2017 Q4 earnings estimates

[schonelucht]

I think you mean negative cash cycle, but that's a cash flow discussion, whereas I think this thread is about income statement.

I consider cash flow questions on topic for this thread, which is why I replied to @tlo 's cash flow question in the first place from which the subthread spawned.

 

[RiverCard]

Looking just at S&X, there were 28320 delivered and 22140 produced. A difference of 6180. The number of S&X in transit decreased by 2300. Therefore, S&X inventory was reduced by 3880. It was also reduced by 2174 in Q3.

Why should the difference in cars-in-transit be either added or subtracted? CITs are carried as Inventory just like untitled showroom models, service loaners, and "lot" cars. 6,180 seems correct for S &X.

 

[dalalsid]

now that delivery numbers are out figure i would put out a preliminary q4 estimate. comments welcome, i usually fine tune the model based on forum discussion. thanks.

Is there a reason for the lower lease % compared to every quarter? Lease Rev/Purchase rev = 14% every quarter. But you assume 11.4% in Q4

 

[Out4aDuck]

Why should the difference in cars-in-transit be either added or subtracted? CITs are carried as Inventory just like untitled showroom models, service loaners, and "lot" cars. 6,180 seems correct for S &X.

Rivercard, you are correct that the CIT's are included in finished goods inventory. My calculation was for the change in the number of "lot" inventory. Sorry for any confusion.

 

[GoTslaGo]

The New Tax Law: Implications for Domestic Business Strategies

Does this affect any of the calculations?

6. Immediate Expensing for the Costs of Certain Business Assets (Code § 168)
Prior Law. Under prior law, taxpayers were required to capitalize the cost of property acquired for use in a trade or business or held for the production of income. These acquisition costs could be recovered only through yearly deductions for depreciation.

The Act. Taxpayers may now currently deduct (or “immediately expense”) 100 percent of the cost of both new and used tangible depreciable property (other than real property). There is no longer a requirement that the taxpayer be the original user of the property acquired (as was the case for “bonus depreciation” under prior law), although an exception exists for property purchased from related parties. The Act retains the existing depreciation periods of 39 years for commercial real property and 27.5 years for residential rental property. '

his new provision applies only to assets purchased over the next five years; specifically, to be eligible for immediate expensing, the asset must be placed in service after September 27, 2017, and before January 1, 2023.

Impact. The ability to immediately expense 100 percent of the cost of tangible depreciable assets is one of the Act’s most significant changes to existing law. In the mergers and acquisitions context, this new provision is likely to increase the attractiveness of asset purchases over stock purchases and encourage large-scale capital investments over the next five years.

 

[neroden]

Tax accounting and GAAP accounting are different (isn't accounting wonderful?) so this doesn't change GAAP reporting directly. It does pile up larger NOLs for Tesla to use when they finally do make taxable profits. But it's very common to have an asset being depreciated for GAAP even though it's already been expensed for tax purposes...

 

[tander]

Tax accounting and GAAP accounting are different (isn't accounting wonderful?) so this doesn't change GAAP reporting directly. It does pile up larger NOLs for Tesla to use when they finally do make taxable profits. But it's very common to have an asset being depreciated for GAAP even though it's already been expensed for tax purposes...

"Tax accounting and GAAP accounting are different..." so true. For folks in this thread and making 17' full year predictions, of note would be some fairly major GAAP accounting changes which Tesla is electing to implement this year and retroactively. They could have significant impacts with regard toward leased vehicles and some or all contracts from Solarcity. From the q3 10k "Upon adoption of the ASUs, we currently estimate an increase to equity in the range of $550.0 million to $750.0 million, including the impact of adjusting deferred revenue for investment tax credit balances." " The adoption of the ASUs might accelerate the revenue recognition of certain vehicle sales to customers or leasing partners".

 

[neroden]

Is this the revenue recognition changes which take place starting Q1 2018? I think the lease recognition changes don't take place until Q1 2019. (Or did Tesla elect to implement the lease recognition changes early, so as to do all the accounting changes at once?)

Edit:... I just checked. This is the revenue recognition changes. The lease recognition changes aren't happening until 2019.

 

[tander]

Is this the revenue recognition changes which take place starting Q1 2018? I think the lease recognition changes don't take place until Q1 2019. (Or did Tesla elect to implement the lease recognition changes early, so as to do all the accounting changes at once?)

Edit:... I just checked. This is the revenue recognition changes. The lease recognition changes aren't happening until 2019.

Yeah so as I understand it it's gonna be the SolarCity stuff that gets changed now-ish which is what the 550-750 refers to and then the car lease stuff next year. Tesla has grown so much I'm not sure if 550-750 is really that relevant anymore but it's not pocket change. The funny thing is if SolarCity was still independent it would make them "look" a lot better.

 

[luvb2b]

lease revenue is a blend of revenues realized from leases that started over the past many quarters. it shouldn't necessarily correlate to current period revenue, particularly if current period revenue has an upside shock.

i have a fairly complex (not necessarily good) model of estimating lease revenue, which includes things like resale value guarantee releases etc. for better or worse that's what it's spitting out for leased vehicle revenues realized.

Is there a reason for the lower lease % compared to every quarter? Lease Rev/Purchase rev = 14% every quarter. But you assume 11.4% in Q4

 

[neroden]

lease revenue is a blend of revenues realized from leases that started over the past many quarters. it shouldn't necessarily correlate to current period revenue, particularly if current period revenue has an upside shock.

i have a fairly complex (not necessarily good) model of estimating lease revenue, which includes things like resale value guarantee releases etc. for better or worse that's what it's spitting out for leased vehicle revenues realized.

Soooooo does your model have an accounting for the GAAP changes to revenue recognition? This is one reason I'm not even trying to model Q1's numbers... (once Q1 is out, I may be able to model Q2)

 

[ValueAnalyst]

It's super hard to estimate indeed. First of all, third shift was not only active on all stations so it's certainly not 1/3 of the employees that got shifted over. Is it 10%? 20%? Who knows. But yes, throwing labour at bottleneck places is inefficient and not doing so should increase gross margin. On the other hand there are a number of costs that acrue on time basis instead of production unit basis. For those, having less produced units per time slice decreases gross margin. There is nearly 0% visibility for us retail investors to make any reasonable estimation here. But since they haven't specifically given updated gross margin guidance at the same time they said they'd do this I suspect it's going to be a wash.

Interesting note on some costs accruing on "time basis instead of production unit basis."

What if Tesla were to increase automation slightly more to achieve 2,000 units with two shifts, rather than the previous 2,000 units with three shifts, or the most recent 1,800 units with two shifts? The new scenario could only mean higher margins than either previous case, even if some costs accrue on time basis, right?

 

[ValueAnalyst]

@luvb2b quick question first : why do you have leasing revenue lower this quarter than Q2 and Q3? And why is interest expense also lower than Q3?

For the rest of my discussion, I am assuming no ZEV credits. After fixing an embarrasing mistake in my model (messed up x1000 and x1000000 multiplier) I have losses at $325M. The main difference is the amount of leased cars. I have it lower because of two reasons 1) higher share of sales in market that do not offer Tesla leasing (to be honest, I don't know if Norway is Tesla or 3rd party leasing) 2) higher proportion of inventory sales which I somehow convinced myself are more likely bought on a tradein or loan. A lower percentage of leases obviously translates in a higher automotive revenue stream which I have at nearly $3B. I also think you underestimate energy storage. This quarter the South Australian project drops and that alone represents easily $40M of revenue (but cost of goods too of course).

On the operational expense side, I have R&D slightly going up to account for more Grohman work shifting from external parties to internal development. Also maybe some emergency R&D costs for the battery assembly lines. For SG&A I have a modest increase. The effort to put out Model 3 starts to have its impact with new delivery structures, the current CFO isn't as focused on cash as the previous one and the rollout of superchargers continues (partially paid through SG&A as a marketing expense)

Finally I also don't have any tax provisions. They didn't do so (materially) last quarter. I suppose because enough capex spending offset liabilities (Gigafactory&Buffalo spending which grant tax breaks?). If that is true, they'll likely have the same thing this quarter.

1) What is the offset for assuming "Grohmann work shifting from external parties to internal development?" Should be an offsetting drop in SG&A?

2) Would you by any chance know approximately what percent of Supercharger depreciation is in SG&A vs. COGS?

 

[schonelucht]

What if Tesla were to increase automation slightly more to achieve 2,000 units with two shifts, rather than the previous 2,000 units with three shifts, or the most recent 1,800 units with two shifts? The new scenario could only mean higher margins than either previous case, even if some costs accrue on time basis, right?

We know that didn't happen in Q4, so it's not really relevant. In general being able to produce the same with less resources should always be good.

1) What is the offset for assuming "Grohmann work shifting from external parties to internal development?" Should be an offsetting drop in SG&A?

Grohman was still booking some income from their previous. My guess is that has stopped and they started working full time for Tesla. So the costs for generating the income for third parties is now fully absorbed by Tesla.

2) Would you by any chance know approximately what percent of Supercharger depreciation is in SG&A vs. COGS?

Some of the hard core shorts tried to figure that out on Seeking Alpha. Not sure i agree with their methods but I have no better guess than theirs. But most of the increase in supercharger costs in my eyes are maintenance. It's winter which always is harsher on outdoor installations and some of the growing demand has Tesla using stewards at the superchargers to manage the queues. It's not a lot, but when you have thousands and thousands of stalls it must start to add up at some point.

 

[RiverCard]

Compensation plan in latest filed Proxy shows:

$175 B in Revenue >15X Annualized 2017 Levels =~$11.67 B for 2017

$14 B in EBITDA > 21 X Annualized 2017 Levels (adjusted by stock based compensation) =~$0.667 B for 2017

Revenue for the 1st three quarters of 2017 was $8.47 B so 4Q17 Revenue = ~$3.2 B

Adjusted EBITDA for the 1st three quarters of 2017 was $0.537 so 4Q17 Adjusted EBITDA = ~0.130 B

The EBITDA values for the 1st three quarters of 2017 and for 3Q17 used above were:
Earnings = -$1.286 B--???
Interest = -$0.325 B (ignoring interest income)-- -$0.117 B
Taxes = NIL--NIL
D&A = $1.166 B--$0.401B
Stock Base Compensation =$0.332 B--$0.113 B

Solving for 4Q17 E, $0.130B = ? +$0.117 B + $0.401 B + $0.113
E = -$0.501 B

(Check my values and calculations)

Comparing to luvB2B: Revenue $3.2 B vs luvB2B's $3.29 B Earnings -$0.501 B vs luvB2B's -$0.474 B

(The Proxy said "greater than", above calc's based on "equal to" )

 

[schonelucht]

(Check my values and calculations)

Comparing to luvB2B: Revenue $3.2 B vs luvB2B's $3.29 B Earnings -$0.501 B vs luvB2B's -$0.474 B

Values&reasoning are correct to me. Seems @luvb2b got it this quarter. Possibly I was a bit too optimistic on the S/X revenue side.

 

[schonelucht]

$175 B in Revenue >15X Annualized 2017 Levels =~$11.67 B for 2017

Just noted the word 'annualized' there. That sounds suspicuously like they took Q1-Q3 revenue and then annualized it. If that is the case then unfortunately we can't draw the conclusions on Q4 like you did. The math works out for revenue : $8,470M in revenue in Q1-Q3 is $11,293M annualized.

But it doesn't for your adjusted ebitda Q1-Q3 number : $537M -> $716M, makes a >19 multiplier not a >21. So how did you get your adjusted ebidta? Unfortunately, I can't 'make the numbers work' either. My hunch is we miss something in the mix of adjustments.

 

[ValueAnalyst]

I'm at $3.304 billion for total 4Q17 revenue, and $27B for 2018.

 

[RiverCard]

So how did you get your adjusted ebidta?

$14 B/21 = $0.667 for 2017 EBITDA. $0.667 B - $0.537 B = $0.130 B for 4Q17 EBITDA

The discrepancy may be in the difference in approaches. You use the average for the 1st three quarters and add it to the total for the 1st three quarters. I used the values for the 3rd quarter only and added it to the total for the 1st three quarters, while solving for earnings.

 

[luvb2b]

well this report is quite a bit worse than i had expected.
my revenue number is spot on, but they met it with zev credits. not sure why auto revenues came so much lower.
my gross margin estimates were too high.
my opex was too low.

they did create cash from inventory draws and customer deposits.

let's see how it reacts tomorrow.

now that delivery numbers are out figure i would put out a preliminary q4 estimate. comments welcome, i usually fine tune the model based on forum discussion. thanks.