2014 Q3 Earnings Report and Conference call discussion thread

[WarpedOne]

Simple, current run rate is still lower then it used be. If they named the number, everybody would scream "tesla is dead".
They are still ramping up and are planning to ramp higher so they will 'reach projected number' for Q4.

 

[chickensevil]

Simple, current run rate is still lower then it used be. If they named the number, everybody would scream "tesla is dead".
They are still ramping up and are planning to ramp higher so they will 'reach projected number' for Q4.

I don't think it is lower than it used to be, but I would be safe saying it likely isn't 1000, like they said they would be. What worries me there is if they are still having some ramp up issues will they be able to make 13,000 cars this quarter?

 

[ckessel]

I don't think it is lower than it used to be, but I would be safe saying it likely isn't 1000, like they said they would be. What worries me there is if they are still having some ramp up issues will they be able to make 13,000 cars this quarter?

That's why it stuck out for me. If they're still having ramp up troubles 4 months after the upgrade, that seems like a systemic problem. If they're not having ramp up problems, why hedge on the run rate, but give concrete guidance for Q4? These things seem a bit at odds. Giving Q4 guidance implies a run rate, but they won't discuss the run rate.

Maybe the first rule of run rate club is you don't talk about run rate?

 

[chickensevil]

That's why it stuck out for me. If they're still having ramp up troubles 4 months after the upgrade, that seems like a systemic problem. If they're not having ramp up problems, why hedge on the run rate, but give concrete guidance for Q4? These things seem a bit at odds. Giving Q4 guidance implies a run rate, but they won't discuss the run rate.

Maybe the first rule of run rate club is you don't talk about run rate?

Ha! Fight Club

So, first keep in mind they shut down around 21 July and lasted at least 3 weeks per various sources and conversations I have had and seen. So in a best case they came back up the week of the 11th. If total production was 7200 and they were running at 800 a week prior to the shutdown on the 21st this means they did about 2240 pre-shutdown (assuming 5 days a week and assuming they worked July 4th). So from the point they came back online they made 4960 vehicles. So they had 7 weeks of additional work (plus 2 days). A straight 7 weeks would put the average at 708 from restart. But, that is an average over the whole time period and not a statement of what the rate was exiting Q3.

If they are going to produce 13000 for Q4 with ~13 weeks, that means they need to average about 1000 a week for Q4 to hit that target. So if they are not already at 1000 then the exit rate will be higher than 1000 a week or we can expect a Q4 miss.

Seeing that we are already into November, and they were hessitant to state numbers... I don't know what to think. If they aren't already at 1000 a week, then the exit rate for the year would almost have to be expected to go to 1200 or 1300 a week to make up for any lost time.

 

[BlueTan85]

This was the most concerning part of the confcall imho. I didn't like how they fumbled that question. Not relevant my ass.

Ok we get that demand is not the issue, that production is the issue. But at some point, maybe we've reached it considering how long they've been saying production is the issue, production starts not being seen as the issue anymore and management starts being seen as the issue.

 

[aznt1217]

This was the most concerning part of the confcall imho. I didn't like how they fumbled that question. Not relevant my ass.

Ok we get that demand is not the issue, that production is the issue. But at some point, maybe we've reached it considering how long they've been saying production is the issue, production starts not being seen as the issue anymore and management starts being seen as the issue.

Not sure what question you are referring to? I didn't really see anything that was a blaring concern. I think they are erring on the side of caution. Manufacturing as echo'ed by others is extremely complicated. Not only the physical part but we need to remember that Tesla is doing things from the ground up. If I remember correctly they built their own custom ERP platform. They need a really coordinated dance between the physical and software. But we need to add the dimension of suppliers not being up to snuff. I think when they refer to manufacturing they are talking the entire supply chain (including third party). I mean... production is the issue... that's not even a disputable fact as you mentioned, but what other things could management do? They originally had one line... now they have two and probably built in extra capacity to curtail any other risk with the next ramp.

 

[chickensevil]

+ Adam Jonas. Confirms his PT $320

• Customer deposit balance remained stable at ~$227m.

Something to point out here that I think AJ must have missed from the call since it was clarified there. Apparently customer deposits encompass the amount of money that is used when a customer pays their full balance within 2 weeks of delivery so they said specifically that when you subtract out that fluff the amount of deposits have risen Q/Q (which makes sense given that orders have increased Q/Q in order to account for the increased run rates.)

 

[aznt1217]

Something to point out here that I think AJ must have missed from the call since it was clarified there. Apparently customer deposits encompass the amount of money that is used when a customer pays their full balance within 2 weeks of delivery so they said specifically that when you subtract out that fluff the amount of deposits have risen Q/Q (which makes sense given that orders have increased Q/Q in order to account for the increased run rates.)

It's ok let them miss it. More money for us when it becomes "news"

 

[eepic]

When was the last time Musk actually met his own timeline?

Who out there can be confident in the projection for the Model 3 and the GF? At some point, you lose your credibility. Again, I understand the desire for perfection, but I'm REALLY starting to think this gull-wing door thing is killing the Model X. Surely, its advantages are FAR outweighed by how much it has delayed production. I mean, what the heck else could it be? The technology for the drive train is there. The battery technology is there. Other than those doors, it's nothing but designing the body and the interior. It's been SO long since Musk and Tesla surprised us with GOOD news - whether it be significantly beating the delivery guidance or bringing something to market earlier than expected.

About 4 weeks ago.. remember when they announced a family sedan that accelerates like a Mclaren F1? Probably with the best traction control of any family car you can buy for different weather conditions. Not to mention leapfrogging all the most advanced driver assistance systems of the Germans.

And about bringing something earlier to market, see below (date highlights mine). At the time, Elon stated an expectation to bring it to market within 3 years... 13 months later they demo'd it to the public and are rolling it out to the fleet.

 

[Chickenlittle]

Agree. The bad news is out and the near term is full of upside.

Remember, our shares are like an options play on the 2020 future where TM is a major auto manufacturer. Every quarter without a material problem derisks that play.

I am long tesla but not sure your correct. Most people will admit some disappointment in call. That will add another risk now....potential for two in a row less than stellar reports. I don't believe it will happen but still a risk

 

[Right_Said_Fred]

So you think production will increase by more than 100% from 2015 to 2016 (under 60,000 in 2015 to 120,000 in 2016)?

If with the sentence 'over 50% for probably several more years' Tesla was referring to Model S only, then yes I think we can expect 120K in 2016. The exact wording of the press release left that open for speculation, but I read in another post here that Elon in the conferenc call confirmed the 50% was for Model S alone. Does anyone know if he was talking about 2015, or also about 2016 and beyond?

 

[aznt1217]

I am long tesla but not sure your correct. Most people will admit some disappointment in call. That will add another risk now....potential for two in a row less than stellar reports. I don't believe it will happen but still a risk

Not entirely sure what disappointment, we were fully expecting a production delay and the team lowered 2014 guidance which I'm sure Elon doesn't take with great comfort. Although there is potential for consecutive divisive quarters... there always are. That's the battle of TSLA. Most of us have been here long enough to say that there's always something. Right now we see junk going around again like Cult Stock and Demand is an issue blah blah.

The facts are as follows:
- Progress is being made to Gen III
- Demand is there
- The Product is great
- Higher ASP's are coming
- They worked out the kinks in the production improvements made in July which is why it took extended time
- They are streamlining production (removal of certain options, bundling of others, etc.) -- this move of standardization is huge for me. This is a signal that these guys are no BS about scaling. Chances are this means that the team made a decision about opportunity cost of delight vs. tangible benefit-- what is better for the bigger picture means dinging a piece of customer delight (for those who wanted green and brown and what not).

In a nutshell (I think many share my sentiments were) this: It's business as usual and Tesla is still going to make the best product we can as fast as we can without waste, but we hit a bump in the road when trying to upgrade. For those who care about short term-- we're probably not your best investment and we won't comment on stock price anymore (phew). We learned from it and now we are moving on and leave us alone so we can go back to changing the world one car at a time.

I also thought it was funny how they didn't directly answer the weekly production rate question asked by Andrea James. To me, it's going to be a set up for Q4 combo of better than expected output with a side of extra gross margin.

 

[Derek Vinyard]

Something to point out here that I think AJ must have missed from the call since it was clarified there. Apparently customer deposits encompass the amount of money that is used when a customer pays their full balance within 2 weeks of delivery so they said specifically that when you subtract out that fluff the amount of deposits have risen Q/Q (which makes sense given that orders have increased Q/Q in order to account for the increased run rates.)

+1 chicken!

and one more thing was wrong in terms of GM. Adam Jonas said 23%.
here's what Elon said:

Elon Musk Sorry, Q3. 29.6%. If you exclude all positive and negative onetime things, items, it's about 27% which that's probably the more relevant number.
Deepak Ahuja That's also excluding ZEV credits, the way we report it normally.
Elon Musk To be precise, the 27% GAAP gross margin would be excluding all onetime stuff including ZEV credits. Sorry, so no ZEV credits included in the 27%.

 

[ckessel]

If with the sentence 'over 50% for probably several more years' Tesla was referring to Model S only, then yes I think we can expect 120K in 2016. The exact wording of the press release left that open for speculation, but I read in another post here that Elon in the conferenc call confirmed the 50% was for Model S alone. Does anyone know if he was talking about 2015, or also about 2016 and beyond?

50% was for just the S for next year and when asked about the X, Elon said something like "Yea, so a bit over 50% increase including the X". For future years, the 50% increase is total shipments across all models, not just the S.

 

[maoing]

Be cautious about Elon's remote projection, often it turns out not accurate at all, the reality should really depend on the progress of production, demand and infrastructure deployment. It's really hard to project even Elon.

I remember I posted sth. in "China" thread, Elon said in an interview that the production capacity will likely be doubled every year in next a few years. I was excited about that but it turns out to be far off the reality.

Here is the link to my old post:

http://www.teslamotorsclub.com/show...on-and-outlook?p=649462&viewfull=1#post649462

50% was for just the S for next year and when asked about the X, Elon said something like "Yea, so a bit over 50% increase including the X". For future years, the 50% increase is total shipments across all models, not just the S.

 

[Auzie]

This was the most concerning part of the confcall imho. I didn't like how they fumbled that question. Not relevant my ass.

Ok we get that demand is not the issue, that production is the issue. But at some point, maybe we've reached it considering how long they've been saying production is the issue, production starts not being seen as the issue anymore and management starts being seen as the issue.

Production is likely to be the issue for many years to come.

I usually fumble when I do not know what I should know and I get caught. Maybe both Elon and Deepak got caught :wink:

 

[maoing]

The production issue can mainly be attributed to two parts.
First, Panasonic cell supply, it used to be the issue before Q3, but right now it turns out not to be an issue at this point;
Second, TM assembly line, it used to be not the issue before Q3, but in Q3 it messed up the guidance, without ZEV, we might had potentially headed to $200 in AH of ER

The first issue is out of TM control. But the second issue really warns the TMC bulls that TM's excecution isn't perfect for some times, and it might come again in future Model X/Model 3 deployment for sure.

Production is likely to be the issue for many years to come.

I usually fumble when I do not know what I should know and I get caught. Maybe both Elon and Deepak got caught :wink:

 

[favo]

I'm thinking the current run rate may be down a bit as they incorporate the dual motor configurations (and maybe new seats, rear doors, P85D suspension) into the production line. Hence their being coy about it on the conference call.

 

[3mp_kwh]

I was initially stunned by the 50% growth per year scenario.

This didn't stick with me, as I was listening / reading for units guidance, and margin. I don't get the stock pump, on "50%", when last quarter "100,000 annualized production, by end of '15" was spoken. Analysts want ALL units, not just 'S', and the numbers dodge ball, and production bogs, just leave me more worried. This is a whole lot better than a mega-story about unreliability, or a dreadful safety recall, but that doesn't stop the effect of numbers and dates being adjusted. I respect Musk's candor, but if the stock price had stayed the same, its multiple would have just gone up. That's great because, with Tesla, you can always sauce your way to rationalizing a higher price, through awarding it a higher multiple. /sarc

Hedged and fearful.

 

[Chickenlittle]

Not entirely sure what disappointment, we were fully expecting a production delay and the team lowered 2014 guidance which I'm sure Elon doesn't take with great comfort. Although there is potential for consecutive divisive quarters... there always are. That's the battle of TSLA. Most of us have been here long enough to say that there's always something. Right now we see junk going around again like Cult Stock and Demand is an issue blah blah.

The facts are as follows:
- Progress is being made to Gen III
- Demand is there
- The Product is great
- Higher ASP's are coming
- They worked out the kinks in the production improvements made in July which is why it took extended time
- They are streamlining production (removal of certain options, bundling of others, etc.) -- this move of standardization is huge for me. This is a signal that these guys are no BS about scaling. Chances are this means that the team made a decision about opportunity cost of delight vs. tangible benefit-- what is better for the bigger picture means dinging a piece of customer delight (for those who wanted green and brown and what not).


In a nutshell (I think many share my sentiments were) this: It's business as usual and Tesla is still going to make the best product we can as fast as we can without waste, but we hit a bump in the road when trying to upgrade. For those who care about short term-- we're probably not your best investment and we won't comment on stock price anymore (phew). We learned from it and now we are moving on and leave us alone so we can go back to changing the world one car at a time.

I also thought it was funny how they didn't directly answer the weekly production rate question asked by Andrea James. To me, it's going to be a set up for Q4 combo of better than expected output with a side of extra gross margin.

What progress on gen 3. Did I miss something in cc or did you assume something?
worked out kinks? Sounded like George bush. Manufacturing very very hard. Remember debates? Would have preferred to hear solution not restating problem 3 times
sorry I am big fan but came away very discouraged, even musk sounded that way