2017 Investor Roundtable:General Discussion

[brian45011]

thank you. helps a lot. i had put together the same thing from the 10k not having seen anything else. i thoroughly appreciate your validating that work.

the implications to me are 1. that gross margins have a lot of room to go higher as gigafactory output scales. 2. q4 revenue was almost equal to first 3 quarters combined, which is fantastic growth.

Others had reached similar conclusions:

"Between Tesla's 10-K filing and the Q4 investor letter, we learned some key facts about Tesla's energy storage business as well as the SolarCity segment post deal close. Here are just a couple of Q4 highlights. Remember, the SolarCity deal closed on November 21, so we're talking about less than half a quarter of results:

• Energy storage and generation revenues: $131.385 million.
• Energy storage and generation Q4 gross margin: 2.7%.
• SolarCity added $84.1 million of revenues in Q4.
• SolarCity added $67.0 million to the cost of revenues in Q4.

Using these numbers as well as the yearly totals, simple math tells us that SolarCity had a gross margin of $17.1 million for Q4, or about 20.3%. That's quite significant, because Tesla's entire energy business only reported a gross profit of just over $3 million for all of 2016. That implies that ex-SolarCity, Tesla's energy business had a negative gross margin of $14 million." Tesla Energy Storage Massively In Red - Tesla Motors (NASDAQ:TSLA) | Seeking Alpha

My calculations showed:
ENERGY GENERATION AND STORAGE:
Increase CY16 over CY15:

SCTY-related Revenues $84.1 MM Storage (including SCE installation?) Revenues $82.8 MM

SCTY related COGS: $67.0 MM Storage (including SCE installation?) COGS $99.0 MM

SCTY GM $17.1 MM (+20.3%) Storage (including SCE installation?) GM- $16.2 MM (-19.6%).

“The (SG&A) increase includes $74.3 million related to SolarCity.” ~$10 million in R&D for SCTY?? a $22.0 million increase in interest expense associated with SolarCity’s indebtedness, financing obligations and capital lease obligations.

I think 4th quarter TE figures include the 80 MWh installation for SCE at Mira Loma . It was not commissioned by SCE until mid-January but it appears Tesla met the revenue recognition criteria, and the period between late December and mid-January was for SCE's start-up testing. The SH letter stated: "98 MWh of energy storage deployed in Q4."

 

[FredTMC]

you're welcome. another thing worth remembering is the comment in the 4Q 2016 letter that long term they expect energy storage (potentially inclusive of the solar business - it isn't clear from the letter) margins to be similar to automotive gross margins.

surfside

My recollection from ER calls is that eventually the battery TE business will be a 25% GM business.

 

[luvb2b]

thanks for posting. great stuff. we agree except for the last paragraph where i don't know

Others had reached similar conclusions:

"Between Tesla's 10-K filing and the Q4 investor letter, we learned some key facts about Tesla's energy storage business as well as the SolarCity segment post deal close. Here are just a couple of Q4 highlights. Remember, the SolarCity deal closed on November 21, so we're talking about less than half a quarter of results:

• Energy storage and generation revenues: $131.385 million.
• Energy storage and generation Q4 gross margin: 2.7%.
• SolarCity added $84.1 million of revenues in Q4.
• SolarCity added $67.0 million to the cost of revenues in Q4.

Using these numbers as well as the yearly totals, simple math tells us that SolarCity had a gross margin of $17.1 million for Q4, or about 20.3%. That's quite significant, because Tesla's entire energy business only reported a gross profit of just over $3 million for all of 2016. That implies that ex-SolarCity, Tesla's energy business had a negative gross margin of $14 million." Tesla Energy Storage Massively In Red - Tesla Motors (NASDAQ:TSLA) | Seeking Alpha

My calculations showed:
ENERGY GENERATION AND STORAGE:
Increase CY16 over CY15:

SCTY-related Revenues $84.1 MM Storage (including SCE installation?) Revenues $82.8 MM

SCTY related COGS: $67.0 MM Storage (including SCE installation?) COGS $99.0 MM

SCTY GM $17.1 MM (+20.3%) Storage (including SCE installation?) GM- $16.2 MM (-19.6%).

“The (SG&A) increase includes $74.3 million related to SolarCity.” ~$10 million in R&D for SCTY?? a $22.0 million increase in interest expense associated with SolarCity’s indebtedness, financing obligations and capital lease obligations.

I think 4th quarter TE figures include the 80 MWh installation for SCE at Mira Loma . It was not commissioned by SCE until mid-January but it appears Tesla met the revenue recognition criteria, and the period between late December and mid-January was for SCE's start-up testing. The SH letter stated: "98 MWh of energy storage deployed in Q4."

 

[neroden]

But not raising the debt ceiling just hurts Wall Street, which as far as I can tell is their core constituency.

This isn't going to stop the Freedom Caucus. Honestly, I don't think they understand who's funding their campaigns.

 

[neroden]

@luvb2b i took a quick stab at trying to back into the numbers using the 2016 10-K, the 4Q2016 shareholder letter and the 2016 Q3 10-Q; i was a little surprised at the numbers i ended up with:

$47.3 million in energy storage revenue
$60.7 million in energy storage cost of revenue
$13.4 million gross loss

I am happy to email you the quick and dirty spreadsheet i used to populate the numbers on this if you would like to check my work -- i did this really quick and it could probably use another set of eyes. PM me if you'd like to see the spreadsheet.

Interestingly enough, the 4Q2016 shareholder does comment that gross margin was lower than planned due to scaling production capacity in Q4 for energy storage products to accommodate future growth.

Another comment -- for the nine months ended 9/30/16, energy storage revenue and cost of revenue was as follows:

$50.0 million in energy storage revenue
$50.5 million in energy storage cost of revenue
$0.5 million gross loss

Did you account for the presence of PPAs? Some of the revenue may be deferred. :-/

Probably a lot of the issue is, as you have already noted, that they were spending on salaries, utility costs, etc. for a large battery business but have only really produced a few sales so far. One of those annoying artifacts of failure to properly distinguish between fixed and variable costs which bedevils every accounting system.

 

[TNEVol]

I love a good haggis too. Enjoy sir.

Never heard of Glenhaggis

 

[surfside]

Did you account for the presence of PPAs? Some of the revenue may be deferred. :-/

Probably a lot of the issue is, as you have already noted, that they were spending on salaries, utility costs, etc. for a large battery business but have only really produced a few sales so far. One of those annoying artifacts of failure to properly distinguish between fixed and variable costs which bedevils every accounting system.

no - these numbers are straight from the income statement from the 10-K, 10-Q and shareholder letter, so i guess it is possible there could be some deferred storage revenues...

 

[dennis]

This likely is the exception to prove that rule of yours, but....

...one of my last actions...or inactions....before I threw away my former life and bolted for the safety of the Alaskan wilderness was to tell my bosses that the reason we weren't investing in Enron was that I simply could not understand it, or what they were doing.


Every time I had a conference with Messrs Lay & Skilling I came away in awe of their business model. But each time thereafter I would take apart their financials...and take apart...and take apart...until I had this financial goo all over my hands and throughout my head and I simply couldn't understand it one bit. It was clear to everyone including myself that every other such analyst on Wall St. was much smarter than I, because they understood perfectly what a magnificent money-making machine had been created.

Catching up here, I have some firsthand experience with Enron's accounting shenanigans. During the internet bubble Enron was building out a backbone. The company I worked for negotiated a deal to sell them $2M of software. But the way they insisted on structuring the deal was for us to bill them for $11M and they would in turn sell us $9M worth of software that they had (and we didn't want.

We booked $2M in revenue for that deal. They booked $9M in revenue and capitalized their "$11M" software purchase. If they depreciated it over 5 years their $2M purchase resulted in $8.5M in incremental profit that quarter.

I can't believe the auditions signed off on stuff like this.

 

[RobStark]

California Legislature Approves Gas Tax Hike; Bill Goes To Gov. Brown

California lawmakers on Thursday approved a $5-billion-a-year plan to boost California’s gas and vehicle taxes to pay for major road repairs, handing a victory to Gov. Jerry Brown who has lobbied for years for money to fix crumbling highways and bridges.

Senate Bill 1, the Road Repair & Accountability Act of 2017, would trigger a 20-cent per gallon increase in diesel taxes, a 12-cent per gallon hike in gas taxes and a 5.75 percent increase in diesel sales taxes. Vehicle license fees would be raised an average $38 per vehicle. Drivers would also face a new annual fee to be paid with their vehicle registration, ranging from $25 to $175 depending on the value of their vehicle. The taxes and fees would rise each year with inflation.

The fuel tax hikes will take effect Nov. 1, while the vehicle license fee increase will take effect Jan. 1, 2018.

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Just as Tesla Model 3 starts landing in large numbers in California.

Average price per gallon of gasoline in CA is $2.98 this would make it $3.10.

This would make a Model 3 running on Supercharger electricity at 20 cents per kW roughly 1/3 cheaper versus a comparable car. Not a Prius Eco but a comparable car.

 

[luvb2b]

from market action thread for those who remember may 2013.

• "Seems to be some stormy weather over in Shortville these days" April 25, 2013 Elon Musk on Twitter

• Q1 ER May 8, 2013 -- Tesla reports positive earnings. SP increases 24 percent the next day (May 9, 2013). Tesla Surges After Posting Profit; Value Exceeds Fiat’s

• "Stormy weather in Shortville ... " April 3, 2017 Elon Musk on Twitter

• ????????

 

[brian45011]

Solar + Tesla battery storage offered in new-build Queensland homes

Nice to see Powerwall 2 become standard on new homes down under. Now if we could get some solar roofs down there too, that would be super.

" Queensland customers who upgrade to the builder’s “luxury living” offer will get CSR Bradford’s a 5-6kW Solar ChargePack, which includes solar panels, a SolarEdge inverter and Tesla’s 14kWh Powerall 2 lihtiu-ion battery pack...

In financial terms, households choosing the Luxury Living” upgrade – which costs $1,999 for a single story home and $4,999 for a double story home – is expected to save the Metricon households $2,100 a year on energy costs."

Sounds too good to be true. Why the SolarEdge inverter if PW2 has a Tesla inverter included?

 

[brian45011]

World’s Biggest Battery Energy Storage Facilities - Energy Business Review

#10 Tesla's . Southern California Edison (SCE) 20MW Mira Loma Battery Storage Facility

Missed one:
"Dutch utility Eneco has partnered with Mitsubishi to build 48MW/50MWh battery in Schleswig-Holstein in northern Germany.The EnspireME battery, which is claimed to be the largest battery energy storage system (BESS) in Europe, will be located next to a substation in the municipality of Jardelund in Schleswig-Holstein.

The project, which will be equally owned by Eneco and Mitsubishi, is intended to allow the companies to supply sustainable reserve capacity to the European electricity grid.
Scheduled to be commissioned by the end of the year, the lithium-ion system, including the power conversion system and controls, will be supplied and integrated by NEC Energy Solutions." Eneco, Mitsubishi team up to build 48MW battery system in Germany - Energy Business Review

A crowded field with a lot of competitors and solutions

 

[Reciprocity]

I dont think this has been mentioned here but a very interesting bit of data gathered from Tesla3tracker.info as to buyers intent and amounts they have budgeted. I would guess that this data set is skewed a bit to the more fanatical but it definitely points to a higher average selling price then what Elon eluded to:

Here's what Tesla Model 3 buyers are willing to spend by country

Probably not statistically relevant and it is clearly the more informed buyers that are using this site, but still some nice info on where peoples heads are at.

 

[Reciprocity]

Senate Bill 1, the Road Repair & Accountability Act of 2017, would trigger a 20-cent per gallon increase in diesel taxes, a 12-cent per gallon hike in gas taxes and a 5.75 percent increase in diesel sales taxes. Vehicle license fees would be raised an average $38 per vehicle. Drivers would also face a new annual fee to be paid with their vehicle registration, ranging from $25 to $175 depending on the value of their vehicle. The taxes and fees would rise each year with inflation.

Wow and I thought liberals only wanted to tax the rich, I feel bad for the poor working folks in that state. At least this will be good for Tesla and the share price.

 

[AudubonB]

We booked $2M in revenue for that deal. They booked $9M in revenue and capitalized their "$11M" software purchase. If they depreciated it over 5 years their $2M purchase resulted in $8.5M in incremental profit that quarter.

I can't believe the auditions signed off on stuff like this.

Gaack. Have you any idea what happened at your end? I'm thinking your side was in danger of implicating itself in showing you purchased $9mm of items you didn't buy....
?????

ps: how'd the auditions go?

 

[electracity]

I can't believe the auditions signed off on stuff like this.

The auditors would have no way of knowing the value of the software to your company. The transaction within Eron would be documented with a contract and cash movement. That is all they would be looking for.

It is more curious that your former company would participate in this deal. You old company would book and depreciate unused software.

 

[electracity]

Why the SolarEdge inverter if PW2 has a Tesla inverter included?

The non-US powerwall is not available in the inverter model. The OZ powerwalls will likely charge from AC.

 

[erthquake]

California Legislature Approves Gas Tax Hike; Bill Goes To Gov. Brown

California lawmakers on Thursday approved a $5-billion-a-year plan to boost California’s gas and vehicle taxes to pay for major road repairs, handing a victory to Gov. Jerry Brown who has lobbied for years for money to fix crumbling highways and bridges.

Senate Bill 1, the Road Repair & Accountability Act of 2017, would trigger a 20-cent per gallon increase in diesel taxes, a 12-cent per gallon hike in gas taxes and a 5.75 percent increase in diesel sales taxes. Vehicle license fees would be raised an average $38 per vehicle. Drivers would also face a new annual fee to be paid with their vehicle registration, ranging from $25 to $175 depending on the value of their vehicle. The taxes and fees would rise each year with inflation.

The fuel tax hikes will take effect Nov. 1, while the vehicle license fee increase will take effect Jan. 1, 2018.

---------------------------------------------------------------------------------------------------------------------------------
Just as Tesla Model 3 starts landing in large numbers in California.

Average price per gallon of gasoline in CA is $2.98 this would make it $3.10.

This would make a Model 3 running on Supercharger electricity at 20 cents per kW roughly 1/3 cheaper versus a comparable car. Not a Prius Eco but a comparable car.

The law also adds a $100/year registration fee for EVs beginning in 2020. Which is fair I think.

 

[kenliles]

Interesting piece

Tesla’s new ‘Advanced Automation’ group will drop all other clients to focus on Model 3 production

"
Now we learn via local news outlet Südwestrundfunk (German) that Tesla is ending all relationships between ‘Tesla Advanced Automation Germany’ and its outside clients. The head of the company’s workers’ council even said that they are canceling existing orders.

The reason given for the sudden change is to focus on the production of the Model 3 – something Grohmann Engineering has been involved in even before its acquisition by Tesla.
"

 

[vgrinshpun]

Missed one:
"Dutch utility Eneco has partnered with Mitsubishi to build 48MW/50MWh battery in Schleswig-Holstein in northern Germany.The EnspireME battery, which is claimed to be the largest battery energy storage system (BESS) in Europe, will be located next to a substation in the municipality of Jardelund in Schleswig-Holstein.

The project, which will be equally owned by Eneco and Mitsubishi, is intended to allow the companies to supply sustainable reserve capacity to the European electricity grid.
Scheduled to be commissioned by the end of the year, the lithium-ion system, including the power conversion system and controls, will be supplied and integrated by NEC Energy Solutions." Eneco, Mitsubishi team up to build 48MW battery system in Germany - Energy Business Review

A crowded field with a lot of competitors and solutions

The historical record of Tesla entering a crowded field with a lot of competitors is not a very good one ... for a lot of competitors. One need to look no further than an automobile industry.