The TSLA Saga Feb 17

Slowly getting ramped back up to my life

CFO

Jason sounds like the dark magician that Elon needed to cover up the dirty laundry of a public company. It’s not a bad thing per se as too much honesty often meant the general public misinterpret some mundane happenings of the corporate world. On some comments about him sounding like snake oil salesman. I only hear a CFO who is well versed in wall street speak. Bad news for unsophisticated investors but good news for better messaging.

Analyst Accuracy

So the Q4 2015 TSLA investor conference call came and went. Here’s a list of analysts covering TSLA and their precision from tipranks.com. I don’t know how accurate tiprank is, but assume they are. I’ve bolded a few that I deemed important, either due to their monetary tie to TSLA or their accuracy rate.

Deutsche Rod Lache: 62%
RBC Joseph Spak: 32%
JPM Ryan Brinkman: 62%
Global Trip Chowdry: 55%
Barclays Brian Johnson: 47%
Dougherty Andrea James: 50%
Pacific Crest Brad Erickson: 32%
JMP Alex Guana: 45%
Evercore Arndt Ellinghorst: 17%
Oppenheimer Colin Rusch: 48%
Morgan Stanley Adam Jonas: 43%
CLSA Emmanuel Rosner: 60%
Goldman Patrick Archambault: 56%
Credit Swiss Dan Galves: 44%
Merill Lynch John Murphy: 66%
Robert W. Baird Tyler Frank: 67%

Some interesting stats if you look at it. The prominent well known analysts all have average scores around 50%. This is the worst possible score as it represent random noise. What you need to watch out for are those who scores 60% and higher and those who scores 30% and lower. Follow the 60% and do the opposite of the 30%.

Analysts Questions

Monetary ties

I found a copy of the transcript here. And you can listen to the conference call on Investor Relations.

Goldman and Morgan Stanley have monetary ties and it is pretty self explanatory what they are interested in by the questions they ask. Goldman Sach’s Patrick Archambault (56% accuracy) cares about ramp up speed. Since they are an early investor they are more interested in when TSLA achieves cash flow positive as they’ve already made all the capital gains they needed.

Morgan Stanley, being the newer lender to TSLA is chasing after that 10x capital gain. So it is natural that they are trying to get the scoop on the marketing part. i.e. Microchip legend joining and newspaper reviews.

Negatives

It’ll be interesting to hear from analysts who scores 30% or less, but none of them managed to get on the conference call.

Positives

There is a reason that they scored high and you can tell from the questions they ask. The first person that stood out is Merill Lynch’s John Murphy (66%). His concern is about the Asset backed line. Earlier in the conference call we learned that Tesla obtained an Asset backed line that monetizes their vehicle in transit to customers to the tune of $866 million. This along with the previous Warehouse Line of credit for leasing ($144 million) total up to $1billion in loans available. If you read John Murphy’s Exchange with Jason, he hit the bull’s eye with the question: “As we think about the positive net cash flow and the increase in the cash balance on a year-over-year basis, will that include — I’m trying to be clear, here — the potential draw on the ABL over time as that’s needed to run the business, or does that net cash increase not include whatever draw that happens on the ABL in 2016?”

To which, Jason reluctantly replied with: “That includes the draw on the ABL”

So $866 million with $1.2 billion will be enough to ramp up the capex for setting up the Model 3 production line in my point of view. I have not done the math, but I do not believe it cost $2bil to install the Model X or Model S production line. It’s a cheap and easy way to get capital for what’s coming without diluting the shareholder value. We will no longer be faced with a potential dilution event. However, this is not something glorious that they’d want to advertise either. The ABL grows and shrinks with vehicle in delivery. So if their delivery shrinks, the loan amount shrinks. Which has ramifications.

JPM Ryan Brinkman (62%) is concerned about Capex on Gigafactory expansion. Tyler Frank (Whopping 67%) of Robert W.Baird who is covering for Ben Callo are focused on Delivery ramp and China market. Deutche bank’s Rod Lache (62%) is concerned about Model 3 cannibalizing Model S and the eventual gross margin at the end. Whether or not X can achieve 25% and whether or not S + X can achieve 30% at all and how fast it gets there.

These are the metrics that the accurate analysts uses and these are what will determine the real value of TSLA as a company. I believe these are good points as they represent areas where TSLA had over promised and under delivered.