those show up on the balance sheet and cash flow statements. they did add 1.8b debt at 5% this quarter, mid-quarter. that's,why i take a 10m interest expense increase.
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those show up on the balance sheet and cash flow statements. they did add 1.8b debt at 5% this quarter, mid-quarter. that's,why i take a 10m interest expense increase.
So there's an awful lot of wild cards (in particular, estimating storage business revenue seems to be almost impossible from outside the company, and the same is true of R&D expenses). Luvb2b's estimates look as good as anyone's. However, I also don't think that the short-term market reaction is predictable. We've had drops in response to earnings beats, so we may just as likely have jumps in response to earnings misses.
At the moment I think the recent stock price drop was due to Fidelity OTC Fund substantially reducing their position due to a change in management. This could continue and push the stock down. We're now getting into what has been described in the past by quite a lot of investors as a good buying price, which could act as support. So these supply and demand dynamics may outweigh any reaction to earnings. Or, the poor earnings report could cause the stock to take a nosedive. Or, the fact that everyone even slightly in the know *expected* the Q3 earnings report to be poor could cause it to be seen as "relatively" good and it could go up. Who knows?
I think the Q3 report will be, on the whole, uninformative, unless something interesting shows up in the footnotes. We all know Tesla will have a lot of expenses in Q3 which won't produce revenue until Q4 or later. The exact quantities don't really tell us much because of the timing mismatch.
At the moment I think the recent stock price drop was due to Fidelity OTC Fund substantially reducing their position due to a change in management. This could continue and push the stock down. We're now getting into what has been described in the past by quite a lot of investors as a good buying price, which could act as support. So these supply and demand dynamics may outweigh any reaction to earnings. Or, the poor earnings report could cause the stock to take a nosedive. Or, the fact that everyone even slightly in the know *expected* the Q3 earnings report to be poor could cause it to be seen as "relatively" good and it could go up. Who knows?
I think the Q3 report will be, on the whole, uninformative, unless something interesting shows up in the footnotes. We all know Tesla will have a lot of expenses in Q3 which won't produce revenue until Q4 or later. The exact quantities don't really tell us much because of the timing mismatch.
The missed timelines cause bigger problems than just FUD. From what we have seen before the cost curve catches up to projected timelines pretty swiftly. But the revenues get delayed. This causes big loses and negative cash flows. By the time the revenue catches up, Tesla is on to the next round of expansion already. Creating a cycle of ever loses.
The hope is that Model 3 will create enough of scale to overcome the costs. But I am not sure if all the next round projects (Semi, Y, roofs, etc) will again overwhelm, especially if the 3 ramp is slow.
TSLA as a stock did ok so far dispute this phenomenon. But one has to wonder how long this lasts. This is a pretty big risk for investors to consider. This is basically corollary of execution risk. Maybe the only meaningful risk that we should worry about.
All the risks coming from shorts like competition etc is just BS, not worth fretting about.
The hope is that Model 3 will create enough of scale to overcome the costs. But I am not sure if all the next round projects (Semi, Y, roofs, etc) will again overwhelm, especially if the 3 ramp is slow.
TSLA as a stock did ok so far dispute this phenomenon. But one has to wonder how long this lasts. This is a pretty big risk for investors to consider. This is basically corollary of execution risk. Maybe the only meaningful risk that we should worry about.
All the risks coming from shorts like competition etc is just BS, not worth fretting about.
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Agreed with SBenson that this is a major risk. It's one I personally am comfortable with.
My timing model back when Tesla announced the "acclerated" model 3 production was that they would get the first cars out in September (remember, supplier target was July but Musk was sure it would take several more months than that) and ramp up to maybe half speed by December, and then 5000/month later in the first quarter. Well, they got the first cars out earlier than expected, which got them a bit ahead of that schedule. Now they seem to have some issues in the ramp-up which are probably going to put them back a bit, but they're still effectively ahead of schedule.
But the important point is that I believe that Tesla has lined up enough financing to make it well into 2018 when Model 3 will be mass produced, and overcome the fixed costs. (The Semi and roof project development costs have been showing up on the books for many quarters now. Unless there's *another* project in development which hasn't been announced, I'm not estimating that we will see hugely increased R&D costs.)
(Unless they start lending to Puerto Rico with their own money rather than third-party investor money, which would be unwise. I think they know not to do that.)
They may hit additional problems or have more trouble solving the already-identified problems -- honestly, probably they will. So maybe they don't get to 5000/week until the end of the second quarter of 2018.
It looks to me like they have to get to at least roughly 3000/week, maybe 3500/week, in order to start fully covering fixed costs, though the fixed costs will increase some, so probably a bit after that. But I think they have enough capital to make it through to that point; I could be wrong, but if so I don't think I'm wrong by a large amount.
(Edit: to avoid being misleading, I should emphasize that my model here includes a model for ramp-up of profit from the stationary batteries, so it's also affected quite strongly by that. Which means that if storage battteries don't do as well as I'm expecting during 2018, then Tesla needs to be producing cars at more like 8000/week to cover fixed costs. There appear to be fewer "production hell" constraints on the storage battery business, but maybe I'm being overly optimistic.)
Musk has looked pretty relaxed lately. He doesn't look relaxed when the company is on the verge of running out of cash. I believe getting the first Model 3s out ahead of schedule in July has given him some leeway in the production ramp schedule.
If there's some sort of horrible delay which prevents them from getting to 5000/week by the end of 2018, then the company has a problem. and needs more capital. This is a real risk, but I currently don't assign it a high likelihood.
My timing model back when Tesla announced the "acclerated" model 3 production was that they would get the first cars out in September (remember, supplier target was July but Musk was sure it would take several more months than that) and ramp up to maybe half speed by December, and then 5000/month later in the first quarter. Well, they got the first cars out earlier than expected, which got them a bit ahead of that schedule. Now they seem to have some issues in the ramp-up which are probably going to put them back a bit, but they're still effectively ahead of schedule.
But the important point is that I believe that Tesla has lined up enough financing to make it well into 2018 when Model 3 will be mass produced, and overcome the fixed costs. (The Semi and roof project development costs have been showing up on the books for many quarters now. Unless there's *another* project in development which hasn't been announced, I'm not estimating that we will see hugely increased R&D costs.)
(Unless they start lending to Puerto Rico with their own money rather than third-party investor money, which would be unwise. I think they know not to do that.)
They may hit additional problems or have more trouble solving the already-identified problems -- honestly, probably they will. So maybe they don't get to 5000/week until the end of the second quarter of 2018.
It looks to me like they have to get to at least roughly 3000/week, maybe 3500/week, in order to start fully covering fixed costs, though the fixed costs will increase some, so probably a bit after that. But I think they have enough capital to make it through to that point; I could be wrong, but if so I don't think I'm wrong by a large amount.
(Edit: to avoid being misleading, I should emphasize that my model here includes a model for ramp-up of profit from the stationary batteries, so it's also affected quite strongly by that. Which means that if storage battteries don't do as well as I'm expecting during 2018, then Tesla needs to be producing cars at more like 8000/week to cover fixed costs. There appear to be fewer "production hell" constraints on the storage battery business, but maybe I'm being overly optimistic.)
Musk has looked pretty relaxed lately. He doesn't look relaxed when the company is on the verge of running out of cash. I believe getting the first Model 3s out ahead of schedule in July has given him some leeway in the production ramp schedule.
If there's some sort of horrible delay which prevents them from getting to 5000/week by the end of 2018, then the company has a problem. and needs more capital. This is a real risk, but I currently don't assign it a high likelihood.
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ValueAnalyst
Closed
How can Model 3 have 22% gross margin at 3,000/w when EM himself guided a full quarter after reaching 5,000/w is when it may get to 25%?!
At 3,000/week, which is my 1Q18 assumption, I have Model 3 at 10% gross margin, 15% in 2Q18, 20% in 3Q18, 22% in 4Q18, and never 25%.
ValueAnalyst
Closed
That's a lot of qualifiers there, but nonetheless, it's inevitable that Tesla will see hugely growing R&D expenses. You also forgot to mention Alien Dreadnaught initiatives and Gigafactories 3, 4, 5, and 6, as well as Model Y, in addition to Solar Roof and Semi.
The only thing we can hope for is that revenue grows quicker than R&D. I expect R&D expenses to nearly double from 2017 to 2018.
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ValueAnalyst
Closed
I think one thing that may really surprise people/markets is revenue guidance for 4Q, if given.
I think we may hit $4 Billion.
I think we may hit $4 Billion.
ValueAnalyst
Closed
TL;DR -- My reason for believing Tesla is still likely on track for 10K Model 3 production/week by the end of 2018 is that Tesla appears to be right on schedule with the plan announced in May 2016 when it first revealed the 500K in 2018 plan, which IMO has always implied a 10K Model 3/week run rate by the end of 2018 if not higher.
Longer version: Since Tesla announced the 500K in 2018 goal in May 2016 and the "impossible" target date of July 2017, I have considered "on time" Model 3 production start to be September/October (similar to the timeline @neroden mentioned.) They beat that by 2-3 months -- they were early, not late.
Presumably Tesla built their initial production plan with similar expectations given Elon's statements at the time about the likelihood of the worst performing or most unlucky supplier impacting the initial production date. So I expect we are still on track with the original plan Elon laid out in May 2016. The big unknowns in my mind are whether the remaining production bottlenecks are worse than expected so that getting production up and running from this point forward takes longer than originally expected, and if so the extent to which this would impact the overall timeline.
In typical Tesla fashion, when it was clear Tesla would essentially "beat" their earlier projection for the Model 3 production start, Elon announced new, more aggressive projections. And they promptly started missing those more aggressive projections. But there is no reason to believe that this accelerated ramp is necessary to meet the 10K/week run rate and good reason to believe it is not for the reasons explained above.
Approaching it from another angle, if Tesla works out the initial production bottlenecks over the next two months and hits 1000/week by the end of December (conservative, IMO), they have a good chance of doubling that by the end of January to 2000/week and doubling it again by the end of February to 4000/week (that is consistent with the ramp schedule implied by their initial parts order schedule per Elon). That would give them 10 months to ramp up to 10,000 per week.
Turning back to the ER since it is the topic of this thread, I would not be at all surprised if Elon says that the production bottlenecks do not alter the 10K/week by the end of 2018 projection. It also would not surprise me if the projection is softened a bit instead of stating that investors should not worry about it. I could be wrong -- we'll find out soon enough.
As a side note, like the Model 3, initial deliveries of the Model S were also early -- Tesla projected initial deliveries in July 2012, but delivered the first vehicles in June 2012, one month early. Elon Musk: Tesla Model S Is About 'Breaking A Spell' While there were earlier delays due to the Great Recession and lack of funding pre-IPO, this is right on the timeline projected in the S1 when Tesla IPO'd (they predicted 2012). Tesla also met its initial production target of 20,000 Model S/year (5000/quarter) by the second quarter of 2013 and greatly exceeded it by the end of 2013 (almost 7000 Model S/quarter). So it is not true that Tesla does not always meet its projections. It met and exceeded the most important projections in its history as a public company.
In addition, Tesla is way ahead of schedule on its original Gigafactory projections (35GWh/50GWh in 2020) as well as its projection of 500,000 vehicles produced in 2020. When Tesla is ahead of schedule, as when it began Model 3 production in July, Tesla typically releases an even more aggressive schedule and sometimes the new schedule is not met. That's Tesla's MO, and it seems to work well for them given how far ahead of the rest of the industry they are.
So that's how one "insane" person looks at it.
I will adjust my views to become more or less crazy as more information becomes available, we get additional guidance, or we see or do not see visible progress in the production ramp over the next few months.PS I don't want to derail the thread with the reporter discussion so will pick that up another time.
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The street estimates on Yahoo Finance are non-GAAP. Yours are GAAP, right?
Last quarter, there was a $0.70 difference between the two which means that your estimate is right in line.
Waiting4M3
Active Member
Has the M3 ramp delay impacted your long term view of Tesla?
IMO this delay is not as bad as MX, yet, and I have confidence that Tesla will fix it soon.
And I think using the word "overwhelm" to describe M3 ramp is blowing things out of proportion. Tesla still has the following things cooking:
- Semi, Nov 16 (pushed out from original target of Sep/E by 6 weeks, but just a short term adjustment, not long term)
- MS/X revision coming soon (possibly Nov)
- MY design moving forward, targeting 2019
- TE, SA and PR deployment both on-going, no sign of slowing down
- GGF Shanghai negotiation progressing towards EoY signing
- boring, LA tunnel in 1 year, Baltimore tunnel starting
- solar roof, significant hiring effort in sales and roofers ramping up in CA
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Allow me to politely disagree: the current status of the production rate regardless if its running or even completely stopped does not give any indication about achieving or not achieving a run rate of 10k units/week end of next year.
Lets not forget its a very different way of producing cars Tesla is trying to accomplish here that is not existing today therefore I believe its almost impossible to assess a likelihood how fast or slow the ramp will go and at what stage we will be there. We simply don't have a production line to compare this to.
Not even to mention what we all don't know about bottlenecks, misses on the supplier side and other factors that may play a role or not. They may disappear quickly or stay a while- only time will tell. But what I know for certain is that they going to solve that issues.
I don't want to downplay that overpromising and underdelivering is not a good idea but making a step back and looking just on the todays facts that we have should help to get a clear picture and that is for me as a long term investor very positive.
Certainly there is a lot of nervousness in the community today but I have to admit that the more nervous the crowd is the better I feel this days about the relation between market expectations and SP.
Frankly it does not really matter if they make or miss the M3 production and delivery at this stage. Lets remember how the market talked about all the MX production issues or the quality issues with MS. Its just the very normal process a growing automaker is going through but it will not stop them.
bdy0627
Active Member
bdy0627
Active Member
I agree with this perspective. It is near impossible to predict the stock movement around these quarterly reports. It often goes the opposite way that I thought it would even though I usually have a pretty good idea what to expect from the report. I would expect good news about the Model 3 ramp to likely lead the market reaction. If there is good news about the ramp at this point, I would expect to hear about it. But, there may not be good news there yet. Given how much the stock has dropped recently and how negative the sentiment is, it seems unlikely it will be much worse after the ER unless there is bad news about the Model 3 ramp.
thank you, i did not know that. yes i am gaap estimating. i guess for non-gaap they exclude zev and stock based comp. stock based comp is around $120m per quarter total, which is around 75c/share. put that back in and my non-gaap number is a loss of 2.30 in line with the street.
i have a somewhat complicated leasing model, but the explanation is twofold:
a. in the prior period an unusually high portion of deferred revenue was realized (in my modeling), and i am normalizing that a bit this quarter towards historical norms.
b. i estimate about 7.5m less in resale value guarantee expirations (which are additive to lease revenue).
on dollar weakness, it's a combination of what i have observed by studying swings in other income vs. the us dollar index and the explanation in the 10k (p48):
Other income (expense), net, consists primarily of foreign exchange gains and losses related to our foreign currency-denominated assets and liabilities. We expect our foreign exchange gains and losses will vary depending upon movements in the underlying exchange rates.
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