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Tesla's Disastrous Miscalculation – Tesla, Inc. (NASDAQ: TSLA)



Tesla (TSLA) completed its latest capital growth on May 15, collecting approximately 2.7% of cash from a sale of 3.55 MM shares combined with a 2% convertible senior note increase of $ 1.84B. As of 8-K filed in support of this capital increase, the conversion price of the senior note equals $ 309.83 per TSLA share, with issued shares priced at around $ 243 each.

After the poor 1Q-2019 finances, which had a net income of $ 668 billion, despite delivering 63,000 cars, and a reduction in net cash and equivalents of $ 1,594 B (after repayment of the failed 0.25% convertible seniornotes 2019 offer) Gold water poured into the abdomen of dehydrated bank accounts. Reported cash and cash equivalents at the end of Q1

were $ 2.20 B, with accounts receivable of $ 1.05 B. This matched up almost one to one with the Balance Account payable at $ 3.25 B.

Halfway through 2Q -2019 and the jury is still out if there will be a significant demand recovery for TSLA vehicles. We should have Insideevs.com view of May 2019 US deliveries within the next 7-10 days, followed by information on deliveries from Europe and China tracked by a cadre of valued search contributors not long afterwards. With the various and well-documented price reductions for various TSLA models in the first quarter, at a high level, this appears to have remained relatively constant in the second quarter (without news of a number of price increases). However, this can change in the beginning of the last five weeks of the quarter. My opinion is that TSLA probably goes on a net income (loss) of ~ $ 500 MM, a similar result to Q1. A slightly reduced loss based on what I hope is a better thought-out and planned delivery process on ships to overseas markets. Deliveries can reach around 67500 to 70000, with a large part of these as a reduction in deliveries "in transit" at the end of the second quarter compared to the first quarter.

Day of Autonomy

Held Monday 22 nd April 2019, the event was a showcase of TSLA's future. I'm not going to go into detail about the event (and I'm not eligible to comment on the technologies), but just give an overview of the presentation under what was covered, which I picked up from CleanTechnica:

  • Purpose of having autonomy day – the company felt that the focus was on model 3 to the detriment of the rest of the company's history
  • The Full Self Driving [FSD] Chip (presented by the Pete Bannon) system, timeline of the system and design requirements
  • Neural Network (presented by Andrei Karpathy) – Simple example of how it works, followed by Tesla specifications, limitations of self-driving simulations and inaccuracies, and how they are used to "train" the system [19659008] The software (presented by Stuart Bowers) – shortly to the FSD Chip and Neural Network presentations, easy presentation on the links on how the software used hardware and neural networks to learn how to drive
  • Redundancies, Main Plan one and Robotaxi is (presented by Elon Musk) –
    • Explanation of the redundancies built in to reduce some flaws
    • Launch of first robot action in CY2020 (mentions that he is criticized for overly ambitious timelines, but claims what he promises "come to life")
    • Production of model Y and Semi in full in CY2020
    • Informs that the vertical integration TSLA already has an advantage that no one can download
    • Producing 10,000 model S, X and 3 per week at the end of CY2019
  • Physical demonstrations, etc. – only given to investors first

Let us be clear, this was a presentation that was added to the investment community, not to fans, co-workers and those who believe in the "mission". As per the CleanTechnica article linked "as the presentation starts, I am turned off by how clean the room is. This looks less like a standard Tesla presentation and more like an investor conference, which is interesting." The only purpose of this event was True to what was stated at the beginning of the presentation per TSLA, to focus on the rest of the story. Translated to "what we really mean", it was to convince the investment community that Tesla was still a company to be considered and dressed in layers and multiples of exponential growth potential.

Measured against the purpose TSLA stated or by & # 39; what we really mean "language, it was a wrong mistake. A f. a must repeat freshman years at high school error. It did not" wow "and" stun "(not the way TSLA hoped for) Most participants in the investment environment, with some reduced price targets before 1Q-2019 earnings due two days later after the clock on Wednesday 24 th April:

  • UBS – a 20 minute test drive with two (2) driver interventions (in a non-complicated environment In good weather) Think the autonomous vehicle timeline is too aggressive, and the short-term challenges are urgent
  • Needham – believes Level 2 (not L4 / L5) will reach the mass market in CY2020. Due to significant regulatory barriers
  • Morgan Stanley (Adam Jonas) – paraphrased; timing two days before the 1Q performance release was not insignificant, to focus the market on TSLA's strategic value rather than just the revenue. venture capital audience as much as a public market equity audience.
  • Cowen (Jeffrey Osborne) "We see a significant amount of technology and execution risk in the shift in strategy from competing for just electrification, to Tesla also beating Nvidia in hardware, Google in software, and building a better vehicle service than the current tour-leading leaders ". The test station offered by Tesla after the event was "much less impressive than the rides we experienced at the Consumer Electronics Show over the past two years."
  • Roth Capital Partner (Craig Irwin). "We saw the autonomous investor day as underwhelming, Tesla made bold demands that largely lacked the credibility substance. With now two attempts to redirect investors ahead of the first quarter earnings (first was model Y), we expect a weak second quarter unit guide ".
  • ISI Evercore (Arndt Ellinghorst) "We are still encouraged by Tesla's vision and future growth prospects (brand value, global model 3 and Y TAM, Semi, etc.), but there is increased uncertainty about short-term demand against previous bullish forecasts, and The growth cannot stop for a growth company. The change in recommendation and lower price targets is driven by a more cautious view of demand across all models (M3 global / SR + launch), but especially the severe decline in demand for model S / X ".
  • Goldman Sachs (David Tamberrino) Out of the incident, our investor calls were mixed – but more cautiously given upcoming earnings. In the short term, there were concerns about demand – not only sustainable demand level for model 3, but also questions about model S / X drop-off deliveries in 1Q19. "[19659008] Oppenheimer (Colin Rusch)" Beyond Model 3 demand and cost reduction running cash flow operations, we believe that the model S & X update cycle and pricing strategy is the focus of short-term investors, while longer-term history is constantly being weighted to China selling through "

Analyst Sources:

https://www.bloomberg.com/news/articles/2019-04-23/tesla-analysts-skeptical-of-bold-autonomy-plan-ahead- of results

Teslas Autonomy Investor Day – Analysts Comment

https://markets.businessinsider.com/news/stocks/should-i-buy-tesla-stock-2019-4-1028135445

Post Autonomy Day reaction

After Autonomy Day failed to convince the investment community that billions in sales and tens of thousands of cars produced and sold are just window dressing in relation to the "future", was writing on the wall. TSLA knew that the income they were going to release for 1Q was terrible. now considered a 150 to 1 roughie (horse racing for a rank outsider in a horse race), last ran with seven furlongs, and this week was going to be ugly. And it did.

Underwhelmed analysts with clients on duty, prerequisites to maintain (perhaps with some damage to reduce) had to train. And they did. There was no master plan for the future to point out the 1Q-2019 results, from what was unthinkable literally a few months earlier after sending a solid 4Q result, and creating a similar result in 3Q.

Let's look at charts showing 25 days on each side of the Autonomy Day.

 Share price / volume chart Source: Yahoo Finance TSLA Historical Data

Leading to the Autonomy Day, even after the end of 1Q-2019, price trading and volumes were subdued, other than the blip from $ 291 to $ 268 on 4 th April when the 1Q production and delivery number came out and possibly the reality of a bad quarter appeared. But even then, there was an atypical "stable as you are" daily volume and the price rolled into a channel of $ 265 to $ 275. Then Autonomy Day, then 1Q-2019 results. A week of fines below $ 240, and up on a Friday to $ 255 after announcing the capital increase, held on the following Monday, then slides the slide zipper until we finished Friday before Memorial Day.

Does anyone think the latest free decline in the TSLA share price is not linked to the error in the Autonomy Day? This was meant to razzle and dazzle and convince the investment community to "keep the line" to derive from the poor 1Q-2019 results. Don't look at what we've just done, see what to do, and not in five years, but in one year or less! It was a complete patent violation.

The capital increases almost a year late

The perfect time for the capital increase would have been 2Q-2018 to 3Q-2018 when the Model 3 ramp was about to lift off. It would not be important that Elon had previously stated that TSLA could grow organically or did not need another capital income. He has said many things that have proved to be optimistic (or late in timing), and many of them seemed to have had minimal or almost no impact on him as CEO or TSLA as a business, and how TSLA was seen by the investment community at this time.

It was not that investors would have believed it as much as underwriters could have sold it. But there were still many believers in 2018. Many would chalked this up to another instance of "see what I do, not what I say" from Musk. In order to drive the growth narrative, based on phenomenal model 3 reservations and interests, a capital increase could have been defined for future Gigafactories and the development of future models. Hell, at this point they could even mention sun and storage! Spend some time developing the Powerpoint slides, developing the story (the "story") you sell and selling it. My own opinion is that they could have (should have!) Raised another $ 3B to $ 5B, a split of equity and debt (a mix of convertible and 2025 + bonds). This would have exposed cash balance fears, bought time for the company to erase and settle production efficiency and not manage the business in an increased level / crisis mode, which seems to be how TSLA operates.

Chart below plots Cash flow from financing activities per vehicle produced since 2008 (rolling 12-month basis since 4Q-2010) and cumulative net cash from financing activities. The previous capital growth was in Q3 2017. If TSLA were to continue to burn the growth story, 2Q-2018 was through 3Q-2018 time to do so. The TSLA share price was over $ 300 from June 2018 to August 2018. The investment market was waiting for the model 3 ramp. Surely all signs point to a capital increase to take advantage of TSLA riding high?

  Cash Flow Financing Source: TSLA 10-Q, 10-K, 8-K

Wise counsel vs. tinnore

Finally, some speculation from the author of the previous CFO. Someone who so deeply into the TSLA finances that former CFO Deepak Ahuja would probably have raised this with the CEO? He had been deep in TSLA longer than most senior executives and you think you have the best understanding of TSLA financials by anyone? Surely he would have flagged the opportunity to capitalize on the high TSLA share price and the upcoming model 3 ramp? His timing for leaving immediately after the Q4-2018 earnings release (announced with a bungled comment in the tail end of earnings calling by Elon) might have thought excitement at the executive level. I don't know, maybe, maybe not. I know from my own experience working with billions of capital projects, which do not have proactive leadership at senior level to chase and secure the appropriate level of funding, be it the project's sanction / final investment decision or on an annual basis, turn more on audio management practices than knee-jerk decisions and reactionary comments.

It's about putting the table for success. Failure to have the right level of funding in place at a project level cuts all decisions. The lack of extra capital in mid-2018 at the perfect storm of timing for TSLA was a catastrophic miscalculation. Most of the SF (Special Forces) branches in different countries use armed forces an exponential amount of scheduling assignments / operations over time. British SAS (Special Air Service) is known for using Six-Ps when planning missions / operations – Proper preparation prevents Piss's poor performance. TSLA can take care of some of these tips and spend more time planning. TSLA has also learned in recent weeks that the investment community is not always your friend.

Enlightenment: I / We have no posts in any of the aforementioned shares and no plans to start any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I do not have any business relations with a company whose stock is mentioned in this article.

Additional Information: Author's Additional Disclosure: Investors are always reminded that before making any investments, you should make your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial advisor before making investment decisions. All material in this article should be considered as general information and not invoked as a formal investment recommendation.


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