[Liberty]

Musk letter to employees, cutting 7% of workforce:

 

https://www.cnbc.com/2019/01/18/elon-musk-tesla-email-to-employees-about-job-cuts.html

[Spekulatius]

Musk letter to employees, cutting 7% of workforce:

 

https://www.cnbc.com/2019/01/18/elon-musk-tesla-email-to-employees-about-job-cuts.html

 

The bigger surprise was the cut for SpaceX. Cash issues in the Elon sphere?

[Liberty]

Musk letter to employees, cutting 7% of workforce:

 

https://www.cnbc.com/2019/01/18/elon-musk-tesla-email-to-employees-about-job-cuts.html

 

The bigger surprise was the cut for SpaceX. Cash issues in the Elon sphere?

 

Probably, especially after the Q4 that we saw, a lot of sources of capital probably got a little skittish. ¯\_(ツ)_/¯

 

It's also always hard with fast-growing companies to balance expenses vs growth vs profitability. Undershoot and you got problems, overshoot and you got problems. A company growing 5% a year can plan things out and keep it smooth pretty easily. A manufacturing company growing over 60%/year probably has a very hard task managing growth any way you slice it.

 

I still think Elon needs to find some solid people to help with finances and ops.

[Liberty]

I posted the Barry Diller interview in the IAC thread, but he mentions Tesla in it:

 

 

[SHDL]

It comes after a pretty big hiring spree, so not too surprising IMO.  I'm sure the bulls will have no problem brushing it off as a sign of efficiency improvements...

[Spekulatius]

It comes after a pretty big hiring spree, so not too surprising IMO.  I'm sure the bulls will have no problem brushing it off as a sign of efficiency improvements...

 

If a company is growing in leaps and bounds (20%+) there isn’t a need for large scale layoffs, because it would grow into an oversized workforce very quickly.

 

The layoff is a big hint that growth won’t be forthcoming in the near term.

[SHDL]

If a company is growing in leaps and bounds (20%+) there isn’t a need for large scale layoffs, because it would grow into an oversized workforce very quickly.

 

The layoff is a big hint that growth won’t be forthcoming in the near term.

 

Yes, that's a possibility for sure.  It'll be interesting to know exactly which group of workers were let go.  I don't think this is something to worry about if they are just laying off people who were hired temporarily to fill in gaps in the manufacturing process that existed only because certain automations weren't working as well as expected.  But it may be a different story otherwise. 

[A Dhandho Investor]

The new round of layoffs is just another sign that Tesla is structurally unprofitable. It was only last June, when they laid of 9% of the workforce, that Elon stated "We are making this decision now so that we never have to do this again." Some people with inside info indicated that in December, 5% of the workforce was also laid off linked to performence reviews (no 8k required).

 

The fact that Tesla is structurally unprofitable is ofcourse linked to this part of Elon's letter:

In Q3 last year, we were able to make a 4% profit. While small by most standards, I would still consider this our first meaningful profit in the 15 years since we created Tesla. However, that was in part the result of preferentially selling higher priced Model 3 variants in North America. In Q4, preliminary, unaudited results indicate that we again made a GAAP profit, but less than Q3. This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will hopefully allow us, with great difficulty, effort and some luck, to target a tiny profit.

 

Basically, he states that Q3 was as good as it gets. The letter does not tackle two important items: model 3 production and demand. If my memory serves well, Elon indicated mid 2017 that the market would have absolutely no concern that they would be building 10.000 model 3's per week at the end of 2018. During the Q2 2018 call, he indicated that minimal cap-ex was required to build 7.000 model 3's per week. At the end of 2018, Tesla is still building less than 5.000 Model 3's per week. The obvious reason is ofcourse: lack of demand. I saw this quote from Deutsche Bank on Twitter:

"In our conversation with the company, it acknowledged its remaining pipeline of Model 3 orders is now mostly from customer overseas, or from US customers waiting for a leasing option or cheaper variants of the vehicle."

 

 

And indeed, when ordering a model 3 in the US, you will get your car in 2 weeks. So why would Tesla try to increase production rates for a car with no more demand than 2k / 3k week?

 

Tesla is in a classic catch 22 situation: it needs to sell more cars to be able to lower the price of its cars, while at the same time it needs to lower the prices of its cars to be able to sell more cars.

 

 

 

 

 

[Spekulatius]

If a company is growing in leaps and bounds (20%+) there isn’t a need for large scale layoffs, because it would grow into an oversized workforce very quickly.

 

The layoff is a big hint that growth won’t be forthcoming in the near term.

 

Yes, that's a possibility for sure.  It'll be interesting to know exactly which group of workers were let go.  I don't think this is something to worry about if they are just laying off people who were hired temporarily to fill in gaps in the manufacturing process that existed only because certain automations weren't working as well as expected.  But it may be a different story otherwise.

 

Those positions would be temps and contractors which have been laid off too, in addition to the workforce layoffs announced above. I do think the only explanation is that growth isn’t forthcoming and they are in the rationalization stage where they need to wring costs out of the system. I think Dhando got it right that they harvested their backlog with the most profitable market segment and now need to go downmarket.

 

What I can’t for the life of me figure out is why they haven’t raised more capital.

[Guest cherzeca]

looks to me like the saudis used inside information in violation of the US securities laws. hedging entire 4.9% common position the night before layoff announced and stock tanked.  https://finance.yahoo.com/news/saudi-arabias-pif-slashes-exposure-174815266.html

[A Dhandho Investor]

looks to me like the saudis used inside information in violation of the US securities laws. hedging entire 4.9% common position the night before layoff announced and stock tanked.  https://finance.yahoo.com/news/saudi-arabias-pif-slashes-exposure-174815266.html

 

They definitely were aware of MNPI if you look at the size of the hedge (their entire position) and the timing of the transaction (after the market close and the day before the information went public). On the same day Antonio Gracias, an independent director, also sold $5,4 million worth of options.

 

This is definitely going to be fun once the movie comes out :-).

 

I sold some out of the money call options (January 2020 420 strike) and am awaiting tomorrow's Q4 release and conference call to see how this evolves further.

 

 

[walkie518]

interesting that Ellison bought so much stock right before the drop

 

I'm not sure if this is telling of Ellison or Musk's ability to manipulate someone like Ellison?

[Leverage Capabilities]

interesting that Ellison bought so much stock right before the drop

 

I'm not sure if this is telling of Ellison or Musk's ability to manipulate someone like Ellison?

 

Given his involvement in Theranos (see Bad Blood) seems like Ellison might be a sucker for Silicon Valley "visionaries"

[Liberty]

Q4 letter:

 

http://ir.tesla.com/static-files/0b913415-467d-4c0d-be4c-9225c2cb0ae0

[Spekulatius]

Q4 letter:

 

http://ir.tesla.com/static-files/0b913415-467d-4c0d-be4c-9225c2cb0ae0

 

It’s not going broke any time soon.

[A Dhandho Investor]

We'll see Spekulatius. Are you still convinced that the short thesis is broken?

 

Did not have time to listen to the Conference call and go through all the details yet, but some elements seem very sus:

- taking into account the interest income earned over Q4, the average cash balance throughout the quarter was about 1,5 billion. Tesla definitely engaged again in some window dressing at the end of the quarter

- accounts receivable stayed at the 1 billion level - in Q3 Deepak indicated on the call that this was due to the quarter ending in a weekend and Tesla not being able to cash in the customers cheques. Now the quarter ended on a Monday. 1 billion, that is 15.000 Model 3s at an ASP of 60k. Isn't that the number of missing registered cars?

- cap ex was well below depreciation and amortisation in Q4. Is this a growth company?

 

And ow yeah, one more thing, the CFO leaves and is replaced by a 34 year old who has never held the role of CFO. Are they serious?

[Ballinvarosig Investors]

And ow yeah, one more thing, the CFO leaves and is replaced by a 34 year old who has never held the role of CFO. Are they serious?

Andrew Fastow says hello.

[Spekulatius]

We'll see Spekulatius. Are you still convinced that the short thesis is broken?

 

Did not have time to listen to the Conference call and go through all the details yet, but some elements seem very sus:

- taking into account the interest income earned over Q4, the average cash balance throughout the quarter was about 1,5 billion. Tesla definitely engaged again in some window dressing at the end of the quarter

- accounts receivable stayed at the 1 billion level - in Q3 Deepak indicated on the call that this was due to the quarter ending in a weekend and Tesla not being able to cash in the customers cheques. Now the quarter ended on a Monday. 1 billion, that is 15.000 Model 3s at an ASP of 60k. Isn't that the number of missing registered cars?

- cap ex was well below depreciation and amortisation in Q4. Is this a growth company?

 

And ow yeah, one more thing, the CFO leaves and is replaced by a 34 year old who has never held the role of CFO. Are they serious?

 

I believe the thesis that TSLA adds a Q to it’s ticket within a short period of time is broken, so in that sense, the short thesis is broken. I would touch the stock with a ten foot pole long however. I agree that the employee turnover is worrisome.

 

For me, puts are simply too expensive to make a play here.

[Dynamic]

I believe the thesis that TSLA adds a Q to it’s ticket within a short period of time is broken, so in that sense, the short thesis is broken...

 

For anyone confused by that autocorrect, I think it should have said "Q added to its ticker symbol within a short period of time"

 

I also agree that I wouldn't take a position in TSLA, long or short, at the moment.

I support the company's mission, and maybe one day I'll buy one of their products, but I cannot feel comfortable either way with the stock or assessing its Intrinsic Value.

[cameronfen]

We'll see Spekulatius. Are you still convinced that the short thesis is broken?

 

Did not have time to listen to the Conference call and go through all the details yet, but some elements seem very sus:

- taking into account the interest income earned over Q4, the average cash balance throughout the quarter was about 1,5 billion. Tesla definitely engaged again in some window dressing at the end of the quarter

- accounts receivable stayed at the 1 billion level - in Q3 Deepak indicated on the call that this was due to the quarter ending in a weekend and Tesla not being able to cash in the customers cheques. Now the quarter ended on a Monday. 1 billion, that is 15.000 Model 3s at an ASP of 60k. Isn't that the number of missing registered cars?

- cap ex was well below depreciation and amortisation in Q4. Is this a growth company?

 

And ow yeah, one more thing, the CFO leaves and is replaced by a 34 year old who has never held the role of CFO. Are they serious?

 

I believe the thesis that TSLA adds a Q to it’s ticket within a short period of time is broken, so in that sense, the short thesis is broken. I would touch the stock with a ten foot pole long however. I agree that the employee turnover is worrisome.

 

For me, puts are simply too expensive to make a play here.

 

Is there any reason why you wouldn't sell calls then?  I mean it makes more sense to be long TSLA vol than short it, but you have that infinite potential loss if it goes stratospheric. 

[frommi]

Demand cliff confirmed:

https://pbs.twimg.com/media/DyVgIZsUYAAaAvW.jpg

 

I sold some more call spreads and bought a small amount of 200$ puts with the proceeds. I think the time has come for this short to really work.

[Liberty]

Demand cliff confirmed:

https://pbs.twimg.com/media/DyVgIZsUYAAaAvW.jpg

 

I sold some more call spreads and bought a small amount of 200$ puts with the proceeds. I think the time has come for this short to really work.

 

I'm not following closely at all (I'm interested in electric cars as a technology, but not in this co as an investment or short), but didn't they mention something about building and shipping Model 3s to Europe and Asia? Isn't this just showing that production is going there right now to meet that backlog (and presumably the US backlog has been fully or partly eliminated in recent months)? The stock certainly didn't react to the number, so something's telling me this isn't what it looks like at first glance, but ¯\_(ツ)_/¯

 

 

[frommi]

Demand cliff confirmed:

https://pbs.twimg.com/media/DyVgIZsUYAAaAvW.jpg

 

I sold some more call spreads and bought a small amount of 200$ puts with the proceeds. I think the time has come for this short to really work.

 

I'm not following closely at all (I'm interested in electric cars as a technology, but not in this co as an investment or short), but didn't they mention something about building and shipping Model 3s to Europe and Asia? Isn't this just showing that production is going there right now to meet that backlog (and presumably the US backlog has been fully or partly eliminated in recent months)? The stock certainly didn't react to the number, so something's telling me this isn't what it looks like at first glance, but ¯\_(ツ)_/¯

 

Yes of course, but orders from Europe are around 18-20k right now if i recall that correctly, and it will start as soon the end of february. It just shows that there is no continuous demand. Why shouldn`t europe demand fall off after the first batch of orders are fullfilled either? So maybe they can sell 100k cars per year going forward, but thats it. Thats a far cry from the 300-400k production capacity. And the stock is priced as if they sell 2 million cars profitably per year already. Not to mention that its very unlikely now that they post a profit in Q1 or revenue growth QoQ. And the negative working capital rolling off can hurt them hard on the cash balance.

[Liberty]

Demand cliff confirmed:

https://pbs.twimg.com/media/DyVgIZsUYAAaAvW.jpg

 

I sold some more call spreads and bought a small amount of 200$ puts with the proceeds. I think the time has come for this short to really work.

 

I'm not following closely at all (I'm interested in electric cars as a technology, but not in this co as an investment or short), but didn't they mention something about building and shipping Model 3s to Europe and Asia? Isn't this just showing that production is going there right now to meet that backlog (and presumably the US backlog has been fully or partly eliminated in recent months)? The stock certainly didn't react to the number, so something's telling me this isn't what it looks like at first glance, but ¯\_(ツ)_/¯

 

Yes of course, but orders from Europe are around 18-20k right now if i recall that correctly, and it will start as soon the end of february. It just shows that there is no continuous demand. Why shouldn`t europe demand fall off after the first batch of orders are fullfilled either? So maybe they can sell 100k cars per year going forward, but thats it. Thats a far cry from the 300-400k production capacity. And the stock is priced as if they sell 2 million cars profitably per year already. Not to mention that its very unlikely now that they post a profit in Q1 or revenue growth QoQ. And the negative working capital rolling off can hurt them hard on the cash balance.

 

I don't know. I'm just saying the chart is showing a huge drop because it doesn't take into account what's going on outside the US. If you had the same chart for "worldwide", it would probably look pretty normal.

 

I also think the general theory is that over time they keep making lower-priced versions of the M3 and sell it to different segments of the market, and then open up a new segment with the Y (smaller electric crossover), and eventually with an electric pickup truck, etc.

 

It'll be hard, and they're usually late on their promises, but I don't think the worldwide market for EVs has suddenly tapped out in a single month.

[frommi]

I don't know. I'm just saying the chart is showing a huge drop because it doesn't take into account what's going on outside the US. If you had the same chart for "worldwide", it would probably look pretty normal.

 

I also think the general theory is that over time they keep making lower-priced versions of the M3 and sell it to different segments of the market, and then open up a new segment with the Y (smaller electric crossover), and eventually with an electric pickup truck, etc.

 

It'll be hard, and they're usually late on their promises, but I don't think the worldwide market for EVs has suddenly tapped out in a single month.

 

I don`t think that matters much, because to develop new products or factories they need cash, a lot of cash. Where is that coming from? The debt markets are closed for them. The cash balance in the financial statements looks high, but that is only because they pay suppliers at the start of the quarter.  If you look at the interest payments they got on the cash, average cash balance for Q4-2018 was around 1 billion, that`s barely enough to repay the march debt. And payables on the end of last quarter were ~5.5 billion, with just 1 billion in outstanding receivables. If revenue goes down this is not sustainable, because they have to pay suppliers more than they get from customers each month. Negative working capital only works when revenue is going up.

So they have to raise capital, increase revenue by a lot or they are bankrupt sometime in 2019. Either way the stock price will go down.

 

I suspect that Deepak has left because he realized that Elon is again gambling on the future of the company (and doesn`t want to raise equity) but this time the odds are clearly against him. Elon is deep on margin on Tesla stock and his margin call is getting closer every month, because hes probably pledging more stock every month, since he can`t afford to pay the interest. None of his enterprises pay him in cash. You can`t expect him to make unbiased and reasonable decisions. I really like the cars they make, but the company is a mess.

 

And to come back to world wide EV sales, of course that market is growing, but the competition is heating up. The Porsche Taycan and the Jaguar iPace are already grabbing lots of market share from S and X sales worldwide and the model 3 is competing with the LEAF and the KIA e-Niro, which both are a lot cheaper, but offer a similar experience. I watched youtube videos on the "Autopilot" feature from the KIA e-Niro and it looks similar to that of a model 3. The only current advantage TSLA still has is the charger network, but since most people charge at home and charger stations are shooting out of the ground like mushrooms, the advantage diminishes quickly. I think that TSLA has also destroyed its brand value for luxury cars with the model 3 quality, at least i would prefer a car from another company now that i know how bad the quality of their cars really is. (And wait 4-8 weeks for a repair?? no way!)

 

And they just ended their referral program, are they really getting more revenue without this cheap advertising? I think this was part of their success, lots of youtube guys post videos of the greatness of TSLA cars and than add their referral code at the end of the video.