Longtime Tesla short firm Citron Research has totally flipped on Tesla [TSLA]. It has gotten straight from its multi-year position shorting the stock all the way on over to a comfortable long position in the stock, according to a report issued by the firm today. The longtime shorter of Tesla’s stock issued a 9 page report to justify its change of heart, citing numerous charts from CleanTechnica in support of the change — well, four out of the 18 “nasty charts” we published on Sunday.

The firm specifically cited the success of the company in producing and delivering the Tesla Model 3, noting that many of the warning signs it had flagged in support of its short position proved to be insignificant. Tesla stock ended up nearly 13% today, seemingly based on the news of Citron’s change of heart more then anything else. The stock also kept climbing after hours.



The company initially took a short position based on the belief that the affordable Model 3 would have numerous competitors in the market when it arrived. 5 years ago, it stated that, “By the time this product is even approaching market, there will be multiple other 200-mile range plug-ins that have been out for years.”

Dominant Sales

Fast forward to today and Citron Research has seen the light … or at least our charts. In support of flipping to a long position in the stock, Citron picked up its Tesla-branded pom-poms and cited several of the charts created by Zachary Shahan to show how much of a beating the Tesla Model 3 and the Tesla Model S are delivering to the competition.






Now fully embracing its role as a Tesla cheerleader, Citron said that the results from Tesla’s third quarter production and delivery ramp make it clear that Tesla is the only automaker that’s capable of building and selling electric cars (for a profit).

They noted, “It looks like it is the competition that is taking the Ambien.” For those that don’t follow everything Elon Musk does, that’s a reference to his comments about taking Ambien here and there to help turn his brain off, as well as a reference to other automakers being a sleep, we presume.

The Case For A Long Position

Conquest Sales

Citron Research didn’t just pull out of its short position — it went whole hog into to a long position in Tesla!

Continuing its justification for its change of heart (or at least investment policy), it highlighted that Tesla delivered 83,500 cars to customers last quarter and that, as part of that tale, the Tesla Model 3 trounced the competition, besting Porsche and Mercedes in quarterly sales and absolutely dominating the mid-sized luxury car class (as well as the small luxury car class). It didn’t just do okay — it absolutely dwarfed the competition.




Citron cites this performance, as well as Tesla’s ability to not just pull sales from the competition in the mid-sized luxury class. He noted that the model pulled its top conquest sales from the likes of the $23,475 Toyota Prius, the $23,570 Honda Accord, and the $18,940 Honda Civic. Hardly competitors in its class and more proof that the Tesla Model 3 demonstrates not only demand within its class, but as an affordable electric vehicle capable of generating significant demand.

As Citron puts it, “Like a magic trick, while everyone is focused on Elon smoking weed, he is quietly smoking the whole automotive industry.” I think Elon is just under immense pressure and has no problem letting off some steam. The difference is that while other CEOs are under similar pressure and even make use of Ambien or smoke a joint once in awhile (which is perfectly legal in California), they do it behind closed doors and Elon does it on a podcast. Plus, it appeared that Elon doesn’t actually smoke weed and simply did so for show or out of politeness for Joe Rogan while in his studio.

Q3 Sales Base Allows For Cash Flow And Capital Expenditure

Tesla’s blockbuster sales in Q3 made the Model 3 the top selling car in terms of revenue, bringing in $992 million in revenue in August alone. Let me play that back for you. Tesla brought in almost one billion dollars in a single month from a single car. It seems to have bested stalwarts of the top selling automotive list by more than $200 million to claim its place at the top of the chart. And sales in September were significantly higher (report coming).



Citron believes that the strong results it saw from third quarter production and deliveries demonstrate that Tesla has turned the corner from fledgling startup into the ranks of the established automotive companies. That changes the question from “are they going to make it?” to “how much can this thing really grow?” and Citron is excited about the possibilities. After betting against the steep odds of becoming an automotive giant, the company now considers that Tesla has made it and it’s better to now become a Tesla long while waiting for others to catch on to the unexpected reality.

Positioned For Growth

Even if Tesla did not hit its profitability targets in the third quarter (we’ll find out on the earnings call tomorrow afternoon), Citron is bullish on the stock based on its fundamentals. Tesla is building out its wholly owned factory in Shanghai, from which it can expand sales into new Asian markets. This allows the company to avoid paying Trump Tariffs on its sales in China and beyond, not to mention cutting out the non-value-add transportation expenses required to ship containers of cars from California to China.

Tesla has room to expand in Europe as it looks to the launch of the Model 3 in the EU. The launch of the Model 3 in Europe will likely come in close proximity to the announcement of the location of Tesla’s European Gigafactory. The new Gigafactory is expected to be located near the French–German border, leaving the two countries to curry favor with Tesla as it finalizes the location over the next few months.

Tesla Semi, Model Y, a pickup truck, Autopilot, and even the possibility of the Chinese trade war dying off are all out there as the icing on top of the solid fundamentals Citron Research sees at Tesla.

Citron also cites the heavyweight institutional investors that have increased their positions in Tesla in recent months, including T. Rowe Price, Baillie Gifford, and Fidelity, which are among Tesla’s top shareholders. When Elon was getting in over his head with tweets about going private at $420 per share, investor Baillie Gifford’s fund manager, James Anderson, commented that the company’s value was likely higher than they had been presuming. “Speaking to the Times, Anderson said that while he accepted Tesla’s prospects were uncertain, its value was much higher than $420 a share, probability-adjusted.”

Profitability

Citron builds on its case for Tesla by running the numbers for profitability. Are Tesla’s vehicles profitable? And if so, what does that look like in terms of profitability? The short answer is yes, and it goes back to the teardown of a Model 3 that Munro and Associates performed several months back.

Sandy Munro and his team found that the electronics in the car were “like a symphony of engineering,” and that the battery pack was the best they had ever seen. Most relevant to Citron, Munro estimated that the Model 3 was capable of a 30% margin, reinforcing Musk’s claims that the Model 3 should be able to achieve margins in the high 20% range. “The Model 3 is profitable. I didn’t think it was gonna happen this way, but the Model 3 is profitable. Over 30%. No electric car is getting 30% net, nobody,” Munro said.

Scaling that up, Citron believes that even at the worst case, based on what it believes Tesla can do with its current production facilities, 500,000 cars at a conservative 20% margin equates to a stock price of $599. that’s leaps and bounds beyond the $260 per share the stock was at when the analysis came out and it is the reason it has leapt up 12.7% to the $294.14 per share it currently sits at.



Chart courtesy Citron Research

Things only get more interesting from there, depending on the volumes and margins Tesla is able to sustain as it scales up Model 3 production across global markets, as it brings Model Y online in 2020, and as it gets to commercial availability with the lengthy list of ambitious products it has lined up thereafter.

The full report from Citron Research is well worth the read for anyone looking to get the cliff notes version of the current state of Tesla. The only question outstanding is, how many other short sellers are having similar “coming to Jesus” moments today as Tesla prepares for yet another “most important earnings call in its history” tomorrow?

My personal guess is that they are not alone and we’ll hear similar stories coming out as the shorts either cash in or prepare to be escorted out tomorrow by Musk and team as they announce what many experts are saying will be their first profitable quarter in a long string of profitable quarters from here on out.

We’ll end with a gloating comment from a Tesla Motors Club forum member that is perhaps a bit too insightful to ignore:

“Citron’s u-turn just proves that shorting is one of the biggest Ponzi scheme known to man kind. Citron and other smart shorters kept pumping their narrative until TSLA was rock bottom, in process attracting a huge following of dumber shorts who piled in. And in a classic move, went long leaving dumber shorts holding the bag. How much are you down today, shorts? Enjoying the Ponzi Scheme your leader has created?

“Sorry but I don’t feel sorry for you if you’re short. Should’ve done your homework, should’ve known better than to trust shorts.”

Source: Citron Research

The “excruciating” year of 2018

Let’s talk about this year. What has gone on this year with you? It’s a very roller-coaster year. How would you explain it? You did a very emotional interview in the New York Times, and I promise we’ll get to Tesla and all the other things we want to talk about, but what has happened to you this year? How would you put it?

It’s been a very difficult year.

Why is that?

We had the Model 3 production ramp, which was excruciatingly difficult. It is incredibly difficult to survive as a car company. Incredibly difficult. People have no idea how much pain people at Tesla went through, including myself. It was excruciating.

And?

Excruciating.

And talk about that toll.

Pretty sure I burnt out a bunch of neurons during this process. Running both SpaceX and Tesla is an incredibly difficult ... You realize we’re fighting the incredibly competitive car companies. They make very good cars. They’ve been doing this for a long time. They are entrenched. Mercedes, Audi, BMW, Lexus, you name it. All those car brands. And the history of car companies in America is terrible. The only ones that haven’t gone bankrupt are Tesla and Ford. That’s it. Everyone else has gone bankrupt.

So, the pressure of doing this.

Yes.

Why is it that you do this?

It’s trivial to start a car company.

Absolutely.

It is insanely difficult to make it successful.

You put too much pressure on yourself this year, or it just is what you’re doing?

It sounds like you’re not hearing me.

I’m hearing you. I understand it’s incredibly difficult. What I’m saying is why did you do it this way, this year?

You’re definitely not understanding me.

All right. Try it again.

Making a car company successful is monumentally difficult. There have been many attempts to create a car company and they have all failed, even the ones that have had a strong base of customers, thousands of dealers, thousands of service centers, they’ve already spent the capital for the factories, like GM and Chrysler, still went bankrupt in the last recession. Ford and Tesla made it barely through the last recession. There’s a good chance Ford doesn’t make it in the next recession. So, as a startup, a car company, it is far more difficult to be successful than if you’re an established, entrenched brand. It is absurd that Tesla is alive. Absurd! Absurd.

What do you credit that to?

Excruciating effort.

By you and —

Hundred-hour weeks by everyone.

By everyone here at Tesla.

Yes. There wasn’t some other way to do this.

That’s what I’m saying —

There wasn’t some other way to do this, Kara.

While you’re also running a space company and other ones.

Yes.

Why does Musk push himself so hard?

What I want to get at is why you’re doing that. It’s not a trivial … Why do you think you want to push yourself that hard?

Well, the other option would have been, Tesla dies.

Right.

Yeah. Tesla cannot die. Tesla is incredibly important for the future of sustainable transport and energy generation. The fundamental purpose, the fundamental good that Tesla provides is accelerating the advent of sustainable transport and energy production.

Which I think most people credit you for doing. Pushing everyone else into it at the same time, correct?

Yes. The success of Tesla is, by far, the biggest forcing function for the other car makers to get into —

100 percent.

Yeah. Into electric cars. They’ve said so.

No, there’s no question. I was just having a discussion with someone the other day, and I said, “He has pushed everybody into this, really dramatically. There wouldn’t have been this much investment. There wouldn’t have been this.”

Yes. It’s very important for the future of the world. It’s very important for all life on Earth. This supersedes political parties, race, creed, religion, it doesn’t matter. If we do not solve the environment, we’re all damned.

And this way via sustainable transportation.

Yes. It sort of blows my mind, all these social justice warriors driving around in diesel cars. It’s outrageous. Do you have an electric car?

I do not. I have a —

Shame on you.

Ford Fiesta.

Okay.

I’m trying to get rid of my car, actually. I’m trying to actually get rid of it.t

Sure. I’m shaming you into buying you an electric car.

No, I would think, too —

I’m really car-shaming you.

No. I don’t drive my car very much. It sits in the garage. I try not to drive my car at all.

Driving something.

Yes, that’s true, ‘cause you’re down here in Palo Alto. But I would like to have public transportation is what I would actually like better ... I mostly take public transportation. Who cares about me? I walk a lot. I walk a lot of the time.

When you get to this ... You’re doing this to yourself because you think that the world depends ... Not the fate of the world. You’re not a cartoon character.

No, I think the electrification of transport, and there’s also an important part of Tesla which is solar and stationary batteries, because you need to generate electricity in a standard, sustainable way with solar and then store it at night when the sun goes down with batteries, and then use that energy from the sun to power cars. Without Tesla, this would still happen. There would still be a transition to sustainable energy, but it would take much longer. History will judge this, obviously, but I would say on the order of 10 years, maybe 20 years.

So, pushing it forward by that much.

Yes. I think it’s probably fair to say that Tesla has advanced sustainable energy by at least five years, conservatively, and maybe closer to 10, and then if we continue to make progress, we might advance it by 20 years. This could be all the difference in the world.

The toll on Musk and Tesla’s employees

What is the toll on you? What has been the toll on you and your employees? How do you think about that?

It’s been terrible. This year felt like five years of aging, frankly. The worst year of my entire career. Insanely painful.

Was there any other way to do it? You didn’t think there was any other way to have it happen? Why this year? Why this year, of all the others? Because you’ve been at this for many years.

For this past year, it’s been because of the Model 3 production ramp. Myself and others at Tesla, we had to go in and fix the mistakes in the Model 3 production system, and there were a lot of them. I personally solved a bunch. Jerome [Guillen] solved a bunch. Everyone helped, the entire team. Javier [Verdura], Franz [von Holzhausen], Deepak [Ahuja], everyone. It was ... like, we had the legal team delivering cars in Q3. Todd [Maron] is great. There was a lot of people ... Everyone had to basically go hardcore to solve the ramp.

To solve this ramp problem.

The amount of money that you lose if you don’t solve the ramp is mind-boggling, because you get hit from both sides. Let’s say you’re selling software or something, you don’t —

That would be easier, Elon.

It would be a lot easier. But in software you don’t have a bunch of parts. You don’t have a supply chain. If you don’t sell software, you lose the revenue, but you don’t incur a massive amount of cost associated with producing the software, ’cause you just make copies pretty easily.

But for any large, complex, manufactured item, you have an entire supply chain, and that supply chain has on the order of six months of inertia. You place the order for parts for the car, including if you’re all the way with like two or three or four suppliers ... We have on the order of 10,000 suppliers. It’s a crazy number. We have to place the orders for how many cars we think we’re gonna build roughly six months in advance, six months before final assembly, ’cause if you go all the way down the supply chain...

Then if you don’t actually make those cars, you still have all the costs. It’s like a flotilla of supertankers. The inertia of that is incredible. If anything happens to stall out the production progress, and that could be any one of those 10,000 suppliers, or on the order of 10,000 internal processes, if any of those is slow or wrong or whatever, you can’t make cars. You only need one missing thing, and whatever the slowest, least lucky part of the production process is, that sets your rate.

Self-inflicted wounds and sleep deprivation

I want to get into Tesla specifically, and about the recent results, which I think people were surprised by. You surprised Wall Street and some of your competitors. But when you’re thinking about doing this incredibly complex thing, do you regret some of the things you’ve done to slow it down itself? Or was that unavoidable from your perspective? You know, some of your tweets. You attract attention. You really truly do, and some of it is self-inflicted. Do you not see it that way?

Yeah, there’s no question there’s, like, self-inflicted wounds. In fact, my brother said, “Look, if you do a self-inflicted wound, can you at least not twist the knife afterwards?” You stabbed yourself in the leg. You don’t really need to twist it in your leg. Why do that?

So why do you do that?

It’s not intentional.

Well, okay.

Sometimes you’re just under a lot of pressure, and —

Your brother is wise.

You’re not getting much sleep, you’re under massive pressure, and you make mistakes.

Is that over? Do you feel like that’s over? Do you feel calmer now?

It’s totally over. I will never make another mistake again.

No, I’m teasing you. But how do you ... You look well. You don’t look under a lot of pressure. You seem rested.

Yeah. Things are back to a hard work schedule, but not an insane work schedule. I was, there were times when, some weeks ... I don’t know. I haven’t counted exactly, but I would just sort of sleep for a few hours, work, sleep for a few hours, work, seven days a week. Some of those days must have been 120 hours, or something nutty. You’re gonna go a little bonkers if you work 120 hours a week. Now we’re down to 80 or 90. It’s pretty manageable.

And you had talked in the New York Times about using Ambien and stuff like that. That was to regulate your sleep, correct?

Yeah. It’s not like for fun or something.

No, not at all.

No, it’s just like, if you’re super-stressed, you can’t go to sleep. You either have a choice of, like, okay, I’ll have zero sleep and then my brain won’t work tomorrow, or you’re gonna take some kind of sleep medication to fall asleep.

Now you’re to 80 hours, so it’s like totally manageable in that regard.

Yeah, 80 or 90 ...

You’re just like a regular lawyer in that regard. What is that? I think I’m about 80. I think I’m probably about —

Yeah. 80 is pretty sustainable.

Sustainable for you.

Yeah. The pain level for hours increases exponentially. It’s like nonlinear above 80.

Tesla’s first profitable quarter in two years

Let’s talk about Tesla in specific. You turned in a great quarter. These cars are moving off. How do you look at where you’re going with the Model 3 and others? Then I want to get into some of the new features, the navigation features on Autopilot and things like that. How do you look at Tesla right now? I want to first talk about the product, and then talk about the company itself and what you need to move forward.

I think at Tesla we’re doing pretty well right now. Tesla’s not staring death in the face. We’re in, I think, a pretty good position. We don’t want to be complacent, but it’s not ... Up until around September, we were really faced with, like, “We must solve this or we’re gonna die,” constantly. I feel like we’re no longer in the staring-death-in-the-face situation.

What, is death over and sitting in a seat nearby?

Well, you never want to get complacent, so we still need to work hard, but I think we’re over the hump. We’re certainly over the hump on Model 3 production. For us, making 5,000 cars in a week for Model 3 is not a big deal. That’s just normal. Now we’re working on raising to 6,000 and then 7,000 Model 3s a week, while still keeping costs under control. We could probably do 6,000 or more, maybe 6,500 Model 3s a week right now, but it would have to stress people out and do tons of overtime.

What about innovations to these models? We’re not talking about other products coming out, but you put in a number of innovations in all the current models.

Our cars are constantly being updated with new technology, so we don’t really have a model year like other car companies. As soon as we come up with some improvement, we just roll it into production.

Tesla’s competitors

Now other competitors, I’d love you to sort of assess the competitive landscape. Faraday just lost another founder today, which was the hot company, or the allegedly hot company, I think that’s probably easier to say it that way. Lucid got a billion dollars from SoftBank.

Saudi Arabia, not SoftBank.

Saudi Arabia. That’s right, I’m sorry. Saudi Arabia. And we’ll talk about that in a second.

And there’s lots of others, but there’s all kinds of things. How do you assess — Google’s working on stuff, Uber still seems to be hanging in there. Or I don’t know what you think about that. I’d love to get your assessment of all of them. Or some of them.

Yeah. I don’t really think that much about competitors. I just say like, you know, how do we make our cars as good as possible? How do we make sure we have like the best engineering and manufacturing talent in the world?

You know, Tesla doesn’t do any advertising, or we don’t do any paid endorsements, we don’t sort of haggle for cars or anything like that. So we’re really reliant on the quality of product to sell. And I think it makes sense to sort of put our budget into advancing the technology to make the best possible cars.

Right.

So, you know that’s ... I’m not sure looking at competitors really helps. It’s sort of like the old adage with, you know, running, you don’t wanna ... If you start looking at the other runners, it’s not good, you know.

Right.

Like you can lose races because of that.

Do you think about them? Do you think about them at all? Like Ford or Mercedes or anyone? Or if they’re doing anything that’s interesting, or Google? Which one of them, do you think, is the furthest ahead or closest to you all?

I mean self-driving, maybe Google, Waymo? I don’t think anyone is close to Tesla in terms of achieving a general solution for working on —

Overall solution.

Yeah. Yeah. You can definitely make things work like in one particular city or something like that by special-casing it, but in order to work, you know, all around the world in all these different countries where there’s, like, different road signs, different traffic behavior, there’s like every weird corner case you can imagine. You really have to have a generalized solution. And best to my knowledge, no one has a good generalized solution except ... and I think no one is likely to achieve a generalized solution to self-driving before Tesla. I could be surprised, but...

So none of the car companies. None of the car companies.

No.

Do you ever look and go, “Okay, that’s interesting what they’re doing there.”

The other car companies ... I don’t wanna sound overconfident, but I would be very surprised if any of the car companies exceeded Tesla in self-driving, in getting to full self-driving.

You know, I think we’ll get to full self-driving next year. As a generalized solution, I think. But that’s a ... Like we’re on track to do that next year. So I don’t know. I don’t think anyone else is on track to do it next year.

No one even close. When you look at all the competitors?

Not that I’m ... I think there’s ... I would say, unless they’re keeping it incredibly secret, which is unlikely, I don’t think any of the car companies are likely to be a serious competitor.

Will they ever be a serious competitor, from your perspective?

In self-driving, I don’t think so. They’re just not good at software. And this is a software problem.

Okay. All right, so talk about Tesla ... and then I want to get to SpaceX and other things.

It’s a harder problem, too, on the compute side. But they’re also not doing anything on the compute side.

Right.

So it’s like ... You do need an advanced sort of AI computer that’s very good at doing matrix multiplication with localized memory. So that —

So they’re missing elements? What you’re saying, the generalized solution?

Yeah, I mean ... you need a specialized inference engine. Like the Tesla hardware 3 Autopilot computer, that will start rolling into production early next year, is 10 times better than the next best system out there at the same price, volume and power consumption. And it’s really because it’s got a dedicated neural net chip. Which basically, it sounds complicated, but it’s really like a matrix multiplier with a local memory.

So all I’m getting at, is you don’t think any of the rivals will come close. Any of the ones that are touting their solutions?

I would say close to zero percent, probably.

Okay. All right, that’s not close. That’s not close at all.

Yeah.

Okay.

This is my honest ... This is —

That’s all right, that’s your answer.

This is just my ... what I think. I mean, I’m not ... it’s not like ... I could be wrong, but this is what I think.

Why Tesla is not going private after all

All right. So the challenge you face is financial, though. Getting funding and stuff like that. And you’ve gotten ... Saudis had bought a big bunch of your stock, that’s just separate, they —

They might have sold it, I don’t know.

Yeah, we don’t know what they have now. But where do you get the money? Talk about the finances of doing this, because that’s what could really hurt you is not having enough capital.

You know ... I mean, as I said earlier this year, I think we will be cash-flow positive for all quarters going forward.

All quarters going forward. So do you need more investment?

No.

Not at all.

I don’t think so.

Do you need to go private? Are you still contemplating that?

We don’t need to go private, I think I .... going private would ... I think we could execute better if we were private.

Without all the attention?

Yeah, you know, not to harp on those short-sellers, because people think I have this obsession with them, but I spent like one percent [or] less of time thinking about them —

It’s the tweets, Elon. But go ahead.

Less than one percent of my tweets have anything to do with short-sellers.

You do know when you tweet, it’s louder than other people’s tweets, but go ahead.

Yeah, but if like one in a hundred is about short-sellers, that’s still 1 percent.

Okay, all right. Okay. All right. Okay.

I think that’s like probably even less than that.

Okay.

But the issue is that there’s a group of people who are quite smart, very mean, and have a strong financial interest in Tesla’s downfall.

And what that results in is a constant attack on the Tesla brand, on me personally, on the executive team, on our cars. You know, every mistake we make is amplified. And this is not good. So the ...

You know, the thought about going private was really just saying, okay, if we’re private ... Going private would definitely result in some short-term drama, but if we can avoid the distraction of ... If we can avoid the brand damage of ... Let’s say we’re private, and then we went public five years from now. Then the area under the curve of brand damage by short-sellers would be probably less than the short-term difficulty of going private in the first place. That was the approximate calculus. And then also being public, particularly when everyone at the company’s a shareholder, causes a lot of distraction when the share price moves around a lot.

Right. It just roared upward this week. Or this past week.

Yeah, yeah. It’s gone up. You know, it tends to end up being like a mood, to some degree, a mood thermometer. So it’s like the stock goes down, people are sad and feel undercompensated. And then when the stock goes up, people are exuberant, overly exuberant, and —

Normal.

Yeah, you get distracted thinking about what you’re going to buy.

Right, right.

So, like, neither of these things are great. When you have big moves in the stock, this just causes a distraction.

Right. Do you believe you have enough investment? Even if it’s cash-flow positive, you wanna invest more. Correct? Do you believe, do you think you need more investment?

No.

No. That you can do it based on selling these cars?

Yes.

The Tesla Semi, pickup truck and other new products

Okay. All right, so last thing on this, on Tesla, these new products. The truck, the Roadster, where are they?

Yeah, I’m super-excited about the future —

Do you have another thing you’re making?

Ha-ha. We definitely do.

Do you have a vertical lift and takeoff?

The supersonic VTOL jet, electric jet.

Yeah. Perhaps a hovercraft like Larry Page, I don’t know.

No, hovercrafts are pretty straightforward.

Yeah. Okay, sure.

But —

For you.

A supersonic vertical-takeoff-and-landing electric jet would be interesting to do at some point, I think. But my head would definitely explode if I tried to do that right now.

Yeah, I think so.

But I’ve been thinking about that design for nine years.

Do you have something special —

Yeah.

Yeah, such as?

It’s great.

It’s great? It’s in your head?

Yeah.

Okay, all right.

I mean, I wrote down some of it, but ...

But the truck is more immediate?

There were like a few things —

[And] the Roadster?

Yeah, I think what fires me up about Tesla is, I think we’ve got the most exciting product roadmap of any company in the world.

Okay.

We’ve got the Model Y, the compact ... midsize, more midsize SUV. The Tesla Semi, which is gonna be great for taking ... Because semis are in constant use and use a tremendous amount of fuel, so the Tesla Semi, I think, can have a huge effect, positive effect on —

When do those come online? That was a very dramatic opening of bringing it in, by the way. People are obsessed with your jackets, but it actually was the event that you did, where you showed it off.

Nice jacket.

Yeah, nice jacket.

“Who are you wearing?”

Were you surprised by that? It was a nice jacket.

It’s my favorite jacket, actually. I’ve had it for ages.

Okay. But suddenly it was the jacket.

The reason it looks like ... It looks kind of worn-out, it’s ’cause it is.

Okay. All right.

It’s not, like, accidentally. It’s that’s how —

All right, back to the truck!

All right, yeah. Exactly. Just to recap the things that are coming out, because I think it is ... I think it’s literally the most exciting product lineup of any company in the world. Certainly from a consumer standpoint. I’ll just go through the things that are publicly announced.

You’ve got the Model Y, which is the midsize SUV. You’ve got the Semi truck, which is, can be great for really heavy transport. It’ll be like the heaviest class of truck, of industrial truck.

We’ve got the next-generation Roadster. Which will be the fastest sports car on every dimension. Fastest acceleration, fastest top speed, best handling. The goal with the Tesla Roadster is to show that an electric car can be the best sports car on everydimension. I think that’s very important to kind of get rid of this, like, halo effect that gasoline cars, sports cars, have —

The pickup, or the more-

Well, like let’s say that the fastest, top-speed cars in the world are still gasoline sports cars. So I think we ... It’s important to have an electric sports car that’s faster than the fastest gasoline sports car. And it helps address that halo effect that gasoline sports cars have. So I think it’s important to do that to show that, you know, electric is the best architecture.

Then we’ve got the pickup truck, which — actually, I’m personally most excited about the pickup truck.

Why’s that?

Well I can’t talk about the details, but it’s gonna be like a really futuristic like cyberpunk, “Blade Runner” pickup truck.

OK, what does that mean?

It’s gonna be awesome, it’s gonna be amazing.

Who are you trying to sell that to?

This will be heart-stopping. It stops my heart. It’s like, oh, it’s great.

Who do you wanna sell that to? People that buy F- whatever?

You know, I actually don’t know if a lot of people will buy this pickup truck or not, but I don’t care.

Okay.

I mean I do care, eventually, you know. Like sure, I care. We wanna get gasoline, diesel pickup trucks off the road.

Right.

But if I find, like, you know, I’m personally super-excited by this pickup truck. It’s something I’ve been wanting to make for a long time. And I’ve been iterating sort of designs with Franz ... It’s like I really wanted something that’s like super-futuristic cyberpunk. Which, if it doesn’t ... if I’m weirdly like ... if there’s only a small number of people that like that truck, I guess we’ll make a more conventional truck in the future. But it’s the thing that I am personally most fired up about. It’s gonna have a lot of titanium.

Titanium, okay. What else?

There’s like, you’ll see. It’s like ...

Racing stripes? What, no? I’m teasing, I’m teasing.

No, it’s gonna be ... Like, I think this is the kinda thing the consumer would want to buy, even if they don’t normally buy a pickup truck.

Right.

So, anyway, that’s personally I’m most excited about. But like I said, it could be just like, okay, I weirdly like it and other people don’t. That’s possible. But we’re gonna make it anyway, and then we will just have a niche audience, I don’t know. But if it does, then we’ll make a more conventional pickup truck.

Do you have a motorcycle?

No. I rode motorbikes a lot when I was a kid. So I did, like, dirt biking and then rode a motorcycle on the road. And then I almost got killed when I was 17, so ...

Yes, I remember.

Yeah. So it’s like I ... You know, most people are paralyzed, but depending on how you count it, the probability of death in a motorcycle versus —

It’s quite high.

It’s 25 times higher.

Yeah, my brother is a doctor. He calls them donor-mobiles, actually.

Yeah. Like organ donors.

Yeah, that’s exactly why he calls it that.

Yeah, so, the thing is, I rode dirt bikes for six years or more, and did all sorts of crazy jumps and things in the dirt bike, but never got seriously injured. And then —

But not gonna make one? Not making a Tesla motorcycle?

Yeah, then I almost got killed ...

Bad memories.

A truck knocked ... I got hit by a truck.

What about a plane?

Literally got hit by a truck.

Yeah.

So, we’re not gonna make motorcycles. But a few more Tesla products that are cool: We’re almost done with the development of the solar tile roof. So we have those on a few hundred roofs right now. And we’re just doing testing to make sure they have long-term durability.

These are tile roofs, these are tiles on the roofs? Yeah.

Yeah, the solar tile roof where it looks like a normal, beautiful tile roof. But it’s actually solar. And, like, that development process is longer than we’d like, because we’ve got to make sure that the roof’s gonna stand up for 30 years.

Sure.

And even when you do accelerated lab testing on a solar roof, it still takes a while. And we’ve gotta put a lot of work into making the installation process easy, so it doesn’t take ages to install a roof.

Or rely on government subsidies.

Yeah. Long-term, there won’t be any government subsidies. Those are just kind of like short-term things.

I agree. You’d be surprised to know I do have a solar roof. And have had one for 10 years.

Oh cool. Great. Thank you. Good.

I think I have a real old one. I think it’s super old, and it seems to be working just fine.

Yeah. I mean you probably have the retrofit solar, like that’s on top of a normal roof.

Yes.

So we have that. We’ve like kind of a regular —

This is tiles. This is the tile —

This is integrated with the roof.

Right.

So the solar tile roof, where it’s integrated with the roof. You don’t even realize it’s solar. And of course we have the conventional retrofit solar, so we are working on, you know, steadily improving the aesthetics of the retrofit solar.

Then we’ve got the Powerwall battery storage system. We’ve got the Powerpack, which is used for utilities on industrial scale. We’re gonna have some other exciting announcements on the stationary storage front. So when you —

This is within the homes?

I can’t talk more about it, but there’s —

Presumably.

We have a large product on the stationary storage side that I think will be very compelling for utility customers.

Okay, all right. So, a Roadster. Any planes?

No plans to make planes at Tesla.

How Tesla Made a Record Profit

Tesla’s record quarter doesn’t look as good as its earnings release had suggested

Nov. 5, 2018 11:52 a.m. ET

Tesla has produced a turnaround for the ages. Knowing how the company pulled it off is important for investors.

Last week, chief executive Elon Musk said the electric car maker was struggling for survival up until September. Turns out, Tesla produced its biggest profit ever that quarter.

A new regulatory filing from Tesla that came out on Friday should help investors reconcile these competing facts. There is no doubt that Tesla delivered a record number of cars, grew revenues by 70% from the second quarter and kept costs down. Tesla booked $271 million in pretax income in the quarter.

The biggest boost to profits came from the sale of government credits, which Tesla earns by producing clean energy products like electric cars and can be sold to other companies to satisfy regulatory requirements. Tesla booked $189.5 million in credit revenue in the quarter, an unusually high result. Tesla had booked a total of about $135 million in the first two quarters of the year. These credits are almost pure profit for Tesla.

Tesla’s earnings press release only mentioned $52 million in revenue from credits. The total amount was only revealed in Tesla’s 10Q regulatory filing on Friday, after a nearly 20% run in the stock.

Companies have wide latitude in some areas of financial reporting and one is reserves that they set aside for future expenses. Predicting costs of defective products or lawsuits is difficult but when companies change the amount they set aside and enjoy an earnings boost as a result, it is worth watching.

In the third quarter, Tesla set aside $187 million in estimated warranty expenses, or about $2,242 per vehicle delivered. In the second quarter, that expense was $2,910 per car. That quarter was the first period where the Model 3 was Tesla’s best selling product. Net income would have been about $56 million lower using the same figure as in the second quarter, according to analysts at UBS .

Tesla said the UBS calculation is inaccurate and that the provision should be lower for cheaper cars like the Model 3, and it needed to account for the reserves for solar panels and batteries it sells. But Tesla’s energy sales amounted to about 6% of sales in the third quarter. And cars have more ongoing service needs than batteries and solar panels do.

The car maker’s strong quarter did calm concerns about its debt levels. Tesla has $3 billion in cash but that is dwarfed by $3.5 billion in accounts payable, which rose $500 million in the quarter, and about $10 billion in debt. Tesla said it in its regulatory filing that it plans to spend between $2.5 billion and $3 billion in 2019 and 2020. This is necessary for Tesla’s plans to design and produce new models, build out its service infrastructure, and expand into China.

Tesla should make good use of the improved quarter and the rallying stock price to do what it has needed to do all year -- raise money by selling stock. Investors may lose out but the extra cash is necessary for Tesla to succeed in its long-term goals.

Tesla Energy announced today that they are reducing the prices of their solar power systems by $3,000 to $5,000 for the average homeowner.

They cite improvements in “vertical integration” as the reason for the price cut.

A Tesla spokesperson sent us the following comment about today’s price change:

The company says that the $3,000 to $5,000 price cut for an average customer represents a 10 to 15% price reduction of a whole residential solar installation.

With solar, the scale is important and Tesla says that the price reduction will be felt more significantly for bigger installations, which will see the price drop by as much as 20%.

As mentioned, Tesla cites “vertical integration” as the reason behind the price reduction.

Under SolarCity, they were using several expensive sale channels, including door-to-door salespeople, call center, etc.

Since Tesla acquired the company, it was integrated into Tesla Energy and they sell the products through the automaker’s existing network of retail stores and car owners.

Last year, they start displaying its solar panels at its stores:



The price cuts appear to only affect Tesla’s solar panel installations as they are still only starting to ramp up solar roof tile installation.

It also comes as Tesla is increasingly using its own solar panels instead of third-party product.

As of last quarter, Tesla Energy is now mainly using its own ‘Tesla-branded’ solar panels made at Gigafactory 2 for its projects in California.

Furthermore, Tesla is also trying to combine its home solar installations with Powerwalls, its home energy storage device.

While the prices of Tesla’s solar home systems are going down, they recently increased the price of the Powerwall.

(Bloomberg) -- It was only a few months ago that Wall Street was bashing Elon Musk’s Tesla Inc. One analyst called the stock “no longer investable,” citing Musk’s erratic behavior in tweets and taunts. A short seller bet on a dramatic drop, saying it’s “more and more apparent that Tesla is having difficulties paying their bills.”

But an unexpected thing happened along the way: The company found its footing as an electric-car manufacturer, an achievement masked by Musk’s bluster. Its stunning third-quarter profit picture, boosted by its ability to ramp up production of Model 3 sedans, surprised naysayers, and marked the beginning of a turn in market sentiment.

Tesla’s stock is, somewhat improbably, right back near the highs it reached on the day of that infamous “funding secured” tweet that caused a furious rally before landing Musk in trouble with the SEC. And so after a year of stomach-churning swings that saw the stock post half a dozen rallies or selloffs of 20 percent or more, it is up nearly 18 percent. Not bad at all when you consider that the S&P 500 is down 1.4 percent on the year.

All of this, of course, could easily shift again at almost any moment, given Musk’s penchant for impolitic remarks and the many operational challenges. But for now at least, Wall Street is bullish once again, expecting Tesla to be profitable and have positive free cash flow in the fourth quarter -- accomplishments that would show the company has finally figured out how to produce cars at a stable pace and make money while doing it.

“Was the third-quarter a fluke? Time will tell,” said Roth Capital Partners analyst Craig Irwin. “But the reality is that when you produce 50,000 cars a quarter, that is a big milestone, and you can see these guys are here for the long run. Tesla is squarely on its own two-feet now, and learning and well prepared to keep learning.”

Tesla’s stock has always been priced for perfection, and Musk’s Twitter habits weren’t the only roadblocks that investors faced in 2018. As it frantically tried to boost production of the Model 3, Tesla was burning cash at a rapid pace -- as much as $8,000 a minute as it entered the year, according to Bloomberg calculations. Musk acknowledged how dire the problem was in an interview last month, saying the company’s earlier cash bleed had left it just a couple of months away from collapse.

Tesla’s fundamentals are now improving, helped by increasingly efficient manufacturing, strong prices of its cars, and the “slow and disappointing” competition in the electric vehicle market, Oppenheimer analyst Colin Rusch wrote in a note published on Wednesday. “We believe as TSLA delivers steady cash flow, a new group of investors will begin taking positions, helping drive shares higher.” Tesla shares jumped as much as 1.4 percent in New York.

Bond Outlook

Much like the stock, Tesla’s bonds have had a volatile year and investors remain cautious. The unsecured bonds hit a record low around 83 cents on the dollar in September, moving up to 87 cents in a muted rebound after the third-quarter results.

Tesla told holders of $920 million of convertible debt due in March that it would settle the conversion with a 50-50 split between cash and stock, a sign that the company could be on the path to consistent profitability and positive cash flow generation going forward.

Plenty of reasons for skepticism remain. Tesla is still highly levered up and 2019 is going to be an “uphill battle,” Cowen analyst Jeffrey Osborne said. He cited the expiration of electric vehicle tax credits and the lack of pent-up demand for electric cars that helped Tesla in 2018, among other things.

And despite the corporate governance reforms in Tesla’s settlement with the SEC, the company is still at the mercy of Musk to control his behavior as its public face and chief decision-maker. He responded to an exodus of top executives this year by assuming some of their responsibilities himself, and he bristled in a “60 Minutes” interview at the idea that he now has a babysitter supervising him.

Electric Rivals

But Tesla’s premium valuation today reflects its leadership in electric cars, far ahead of potential competitors. Analysts said they weren’t impressed by two would-be electric rivals unveiled this year by Audi and Mercedes-Benz.

General Motors, which is expected to sell about 4.7 million vehicles globally this year, had a market capitalization of $49 billion through Tuesday. Tesla’s is nearly $63 billion though it’s likely to sell only 256,000 vehicles.

“It is incredible to me, at the end of 2018, that the major automakers still haven’t figured out how to respond competitively to Tesla,” JMP Securities analyst Joseph Osha said. “Tesla plausibly can grow at 8-to-10 percent for a really long time, so it should be valued a lot more highly than companies growing at one or two percent, which is what the rest of the auto business is growing at.”