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Tesla as an opportunity of investment

I belive that all people that are reading this post think that Tesla is a great Car Company, the most advanced, the most innoative and the most oriented at the future.
This is the reason for which I'm evaluating tesla as an opportunity of investment and i would like to discuss with you about this.

Even if the stock takes a hit with the delay in Model X, it is really good news. With limited resources, Tesla has to focus on Model S. Optimize the supply chain and production facilities while cutting labor costs.

Model X would have been a money pit. Would have need separate assembly line with presses, dies, welding, painting, assembly, etc. Separate motor/inverters for certain models. Plus inventory. This time around they would have buy new equipment (Model S got stuff from GM, etc). I am thinking north of $1B including inventory, work in progress, etc. Tesla has no access to this kind of capital at this time. They have to prove themselves with Model S and deliver profits.

Gen III is not going to happen anytime soon. Battery costs got to come down by 50% and KW-Hr/kg has to double. Disruptive tech is needed. Again that is not going to happen anytime soon. 2016 at the earliest.

Don't overestimate TM's costs. As a comparison, SpaceX went from turning sod to two successful Dragon launches, all-inclusive, on less than $1bn.

With X, they actually don't need as much new gear, since its not a lot different from the S. I mean, it's the same skateboard base, so the differences are largely confined to the suspension and body style. They don't even need much engineering (if any) to add the second motor since S already had provision for its inclusion.

I'm not debating that there will be additional costs, but I think your numbers are very much absolute worst case scenario.

Vawlkus,
Yes, my estimates are the worst case because of contingencies. Still even if I assume $500M additional cost in capital investment+inventory+work in progress that is a lot of money for a Tesla where cash of $202M can barely pay for accounts payable.

Look at Porsche. They sold the 911 and derivatives for decades before they made big move to the SUV, etc. The 911 is priced at ranges higher than Model S. Few do make long trips on the 911 either. Model S range will improve with time.

I'm just going to rant here, even if I've said it before in previous posts, but here we go...

Reservation payments before mass production of Model S (4Q2012) were spent by the time the first cars were sold. Years the money sat, so they used it and had to account for the use of that money as costs associated with the eventual sale of the car. In Q4, 40k res's dug the most into gross margins. Since over half of the cars sold in Q4 were Sigs, a 40K reservation payment, it took a toll on gross profit because this represents over 30% of the sale price alone already spent before the sale. Since only 900 cars (5k res payment and higher gross margin) were sold in addition to the sigs, they barely made a gross profit in Q4 on nearly 300m in sales. Now that all American signatures are cleared off the books, this cost associated with sig reservation payments will reduce significantly and gross margins will increase in Q1 as all follow on sales will on have 5k of reservation payments per car associated with cost of sale. With additional cost savings per unit and increased sales from 2400 to 4500 cars, we'll see a vast improvement in gross profit in Q1. With the anticipated reduction in other operational costs will see Tesla achieve break-even or a slight net profit as anticipated. If they reach only a 15% gross margin and are breakeven in Q1, this could be telling of how the rest of the year will turn out if they get it to 25%. Beyond Q1, if they achieve 25% gross margin and maintain operational cost reductions, they will produce a consistent net profit at current pace of 4500 -- 4800 cars sold per quarter, which will help cover the reduction of revenue per unit of the 40s and the increase in cost of revenue per European signature unit.(approx. 40K res payment.) Following 2013, once res payments align more closely to sales in terms of use of the res payment funds within the same quarter the car is produced and delivered, Tesla will have established a baseline operating standard, an appropriate metric to predict future production outlooks for Model X, GenIII and follow on models. As such, analysts will better assess what the future value might look like. This is spectacular news for investors and could help create an attractive follow-on offering of stock for cash on the market in 2014. Can't predict how much, but I hope in the range of 500m-1b cash infusion from the offering. I mean if they raise 1b, which is the amount they've spent in total since going public, imagine what they could do with that now they have a little experience under their belt. It would be insanity on the market if this happens. Can't wait.

Found this today...

http://www.thestreet.com/story/11866083/1/a-tesla-in-every-driveway.html...

Not exactly a scientific study but one reporters observations.

http://www.nasdaq.com/symbol/tsla/short-interest#.UT-_S44R_RU

Something very strange is going on regarding short interest. The above link shows the short interest TSLA climbing steadily higher. As of Feb-2802013 it is 31,954,742. Outstanding shares are 114.52M. Average daily trading volume is 1.6M. Elon Musk owns 24%, Toyota 10%, MB 10%?. These shares are probably not available for trading. Doing simple math, nearly 50% of the available float is short.

A couple of weeks ago, my broker told me that Tesla shares can be loaned for 11-12%. This week, they are offering nearly 19%. Furthermore, they are looking for big blocks to short. It can not be some nickel and dime individual doing this. It is usually institutions, hedge funds.

Why do institutions or hedge funds want to short the stock in a big way? They already know about the hi short interest and the risk of a real short squeeze. They are not dummies and tend to do meticulous research and dig out non public info - they have no qualms sending people to peek at the factory even if they have to buy a car to take a tour, etc. What do they know? Tesla not able to produce 4,500-5,000 cars? Expenses are still hi? Supply chain issues? Reservations are slowing? Cancellations?

FYI, I am long.

They getting ready for when Q1 report comes out. (And the rest of quarterly reports this year)

Pattern of building stock price before quarterly S-1 comes out. Then, with any kind of missed expectations, negative press carpet bombs media and worries an already on edge investor pool to sell and provide a nice short opportunity for a couple days. A predictable quick way to make some money. Also, will try to show a slow down in demand and difficulties with getting model x to market to sway investors at that time.

Doesn't mean stock will completely die as it bounces back nicely a week or so after so they ca do it again...

jk;
Your rant is very confusing and confused. A deposit is not a cost; it's a prepayment, and a liability (borrowed money) till the article is delivered. It's a cash management tool. It does not affect book profit, because it isn't "counted" as revenue until the whole sale is complete.

Brian--

The reservation payments were spent before mass prod. In October. They weren't just sitting in an account. Tesla has pointed out in every quarterly report they will use the money where ever they see fit. Have to account for this expenditure somewhere. It goes from a liability to being rolled into the total purchase price by a customer. But the reservation payment amount (which was spent before car was made and sold) is then accounted as "cost of revenue." If the 40k reservation payment money was spent before the sale, that money will be super acted from the 110k revenue right off the bat as "cost of revenue."

If you disagree, please enlighten me with specifics to where you think the reservation payments from the past few years have gone. Your bland and broad explanations don't help communicate well.

Brian --

Res payment is refundable till options order is completed and sent to tesla. At that point, it becomes a non refundable deposit. Once car is delivered, deposit is rolled into total payment by the customer. So if 40k deposit, sig customer writes a check for 70k. Total revenue recognized at that instant is 110k.

Now, tesla does not have 110k in cash at that point. They have 70k. The 40k deposit was already used somewhere else long ago. Tesla sees this use as cost of making that sig car just sold to the customer. The 70k covers the remaining costs of revenues. What remains is gross profit.

In maybe Q4 2013, when res payments might come in the same quarter a car is delivered and rev rec'd, it won't affect gross profits like these early res's have. But until then, the res payments will be used way before the car is rev rec'd, at least a large percentage will. So, the res payment funds are used 1 or more quarters before the car is built and delivered and become "recognized" as cost of revenue the moment a sale happens.

Res payments are only a liability because they have to be refunded at any time if a customer cancels their reservation. This is the only way California DMW would allow res payments to happen.

Once you order your options, it turns into a non refundable deposit and no longer is a liability. It becomes an operational cash flow at that point. Where that cash is utilized is in making the car ordered. Hence, a cost of revenue.

http://investing.money.msn.com/investments/insider-transactions?view=All...

Why so much selling by insiders, except Elon Musk who bought shares in Tesla? CFO Deepak Ahuja sells regularly. Way beyond what he needs to live on. Same with their production guy Passin. Gracias sold $Ms.

Usually insiders hoard their shares in the beginning when the prospects are good. What do they know?

It's how they get paid. They don't have a salary. Deepak and Passin have exercising their options on a regular basis for a long time now. Very consistent regardless of stock fluctuation.

Bubba, I've noticed that insider selling before and I think it only means that the stock is generously priced. I wouldn't say overpriced, because that would mean it must eventually come down when reality hits (unless it can increase value before that happens). But it is priced with a degree of optimism that previous success will be repeated, which is why the short sellers are shaking their heads in disbelief and insiders sell some options because they are maybe not quite as optimistic or foolish versus other priorities. In other words, insiders can earn more options, and right now the price is in line with their dreams, so it is probably just a classic case of short term needs or desires winning over long term imperatives. Only visionaries like Elon Musk are willing to go all in and stay fully invested even while having to borrow money from friends to live and pay rent. Most people might agree in principle but are more reluctant in practice to work so hard for the benefit of their future self, let alone towards reaching a goal that is bigger than them, such as addressing climate change for example.

I hope the share price stays high when Tesla will need to raise more cash, because then everybody wins... sort of.

TeslaRocks, you are right. I have seen insiders sell way prematurely. Classic case is Steve Jobs. When the came back to Apple he got a truck load of options. He sold those options in early a couple years later. The stock must have gone up 20x since then. I imagine the hired hands like the CFO, VP Production, etc cut their risk and diversify.

However, given the expertise that they have shown so far, I think they will be able to fine tune the production and the supply chain like those Swiss precision mechanical clocks. It seems that Tesla did buy some hi quality precision robots, dies, machine tools, etc from the best manufacturers in Germany and Japan. Anybody familiar with their equipment can appreciate their precision. I looked at the videos of their factories. Very impressive.

WOOOOOOOOOOH !! this is what i meant ! and this is the first step to a very long growth, thanks to all the crazy guys who have never sold.

@Bubba2000 and TeslaRocks - Re: the insider trading, it is likely a 10b5-1 plan in place for the executives.

+1 Tesla Lover. ;-)

I purchased my first stock ever today. I picked it up at $44 and couldn't agree more that the long term investment is more than reasonable. I am very excited for this company and encourage everything about it completely. My only hope is that they do not sell out to one of the major motor companies because then they will lose their focus and end game as a whole.

Great thread and I really enjoyed reading everyone's comments.

The stock shot up $6 today, probably based on Elon't flat-out statement that Q1 was profitable. Amazing! The volume was much higher than last week. Short-squeezing?

Brian H

Looks like it!

i hope so !

another positive day, any idea about the amount of the profit ?
obviously a dividend is unthinkable at the time, but is however a really good sign...

I don't mean to sound pessimistic, but expect a little sell off tomorrow or by the end of the week, down to $40 or so. Not that this should matter at all to any true Tesla believer or anyone in for the long run... just prefer to share my prediction if that can prevent a panic.

As for profit, it will be very thin, I'm sure. A few pennies per share, so the P/E ratio will be astronomical for some time. I read in Tesla's Q3 report that buyers of the stock should NOT expect a dividend. It makes perfect sense for a growth company, dividends are for stable companies that don't know what to do with their free cash flow.

A profit, even a small one, could mean less chance of a future IPO... although if the stock continues to climb the way it's been climbing lately, they might decide that they might as well do another anyways.

Tesla Rocks

Completely agree with you about the sell, for profit i readed an article ( http://www.valuewalk.com/2013/04/tesla-motors-inc-tsla-estimates-po-rais... ) that talk about a profit of 6 million...

Sounds about right. Between 0 and 6 million profit, since they always come in under analyst financial expectation.

The calculator is optimistic, to say the least. I am getting more like $750 per month effective cost, and that's for the 60 kWh.

Just pick "All Other States", get rid of the gas station time and commute time savings, choose a mileage more realistic than 19 MPG as a baseline, etc.

The single most misleading feature is that the calculator assumes you drive 15,000 miles a year, but the resale value guarantee holds for 12,000 miles a year. So if you actually do drive the 15,000 miles for three years, you are out $2,250 ($0.25 per mile above 12K), but that's not in the calculator!

It does work out better for California, with its carpool lanes and long commute times. But I don't think it's cool to use an unusual state like California as a baseline.

Don't get me wrong, it's a good move. But the whole sequence of tweet, announcement, and overly optimistic calculation, and the resulting stock response, does not make Tesla look solid.

I don't think Musk's intent is to be misleading. I think he is an incredibly enthusiastic optimist. But this kind of news delivery is not very good. Even the "personal guarantee" sounds cheap (and is not specified in the Terms and Conditions).

This is a car company, not an vinyl siding dealer. A more formal way he could have backed the leasing would have been to set up an independent financing company with the banks, call it "Tesla Capital", or something, and put up a part of his non-Tesla assets as collateral.

The intent was to make the buy-back as certain as humanly possible.

Trespassing into personal time valuation is squishy ground, but it is how people make decisions. There are hidden columns on the cognitive-emotional speadsheet that Musk was trying to quantify. It may seem a bit lame or airy, but ...

+1 big time, danielccc

a few questions for elon musk:

1) why did you stop disclosing reservations as of mid march?

2) to what extent is the profitable first quarter the result
of gains from the the sale of emission credits?

3)to what extent is the profitable first quarter the result
of gains recognized from the extinguishment of the warrants?


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