Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[unk45]

Remember, there is simply a delay between delivery and revenue recognition (in stage). If you plot them both over time, there is generally just a shift to the left for revenue recognition. That's it. I would advise people not to separate deferred revenue components in their modeling as it just offers an opportunity to make screw up assumptions.

Let's assume Tesla grows Megapack production at a 70% YoY rate. This seems quite aggressive at a consistent rate - far higher than automotive growth, but possible. In 2027, they would produce ~ 100 GWh. So we can roughly assume in 2028 100 GWh worth of Megapacks will be recognized.

Operating marging of 15% x 100 GWh x $300 / kWh ASP gives you $4.5 billion in operating profit.

No offense, but getting more than $10 billion means you are making some pretty crazy assumptions somewhere. You are claiming this is just from 2 megapack factories so that is 80 GWH at most of revenue recognized in a year (vs my 100 GWh).

To get similar to your numbers, I am calculating you are using (or following someone else using) numbers like 30% operating margins and $500 / kWh ASP. Neither of those are happening, especially the ASP. ASPs are already lower than that, and Shanghai ASPs will definitely be lower than Lathrop much like automotive.

Operating margin assumption of 30% is too high IMO. Gross margins might top out at 30% not operating, but they won't stay there long term.

...


More importantly, institutional investors won't value it at those high margins. My guess is they model 15%.

In general there is little to argue with here. Because the large deals are contract by contract and the payment staging is often determined by regulatory Capex and price amortization regulations, it's hard to generalize unless we have the country by country and dealt by deals details. One significant point related to income recognition is the issue of performance bonds. For large projects there are almost invariably performance bond requirements. Those do usually allow cash flow recognition prior to final completion and acceptance but often preclude income recognition under GAAP. In some cases a percentage of completion income recognition is possible. Because we have no details disclosed about TE large-BESS deals, we do not know the sequences.

It has been years since I dealt with those directly, when I did it was as issuer of performance bonds and financing of work in progress for the prime contractors. Those were fossil fuel and hydroelectric projects so they were of longer tenor than even the large-scale BESS tend to be. The accounting conventions are the same, but treatment of work-in-progress and payment staging are highly variable.

For Tesla all these issues apply, plus the almost ubiquitous maintenance and service agreements. We have here not discussed those in detail. As a general rule those seem to be 3-5% of delivered price per annum for periods of a decade or longer. If the numbers are still as they were in the most recent contract I saw, they will probably be around 5% per annum, with probably a downward trend as software and BMS become more robust. it's not unlikely that the operating margin on these service contracts may exceed 50%. Why so high? The norm is to have extensive physical inspections and testing within those contracts often with permeant resident staffing. Given the present software state and the very robust and precise metrics we can assume that with Tesla (and a couple of others) they should be able to diagnose and rectify most problems remotely, while those that require physical intervention should typically be determined prior to failure, so amenable to scheduling.

Since we are now at the point that all this is becoming material, it probably is time to find someone who is an authority on this kind of project finance accounting. @The Accountant may know who we need, maybe himself or someone else.

When I was doing such projects we used:

Capital Projects Consulting Services

EY Capital Projects Consulting professionals can help your business manage risk, lower costs and increase operational efficiency. Find out more.

www.ey.com

The link is to the US team but we used them for projects in the Middle East (including one that was the world's largest non-hydraulic power plant at the time) and South America. Every major global accounting firm has such specialists who are always involved in each movement of funds or obligations.

For those who imagine a large BESS can be done by an online process, just reflect on some of these details.
Finally, at the moment every major supplier of large-scale BESS offers container-sized modular components plus all BMS, systems monitoring and even all connections with exact specifications of infrastructure required. For easy comparison just glance at:

Energy - Technological Innovations for a Better Life | BYD USA

ENERGY STORAGE SOLUTIONS About BYD Energy Battery Safety Long Life About BYD Energy ABOUT BYD ENERGY SCOPE - World's Biggest Iron-Phosphate Battery Factory EXPERIENCE - 24 Years - Battery Manufacturing Experience 13 Years - Energy Storage System operation experience GLOBALIZATION - 30...

en.byd.com

Battery Energy Storage | BESS

Battery energy storage (BESS) offer highly efficient and cost-effective energy storage solutions. BESS can be used to balance the electric grid, provide backup power and improve grid stability.

www.siemens-energy.com

Energy Storage System

Contemporary Amperex Technology Co., Limited (CATL) is a global leader in new energy innovative technologies, committed to providing premier solutions and services for new energy applications worldwide.

www.catl.com

I included only three, but even a cursory look reveals that they all purport to offer roughly equivalent services to those of Tesla. Obviously there are more, and some that seem odd, like, the leading utility software vendors:

https://www.appsruntheworld.com/top-10-utilities-software-vendors-and-market-forecast/

Where we are today is in the midst of headlong convergence between software and hardware. All those peaker plants, data centers are converging to allow both greater flexibility and gigantic challenges as the 'old world' public utilities suddenly discover the modern world.

All this seems tailor made for Tesla, and it is. It all seems to be full of intransigent old-technology people who have no idea what all this means for the Grids, accounting and basic performance measurement.

Back when Tesla did the Hornsdale Power Reserve everyone, including prime vendors:

Hornsdale Power Reserve - South Australia's Big Battery

The Hornsdale Power Reserve is the world’s first big battery. The first 100 MW saved SA consumers $150 million over two years. It was expanded by 50 MW in 2020.

hornsdalepowerreserve.com.au

...had any idea what revolution they were spawning, driven by a huge problem with wind power intermittent productivity.

All of us should not underestimate the revolution that is happening, nor overstate how much Tesla can and/or should scale to meet these challenges. To describe how little traditionalists are seeing there is this:

ESS - FusionSolar Global

Huawei FusionSolar provides new generation string inverters with smart management technology to create a fully digitalized Smart PV Solution.

solar.huawei.com

Frankly, few even imagined Huawei, famed for 5G etc, would suddenly discover BESS. This, more than almost any other example, demonstrates that BESS is only coincidently about batteries. It is primarily not that, but information management with battery storage as a medium to facilitate heretofore unprecedented grid stability. So, why and how did Hawaii suddenly appear?
That answer is also rarely understood in the world not familiar with Chinese development. We also really need to understand this, as Tesla has done ever since J B Straubel first started telling the world:
For context a good place to start is:

State Grid Brazil Holding – Sempre se dedicando a energia limpa e construindo uma sociedade harmônica

stategrid.com.br

Read their history and understand that they are possibly one part of the only large country modern grid. Almost all countries have old grids that are difficult to update to handle the modern demands. The advantage of State Grid and its' suppliers is that they have actually already done the work.

So, lastly, Tesla, in the form of JB and Elon, know all this. Tesla does have magnificent opportunities. The question is primarily is, in global context, where to put the effort. The US has great subsidies but an absence of 'a' grid, but a hodgepodge of old ones that cannot meet today's needs. The solutions require total rehabilitation, and that is some version of State Grid-like approach, but recognizing the impossibility to actually building new from scratch. So, what does Tesla do about the US? where should its' efforts be?

Tesla is in an enviable position, but continuing success demands a nearly 'Mars mission' approach. The opportunity really dwarfs most of the others, maybe including FSD.

 

[LuckyManX]

The limit I cited was a family of 4.

The credit income max with a household of 2 (which is much nearer the median household in WA) is only $61,320. $45,180 if single.

So a couple with no kids would need to be ~25% below median income to qualify.

I mean, it's better than states passing anti EV laws, but it's still going to be a minority of people who can BOTH qualify for the credit AND (sensibly) afford a new vehicle).





AFAIK most street lamps in the US are 120v, not 240v like in europe- so a lot less useful/practical here

Your source? The ones I've personally installed in commercial parking lots were 3-phase 208 volts AC. Fact.

 

[scaesare]

Be careful with words like “quasi infinite”.

Or at least quasi-careful...

 

[dhrivnak]

Stop with the word "promises" already. Nobody at Tesla ever promised you anything.

They made projections and told us there might be hurdles to overcome.

This is not, in any stretch of the imagination, something any but a person addicted to drama might consider being a promise.

Just because someone hopes it will come true doesn't make it a promise.

Sorry but when the Roadster is more than 5 years late the Semi a good year behind, I consider that poor projecting.

 

[SarahsDad]

Once it was made clear that Steven Mark Ryan has accrued ten times the investment in the future with TSLA shares than has Gary Black's "Future Fund" (who likely gets more face time in the mainstream media than SMR does), any reference to him and his Future Fund gets an from me.

I suppose Gary still serves a purpose as a slightly miscalibrated barometer for Wall Street sentiment, for whatever that is worth in evaluating TSLA.

Yeah, after Gary's recent sale, his fund has far fewer shares (1,842) than many, many if not most of the investors on this thread. Not sure why he tweets so much about the #18 holding in his fund (and not the others).

 

[scaesare]

Supervised: yes, so when you disengage it's in the correct orientation
Unsupervised: user option along with pedal disable. If disabled, you can't inadvertently disengage the system (like in your sleep)

Which begs the question... is there a motor in the steering wheel module to move it?

 

[Tachyon]

Yeah, after Gary's recent sale, his fund has far fewer shares (1,842) than many, many if not most of the investors on this thread. Not sure why he tweets so much about the #18 holding in his fund (and not the others).

View attachment 1042540

What ?? That’s it ??
Anyway, when a guy holding 9 shares can hold tesla to ransom , no wonder Gary with 1842 shares believes he can influence the S&P500./s

 

[scaesare]

This is the sort of dangerous assumptions that got TSLA investors into trouble in 2021 - 2022 when share price assumed massive automotive margins would be maintained with volume expansion.

Demand is not infinite. If demand was infinite right now, Tesla would be able to sell megapacks from much, much higher prices than 25-30% gross margins.

Tesla has already cut prices on the megapack (though not much).

Right now, only the places with the highest energy costs or motivations to buy these systems (1st world countries with unstable grids like Australia, Hawaii...) are paying these prices. The economics don't work for most of the populations to pay these prices. That's fine.

Megapacks are a solid business. But please be practical. Tesla is producing 20 GWh annualized right now. When that goes up to 40, then 60-80...there will be price cuts.

Just like in automotive.

COGs will go down some, but not outpace the price cuts.

Just like in automotive.

Unlike in automotive, competitors will keep upping their production of Megapack competitors increasing market supply.

Demand pressure might allow Tesla to keep solid margins, but it is entirely impractical to expect them to go up with volume increases.

For 20 - 60 GWh annualized production over next 3 years we can probably assume 25-30% gross margins, but after that expect them to move down to 20%.


10% operating margin on 200 GWh annualized production (in 5 years maybe?) at $300 / kWh ASP (though probably will be lower) would yield 6 billion in operating profit, e.g. something like $1.8 in EPS. That's nice, but only worth like 100 billion in market cap.

(emphasis mine)

I'll point out that infinite demand does not necessarily imply infinite immediate demand. Many things will be needed in perpetuity, but not all at once.

 

[scaesare]

Like, who doesn't want humanity to go to Mars?

Given our track record when arriving in a new territory... probably the Martians.

 

[scaesare]

I love this use-case, but then it opens up the question of charge port location standards, for that to work they would have to be on the passenger side.

Why? I've plugged my S in to outlets located on the passenger side with my UMC.

 

[scaesare]

Your source? The ones I've personally installed in commercial parking lots were 3-phase 208 volts AC. Fact.

I've also seen/installed 240v units.

 

[jerry33]

Which begs the question... is there a motor in the steering wheel module to move it?

There must be something to give feedback during normal steering. A variable speed motor is one choice, but it could be done with electromagnets.

 

[Musskiah]

Remember, there is simply a delay between delivery and revenue recognition (in stage). If you plot them both over time, there is generally just a shift to the left for revenue recognition. That's it. I would advise people not to separate deferred revenue components in their modeling as it just offers an opportunity to make screw up assumptions.

Let's assume Tesla grows Megapack production at a 70% YoY rate. This seems quite aggressive at a consistent rate - far higher than automotive growth, but possible. In 2027, they would produce ~ 100 GWh. So we can roughly assume in 2028 100 GWh worth of Megapacks will be recognized.

Operating marging of 15% x 100 GWh x $300 / kWh ASP gives you $4.5 billion in operating profit.

No offense, but getting more than $10 billion means you are making some pretty crazy assumptions somewhere. You are claiming this is just from 2 megapack factories so that is 80 GWH at most of revenue recognized in a year (vs my 100 GWh).

To get similar to your numbers, I am calculating you are using (or following someone else using) numbers like 30% operating margins and $500 / kWh ASP. Neither of those are happening, especially the ASP. ASPs are already lower than that, and Shanghai ASPs will definitely be lower than Lathrop much like automotive.

Operating margin assumption of 30% is too high IMO. Gross margins might top out at 30% not operating, but they won't stay there long term.

In fact we are probably getting close to seeing what the best margins are right now. The factory has been operating at a steady state for like 15 months now. That means while some revenue is in various stages of being recognized for any project, there are other projects having those last stages of revenue being recognized from packs produced in Q1 2023. So most of gross margin picture should be clear by Q2 or Q3 earnings report. There should be some additional benefit to operating leverage for the 2nd line though, not sure how much that's worth?

One downside to the future estimates is that Lathrop and purchasers benefit heavily from the IRA. 30% off for buyers I believe, and Tesla gets some credits reducing COGs. One risk is that the IRA gets revoked if/when Trump gets elected (~ 75% likely right now looking at state polls). But a bigger issue is that expansion outside of the U.S. does not get these benefits - Megapack buyers in other countries don't get a 30% discount so this will heavily put pressure on ASPs at global scale.

More importantly, institutional investors won't value it at those high margins. My guess is they model 15%.

Let's work from facts...

FACTS (from Cern, which I posted previously):

Teslas TOTAL REVENUE, which Cern calls INDICATIVE REVENUE(TR=IR=Reported Revenue + change in Deferred Revenue & Unsatisfied Performance Obligations) was nearly $10B in 2023 (with Lathrop MF ramped at half mast [20GWh] for only a few months of the year) and the difference in unreported revenue is nearly $4B!

FACT: Lathrop MF will double in output to 40GWh, and unreported revenue will grow to $8-10B within 18 months (mid 2025) from this single MF

FACT: Lingang MF will ramp to 20GWh through 2025 and likely 40 GWh into 2027, as it does unreported revenue will balloon to ~$20B+ and beyond.

FACT: over the next 12 months, Tesla has told us they will recognize $1B of this Unreported Revenue (UR) in 2024

ASSUMPTIONS: The recognition of...
2025: ~$3-4B from ~$8-10B UR
2026: ~$5-6B from ~$12-15B UR
2027: ~$8-10B from $20B+ UR
2028: ~$10B++++

This recognition of revenue is pure profit realized by Tesla Energy in a given year no matter what you "advise people" @Zaddy Daddy this money WILL drop to the bottom line in a given year, and this profit WILL be multipled by profit growth (which is how it is customary to find an ideal PE from the PEG ratio =1), which is what I said in the post you responded to.

I'm not going to respond to your long post point by point. Maybe someone else wants to take the time to pick it apart. I don't.

 

[EVMeister]

Cybertruck launching in Europe this summer?

https://twitter.com/x/status/1784602451066204438

.

 

[2daMoon]

Sorry but when the Roadster is more than 5 years late the Semi a good year behind, I consider that poor projecting.

The forum must have accidentally removed your references to the specific stated "promises" for the Roadster and Semi. I'm sure that you included them in this post to support this claim. Must be a computer glitch.

Or, are you agreeing with me that Tesla offers forward-looking aspirations with caveats? Often clearly stating how things like this usually lag anybody's ability to guess a timeline accurately.

A projection is not the same as a promise, is it?

 

[LuckyManX]

I've also seen/installed 240v units.

True. My experience is limited to commercial/institutional environments. Not residential. I often use the 'free' Volta chargers over here. Some are 240 VAC, while others are 208 VAC. The car displays the source voltage on the charging screen, and apparently figures out how to make use of what's available - without any effort on my part.

Still, I'd like to explore the source for his comment.

 

[Musskiah]

No, they are not-- as was already pointed out to you. They got rid of just click here to buy for megapacks--- now it's just a CONTACT US button where you fill out a form and (presumably) an actual sales person contacts you...

Right, and I just want to rearticulate the reason for this; Because mid 2023 they had reservations out to Q2 2025 - 2 years waitlist

Tesla Megapack deliveries slip all the way to 2025 despite production ramp

Tesla Megapack’s delivery timeline for new orders has slipped all the way to Q2 2025 despite the company ramping up...

electrek.co

As others have stated, the tendancy is toward large projects of 10s to 100s of MPs, which is better handled through more personalized sales avenues. Despite the ramp at Lathrop, demand is far outstripping supply.

 

[Thumper]

There must be something to give feedback during normal steering. A variable speed motor is one choice, but it could be done with electromagnets.

This was thoroughly covered in an Outline segment autoline cybertruck steering - Google Search

Yes there is a motor.

 

[nativewolf]

Remember, there is simply a delay between delivery and revenue recognition (in stage). If you plot them both over time, there is generally just a shift to the left for revenue recognition. That's it. I would advise people not to separate deferred revenue components in their modeling as it just offers an opportunity to make screw up assumptions.

Let's assume Tesla grows Megapack production at a 70% YoY rate. This seems quite aggressive at a consistent rate - far higher than automotive growth, but possible. In 2027, they would produce ~ 100 GWh. So we can roughly assume in 2028 100 GWh worth of Megapacks will be recognized.

Operating marging of 15% x 100 GWh x $300 / kWh ASP gives you $4.5 billion in operating profit.

No offense, but getting more than $10 billion means you are making some pretty crazy assumptions somewhere. You are claiming this is just from 2 megapack factories so that is 80 GWH at most of revenue recognized in a year (vs my 100 GWh).

To get similar to your numbers, I am calculating you are using (or following someone else using) numbers like 30% operating margins and $500 / kWh ASP. Neither of those are happening, especially the ASP. ASPs are already lower than that, and Shanghai ASPs will definitely be lower than Lathrop much like automotive.

Operating margin assumption of 30% is too high IMO. Gross margins might top out at 30% not operating, but they won't stay there long term.

In fact we are probably getting close to seeing what the best margins are right now. The factory has been operating at a steady state for like 15 months now. That means while some revenue is in various stages of being recognized for any project, there are other projects having those last stages of revenue being recognized from packs produced in Q1 2023. So most of gross margin picture should be clear by Q2 or Q3 earnings report. There should be some additional benefit to operating leverage for the 2nd line though, not sure how much that's worth?

One downside to the future estimates is that Lathrop and purchasers benefit heavily from the IRA. 30% off for buyers I believe, and Tesla gets some credits reducing COGs. One risk is that the IRA gets revoked if/when Trump gets elected (~ 75% likely right now looking at state polls). But a bigger issue is that expansion outside of the U.S. does not get these benefits - Megapack buyers in other countries don't get a 30% discount so this will heavily put pressure on ASPs at global scale.

More importantly, institutional investors won't value it at those high margins. My guess is they model 15%.

And the business in Asia is particularly risky margin wise. I think you'll see energy margins go even further south than auto, ie negative. People will be buying market share and Tesla will be competing with sellers that produce the battery cells Tesla needs. Wrapping cells into packs, throwing on a cabinet and bms, not rocket science.

 

[scaesare]

True. My experience is limited to commercial/institutional environments. Not residential. I often use the 'free' Volta chargers over here. Some are 240 VAC, while others are 208 VAC. The car displays the source voltage on the charging screen, and apparently figures out how to make use of what's available - without any effort on my part.

Still, I'd like to explore the source for his comment.

Yeah, the chargers can take variable input voltage... from (I believe) ~100V up to 240v. The early in-car chargers (like my 2013 S) could actually take up to 277V, although they were not officially spec'd as such, and would limit total output power to 10KW, so they'd drop their current draw. Not sure what the latest ones are capable of voltage-wise.