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2017Q1 results

Discussion in 'TSLA Investor Discussions' started by schonelucht, Apr 3, 2017.

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  1. Zhelko Dimic

    Zhelko Dimic Careful bull

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    #81 Zhelko Dimic, Apr 13, 2017
    Last edited: Apr 13, 2017
    There was a fair chunk of AP1 cars sold from inventory in Q1 - I got one. Inventory sales in the first 30-60 days were almost all AP1 cars as they were significantly discounted compared to AP2 cars. This is true in Ontario, but it was similar in US for at least January. After I secured my car, I wasn't checking as often.

    I don't know what is distribution of ordered vs sales from inventory though.

    One more comment. I wouldn't be surprised if margins for Q1 are worse than Q4 '16. There were many 60D in Q1 in the inventory in Canada that sold quickly, while in Q4 inventory had only 75Ds. They were both discounted, which made 60D particularly attractive and I figure this is how they pulled demand forward for seasonally slow quarter. I remember seeing 7 black S60D with the same equipment sold ($CAD93K-$96K) while I was watching and deliberating. Availability of 60s may have also been partial function of price increase in Canada, as 75D were seriously getting out of hand, reaching price that I remember loaded P85D was going for few years back. Anyhow, deals were better in Q1 (over Q4) with last available 2016 AP1 cars.

    For what it's worth.
     
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  2. surfside

    surfside Member

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    @luvb2b i posted in GD here with more detail re: why i think the SolarCity groupings should be as i laid out in my original email (with solar loans included in sales, not leases).

    surfside
     
  3. luvb2b

    luvb2b Member

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    @surfside, thanks again for your hard work. i posted my reply in the other thread.

    short answer: could be either way as possibly there was a reclassification in 2016. regardless doesn't matter as the two line items that move are virtually identical in 2 of 3 quarters. working numbers either way shows the sensible mix shift towards sale of systems.

    and that solves the mystery i was facing, which was a mix shift that appeared far too extreme.
     
  4. luvb2b

    luvb2b Member

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    i have to go with what you say. i don't know enough about it, and the 190 page "user friendly" guide is not something i will understand well enough to apply intelligently.

    i did find this is one section of the guide
    The license revenue allocated to a product or an element of a software arrangement that has been delivered but that will not meet the customer's functionality requirements until one or more additional product(s) or element(s) are delivered should not 18 ⎢PricewaterhouseCoopers LLP be recognized until all of the elements that provide the customer with full use of the delivered elements has occurred."

    and then in the referenced chapter 3:
    For arrangements that involve multiple elements, the entire fee from the arrangement must be allocated to each of the individual elements, based on each element's fair value. For revenue to be recorded for the delivered elements, the amount allocated to delivered elements may not be subject to a future adjustment. The portion of the fee that is allocated to an element should generally be recognized as revenue when all of the criteria for revenue recognition have been met with respect to that element.

    they sound almost contradictory but i think the last clause is what you're trying to communicate.

    regarding the 67.25 million, i agree with your methodology. i'd say 80% take rate seems high but changing to 75% won't matter much.

    in my model i was trying to separate one-time recognition from recurring auto sales - the thought being the realization of backed up autopilot revenue is sort of a one or two time deal. so in my presentation the 1-time autopilot revenue should be 9000 q4 ap2 vehicles x $5k each x 50% recognition - 750k already recognized = 17.25 million. not the 65 million i had. however, in doing this i would have lost the current quarter's ap2 revenue, 25000 cars x $5000 x 80% take rate x 50% recognition = $50m.

    this $50m would show up in auto revenues and drive the average revenue per vehiicle sold higher about 2% ($2000 for 25000 vehicles). and 50 + 17.25 million = 67.25 million.

    what i'm saying is basically i accidentally happened to get it about right, but didn't understand what i was doing. your explanation is fantastic and i'm switching to your bear/base estimates of 44 million and 67 million.

    thanks for contributing great research.

    on superchargers, i agree. i ordered mine on the last possible day (jan 15) to get free supercharging and took delivery mid march. at most there's 5000 vehicles with no supercharging which at $1k per vehicle would be an incremental $5 million, mouse nuts as brian says.
    but next quarter, that average revenue per vehicle should tick up another $1000 as they won't have to defer that supercharger access. this gives basically a "free" 1% increase in margins for q2 17.

    agree on revenue recognition too - it's a lever they can pull (within limits) as they need or want.

     
  5. luvb2b

    luvb2b Member

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    speaking of levers to pull, it looks like when tesla said on the last call they expect q2 17 margins to improve further - it seems that's what they should guide from what we see so far.

    in q2 17:
    they'll pick up ~1% on the supercharging.
    they'll get another ~2% assuming they can get ap2 fully delivered
    there may be further benefit from discontinuing the 60s.
    non-gaap margins will depend on timing of zev sales.

    anyway here's the latest update including the gross margins - will go into opex next if nothing else comes back on this. corrections: changed 1 time ap to match @Darren12 and changed "reg credits" tp "zev credits" - which is what i was trying to model anyway.

    item / revenue / cost of revenue / gross margin%

    auto sales 1,976,250 1,515,186 23.3%
    auto leasing 239,274 157,535 34.2%
    1 time autopilot 67,000 0 100.0%
    zev credits 83,552 0 100.0%
    total auto 2,366,077 1,672,721 29.3%

    energy storage 70,928 74,474 -5.0%
    solarcity 200,000 140,000 30.0%
    grohmann 17,000 16,150 5.0%
    services/other 200,357 206,368 -3.0%
    total revenue 2,854,361 2,109,712 26.1%

     
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  6. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Based on the updates to the cars so far, I don't think they'll recognize AP2 revenue in Q1. Probably Q2.

    I think we can expect Q2 earnings to be released on August 2nd. Shortly after the final Model 3 reveal, and after the first deliveries to employees if all goes well. If Q2 earnings is profitable, *which it could be*, the combination could put the stock sky-high. Well into "good price to dilute the stock levels" -- he does want that Gigafactory 3/4/5 funding.

    I suspect any gimmicks available for goosing the earnings report will not be used in Q1 and will be saved for Q2, a quarter which will have very high Model 3 production expenses, and probably very high expenses at Riverbend too, without actually delivering any cars or solar roofs.
     
  7. luvb2b

    luvb2b Member

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    somehow the difference the guidance of gaap and non-gaap gross margins returning to q3 levels has to be fulfilled to model to guidance from the letter. they gave that guidance in writing, which means it had been thought about (not off the cuff).
    We expect to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, both GAAP and non-GAAP automotive gross margin should recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017.

    in recent quarters non-gaap gross margins have meant taking out zev credits. recall q3 gross margins were 24.5% (non-gaap) and 29.4% (gaap). that's a near 5% differentlal which came about to 138,541 in zev credit sales.

    let's say we believe tesla's gaap and non-gaap gross margin guidance - 24.5% (non-gaap) and 29.4% (gaap). below [ auto revenue ] refers to auto sales + leasing only (doesn't include zev credits).

    1 - 29.4% = 0.706 = [ cost of auto revenue ] / [ auto revenue + zev credit sales ]
    a little algebra, divide by 0.706 both sides and multiply by [ auto revenue + zev credit sales ] both sides

    [ auto revenue + zev credit sales] = [ cost of auto revenue ] / 0.706
    subtract auto revenue both sides

    zev credit sales = [ cost of auto revenue ] / 0.706 - [ auto revenue ]
    substitute non-gaap gross margin guidance
    zev credit sales = (1 - 0.245) x [ auto revenue] / 0.706 - [ auto revenue ]
    zev credit sales = 1.069 x [ auto revenue ] - [ auto revenue ]
    zev credit sales = 0.069 x [ auto revenue ]

    so easy! zev credits = 6.9% of [ auto revenue ]

    the lowest sensible [ auto revenue ] estimate is to use q3's total - that would be 2.01b, implying zev credit sales same as q3 ( ~ 139m ).
    assuming the mix shift from leasing to sales from q4 persists to q3, i get revenues of 2.21b, implying zev credit sales of 152.5m. another little tweak to add, because this matches guidance and is much more aggressive than the zev credit sales i have modeled.

    those numbers go up a bit more if autopilot revenue is recognized into auto sales.

    ok, now here's the problem. how do you get margins to go even higher in q2 2017?
    both GAAP and non-GAAP automotive gross margin should recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017.

    if you burn all your zev credits to sell in this quarter, it's very hard to have that ~5% non-gaap / gaap margin differential show up - since zev credits guide that differential.

    the second part of the guidance, if met almost guarantees the zev credit sales get split across 2 quarters. if there were no meaningful zev credit sales in q3 non-gaap margins would likely come down.

    if you agree so far, the next problem. if you split up the zev credit sales you're likely not going to have enough credits to drive a 5% differential between non-gaap and gaap margins.

    and now the answer is starting to feel obvious. the guidance is low-balled! you could still meet guidance if, for example, non-gaap margins came in 29.4% and gaap margins came in 26.5% (only 2.9% differential there for zev credits to cover).

    consider the non-gaap auto margin for each quarter of 16:
    16q4 16q3 16q2 16q1
    21.8% 24.5% 23.1% 24.0%

    perhaps 16q3 represents a normal level of margin with the factory operating well.

    q4 had a bunch of cars stuck in shipment and deliveries dropped. depreciation and other costs which are fixed but flow through cost of goods sold for tesla would then be costed across less revenue, resulting in the gross margin dip from 24.5-21.8%. some of the cost for the cars was likely allocated in 16q4's cost of goods sold.

    but now you're delivering those cars again and you have more revenue due to mix shift. so those fixed costs are going to be costed across more revenue (spread thinner). those cars should have higher than normal margins this quarter as things normalize, right?



     
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  8. luvb2b

    luvb2b Member

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    i am going to try to go through and get a ball park estimate of how much cost of goods sold is fixed vs. variable from the 10q/10k filings. if anyone else wants to try please feel free.

    the goal is to figure out if the margin dip that happened from q3 to q4 is likely to be more than reversed in q1 - which from my previous post i suspect it is just based on the mathematics of fixed and variable costs both running through cost of goods sold.
     
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  9. surfside

    surfside Member

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    I think you are onto something re: non-gaap margins being even better than 3Q numbers because of the ~2,750 cars sold in 1Q2017 that weren't able to be delivered in 2016 and the spreading of the fixed portion of COGS over a bigger revenue number. To me, that makes more sense than counting on big ZEV numbers, which seems a little risky...

    surfside
     
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  10. surfside

    surfside Member

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    @luvb2b From the 10-K audit footnote: “Cost of automotive revenues includes direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, shipping and logistic costs, vehicle internet connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network, and reserves for estimated warranty expenses. Cost of revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for on-hand inventory that is either obsolete or is in excess of forecasted demand.”

    The biggest and easiest fixed cost item to calculate within COGS would be the depreciation and amortization of capitalized PPE; that number is $326,939 of the $1,544,422 total automotive cost of revenues number for 4Q2016 (the full year numbers are $947,099 and $4,750,081). I know some folks around here have built detailed models that breakdown the various direct costs of the Model S and X; that would probably be the easiest place to find other estimates. I believe @techmaven may have looked into this, but I could be wrong. Perhaps @neroden or some others in this thread have more detailed models we could use as estimates?

    surfside
     
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  11. luvb2b

    luvb2b Member

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    thanks @surfside.

    to add some more from the 10k:
    Depreciation for tooling is computed using the units-of-production method whereby capitalized costs are amortized over the total estimated productive life of the related assets. As of December 31, 2016, the estimated productive life for tooling was 250,000 vehicles based on our current estimates of production.

    and from this link on units-of-production method: Units of Production Method of Depreciation | Accounting Explained
    In units of production method of depreciation, depreciation is charged according to the actual usage of the asset. In units of production method, higher depreciation is charged when their is higher activity and less is charged when there is low level of operation. Zero depreciation is charged when the asset is idle for the whole period. This method is similar to straight-line method except that life of the asset is estimated in terms of number of operations or number of machine hours etc.

    i think we can take the 794,793 of tooling (see note 8 10k) and use the useful life of 250,000. apply the formula:
    24882 / 25000 x 794,793 = 74,439 in depreciation costs.
    adjust for lease/sale mix and divide by non-gaap revenue sold to get gross margin impact:
    75% sales x 74,439 = 55,829
    55,829 / 1,974,283 = 2.8%

    hmmm... that seems very small. it will shift margin only a few tenths of a %. have to run if you have more to add please do. i feel i'm missing other costs that have similar behavior.

     
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  12. Turing

    Turing Member

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    I don't know, they should want a good Q1 to keep the stock from falling back into its old 3 year trading range. Seems like Q2 number may not matter as much since all eyes will be on the incoming model 3 launch/ramp. If that goes better than expected (and even the bullish analysts like Adam Jonas have set the ramp bar pretty low), then the stock should do well.
     
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  13. Zhelko Dimic

    Zhelko Dimic Careful bull

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    Just a speculation, but what if Tesla renegotiated MS parts contracts with suppliers that got M3 business?
    2017 would be logical timeframe for suppliers to give in on Tesla requests, considering new business. This could be what starts flowing in Q1, improving in Q2
     
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  14. dw4ngg

    dw4ngg Member

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    I agree with this. If Elon was saving his bullets for Q2, he wouldn't have tweeted abt the weather in Shortville until after Q1 earnings are released.
     
  15. dc_h

    dc_h Active Member

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    I think Elon intends to increase the pace of bullet deliveries.
     
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  16. brian45011

    brian45011 Active Member

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    #96 brian45011, Apr 14, 2017
    Last edited: Apr 14, 2017
    Completed yet undelivered "sold" vehicles at quarter-end go into finished goods inventory that is carried at the lower of FMV or COGS. When the delivery is consummated in the following quarter, it increases total deliveries, revenue, gross (and most likely net) profit, and cash flow but does nothing for GM % unless those undelivered "sold" vehicles at quarter-end warrant more GM% because of their configurations
     
  17. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    #97 MitchJi, Apr 14, 2017
    Last edited: Apr 14, 2017
    After before and after the Q1 numbers I:
    03/31/2017 Bought 1 TSLA Apr 7 2017 275.0 Call @ 7 = -707.72
    04/03/2017 Sold 1 TSLA Apr 7 2017 275.0 Call @ 15.25 = 1,517.25 (net ~$810)
    PUrchased on Friday, number came out on Saturday. I sold it on monday morning. If I had kept it longer I would have done massively better. Any reason, going forward that I (and Bgarret) shouldn't use trailing stop losses?

    The "method" I've used for my last 3 short term trades is to (two trades were plus about 80% and 100%, one trade was down about 50%):
    1. Minimize the time value I pay for. That means for the upcoming ER I will probably buy on Monday or Tuesday, with an expiration on the 12th. Unless we see a big dip on Friday, and even then I might not do it. My reasoning is that I am trying to trade the ER, not trying to do a day trade.

    2. My prefered strike price will be NTM (near TM), slightly below is prefered if it's cheaper. My reasons are that as soon as the SP goes above the strike price, the option price increases rapidly. This also (volatility smile) minimizes the amount I pay due to an inflated IV.

    I'm a little surprised at the strategy of buying very high strike prices. I understand the reasoning, but if the ASP moves $5-$10 I'll make out very well (leaning towards buying 10-20 contracts).

    Only three month's and if all goes well it's up, up and away!!

    That might be true if you believe (I don't) that he's planning to sell shares to fund them (about a 15 billion cap raise if Panasonic puts in about half!).
     
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  18. dennis

    dennis P85D

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    With a successful Model 3 rollout Tesla will grow revenues at a rate that is 5x-10x that of the other premium automakers. So those are not the comparable companies for market cap. You need to look at companies that have grown from $7B to $25B+ in 2-3 years. The closest comp I found was AMZN which grew from $7B to $25B in 5 years (2004-2009) with very little growth in net income. Facebook grew from $8B to $27B in 3 years (2013-2016) but unlike Amazon and Tesla it had very good margins during that period so it is not a good comp IMO.
     
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  19. MitchJi

    MitchJi Trying to learn kindness, patience & forgiveness

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    Tesla Inc. Earnings: Mark Your Calendar -- The Motley Fool

    Electric-car maker Tesla (NASDAQ:TSLA) plans to announce its results for its first quarter of 2017 on Wednesday, May 3, the company said on Thursday. Ahead of its important Model 3 launch later this year, the quarterly update comes at a critical time for the company. Not only will it help investors get a glimpse into Tesla's financials ahead of its plans for a rapid ramp-up in vehicle production, but it will likely provide some insight into Tesla's progress on bringing its Model 3 to market.

    Ahead of Tesla's earnings release, here are three things investors might want to start thinking about.

    1. Expect a meaty automotive gross profit margin.
    For Tesla, making electric vehicles has proved to be quite lucrative on a per-vehicle basis. Sure, the company is spending billions of dollars on expanding its business, leading to overall losses. But investors can take comfort in the company's solid automotive gross profit margin, knowing that if Tesla wanted to report profits today it could simply scale back its growth ambitions.

    Tesla's non-GAAP automotive gross margin, which excludes zero emission vehicle credits and stock-based compensation, was 22.2% in the company's most recent quarter. Its GAAP automotive gross margin was 22.6%. In Q1, however, Tesla expects an even better automotive gross margin. Management said in the company's fourth-quarter update it expects non-GAAP and GAAP automotive gross profit margins to "recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017." The company's non-GAAP and GAAP automotive gross profit margins in the third quarter of 2016 were 25% and 29.4%, respectively.

    2. Capital expenditures may rise sharply.
    Potentially giving investors some insight into the aggressiveness of Tesla's preparations for high-volume Model 3 production, investors can look to Tesla's capital spending for the quarter. While Tesla didn't provide specific guidance for its capital spending in the first quarter, it did say it expected to spend between $2 billion and $2.5 billion during the first half of the year -- well above Tesla's $1.3 billion in capital expenditures during the entire year of 2016.

    "We continue to focus on capital efficiency while also investing in battery cell, pack and energy storage production at Gigafactory 1," Tesla said about its plans for capital expenditures.

    3. Will Tesla raise its guidance for vehicle deliveries?
    Since Tesla has already shared its vehicle deliveries for its first quarter -- a record 25,000 units -- investors will likely turn their attention to any commentary on what to expect from Model S and Model X deliveries in Q2.

    Going into Tesla's first quarter of 2017, the company said it expected to deliver 47,000 to 50,000 Model S and Model X units combined. So, with about 25,000 units already delivered, this leaves about 22,000 to 25,000 units left to be delivered during the first half of the year. Will Tesla raise its guidance for vehicle deliveries during the first half of the year after such a strong first quarter?
     
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  20. luvb2b

    luvb2b Member

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    i went back through the 10k and you're right how the inventory is valued.
    but here's what i don't understand then, you have depreciation expense which happens in a particular quarter. some of it happens based on time (straight line) and some happens based on usage of the tools (units of production).

    now if you just keep producing inventory you push all that depreciation into future periods never realizing it in the current quarter. that doesn't seem to make sense due to the current period nature of depreciation.

    i do get that with regards to parts etc. that go into making that vehicle. i could even understand that for the tooling that goes by units of production method (so you match cost per unit quarter to quarter). but how about that straight line depreciation? you can't shift straight line depreciation expense into future quarters, can you? i don't have the expertise to know the answer - so hoping to hear from those who know it better.

     
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