Didn't know that:
Haissl said the battery technology used in the 220 mile version used a 45kWh battery, 5kWh less than expected.
“At our estimated battery cost of $146/kWh, this implies an additional $730 of gross profit per vehicle and a 50 basis point higher automotive gross margin than we forecast. The long range version adds 19kWh of battery capacity based on our calculations, which at a price of $9,000 implies an incremental gross margin of 69%,” Haissl said.
Tesla is planning to produce 500k cars in 2018 witch is close to maximum capacity for fremont factory, how can they possibly ramp to 1 million cars by 2020? Must take more than 2 years to build next gigafactory?
As I wrote earlier in response to another post that also mentioned 16Q3, I do think that quarter was an outlier because Tesla had easy and near 0 cost of converting Model 3 reservation holders to the Model S. It's a tactic that only worked once and cannot be repeated to that extent. As a results, we saw the ratio of SGAA/Atuo Rev rose back quite a bit in the following 16Q4.
I went back and examined all ERs since 2014 Q1. Since 2016 Q4 part of Tesla's earnings reflects SCTY. I'm using the following basis:
1. Before acquisition (2016 Q1-Q3), SCTY was running about $250M/Q on OpEx, with SGAA being the overwhelming part of it (RND was below $15M).
2. In 2016 Q4, SCTY reported $135M OpEx with $12M of RND and TSLA reported $85 OpEx related to SCTY. So I took $80M out of TSLA SGAA in 2016 Q4 to get auto related SGAA.
3. I assumed SCTY costing around $150M of SGAA for 2017 Q1 and Q2 due to letting people go.
4. 2017 Q1 had another $65M one time cost related to acquisition that was taken off to calculate this ratio.
5. I assume SGAA related to storage is negligible. This assumption would overestimate this ratio.
End results look like this
2014 Q1: 20%
2014 Q2: 18%
2014 Q3: 19%
2014 Q4: 22%
2015 Q1: 22%
2015 Q2: 23%
2015 Q3: 28%
2015 Q4: 26%
2016 Q1: 31%
2016 Q2: 27%
2016 Q3: 16%
2016 Q4: 19%
2017 Q1: 17%
2017 Q2: 17%
Yesterday I didn't notice take the SCTY related SGAA cost in 2016 Q4 so got a much higher ratio that quarter. I also forgot the $65 acquisition cost in 2017 Q1. So what I thought was 16%, 23%, 20%, 17% for Q3, Q4, Q1, Q2, and thought we have a trend here. Now the improvement since Q4 was only modest and not really worth to be excited.
I think Tesla should raise more debt in Q2'18 to fund additional GGF as quickly as possible.
One the risk side, 2 questions we face now are whether they can ramp M3 and whether they can profit from the M3. By Q2'18 those 2 questions should be answered, and allow more debt to be raised.
Another factor is how quickly can and should Tesla build. There is a cliche that you can't have 9 women and get a baby in 1 month. That is true for the current M3 production line, there is 1 line, and the M3 is being built in a serial fashion, there is a saturation point where you get the most bang for your buck in terms of accelerating growth, past that point, more money doesn't help much. Also while the line is still not proved out to be able to build 100K's of cars, you don't want to spend money to build another line, in case something doesn't work with this line and need to be changed.
But after M3 production ramp is proven, say it cost $2B to build out that line, now if Tesla can borrow $10B, they can confidently build 5 more lines in parallel. This also applies to GGF and TE production, once they achieve some 10's of GW capacity, now they will be confident that the GGF design works, and can spend more money copy/paste in parallel. I agree with idea in recent post that GGF1 is a prototype, once it's proven, it can be copied in parallel, and also done cheaper and faster.
Another factor is that since MY will be built on the same platform of M3, successful and profitable ramp of M3 should also de-risk MY, and allow Tesla to raise debt and aggressively ramp initial MY production, in contrast to the M3. Maybe they will build a factory that house 1M capacity of MY right from the start.
I think the capital raise in 2018 will be shocking to anyone who don't see the growth potential, and I expect TSLA stock will continue to be volatile. If it's not, then Elon has played it too safe, and not executed the master plan as quickly as he could.
About half was: Tesla - Current Report
Add up the form 4s for most of the rest.
Those who think Tesla can issue non-dilutive debt at will to raise new capital should check the restrictions in the Asset Based Credit Agreement (and other existing borrowing agreements) about Additional Indebtedness and other financial covenants.
These are certainly valid points. There is a related argument to be made, possibly with equal validity. That is the observation that in terms Gross margin TSLA is now outperforming the best in the industry. That does not negate the probable need for more capital, but does strongly suggest that any analyst capable of evaluating credit risk will see that TSLA is highly profitable on a steady-state basis, thus likely to obtain very attractive terms on any type of financing.
For comparison I have used YCharts to ensure that the comparison is Apples to Apples, as it were:
Gross Margin %
Quarter ending BMW TSLA
March 31, 2017 20.52 24.77
Dec 31, 2016 18.43 19.05
Sept 30, 2016 19.64 27.70
BMW Gross Profit Margin (Quarterly) (BAMXF) BMW
Tesla Gross Profit Margin (Quarterly) (TSLA) TSLA
BMW is normally a primary reference for high GM within the industry. TSLA are ahead of them even considering the massive growth rate, hubristic Model X issues during the period, and high ongoing expenses to keep ahead of the TSLA growth curve. So, while agreeing with @EinSV on most points I also think that TSLA has already proven their ability to tackle unprecedented engineering and production issues while creating extraordinary margins. It is true that TSLA corporately has not yet done large scale mss production, but they do have a large number of people who have established new large auto plants, have sourced robotics from well-established auto industry suppliers and have mostly established Tier One quality suppliers now. In batteries, inverters, motors etc they are already world leaders. They have long been avoiding such difficult-to-scale issues as permanent magnets, for example. Those speak to TSLA advantages to well-informed capital sources.
Beyond those issues the TSLA distribution system is another big advantage for GM and growth. For all we complain about support problems, spare collision parts and other such issues TSLA is well ahead of the curve in distribution quality. That is another major GM advantage. Then there is the issue of sales recognition accounting, itself a Big Deal. TSLA recognizes income when the product has been delivered to the end user. Almost all competitors ('almost' only because I have not checked them all.) recognize income when the product is legally transferred to a dealer, generally when the product is placed in transportation to the dealer. For TSLA a sale is a sale. For others a sale is conditional and is subject to numerous questions. Lastly TSLA has less exposure to lease accounting risks than any other comparable entity, even including the overhang from former SolarCity installations.
So new capital needs, certainly. Problem? no way!
We mostly agree, I'm sure, but I thought a little more detail might illustrate how low the probable capital raising risk actually will be.
It sounds like you are talking about the GFs as big battery production factories. However as I understand it, Tesla is heading in the direction of complete vehicle factories.
A future GF will produce a complete vehicle. Maybe even several vehicles (considering the importance they assign geographical proximity to customers) .
Also, since the GFs will be producing complete vehicles, how much sense does it make to talk about the GFs in terms of GWh/yr production?
Thank you for the kind words. I agree that we need to know more about the nature of subsequent Gigafactories for the best estimate. Just trying to wrap my arms around an initial estimate with available info for now.
Elon has suggested several times that they can expand Fremont capacity beyond 10k/week Model 3s plus Model X/S. He also said at the shareholder meeting that Model Y would help them get to 1M/year in 2020. I would expect they plan to start building the US Model Y production plant soon -- maybe early 2018 -- so Model Y production can help meet the 1M vehicle in 2020 goal. I don't know when they plan to break ground or start vehicle production at the European and Chinese GFs -- hopefully we will learn more later this year.
Good point! Question is how is BMW 4 series doing in China. Apparently 2017 BMW sales have been stellar. I just can't find more granular information on individual series sales.