There is a reason why I put (at the time) 2-3% of my account into TSLA puts, when I wanted to bet against the stock, rather than trying to short it. Shorting a cult favorite is absolute madness. TSLA can run as high as you can imagine – give them a $30 billion market cap, with one factory sitting half empty – why the hell not?
Sure it makes no sense, but as a short seller, you will not survive the process.
Now, I am reserving the right to judge Tesla’s earnings for when they actually file. I want to look through the books, read the notes, and compare some things. But, I do have an early concern.
First, Tesla did not have surprise earnings this quarter. They lost money. What they claim is that they made money from operations (unlike the opposite last quarter where they lost money from operations but came ahead selling pollution credits). But it’s funny how sometimes little word games we play can sugar coat what amounts to pure semantics.
Tesla’s “operation profit” is based after factoring out “leasing” and other items; that’s pretty vague and since I was already concerned about Tesla’s leasing practice anyway, it doesn’t reassure me, especially at these prices for the stock.
How is leasing not a part of operations?
The second red flag here is the owners who are allegedly purchasing these vehicles.
Aditya Satghare – Lazard Capital Markets
Got it. Okay. The second question was on the U.S. Market so, could you give us a little bit more color about your buyer base here and you know what kind of potential brands do you think your customers are swapping out and who do you think you are grabbing share from?Elon Musk – Chairman of the Board, Chief Executive Officer, Product Architect
We hit some pretty good numbers for that. It’s a really broad mix of cars. It’s not and not just a premium sedan. In fact, I think weDeepak Ahuja – Chief Financial Officer
I believe we used off that in our last earnings call that we sharedAditya Satghare – Lazard Capital Markets
..it’s a the capital raiseDeepak Ahuja – Chief Financial Officer
Probably that’s right.Deepak Ahuja – Chief Financial Officer
If you go back and look at our capital raise presentation,Elon Musk – Chairman of the Board, Chief Executive Officer, Product Architect
And we haven’t go ahead and just talk about some of the cars we are replacing. Yes. It’s a wide range of cars. It’s not like you can say or it’s been probably five or something like that or it’s quite short right now, it’s like. (Inaudible).Deepak Ahuja – Chief Financial Officer
This is from the ALG overview taking data from that bulk and they are showing sort of its various events and hybrids, so are the big ones. But it’s interesting like we have got the largest one here is sort of in the order of 10% and 11%. A lot of people are buying our car instead of the Prius, but that’s 10%. Obviously things like the E-Class are buying our cars there is a lead which also coming from so, it’s like E-Class, Prius, lead the Highlander, BMW 5 Series, Odyssey Honda Odyssey it’s like it’s 4% in the Honda Odyssey very like Model S (Inaudible) is 4%. Volkswagen Jetta is 4%.Aditya Satghare – Lazard Capital Markets
Interesting.Elon Musk – Chairman of the Board, Chief Executive Officer, Product Architect
Mix of Honda Civic is 3%, so it’s really a pretty broad range just from previous segment.Aditya Satghare – Lazard Capital Markets
Got it. Now that’s helpful and congratulations on the good execution this quarter.
Alright, the BMW-style high performance vehicles excluded, most of the cars being listed here are significantly cheaper than a Model S. The range of these electric/hybrids is $25,000-$40,000. So you have people trading up $30,000-$50,000.
Okay, so how many highly affluent Prius owners do you think are out there? I did a quick push and found some statistics that actually quite a few millionaires do buy cheaper cars – that sort of thrift sort of plays to having millions of dollars in the first place. So I guess if Tesla sales are being driven by millionaire Prius drivers who just desperately wanted a high performance electric vehicle, then that’s great.
But if you question the depth of the pool of Prius-driving-millionaires-wanting-to-spend-$70,000-on-an-electric-car, then you’re left wondering if Tesla doesn’t have a pricing/contract problem that’s letting people climb into one of their vehicles who should never be climbing into one.
Because at $70,000 on the low end, any pricing problem is ultimately going to be a Tesla liability.
I have no evidence of this, but it doesn’t smell right, and I’m betting there’s a problem with the way Tesla’s leases have been set up, from the get go. Those parts of the last earnings release and filing felt wrong before. And since they drove the company into a loss this quarter, they still feel wrong now.
It might not matter at all, but any lurking issues, at – now – $150 a pop could easily derail this company.
Again (I’m sure you little pricks, getting ready to spam my comment section aren’t going to take any stock in this), I don’t have a problem with Musk or the Model S. But paying this much for the shares is madness.
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Many ‘millionaires’ are eco-oriented so it makes sense they would swap from a Prius to a Tesla (zero emission) vehicle. They love the car, love the company, love the CEO, and buy the shares.
Tesla says they use ‘lease accounting’ for their GAAP accounting, but cite non-GAAP numbers or GAAP numbers with “lease accounting” excluded in some way. When they cite GAAP number with Lease Accounting they will likely show a big loss. Their financing program is not a lease, but is said to have some features of a lease. That being the guaranteed buyback at the 36 month point. So they need to do some sort of set aside of profits to create a fund for this potential liability. With 30% or more of cars being sold on their financing plan the buyback liability could be quite large. Elon Musk guaranteed a higher bluebook value than Mercedes, BMW or Lexus similar priced cars at the 3 year mark.
That conference call reads like a Presidential address, when he’s freeballing it w/o the teleprompter…
Plus, the Honda Odyssey is a mini-van… it’s hard for me to buy that the model S is a suitable replacement… that whole line of the transcript just seems fishy..
I’m sure there are a lot of legitimate, affluent Prius owners (pestered by their eco-concerned spouses). I just question the pool is deep enough to consistently do 200,000 vehicles a year anytime soon enough to make Tesla a good buy here.
Tesla won’t be selling 200,000 per year at current prices, so the gap that distresses you will be much smaller.
Let me offer an explanation for the Honda Odyssey: the kids have grown up and moved out.
Why not celebrate with a Tesla? Cheaper than feeding a van full of teenagers.
http://www.huffingtonpost.com/2012/08/08/prius-ca-richest-cities-photos_n_1757324.html
It’s possible. Rich people on the coasts do love their Prius’ to.
I was at a service center yesterday (see here: http://4nursebee.blogspot.com/2013/08/research-and-position-update.html
The couple picking up there model S drove in a a honda odyssey or similar honda vehicle.
My next vehicle is a Tesla and I drive a VW TDI.
You need to pretend to be a pro and do the research a professional would do, not just that of a mouse jockey!
RNB, every few weeks you scramble over here pushing small minded garbage linked to whatever third tier website that was. And every few weeks, I ignore your cheap insults and insinuations that you are any sort of investing professional.
I fight you pushing Tesla stock because my library is stacked full of books whose pages all agree that you are an idiot.
If you went a took a look at the top right of the third tier, you would see my results are beyond IBC tier and that one can be an idiot and make life changing cash.
Every few weeks I make fun of those that know not of what they write.
This is not about websites or attacking a person, it is about being wrong or right on a trade or company. I added to TSLA yesterday based upon research and I gots mo money. You gots less. Nuff said, now go clean my shoes boy
“I gots mo money. You gots less”
No not really, my monetary losses have more or less stopped, because that’s how long dated put options work.
God I’m going to be pissed if Tesla works out. This is the sort of behavior that deserves painful losses
CT asks: “How is leasing not a part of operations?”
GAAP says that TSLA’s leases are capital leases, so the revenue, expenses, and net profit/loss are reported each period over the life of the lease.
CT said:
I’m betting there’s a problem with the way Tesla’s leases have been set up, from the get go. Those parts of the last earnings release and filing felt wrong before. And since they drove the company into a loss this quarter, they still feel wrong now.
Lease accounting alone didn’t wipe out the non-GAAP net profit. Per the Q2 shareholder, posted on the company web site and reproduced in full in an 8-K filed with the SEC, lease accounting dropped the non-GAAP net income from $0.20 per share down to $0.05 per share. Lease accounting combined with “one-time & non-cash items” resulted in a non-GAAP net loss.
Your concerns about TSLA’s accounting have been unfounded so far, and I’m confident that your concerns about the lease accounting also are unfounded.
TSLA could get hurt, even with proper accounting, by the leases if some of their estimates about customer returns and end-of-lease market values are too favorable to the company. I don’t think I can tell from the info in the shareholder letter what TSLA says it expects to gain or lose at the end of three years from those customers who decide to take advantage of the buyback guarantee.
I mean, it wiped out $0.15. I’m glad they took the time to separate leases from their other numbers – that needed to happen. I mock the analysts who are saying TSLA made $0.20 this quarter. That’s obviously untrue.
The $0.15 profit TSLA says it would have reported if the leased vehicles were treated as sales will be added back in over the next 3 years. If the lease option proves popular, TSLA could build up a substantial amount of deferred revenue and non-GAAP net profits.
The $19 million in deferred net profits that TSLA expects from the Q2 leases is dwarfed by the $72 million in liabilities recorded for the residual value guarantee, so there is potential for substantial gains or losses down the road if the estimates have to be modified by a large amount.
I believe I’ve misunderstood how the residual value guarantee works. My apologies. It appears to me now that there is no uncertainty about the estimated liability associated with the residual value guarantee.
The “leases” will run up to 6 years, and are really loans with terms that, per GAAP, require the company to report the loans as leases.
“Lessees” will receive a cash payment from TSLA at the end of 3 years. Tesla says that the cash payment will exceed the remaining principal on the loan. So, the “lessees” can either: pay off the balance with the cash payment and own the vehicle outright; or pocket the cash, continue making payments for the entire “lease” period, and own the vehicle outright at that point.
Unlike conventional leases, the TSLA “leases” require a large down payment. That down payment, together with the monthly payments, cover the sales price plus interest on the financing.
They are loans, not leases. But there is a buyback guaranteed residual value like a lease. So profits have to be deferred on those vehicles until the buyback guarantee period is passed. That’s the ‘lease accounting’ reference.
At current pricing, Tesla should be able to make about factory cost of the vehicle if they can keep the fleet of Model S on the road for 8 years – conveniently when the battery is set to die. Assuming battery change, and you’ve got about 10 years of breakeven cost.
I’ll give the Model S is supremely popular, so maybe this turns pretty profitable. Losses from early write downs, perhaps? That would be smart.
Your definition of “factory cost” is non-standard and results in a much higher cost than the standard definition.
The marginal cost of each vehicle is even lower than the average factory cost.
Except when I said “factory cost” what I meant was, “I just took Musk’s state profit margin and backed into the cost per vehicle”.
Besides, the current lease vehicles are based on the cost they were actually constructed for, not the marginal cost.
Thanks for the addition of how their lease program is set up though. Can you provide a link?
Hahaha
http://www.teslamotors.com/en_DK/forum/forums/model-s-economics-%E2%80%93-shock-electricity-costs-much-gasoline
Tesla has $100 points down, $30 points up.
Mostly everyone on this thread heckling Caine will die broke.
Mostly?
There are only 2 critics. Your choices are 0%, 50%, or 100%.
The math says 100% isn’t possible, because only IMMR was up more than 1.4% on Friday.
I heckle weak shit reasoning when it is counter to the facts. CT could be right about TSLA’s valuation, but it isn’t because the accounting is wrong or because it doesn’t smell right to him that people would get a Tesla to replace a Prius.