Thoughts on TESLA

[ERD50]

I spent most of my career in aerospace, where low-volume and high-cost attributes are the norm. I am now more interested and curious in high-volume products for the masses, because they have better potential for enhancing the life for more people. ....

I've worked on very low volume (single digit per month shipments), to very high volume (hundreds of thousands per month). I recall my boss figuring that the sales volume from the area our group had direct responsibility for would put us in the S&P 500.

The low volume can be very interesting, the high volume more satisfying in some ways (and interesting in different ways) - as you say, it's pretty cool knowing you've enhanced the lives of that many people, even if only in some small way. But it sometimes was in a big way.

... I am more interested in the battery technology anyway, and there's no way to invest in that alone. Panasonic is building the cells for Tesla inside that factory, and the latter is doing the engineering to assemble them into packs. If Tesla bites the dust, Panasonic can take its secret sauce recipe elsewhere, so not all is lost.

I have some other thoughts on batteries, maybe better for that thread I started a while back on the future of the ICE. Maybe later. Any updates on your battery project?

-ERD50

 

[aja8888]

It would be interesting to see Tesla's income statements and balance sheet to see what's really going on. I would guess being a public company, that info will be made available at FY end. But, you are right in saying that the bond repayments will set them back, especially if they attempt to issue more common stock to cover bond repayments and current obligations.

 

[ERD50]

Happy to get into the broader subject matter (and I think we have), but you seemed a little put-off by the fact that I would recommend buying Tesla stock in a thread titled "Stock Picking and Market Strategy>Thoughts on Tesla". Good to hear that you have an opinion on the specific topic.

I do not expect to change your mind. I think the exchange of ideas on Tesla, Musk, and the underlying tech is useful and interesting. We seem to be arguing around the edges now, however. Time will tell on this one.

OK, and sorry to belabor this, but why do you think I was 'a little put-off by the fact that I would recommend buying Tesla ' in this thread? Maybe I'd need to see that post, it might have conveyed something I didn't intend. Offhand, I don't think it would matter to me - that's what makes a market. More likely, I disagreed with some reasons you gave for recc the stock? Ahhh, since I land here from the portal, or an email update, I rarely notice which sub-forum a post is in, and this is the 'stock picking' sub-forum. Anyhow, I do think all the other side subjects are related to Tesla's future. They play in all those spaces.

-ERD50

 

[NW-Bound]

... Any updates on your battery project?
-ERD50

I had to put this aside to prep my RV for the Alaskan trip. Ever since coming back, I have been slowly getting back to where I was doing on the 22kWh battery project and the solar system.

If I can use the battery to "arbitrage" the difference between the 7c/kWh off-peak and the 22c/kWh on-peak rates, I gain maybe $3/day, even if I have no solar panels installed. Not a lot of money, but something for a retired guy to tinker with.

Got those LFP batteries. Then got 2.5kW worth of panels. Been thinking about getting another 3kW. Got some electronic parts. Designed a BMS, and was building and writing some firmware before that RV trip. Now need to get back to it, but still pondering some technical details.

Bought a 2.4kW inverter for 115V, and been evaluating it. Will add a 230V inverter later.

It's too hot outside now to build an equipment shed in the back, dig trenches for the wires, running wires to the roof and to the electrical panel, etc...

Boy, lots of work, but I have spent quite a few thousands already. Batteries, solar panels, electronic parts, and rolls of wire stashed around the house, inside and out ... Parts are still trickling in, and this will not stop for a loong time...

 

[NYEXPAT]

Good luck with the IPO purchase. Some quick reading is indicating they have been burning through cash at an alarming rate:

From Market Watch today:



Looks like the offering revenue from the IPO (not including investment banker purchases) will cover them for another year.

So, I got in at $6.25 (Bernstein values the company at $4.20) and sold it off today at $12.10. It bumped my YTD return by 2%.

$6.25 was the actual IPO price and by my calculations the companies advisors were originally looking at $11.25. Based on Tesla's metrics it should be worth $25.00 in 5 years and I won't wait 5 years for a double.

A very interesting concept for a Chinese company and they have way outperformed EM at this stage (less than 4 years in business) plus they have serious backers from Sequoia Capital to Alibaba and Tencent and their highy unusual marketing agreement with JD,com.

Hopefully. I will be able to get back in below the offering price in the future as I would love to add this to my Children's LT holdings.

 

[NW-Bound]

About the 2017 bond that raised $1.8B, I remember people saying that, not only that the 5.3% interest rate was not high enough for the risk, the bond also was not backed by the gigafactory.

This means that in the case of default, the gigafactory is off-limit to claims by bond holders. It makes sense because Panasonic has a partial ownership of that factory.

 

[oneill225]

OK, and sorry to belabor this, but why do you think I was 'a little put-off by the fact that I would recommend buying Tesla ' in this thread? Maybe I'd need to see that post, it might have conveyed something I didn't intend. Offhand, I don't think it would matter to me - that's what makes a market. More likely, I disagreed with some reasons you gave for recc the stock? Ahhh, since I land here from the portal, or an email update, I rarely notice which sub-forum a post is in, and this is the 'stock picking' sub-forum. Anyhow, I do think all the other side subjects are related to Tesla's future. They play in all those spaces.

-ERD50

No worries. You said: "Buy Tesla"? - you sound like a stock pumper, rather than someone interested in digging into the facts behind the issues surrounding the company and its products."

 

[aja8888]

No worries. You said: "Buy Tesla"? - you sound like a stock pumper, rather than someone interested in digging into the facts behind the issues surrounding the company and its products."

The company is fine and the technology and product are useful. The thing that is missing is that they can't make the products for a profit that will self sustain the business in the industry they are competing in.

If they were making government subsidized products, it might work....Oh, the gov is subsidizing...

 

[oneill225]

The company is fine and the technology and product are useful. The thing that is missing is that they can't make the products for a profit that will self sustain the business in the industry they are competing in. If they were making government subsidized products, it might work....Oh, the gov is subsidizing...

All of their cars sell at a profit. How much is not known, but you are buying into the short seller hype when you make that declaration. Government subsidies are nearly gone on the Model 3 due to large production numbers, but subsidies do not affect the profit numbers as long as customers continue to que-up (which they seem to be doing).

That gets us back to a fine and useful product. A good investment?

 

[aja8888]

All of their cars sell at a profit. How much is not known, but you are buying into the short seller hype when you make that declaration. Government subsidies are nearly gone on the Model 3 due to large production numbers, but subsidies do not affect the profit numbers as long as customers continue to que-up (which they seem to be doing).

That gets us back to a fine and useful product. A good investment?

Explain to us how Tesla makes a profit on each car when they have historically reported earnings as a loss?

(and I'm not even going to mention the continuing negative cash flow numbers and the issuance of debt to stay in operation.)

 

[oneill225]

Explain to us how Tesla makes a profit on each car when they have historically reported earnings as a loss? (and I'm not even going to mention the continuing negative cash flow numbers and the issuance of debt to stay in operation.)

Each car is sold at a profit. They are losing money because the cumulative profit has not yet been able to cover the expenditures of the company as a whole. However, as more cars are sold (for a profit) that gap will continue to close. I have heard reasonable estimates that Tesla could be in the black within the next 6 months. If it takes a year, who really cares as long as that gap continues to close.

Amazon had a number of losing years in their early days. It takes a lot of cash to build a new industry from scratch.

 

[aja8888]

Each car is sold at a profit. They are losing money because the cumulative profit has not yet been able to cover the expenditures of the company as a whole. However, as more cars are sold (for a profit) that gap will continue to close. I have heard reasonable estimates that Tesla could be in the black within the next 6 months. If it takes a year, who really cares as long as that gap continues to close.

Amazon had a number of losing years in their early days. It takes a lot of cash to build a new industry from scratch.

Whatever...

 

[NW-Bound]

Explain to us how Tesla makes a profit on each car when they have historically reported earnings as a loss?

(and I'm not even going to mention the continuing negative cash flow numbers and the issuance of debt to stay in operation.)

I never study Tesla's financial statement, and do not know if the answer could even be found there.

The car selling prices could be above the manufacturing costs, but they are still spending money on expanding their factories, doing R&D on new models, etc...

So, the question is if the clock is running out on them. If they need to raise more money, the terms will not be as easy as before. Musk has been saying he needs no new debt, although his stash of cash has been shrinking. This, and the fact that some early bonds are coming due soon makes it very interesting to watch.

 

[oneill225]

I never study Tesla's financial statement, and do not know if the answer could even be found there.
The car selling prices could be above the manufacturing costs, but they are still spending money on expanding their factories, doing R&D on new models, etc...
So, the question is if the clock is running out on them. If they need to raise more money, the terms will not be as easy as before. Musk has been saying he needs no new debt, although his stash of cash has been shrinking. This, and the fact that some early bonds are coming due soon makes it very interesting to watch.

Yes. A lot weighing down the stock at present. Opportunity knocks if you are willing to bet that the profit continues to grow.

 

[ERD50]

No worries. You said: "Buy Tesla"? - you sound like a stock pumper, rather than someone interested in digging into the facts behind the issues surrounding the company and its products."

Ahh, OK, that post. Sure, you said "Buy Tesla, right after saying "Good thing they are less polluting than millions of ICE (or even hybrid) cars/trucks." And I've been showing that ain't necessarily so. So "Buy Tesla" after a very questionable 'reason' just struck me as stock pumping.

Each car is sold at a profit. They are losing money because the cumulative profit has not yet been able to cover the expenditures of the company as a whole. However, as more cars are sold (for a profit) that gap will continue to close. I have heard reasonable estimates that Tesla could be in the black within the next 6 months. If it takes a year, who really cares as long as that gap continues to close.

Amazon had a number of losing years in their early days. It takes a lot of cash to build a new industry from scratch.

Whatever...

To aja8888, I wouldn't be so dismissive. There's a lot of moving parts to financials, and I'm skeptical that Tesla can be consistently profitable, but I've never dug that deep into the numbers. I won't rule it out. But skeptical, yes, quite a bit.

I think what oneill225 is saying is Tesla is making a 'gross profit' on each car. I think that's the right term. IIRC, that is the basic cost of components, and some other fairly direct costs (like assembly line labor). Can't recall which overhead items are included or not. It's meant to separate out some of the other things going on in the company, and just focus on the product. Obviously, if by that measure you don't make a good profit, you can't do it after you fully load the numbers. And that number can also hide a multitude of issues. I'll let the SEC worry about the reported numbers.

I used to wonder sometimes at Megacorp, when we had a product that would eventually sell millions of, what sort of cost could you assign to that very first one sold? There's many ways to amortize all these different costs.

-ERD50

 

[aja8888]

I never study Tesla's financial statement, and do not know if the answer could even be found there.

The car selling prices could be above the manufacturing costs, but they are still spending money on expanding their factories, doing R&D on new models, etc...

So, the question is if the clock is running out on them. If they need to raise more money, the terms will not be as easy as before. Musk has been saying he needs no new debt, although his stash of cash has been shrinking. This, and the fact that some early bonds are coming due soon makes it very interesting to watch.

Sooner or later, the revenue from selling your product has to cover all costs or you go under. Now, if they continue to borrow to fund operations and Capex, then you can go on until no one will lend you any more money (which is not too far away).

As it stands now, they report a business loss which I am sure is complicated to decipher. But to say "they make a profit" on each car sold is probably not true if you consider all costs of the business unit operations.

 

[Texas Proud]

Tesla has several bond issues. At least a couple of convertibles will need repayment soon, and the stock price is nowhere at the convertible price of $360. If it were, Tesla could just print stock certificates to repay the bonds I think. Now, it has to pay hard cash.

The most recently issued bond in 2017 (straight, not convertible), just one year ago, has a coupon rate of 5.3%. It recently drops to 87 cents on the dollar, and is said to have the yield same as that of JC Penney.

The stock price may be supported by Tesla enthusiasts, but the bond is priced more at arms length by institutional investors, who love only their money and not any company. It does not look good.

My bold... nope, not even close...


Dropping to 87 means the yield is about 6.1%... JCP is close to 14%... opps... sorry, just checked and it is now 20%....

 

[corn18]

Looking at Tesla's balance sheet and cash flow, they spend a LOT of CAPEX (about $8B over the last 4 years), R&D and depreciation. They also have an overhead to sales ratio of 21% which seems high to me.

All the data indicate they can be profitable with volume. The gross margin is running 19% right now, so I think there is a lot of room to improve that as they move up the learning curve. If they get the volume up without adding a large amount of overhead, they should be able to be quite profitable. They'll need to figure out the cash flow problem as the debt is going to swallow them even if they get the gross margins up.

 

[ncbill]

What are we going to do when fossil fuel runs out? We will all live in tiny homes, sweating bullets in the summer, and freezing our buns off in the winter.

There are already off-grid homes built that use mini-splits on solar & battery.

Mini-splits are so much more efficient than traditional split HVAC systems.

 

[corn18]

Looking at their latest 10Q (2Q18), their gross margins have eroded on the automotive side to 15%. I guess ramping up the model 3 has cost 4 points of margin.

It is also interesting that their energy and storage business is only about 10% of their revenue and it is running very tight gross margins of 12%.

They are still bleeding cash and there are a lot of scary write downs on the consolidated statement of cash flow. Yikes!

 

[oneill225]

Looking at their latest 10Q (2Q18), their gross margins have eroded on the automotive side to 15%. I guess ramping up the model 3 has cost 4 points of margin.
It is also interesting that their energy and storage business is only about 10% of their revenue and it is running very tight gross margins of 12%.
They are still bleeding cash and there are a lot of scary write downs on the consolidated statement of cash flow. Yikes!

Amazon lost over $400 million in Q3, 2014: https://www.theverge.com/2016/7/28/12313526/amazon-q2-2016-earnings-report-aws-cloud-profit.

Yikes! Those must be some tight gross margins.

 

[aja8888]

Looking at their latest 10Q (2Q18), their gross margins have eroded on the automotive side to 15%. I guess ramping up the model 3 has cost 4 points of margin.

It is also interesting that their energy and storage business is only about 10% of their revenue and it is running very tight gross margins of 12%.

They are still bleeding cash and there are a lot of scary write downs on the consolidated statement of cash flow. Yikes!

Three things will kill Tesla:

1. Burying themselves in debt and being unable to repay.

2. Loss of sales momentum due to the elimination of the energy credit for buyers.

3. A recession where consumers pull in and only buy inexpensive cars.

 

[corn18]

Amazon lost over $400 million in Q3, 2014: https://www.theverge.com/2016/7/28/12313526/amazon-q2-2016-earnings-report-aws-cloud-profit.

Yikes! Those must be some tight gross margins.

Kindof silly to compare a factory to a service company. Apples and oranges.

 

[corn18]

Three things will kill Tesla:

1. Burying themselves in debt and being unable to repay.

2. Loss of sales momentum due to the elimination of the energy credit for buyers.

3. A recession where consumers pull in and only buy inexpensive cars.

I concur.

 

[Popeye]

So, I got in at $6.25 (Bernstein values the company at $4.20) and sold it off today at $12.10. It bumped my YTD return by 2%.

$6.25 was the actual IPO price and by my calculations the companies advisors were originally looking at $11.25. Based on Tesla's metrics it should be worth $25.00 in 5 years and I won't wait 5 years for a double.

A very interesting concept for a Chinese company and they have way outperformed EM at this stage (less than 4 years in business) plus they have serious backers from Sequoia Capital to Alibaba and Tencent and their highy unusual marketing agreement with JD,com.

Hopefully. I will be able to get back in below the offering price in the future as I would love to add this to my Children's LT holdings.

They probably stole half of Tesla’s IP.