TSLA - Tesla Motors

[Foreign Tuffett]

Call notes 1

 

Chief Technical Office JB Straubel has resigned

 

Elon: There is plenty of demand, but many people don't have enough money to buy our cars so we are trying to improve affordability

 

Elon: Gross margin will be "compelling" once we are able to recognize the full self driving deferred revenue

 

 

* Note that all of the above is paraphrased

[Liberty]

Chief Technical Office JB Straubel has resigned

 

This is big.

 

Says he's be advisor, but still: https://www.cnbc.com/2019/07/24/tesla-says-cto-jb-straubel-is-moving-to-advisory-role.html

[Spekulatius]

The low Capex is surprising, given they are starting to build the Gigafactory in Shanghai while also starting to work on the Model Y (which apparently has many parts in common with model S, but still).

[A Dhandho Investor]

Chief Technical Office JB Straubel has resigned

 

This is big.

 

Says he's be advisor, but still: https://www.cnbc.com/2019/07/24/tesla-says-cto-jb-straubel-is-moving-to-advisory-role.html

 

"Mr. Lay and Mr. Skilling said the executive's resignation was a personal decision and that it didn't portend any change in Enron's strategy. Mr. Skilling, who also resigned from his board seat, will remain a consultant to the Houston energy powerhouse"

 

WSJ, 8/15/2001

[Foreign Tuffett]

Call notes 2

 

Elon: This is speculation, but I think the long term demand for Model 3 is 15K units per week

 

Elon: [referring to deliveries] I think demand in Q3 will exceed Q2. I think Q4 will be very strong. We expect Q/Q improvements

 

Elon: There is "some cannibalization" from Model 3 that is affecting S and X. There is a "communications issue" as consumers don't understand that these cars are radically better than they were a few years ago.

 

"Very significant opportunity" to upgrade the existing fleet to Full Self Driving

 

Elon: "Long term" gross margin target of 25 - 30%. Then he said 30%

 

We are making big strides in manufacturing Model 3s more cost effectively

 

Lots of talk about how many cars they can/will produce a week

 

CFO: We price the cars at the prices we think are appropriate. We don't optimize for regulatory credits

 

Elon: Without the S and X we couldn't spell "SEXY", but the "story" for the company is fundamentally Model 3 and Model Y. From a "volume standpoint" S and X are not all that important in the long run

 

Elon: Word of mouth for TSLA is incredibly good. A retail location is like a "viral seed" for an area. Service centers are key to sales

 

 

 

* Note that the above is paraphrased

 

[Foreign Tuffett]

Call Notes 3

 

Elon: Under the current regulatory regime we will not be able to offer Full Self Driving in the EU

 

Elon: We need to move parts from warehouses to service centers. CFO: We need to localize the parts. They don't need more spare parts, they just need to get them to the right places. Elon: we need to "stop doing silly things" We are fully vertically integrated...we can achieve a fundamentally better economic efficiency than the rest of the auto industry

 

 

Note that all of the above is paraphrased

[Parsad]

whut, Whut, WHUT ? ! ?

 

TSLA had lower sales & margins?  The stock is down bigly?  That is UNPOSSIBLE!

 

Everybody knows TSLA is going to be printing buckets of cash when they come out with self driving cars that you can put to work while you sleep to make extra kash!

 

Mr. Musk is also working on computer brain controlled monkeys!

 

https://www.iflscience.com/technology/elon-musks-neuralink-has-connected-a-monkey-brain-to-a-computer/

 

Just think of all the fun & neat stuff that could be done with that!  If for some reason they don't have self driving cars, maybe the monkeys could drive them?

 

This thing is going to $10,000/share, just give it time!

 

Hey, the company stinks, but you have to admit that he changed the auto industry and woke them up to the true potential of electric vehicles.  Plus the portable personal flame throwers are pretty awesome!  Will come in handy when we have to fight Aliens like Sigourney Weaver when we hit Mars! 

 

All kidding aside, the guy is probably one of the brightest minds we've seen in a 100 years...but that doesn't necessarily make for a good operating company.  But if you were going to bet on someone's potential, Elon Musk might very well be a good pick...or he could blow up!  Cheers!

[Ahab]

My money's on the latter, he blows up. Musk is smart, but too clever by half.

[meiroy]

whut, Whut, WHUT ? ! ?

 

TSLA had lower sales & margins?  The stock is down bigly?  That is UNPOSSIBLE!

 

Everybody knows TSLA is going to be printing buckets of cash when they come out with self driving cars that you can put to work while you sleep to make extra kash!

 

Mr. Musk is also working on computer brain controlled monkeys!

 

https://www.iflscience.com/technology/elon-musks-neuralink-has-connected-a-monkey-brain-to-a-computer/

 

Just think of all the fun & neat stuff that could be done with that!  If for some reason they don't have self driving cars, maybe the monkeys could drive them?

 

This thing is going to $10,000/share, just give it time!

 

Hey, the company stinks, but you have to admit that he changed the auto industry and woke them up to the true potential of electric vehicles.  Plus the portable personal flame throwers are pretty awesome!  Will come in handy when we have to fight Aliens like Sigourney Weaver when we hit Mars! 

 

All kidding aside, the guy is probably one of the brightest minds we've seen in a 100 years...but that doesn't necessarily make for a good operating company.  But if you were going to bet on someone's potential, Elon Musk might very well be a good pick...or he could blow up!  Cheers!

 

Well said.  He's a genius that has made our world a better place and will continue to do so, regardless of what happens to Tesla. 

[Ahab]

Tell that to the families of everyone who has died due to Autopilot.

[DTEJD1997]

whut, Whut, WHUT ? ! ?

 

TSLA had lower sales & margins?  The stock is down bigly?  That is UNPOSSIBLE!

 

Everybody knows TSLA is going to be printing buckets of cash when they come out with self driving cars that you can put to work while you sleep to make extra kash!

 

Mr. Musk is also working on computer brain controlled monkeys!

 

https://www.iflscience.com/technology/elon-musks-neuralink-has-connected-a-monkey-brain-to-a-computer/

 

Just think of all the fun & neat stuff that could be done with that!  If for some reason they don't have self driving cars, maybe the monkeys could drive them?

 

This thing is going to $10,000/share, just give it time!

 

Hey, the company stinks, but you have to admit that he changed the auto industry and woke them up to the true potential of electric vehicles.  Plus the portable personal flame throwers are pretty awesome!  Will come in handy when we have to fight Aliens like Sigourney Weaver when we hit Mars! 

 

All kidding aside, the guy is probably one of the brightest minds we've seen in a 100 years...but that doesn't necessarily make for a good operating company.  But if you were going to bet on someone's potential, Elon Musk might very well be a good pick...or he could blow up!  Cheers!

 

Well maybe...but there is a little bit of a difference Mr. Musk and Henry Ford, Edison and some other genius pioneers....

 

The difference is that the those who came before Mr. Musk made money, sometimes money by the trainload and they built companies that are still around today.  Their ideas & companies & contributions are still around today.  Mr. Musk has a bit to go before he reaches that stature.

 

 

[Parsad]

whut, Whut, WHUT ? ! ?

 

TSLA had lower sales & margins?  The stock is down bigly?  That is UNPOSSIBLE!

 

Everybody knows TSLA is going to be printing buckets of cash when they come out with self driving cars that you can put to work while you sleep to make extra kash!

 

Mr. Musk is also working on computer brain controlled monkeys!

 

https://www.iflscience.com/technology/elon-musks-neuralink-has-connected-a-monkey-brain-to-a-computer/

 

Just think of all the fun & neat stuff that could be done with that!  If for some reason they don't have self driving cars, maybe the monkeys could drive them?

 

This thing is going to $10,000/share, just give it time!

 

Hey, the company stinks, but you have to admit that he changed the auto industry and woke them up to the true potential of electric vehicles.  Plus the portable personal flame throwers are pretty awesome!  Will come in handy when we have to fight Aliens like Sigourney Weaver when we hit Mars! 

 

All kidding aside, the guy is probably one of the brightest minds we've seen in a 100 years...but that doesn't necessarily make for a good operating company.  But if you were going to bet on someone's potential, Elon Musk might very well be a good pick...or he could blow up!  Cheers!

 

Well maybe...but there is a little bit of a difference Mr. Musk and Henry Ford, Edison and some other genius pioneers....

 

The difference is that the those who came before Mr. Musk made money, sometimes money by the trainload and they built companies that are still around today.  Their ideas & companies & contributions are still around today.  Mr. Musk has a bit to go before he reaches that stature.

 

Henry Ford lost investor money on numerous occasions before getting it right.  Edison lost nearly everything, including all of his GE stock, when he was developing iron ore mining...it failed after 10 years.  Steve Jobs created Apple, then it fell apart and he was forced out as the company collapsed, and then came back in, saved it and turned it into the most valuable company in the world.  If you are afraid to fail, you will never create any meaningful success! 

 

Musk has so far redesigned the jet engine, created the reusable booster rocket, mass marketed the electric car, built one of the largest solar energy companies and built an underground test track through his Boring Company.  Most people would be a one in a billion genius lucky to do just one of those things...and Musk is just getting warmed up! 

 

By the way, I'm not a Tesla shareholder, but man would I like to own a piece of Musk's future output directly!  Cheers!

[Cardboard]

SpaceX attempts first short flight of Starship prototype rocket but stops shortly after engine fires

https://www.cnbc.com/2019/07/25/watch-spacex-starship-prototype-rocket-test.html

 

Too bad. Snif. Snif... Lol! Thomas Edison redoing the Apollo project.  ::)

 

The Indians will go to another planet before him.

 

Cardboard

[Ahab]

See you at zero.  8)

[TBW]

The one aspect that I find most confounding about Tesla, and the heart of the bull/bear argument, the company refers to themselves as a growth company, how is that possible now?

 

Tesla's revenue growth going forward is a function of capex, ie. they are an industrial not a software company.  Freemont is already at capacity and the rather than raise prices to grow revenues they have cut them to induce demand.  So going forward to grow revenues they have to spend money to build more factories/manufacturing space.

 

The simple question is, where does that money come from to do that?  They lose money, their last raise just plugged their current asset funding balance, and without another capital raise they won't have any money to spend on capex.  As it currently stands the company doesn't even cover their D&A, and haven't for the last year.

 

If you were to create a new widget maker ABC and gave it huge amounts of capital which it used to build a factory, the growth rate from time 0 to when the factory was at full capacity would look incredible.  When at capacity, if you take a step back there is no future growth until either widget prices go up, factory capacity increases, or a new factory is built.  To call the company growing, when it's factory has reached capacity would be incorrect.

 

This is exactly where Tesla is, except they are much worse of since they have to cut prices and they can't sell any of their high priced cars anymore.  Also in Tesla's situation, this factory loses money.

 

There is no growth going forward unless something drastic happens.  For Elon to suggest it is exponential going forward, without explaining how they fund that given the terrible balance sheet and money losing operations is just wrong to me.

 

disclaimer: short, have driven one (it is awesome, but so are all the other EV's which are driving experiences than ICE cars imo)

[fareastwarriors]

 

 

disclaimer: short, have driven one (it is awesome, but so are all the other EV's which are driving experiences than ICE cars imo)

 

So starting low 30k for a basic Leaf, starting mid 30k for a basic Bolt, or a Tesla 3, I'm rather stretch a bit and take the 3.

[Cardboard]

Woman want SUV:

 

VW second-quarter operating profit up 30% as SUV push pays off

https://www.cnbc.com/2019/07/25/vw-q2-operating-profit-up-30percent-as-suv-push-pays-off.html

 

Cardboard

[Foreign Tuffett]

Anyone who has ever invested in net nets has likely come across tiny POS companies that appear to be structurally incapable of generating sufficient gross profits to cover their operating expenses. I believe TSLA has a similar issue -- and the problem is rapidly worsening as relatively more (lower ASP) Model 3 vehicles are sold and relatively fewer (higher ASP) Model S and X vehicles are sold. TSLA just cut prices this month, which means things will look worse in Q3 and Q4.

 

https://arstechnica.com/cars/2019/07/tesla-cuts-prices-and-simplifies-its-product-line/

 

Musk seems to be fully aware of this issue, which is why he makes statements like this (from yesterday's call): "there's tremendous amount of desire to buy our cars, but people obviously they don’t have enough money to buy them, they cannot. So, we have to make the cars more affordable."

 

What Musk is really saying here is that there isn't sufficient demand at the prices TSLA is attempting to charge -- so prices will have to come down.

 

 

* Edited to translate "Musk speak" into standard English

[Foreign Tuffett]

Anyone who has ever invested in net nets has likely come across tiny POS companies that appear to be structurally incapable of generating sufficient gross profits to cover their operating expenses. I believe TSLA has a similar issue -- and the problem is rapidly worsening as relatively more (lower ASP) Model 3 vehicles are sold and relatively fewer (higher ASP) Model S and X vehicles are sold. TSLA just cut prices this month, which means things will look worse in Q3 and Q4.

 

https://arstechnica.com/cars/2019/07/tesla-cuts-prices-and-simplifies-its-product-line/

 

Musk seems to be fully aware of this issue, which is why he makes statements like this (from yesterday's call): "there's tremendous amount of desire to buy our cars, but people obviously they don’t have enough money to buy them, they cannot. So, we have to make the cars more affordable."

 

What Musk is really saying here is that there isn't sufficient demand at the prices TSLA is attempting to charge -- so prices will have to come down.

 

 

* Edited to translate "Musk speak" into standard English

 

This short article (no affiliation) makes a similar point with more data and better prose.

 

https://rapercapital.com/2019/07/25/tesla-were-going-to-miss-you-when-youre-gone/

[Dynamic]

That's quite an interesting and well expressed article. It puts a bearish case pretty well, and is enough to assure me that this company will remain on my Too Hard pile both from the long and short perspectives, partly because I feel it's way outside my circle of competence and partly from the prospect of its price being driven by foolishness from bulls and from bears that will exceed my patience and my funds.

 

One of the key headaches about running a car company and trying to ramp production fast is that there's a big risk in having to order parts from so many suppliers ahead of time according to a planned ramp to support the volume. If one crucial part is missing, the car cannot be finished and sold, so it's essential that all supplier ramp supply in unison.

 

If you can sell the cars promptly, however, you could get the payment before you have to pay the suppliers, which could be an advantage of Tesla's direct-to-consumer sales model, but sell the cars or not, you're committed to paying for the parts you've ordered according to the payment terms agreed, so essentially car makers are forced to either discount heavily when they've overestimated demand or to leave thousands of cars waiting on old airfields until demand recovers.

 

In this respect, having multisource agreements and second suppliers can help reduce the risk of supplier bottlenecks devastating your ability to complete vehicles, and also increase the odds of being able to ramp up further if demand is stronger than projected. Another approach that can smooth the supply/demand problem for certain models is the platforming approach, such as that used by VW group where a great number of Volkswagen, Audi, SEAT and Skoda cars share a common chassis platform and a limited selection of powertrains, interior parts and switchgear and instruments with a variety of bodies mounted on top. The development costs of these powertrains are spread wider and variations between the popularity of different models on the shared platform have less impact on the volumes required from the subcomponent production lines. However, wider economic woes can still affect the gross demand over all products quite severely from time to time.

 

A different approach is taken by some prestige brands who purposely restrict supply to sustain high margins for their vehicles  rather than chasing demand and offering discounts. The likes of Ferrari ensure that demand always exceeds supply.

 

Tesla has some interesting decisions in this regard.

 

Its mission is to accelerate the adoption of sustainable transportation and energy, perhaps this is placed ahead of rewarding its shareholders, certainly in the short term. I think it's something Elon considers to be something of an emergency - if he can bring forward by a decade or two the time by which the majority of road transportation is electric, the consequence could be a significant reduction in eventual peak temperature rise from anthropogenic global warming (which is naturally delayed some decades beyond the date we reach carbon neutral thanks to the time constants of some of the effects), so I suspect he's driven more by that than by profit. However, if other automakers start producing serious volumes of good electric cars that outsell Tesla in volume, it's possible that the mission will be won and Tesla would be able to focus more on profit.

 

Tesla is also in a situation where technology and volume are causing rather rapid reductions in the cost of battery modules, which is expected to continue as global production ramps up and technological improvements are introduced. Production techniques and simplification of options and the vehicle hardware have squeezed a lot of cost and time out of Model 3 production compared to Model S and Model X, making it a viable product for high volume. The mission is for them to extend this to the compact SUV/crossover sector with Model Y sharing a significant amount with Model 3 and to produce Model 3 efficiently and cost-effectively in China also.

 

Tesla also offers some rather unique features (especially in combination), such as high aerodynamic and drivetrain efficiency, dedicated network of high-speed chargers for trips, minimalist interior design, quiet driving, high performance and instant torque, advanced driver assistance (with potential to develop Level 4 or 5 self-driving thanks in part to the experience of running in shadow mode on a large fleet of cars) and very high safety ratings. It also offers models with super-car beating acceleration figures far cheaper than super-car prices.

 

If it does find itself in a position where it's forced to cut average selling prices to move inventory (and I'm yet to be convinced that is certainly the case), it could be a perpetual loser. It might choose to run this way if it decides that accelerating the introduction of mass-market affordable electric cars is more important than profit, or if it believes that higher volume will eventually lead to higher market share and higher profit, once the costs come down further still. (However, this could be akin to the Berkshire Hathaway textile mills situation where all competitors would spend on new machinery and then reduce prices instead of reaping higher profits to pay for the capex)

 

An option Tesla has is to narrow its focus on the premium segment of supercar performance high end vehicles and perhaps even limit supply in pursuit of modest volumes but very high margins, where a degree of rarity itself lends cachet to a product and they could probably increase prices substantially in return for a truly premium luxury and ultra-high performance product without impacting demand. They would also fill the niche of 'socially responsible' conspicuous consumption. They already have a premium high performance image and could focus on putting premium products into the most profitable segments, including the 2nd gen Roadster as an ultimate halo car. Perhaps it could earn a profit of $30,000-50,000 per car on hypercars and maybe $10,000-$20,000 on Model 3 Performance models priced to luxury levels comparable to luxury cars with similar performance and keep demand in excess of supply. The reduced volume would reduce the data on edge cases available to train self-driving software, but it might be a profitable company even if the mission has to be watered down somewhat (unless it's already won).

 

I think it's hoping it can navigate the cost curve just well enough to still achieve the high volume production to keep pressure on the major automakers to follow suit and bring about a rapid switch to electric. It does seem like a tightrope walk and Tesla has certainly faced a significant risk of failure in the past. It will be interesting to watch, and I do hope Tesla succeeds, for the benefit of the environment and for the enjoyment of drivers and passengers. I don't imagine I'll ever have any skin in the game as an investment though.

[walt373]

The federal tax incentive was halved again in July, which pulled ahead orders from Q3 into Q2, similar to how orders were pulled from Q1 into Q4 of last year, resulting in abnormally low Q1 deliveries. The dollar amount of the reduction was only half as much, but I don't expect the impact to be muted, because the SR+ did not exist back in Q4. So buyers of this variant did not already take advantage of the tax credit and these customers are the most price-sensitive. If you thought margins were lacking in a "good" quarter with record deliveries, wait until you see them in a quarter in which deliveries disappoint. TSLAQ twitter is already tracking Q3 activity to be at or below Q1 levels. I fully expect more price cuts to move metal.

[Parsad]

SpaceX attempts first short flight of Starship prototype rocket but stops shortly after engine fires

https://www.cnbc.com/2019/07/25/watch-spacex-starship-prototype-rocket-test.html

 

Too bad. Snif. Snif... Lol! Thomas Edison redoing the Apollo project.  ::)

 

The Indians will go to another planet before him.

 

Cardboard

 

https://www.cnn.com/2019/07/26/tech/spacex-starship-starhopper-test-flight/index.html

 

"Water towers CAN fly!" - Musk

 

People continue to under-estimate this guy.  Cheers!

[JRM]

Enron (Jeff Skilling) had ideas that were ahead of their time as well.  Broadband internet and video delivery through internet (with Blockbustser partnership).  It's important to separate the ideas and the investment. The ideas are probably 10 years early.  The investment is an asymmetric situation with a lot of downside left.

 

Tesla has a rabid following, and I have no doubt that the brand will survive.  Tesla investors seem equally rabid, and have lost touch with reality.

 

I also don't understand why people are quick to defend a guy who called a national hero a pedofile, committed securities fraud, and uses the general public as beta testers for "full self driving".  He is not an engineer, and  he continually makes factually incorrect and misleading statements that any real expert in the applicable field finds absurd.

[Guest longinvestor]

I had come across some private investors who rode the Musk brand, a decade or more ago. It almost didn’t matter what product but it was obvious to me that a very purposeful curation of the enigmatic “Musk” brand was underway; entirely through the online media. Just like this message board. There’s a whole generation that consumes all their information online without any reasonable verification mechanism whatsoever. They let the hype grow. Then they went public.

 

“Privatize gains, socialize losses” . This is largely the m.o of most private investments but TSLA is surely the poster child of this in these times.

 

I should add that Musk has definitely made a statement or two with the product and the ghastly mistakes have to do with investors not separating the product from the investment. Just read the messages on this thread. There’s someone sitting on a high floor in downtown cashing in as we speak!

 

 

 

 

[Dalal.Holdings]

Man, so many astute value investors on here rooting for Tesla to fail. Must be offended by Elon's Twitter account. Show me on this doll where Elon touched you...

 

$5B on the balance sheet up $3B in the quarter after $2.4B capital raise and $600M in FCF for the quarter. Guess all those expectations of impending bankruptcy, Elon's margin calls, etc have gone quiet...

 

Model 3 somehow outsold its entire segment combined. Sounds like a failing product with unhappy customers here.

 

Cash flows statement looks pretty good (and positive). Enron's cash flows were raising red flags (but hey, this is JUST LIEK ENRON GUYS I SWEAR).

 

Guess people don't seem to understand D&A and capex...that D&A is a non cash expense and may not reflect the real cash nature of capex...and you know, that capex might exhibit some lumpiness too when you grow 133% in sales y/y doing a capital intensive activity like ramping up a car's production and then afterwards capex may actually trend down once those initial cost outlays like developing a fully fledged production line are spent...

 

Meanwhile for some reason the China factory is full steam ahead and somehow Elon is keeping costs down. Almost like China is a cheaper place to do manufacturing or something...

 

And LOL at the SpaceX dig. Yeah, what an unremarkable achievement that is. No bias or anti-Elon delusion whatsoever, just an accurate view of reality...

 

Need you shorts to sell me more (borrowed) shares at $200 or less. Come on and make it happen with your B.S. propaganda machine while you root for Elon to fail because he somehow hurt your feelings or makes you agitated...