2014 1 QTR predictions/results

[hummingbird]

I think the source of these numbers is Hummingbird's post which was updated in mid-April as follows:

2013 Q1 produced 5000, guided 4500, sold 4900
2013 Q2 produced 5500, guided 4500, sold 5150
2013 Q3 produced 6500, guided 5000, sold 5500
2013 Q4 produced 6587, guided 6000, sold 6892

I have no idea where 6825 came from and I am fairly certain all of these are estimates except for the 2013 Q4 number which was reported in the same shareholder's letter.

I originally posted 6825 because 6825 = (6500+7150)/2 (average of production rate at end of Q2 and at end of Q3)

Later I updated that figure because I found out during Q3 they had issues getting enough cells, so the ramp was not smooth.

My current notes are:

2013 Q1 produced 5000, guided to sell 4500, sold 4900
2013 Q2 produced 5500, guided to sell 4500, sold 5150
2013 Q3 produced 6600, guided to sell 5000, sold 5500
2013 Q4 produced 6587, guided to sell 6000, sold 6892

During 2013 Q3 and Q4 Tesla was very much cell limited. They are still cell limited Q1 2014.

In summary, Yamada and Tusuga of Panasonic completely control how many cars Tesla can produce each and every quarter for the next 12 quarters.

 

[Benz]

I originally posted 6825 because 6825 = (6500+7150)/2 (average of production rate at end of Q2 and at end of Q3)

Later I updated that figure because I found out during Q3 they had issues getting enough cells, so the ramp was not smooth.

My current notes are:

2013 Q1 produced 5000, guided to sell 4500, sold 4900
2013 Q2 produced 5500, guided to sell 4500, sold 5150
2013 Q3 produced 6600, guided to sell 5000, sold 5500
2013 Q4 produced 6587, guided to sell 6000, sold 6892

During 2013 Q3 and Q4 Tesla was very much cell limited. They are still cell limited Q1 2014.

In summary, Yamada and Tusuga of Panasonic completely control how many cars Tesla can produce each and every quarter for the next 12 quarters.

Well, then you better read this: http://panasonic.co.jp/corp/news/official.data/data.dir/en100325-3/en100325-3.html

 

[hummingbird]

Well, then you better read this: http://panasonic.co.jp/corp/news/official.data/data.dir/en100325-3/en100325-3.html

The date of that press release is 2010. Out of date info.

 

[techmaven]

Well, then you better read this: http://panasonic.co.jp/corp/news/official.data/data.dir/en100325-3/en100325-3.html

That press release is for the initial phase of the Panasonic Suminoe plant that has been producing cells for the Model S. Phase 2 was not completed as of last year. Last fall, with the success of Tesla's Model S, both Tesla and Panasonic announced a new cell supplier agreement that included the phase 2 expansion of the Suminoe plant and they will bring a formerly mothballed plant for cylindrical cells back online. If you read through Panasonic's IR from 2009 through now, you'll see that Panasonic wrote off huge losses in relation to battery production when the various forecasts for automotive and PC cells did not materialize. The question for short term is how fast Panasonic is able to bring that cell capacity online in order to allow Tesla to build more Model S's and then the Model X.

 

[Benz]

That press release is for the initial phase of the Panasonic Suminoe plant that has been producing cells for the Model S. Phase 2 was not completed as of last year. Last fall, with the success of Tesla's Model S, both Tesla and Panasonic announced a new cell supplier agreement that included the phase 2 expansion of the Suminoe plant and they will bring a formerly mothballed plant for cylindrical cells back online. If you read through Panasonic's IR from 2009 through now, you'll see that Panasonic wrote off huge losses in relation to battery production when the various forecasts for automotive and PC cells did not materialize. The question for short term is how fast Panasonic is able to bring that cell capacity online in order to allow Tesla to build more Model S's and then the Model X.

In my opinion this is an important part of that article:

The Suminoe Factory began manufacturing electrodes last October, and will now begin mass production of battery cells this April starting with an initial capacity of 10 million units per month during the first year of operations. Panasonic plans to gradually increase the production capacity up to 25 million per month (300 million units per year) during the first phase, taking into consideration market conditions. The factory will manufacture mainly Panasonic's high-capacity lithium-ion batteries, featuring its unique nickel-based positive electrodes, to meet the ever-growing demands for higher-capacity batteries. The company will decide the timing of the second phase of construction at a later date while taking into account the market conditions.

I read it as if there was not any mass production of battery cells before April 2014.

 

[techmaven]

I read it as if there was not any mass production of battery cells before April 2014.

April 2011. That press release was from 2010.

 

[hummingbird]

That press release is for the initial phase of the Panasonic Suminoe plant that has been producing cells for the Model S. Phase 2 was not completed as of last year. Last fall, with the success of Tesla's Model S, both Tesla and Panasonic announced a new cell supplier agreement that included the phase 2 expansion of the Suminoe plant and they will bring a formerly mothballed plant for cylindrical cells back online. If you read through Panasonic's IR from 2009 through now, you'll see that Panasonic wrote off huge losses in relation to battery production when the various forecasts for automotive and PC cells did not materialize. The question for short term is how fast Panasonic is able to bring that cell capacity online in order to allow Tesla to build more Model S's and then the Model X.

1) Tesla's factory at Fremont is not production limited. Tesla is cell limited.

2) Panasonic is only cranking up production in small steps as need. In fact, during 2013 always a bit slower than what Tesla wanted. This way they can keep cell prices high for as long as possible. Recall the last contract with Panasonic was signed Oct 30 2013, during that time frame they held back production of cells to get better pricing from Tesla during negotiations.

Elon got the Russian treatment. That's why immediately after Oct 30 Elon moved very quickly with his Gigafactory plans.

Tesla would rather not have to do the Gagafactory, but they feel they have no choice (for various reasons).

Slide #1 shows the big picture:

http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf

Reviewing that slide, one could see both sides of the argument (to be or not to be).

It would be so much easier if Tesla could just specify/design the chemistry and have Panasonic, Samsung, LG, etc, make the cells. After all it's a commodity form factor. But there is more to it than that.

(2013 the industry produced almost 35 Gwh, Tesla used about 1.5 Gwh, or 4% of capacity)

 

[Benz]

April 2011. That press release was from 2010.

I should read more carefully.

Thanks

 

[FluxCap]

1) Tesla's factory at Fremont is not production limited. Tesla is cell limited.

2) Panasonic is only cranking up production in small steps as need.

Your writing style is so familar.

Anyway, if you place your bets on production levels that equate to a tiny amount of batteries being produced by Panasonic in the next few years for Tesla way under even the most conservative projections for growth in the hottest automotive product in a generation, you are going to get burned on your trades. You may want to read about Panasonic's latest guidance, posted in the gigafactory thread. Corroborates everything I have been saying for a while about this "peaking demand" and "Panasonic scaling back" myth.

 

[hummingbird]

Your writing style is so familar.

Anyway, if you place your bets on production levels that equate to a tiny amount of batteries being produced by Panasonic in the next few years for Tesla way under even the most conservative projections for growth in the hottest automotive product in a generation, you are going to get burned on your trades. You may want to read about Panasonic's latest guidance, posted in the gigafactory thread. Corroborates everything I have been saying for a while about this "peaking demand" and "Panasonic scaling back" myth.

FluxCap: I would appreciate it if you would stop making comments about me and what my stock trades might be. It would be more useful if you simply stick to the subject at hand, which is Tesla and this space.

Since you have made many personal statements toward me, I too have a personal suggestion for you:

How Warren Buffett Avoids Getting Trapped by Confirmation Bias - Forbes

Something you seems to have missed from Elon Musk.

 

[FluxCap]

FluxCap: I would appreciate it if you would stop making comments about me and what my stock trades might be. It would be more useful if you simply stick to the subject at hand, which is Tesla and this space.

Since you have made many personal statements toward me, I too have a personal suggestion for you:

How Warren Buffett Avoids Getting Trapped by Confirmation Bias - Forbes

Something you seems to have missed from Elon Musk.

I'm talking about the subject at hand, which is batteries and production levels...not sure what you mean.

To indulge your off-topic bit: I also think Warren Buffett's success is a product of the mythology and idol worship he has created about himself. It has become a self-fulfilling prophecy. Statements like "never lose your capital" are for fools. To invest is to risk capital, and to protect investments is to perform analysis better than others, and/or attempt to influence the performance of those investments by influencing investors and markets via the media or direct involvement in investments. Warren Buffett has made a career doing the latter very well.

 

[uselesslogin]

To indulge your off-topic bit: I also think Warren Buffett's success is a product of the mythology and idol worship he has created about himself. It has become a self-fulfilling prophecy. Statements like "never lose your capital" are for fools. To invest is to risk capital, and to protect investments is to perform analysis better than others, and/or attempt to influence the performance of those investments by influencing investors and markets via the media or direct involvement in investments. Warren Buffett has made a career doing the latter very well.

Warren Buffet's success started in the late 1950s. Perhaps his continued success after the 1980s can be attributed to idol worship and being the buyer of choice but he had to be successful first. I really don't think you can attribute his early career to that.

 

[techmaven]

2) Panasonic is only cranking up production in small steps as need. In fact, during 2013 always a bit slower than what Tesla wanted. This way they can keep cell prices high for as long as possible. Recall the last contract with Panasonic was signed Oct 30 2013, during that time frame they held back production of cells to get better pricing from Tesla during negotiations.

Elon got the Russian treatment. That's why immediately after Oct 30 Elon moved very quickly with his Gigafactory plans.

While I do believe that Panasonic was hesitant to expand production in advance of proven volume, I find it very hard to believe that Panasonic deliberately withheld production as a negotiating tactic. Panasonic is losing enough money in other sectors and has been clamoring for various restructuring initiatives that any money they can make is money they absolutely will make. Holding back is completely against what I read in Panasonic's IR. Instead, they are hesitant to expand based on projections - they were burned pretty badly and so they needed to see that Tesla was really going to be able to sell as many Model S's as they claimed before going through some pretty capital intensive factory expansion and retrofitting.

 

[aznt1217]

While I do believe that Panasonic was hesitant to expand production in advance of proven volume, I find it very hard to believe that Panasonic deliberately withheld production as a negotiating tactic. Panasonic is losing enough money in other sectors and has been clamoring for various restructuring initiatives that any money they can make is money they absolutely will make. Holding back is completely against what I read in Panasonic's IR. Instead, they are hesitant to expand based on projections - they were burned pretty badly and so they needed to see that Tesla was really going to be able to sell as many Model S's as they claimed before going through some pretty capital intensive factory expansion and retrofitting.

There's also a cultural aspect as well. Japanese businesses are extremely risk averse. But I will say they aren't about screwing customers over by artificially keeping prices high like some claim.

 

[hummingbird]

While I do believe that Panasonic was hesitant to expand production in advance of proven volume, I find it very hard to believe that Panasonic deliberately withheld production as a negotiating tactic. Panasonic is losing enough money in other sectors and has been clamoring for various restructuring initiatives that any money they can make is money they absolutely will make. Holding back is completely against what I read in Panasonic's IR. Instead, they are hesitant to expand based on projections - they were burned pretty badly and so they needed to see that Tesla was really going to be able to sell as many Model S's as they claimed before going through some pretty capital intensive factory expansion and retrofitting.

You are probably right about that. But the timing is suspicious. During Q3 earnings call, Elon was clearly agitated about the lack of cells.

We have to ask: why can't Panasonic simply make more cells and/or keep 60-90 days of inventory? They can see way ahead Tesla will need the volume. I suspect they could have cranked out more cells if they wanted to.

Looking at slide #1 ( http://www.teslamotors.com/sites/default/files/blog_attachments/gigafactory.pdf ) more closely, we can see the following:

#1 Samsung increased their output significantly each year from 2010 to 2013
#2 LG increased their output significantly each year from 2010 to 2013
#3 Panasonic's output from 2010 to 2013 was pretty much flat (looks like 7, 6, 5, 6 Gwh for those four years)
#4 Sony reduced their output slightly each year from 2010 to 2013

Clearly the Koreans are taking shares from the Japanese.

Billions of cells are cranked out by the industry each year. The fact is, as show by slide #1, Panasonic did not increase their output in any significant way from 2010 to 2013 (yes, from 5 to 6 Gwh from 2012 to 2013 due to Model S).

If you see high demand for the Model S, Panasonic sees the same. In fact they have much better information directly from Tesla.

Seems to me Panasonic is a conservative company. They can't, and don't want to, risk large amount of money cranking out cells ahead of demand. They know technology (chemistry and form factor) will change and Tesla can and will eventually source from other vendors. In fact, they know Tesla wants to build their own cell factory to drive down prices and innovate in cell chemistry. Panasonic may still eventually joint Tesla to do the GF, but it's not an easy decision for them (damn if you do, damn if you don't).

EV is all about battery performance and price. We wait and see how this unfolds.

Meanwhile we know this much: For all of 2014, Tesla is not Fremont production line limited. Tesla is Panasonic cell limited.

For all of 2014 and 2015, Panasonic (Yamada and Tusuga) controls Model S volume, hence Tesla revenue growth rate and indirectly TSLA stock price.

- - - Updated - - -

But I will say they aren't about screwing customers over by artificially keeping prices high like some claim.

It happens all the time. For example between Samsung and Apple.

 

[dirkhh]

There's also a cultural aspect as well. Japanese businesses are extremely risk averse. But I will say they aren't about screwing customers over by artificially keeping prices high like some claim.

It happens all the time. For example between Samsung and Apple.

Umm, you do realize that Samsung is NOT a Japanese company, right?

 

[vgrinshpun]

I am expecting two very positive surprises in shareholders letter/ER call. See my post over in the Short Term TSLA Price Movements thread: Short-Term TSLA Price Movements - 2014 - Page 382

 

[Cwin]

So working off of hummingbird’s notes, Q4’s guidance, Barclays, DaveT’s productions estimates, and my fairly limited time browsing these forums.

(hummingbird's notes)
2013 Q1 produced 5000, guided to deliver 4500, delivered 4900 (an 8.88% beat)
2013 Q2 produced 5500, guided to deliver 4500, delivered 5150 (a 14.444% beat)
2013 Q3 produced 6600, guided to deliver 5000, delivered 5500 (a 10% beat)
2013 Q4 produced 6587, guided to deliver 6000, delivered 6892 (a 14.8667 beat)
With an average of a 12.05% beat in sold cars

I’m concluding three different scenarios. A worst, conservative, and best case. These will include sales #’s, Gigafactory events, possible Model X suprises, and expenditures. I will ignore guidance for now, I don’t really know how to guestimate their production and sales I’ll leave that up to you guys. I will assume that we are entering the report with todays 207$ price.

Worst Case

#’s
2014 Q1 produces 7400, guided to deliver 6400, delivers ~6400.
This is assuming that TSLA doesn’t keep with its previous history of having a ~12% beat in in sold vs. guidance.

Gigafactory
Locations haven’t been decided, partner hasn’t been decided, we are told they are still working everything out.

Model X
No new information

Expenditures
The 15% was a lowball, R&D expenses increase because of Model X delays, SG & A spending increases as expected because of SC’s.

Thoughts
So where does this put us on the morning of 5/9/2014? Tesla has been hurting, already having a serious drop leaving the price at the time of this post $207.73. A failure to match a historical beat, no new information with the Gigafactory or Model X and lower margins this could be a painful drop. Sub 200 surely but how far?

Likelihood
This, I doubt, is a very likely scenario. TM has been pretty consistent in lowballing and beating expectations. But there is a first for everything.
We are also talking about a spectrum of possibilities here. What if we still get around 6900 sold with no new information on the Gigafactory, or model X, and we have higher than projected expenditures?

Conservative Case

#’s
2014 Q1 produces 7400-7600, guided to deliver 6400, delivers ~6600-6800
This is meeting Barclays + a little bit more, not quite the 12% historical beat , but still above guidance.

Gigafactory
Locations have been decided, but no partner announcement.

Model X
Everything is on track, no delays.

Expenditures
The 15% is still a lowball, but other expenditures are within projected ranges.

Thoughts
Pain still. I would still consider this a disappointment, I don’t know about you guys but no matter what these #'s will be spun as evidence of slower demand or a plateau. Sub 200 still maybe in the 170 – 180$ range for the short term. Depending on what is revealed with the Model X and the Gigafactory we will keep our heads in the 190$’s

Likelihood
I’m really placing a hedge for this possibility. It’s not outlandish, and Barclays is banking on the numbers. However it seems like a strong possibility that the Gigafactory scenario will occur. We don’t have any definitive evidence that Panasonic is ready yet, or anyone else.

Best Case

#’s
2014 Q1 produces 7500-7800, guided to deliver 6400, delivers ~7000-7300
Based on DaveT’s two estimates. Hits the 12% beat perhaps 14%. 15% and TM would have to say something right? This question still hasn't been answered.

Giga
Locations picked, ground breaking planned, partnership is concrete.

Model X
Everything on track, perhaps some goals accomplished earlier than expected

Expenditures
15% was accurate, R&D expenditures are larger than Q4 but not surprisingly so, same with SG&A.

Thoughts
Everything is really as expected and more. Perhaps a similar situation to Q2 2013 depending on the reaction to everything else? Likely more depressed considering the current downtrend. 220-250 maybe? 260-290 in the wildest case?

Likelihood
This is where my bet will go. DaveT’s estimates are reasonable on sold cars and are in line with TM history. A 15-20% beat is unlikely. I doubt we will be ahead of the game with the model X, but I trust Elon with the Gigafactory even though I will still hedge against it. I think expenditures will be higher than expected but not by a surprising amount, based on Q4 data.

Conclusion

While I'll be placing my bet for TM to have a good earnings I still see a lot more room to fall with the conservative and worst case scenarios. A mediocre report is a bad report for Tesla, and we've been promised a mediocre quarter. I would like for people to chip in on what guidance could do in each case. I do expect guidance to be lukewarm though, as production was set to really increase in the second half of this year. I will likely put a larger hedge than I have with other earnings reports.

 

[ItsNotAboutTheMoney]

You didn't mention to expenditure increase and hit on margin due to tank mode.

 

[30seconds]

If it is a good quarter and shares go up I'll be happy with my current investments in tsla. If for some reason stock drops, I have some juice in the reserve pack to pick up some Jan 15s or Jan 16s.