It's been a long chaotic day. But felt this post is deserving a comprehensive reply. Here are my thoughts:
We can debate this all day, all year. But here is the demand related wording from the letter:
- Q4 Model S and X orders reach record highs
- Model S and X net order growth remains strong
- In Q4, we received 49% more global net orders for Model S and X combined, compared to the same period in 2015
Here is my rant on this. Why talk about demand in so many twisted ways? Why not straight up just tell us what the actual numbers are? How many net-orders were there in Q4 exactly? Why is that such a secret?
You know who used to talk like this? SolarCity. Uber talks like this. Anytime any company gives out un-informative information like this, I basically just disregard it.
The only real number that they gave is 47K to 50K deliveries in 1H. Whatever the reason is, the issue is that the number is not reflective of growth from current run-rate.
Secondly, why did they not give 2H guidance if not for fear of model-3 cannibalization? I originally didn’t believe in cannibalization for the reasons @anticitizen13.7 expressed up thread. But lack of 2H number, especially after an analyst explicitly asked for it on the call is a dead giveaway that management is fearful of it.
Ultimately, the reason I’m even discussing this is to put it all together to understand the cashflow dynamic. Not really interested in a religious demand debate, which I know is a perpetual debate. So if someone thinks that S/X will contribute more cash than I’m implying, I am happy to discuss further.
I didn't double check this math. But lets go with these numbers. That's 11% QoQ though. Thats still pretty substantial. Again my cribs are not about the past. My only point is that this will keep growing adding to the cash pressures. So Q1 and Q2 will not be as positive as one might think without accounting for growth in SG&A.
Somebody explicitly asked about capex to go from 5K to 10K run rate. Musk danced around it and gave a bunch of commentary. Ultimately he said it will be something like 50 to 70% of the 0 to 5K. To which JB added they are not starting from scratch with the note “gigafactory in particular” (implies not so much the freemont factory).
Lets keep in mind the 2 to 2.5B being spent early 17 is not the only capex going into model-3 capex. Tesla spent 1.4B in 16, 1.6B in 15. God knows how much of it is meant for model-3. But we can imagine it’s considerable amount between two factories.
Overall I took it as at least 2Bil more capex to go from 5k to 10K rate (after the 2 to 2.5Bil spend in 1H). Do you think this is too high?
From my elementary understanding of accounting, you are mixing up income-statement with cash-flow statement.
- If we are looking at net income, then afaik, cogs gets recognized only when revenue gets recognized. So the cogs on the missed 2.7K deliveries is not accounted and is not an issue.
- If we are looking at operating cashflow, then yes you are right, cogs went out the door but revenues didn't come in but we need to look at changes in accounts payable vs receivable etc as well. Bigger point is in this case the cash from EAP as well as FSD is already counted in!
You seem to be arguing it both ways and double counting things whichever way we look at it.
Okay, I'm out of energy now... In a nutshell, I am just trying to get on operating-cashflow and free-cashflow and project them out for next few quarters. My very rudimentary analysis is that Q1 will be less bad than Q4 but will still be in negative territory. Q2 will be substantially worse than Q1. Q3 will be hell of a lot worse than Q2. They will be terrifyingly worse if S/X deliveries go down.
The risk is no longer a delayed 3 (or early 3 for that matter). The true risk is 3 comes out but scales up slowly.
We can debate this all day, all year. But here is the demand related wording from the letter:
- Q4 Model S and X orders reach record highs
- Model S and X net order growth remains strong
- In Q4, we received 49% more global net orders for Model S and X combined, compared to the same period in 2015
Here is my rant on this. Why talk about demand in so many twisted ways? Why not straight up just tell us what the actual numbers are? How many net-orders were there in Q4 exactly? Why is that such a secret?
You know who used to talk like this? SolarCity. Uber talks like this. Anytime any company gives out un-informative information like this, I basically just disregard it.
The only real number that they gave is 47K to 50K deliveries in 1H. Whatever the reason is, the issue is that the number is not reflective of growth from current run-rate.
Secondly, why did they not give 2H guidance if not for fear of model-3 cannibalization? I originally didn’t believe in cannibalization for the reasons @anticitizen13.7 expressed up thread. But lack of 2H number, especially after an analyst explicitly asked for it on the call is a dead giveaway that management is fearful of it.
Ultimately, the reason I’m even discussing this is to put it all together to understand the cashflow dynamic. Not really interested in a religious demand debate, which I know is a perpetual debate. So if someone thinks that S/X will contribute more cash than I’m implying, I am happy to discuss further.
I didn't double check this math. But lets go with these numbers. That's 11% QoQ though. Thats still pretty substantial. Again my cribs are not about the past. My only point is that this will keep growing adding to the cash pressures. So Q1 and Q2 will not be as positive as one might think without accounting for growth in SG&A.
Somebody explicitly asked about capex to go from 5K to 10K run rate. Musk danced around it and gave a bunch of commentary. Ultimately he said it will be something like 50 to 70% of the 0 to 5K. To which JB added they are not starting from scratch with the note “gigafactory in particular” (implies not so much the freemont factory).
Lets keep in mind the 2 to 2.5B being spent early 17 is not the only capex going into model-3 capex. Tesla spent 1.4B in 16, 1.6B in 15. God knows how much of it is meant for model-3. But we can imagine it’s considerable amount between two factories.
Overall I took it as at least 2Bil more capex to go from 5k to 10K rate (after the 2 to 2.5Bil spend in 1H). Do you think this is too high?
From my elementary understanding of accounting, you are mixing up income-statement with cash-flow statement.
- If we are looking at net income, then afaik, cogs gets recognized only when revenue gets recognized. So the cogs on the missed 2.7K deliveries is not accounted and is not an issue.
- If we are looking at operating cashflow, then yes you are right, cogs went out the door but revenues didn't come in but we need to look at changes in accounts payable vs receivable etc as well. Bigger point is in this case the cash from EAP as well as FSD is already counted in!
You seem to be arguing it both ways and double counting things whichever way we look at it.
Okay, I'm out of energy now... In a nutshell, I am just trying to get on operating-cashflow and free-cashflow and project them out for next few quarters. My very rudimentary analysis is that Q1 will be less bad than Q4 but will still be in negative territory. Q2 will be substantially worse than Q1. Q3 will be hell of a lot worse than Q2. They will be terrifyingly worse if S/X deliveries go down.
The risk is no longer a delayed 3 (or early 3 for that matter). The true risk is 3 comes out but scales up slowly.
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