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2017Q1 results

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

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  1. luvb2b

    luvb2b Member

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    #101 luvb2b, Apr 17, 2017
    Last edited: Apr 17, 2017
    alright folks, below is the meat of my model.

    one sentence summary, i look forward to $1.11 non-gaap eps and $0.61 gaap eps, revenues 2.7-2.9 billion.

    please remember forecasting is an art not a science, and i could very well be wrong in many ways. my model is posted as a "here's what someone else did" so you can do your own work and draw your own conclusions. be careful out there!

    i have a ++ estimate and a -- estimate which vary slightly more conservative and aggressive assumptions. i am looking forward to your inputs!

    some quick comments:
    1. solarcity segment broken out below with solarcity q4 & q3 for comparison. i assumed that accounting adjustments would negatively impact the integration - although proformas show it could swing either way. negative solar city revenue and cost impacts included, and took slightly more conservative view of nci's. these could swing favorably but will be considered "lower quality" earnings by the market.

    2. i'm suspicious of my average selling prices. by separating autopilot on a line item it removes the impact of autopilot revenues flowing through the average sell price.

    3. guidance of gaap/non-gaap margins imply large zev credit sales similar to q3.

    4. i believe the ++ model represents by "best guess". i feel i've been overly conservative adjusting solarcity for post-merger accounting. i think there is some further likely upside in the gaap gross margin, because the number of credit sales to match the guidance feels too high.

    5. the twitter language of elon leading into this report is too similar to q1 2013 for it to be coincidental. so i think he's got a bottom line profit to report for sure.

    6. the numbers below are diluted gaap eps - i feel strongly that non-gaap dlluted eps will swing positive because you have to add another 50c in stock comp expense.


    line itemq1 17 est++q1 17 est--q4 16 act.q3 16 act.
    revenue
    auto sales1,976,2501,923,5501,719,6091,778,901
    auto leasing239,274233,675254,674231,285
    1 time autopilot44,00044,00000
    zev credits126,76445,46519,840138,541
    total auto2,386,2882,246,6901,994,1232,148,727
    energy storage70,92866,19947,28523,334
    solarcity200,000200,00084,1000
    grohmann17,00017,00000
    services/other200,357200,357159,123126,375
    total revenue2,874,5732,730,2472,284,6312,298,436
    cost of revenue
    auto1,537,1081,441,5611,372,6041,355,102
    auto leasing157,535154,327171,818161,959
    total auto1,694,6431,595,8881,544,4221,517,061
    energy storage74,47472,81960,77924,281
    solarcity140,000150,00067,0000
    grohmann16,15016,15000
    services & other206,368206,368177,152120,359
    total cost of rev2,131,6352,041,2251,849,3531,661,701
    gross profit742,938689,021435,278636,735
    auto gaap gm29.0%29.0%22.6%29.4%
    auto-zev nongaap gm25.0%27.5%21.8%24.5%
    storage gm-5.0%-10.0%-28.5%-4.1%
    scty gm30.0%25.0%20.3%0.0%
    grohmann gm5.0%5.0%0.0%0.0%
    services gm-3.0%-3.0%-11.3%4.8%
    opex
    tesla r&d250,000260,000234,960214,302
    tesla sg&a370,000390,000365,909336,811
    1time acq cost0015,8070
    solarcity r&d30,00030,00011,0000
    solarcity sg&a145,000145,00074,3000
    total opex795,000825,000701,976551,113
    op income-52,062-135,979-266,69885,622
    interest inc3,0003,0002,1792,858
    interest exp-50,000-50,000-43,104-46,713
    scty interest-65,000-65,000-22,0000
    other income exp0032,524-11,756
    1time scty gain0088,7000
    pretax income-164,062-247,979-208,39930,011
    income tax12,00012,00011,0708,133
    net income-176,062-259,979-219,46921,878
    non-cont int.-275,000-250,000-98,1320
    net inc to common98,938-9,979-121,33721,878
    basic shares163,000163,000155,024148,991
    diluted shares163,000163,000155,024156,935
    diluted gaap eps0.61-0.06-0.780.14
    assumptions
    ls veh % total0.250.270.250.32
    avg price105.40105.40103.28105.40
    solarcity check
    revenue200,000200,000221,435200,551
    costs140,000150,000142,895128,959
    gross profit60,00050,00078,54071,592
    opex175,000175,000135,175257,684
    operating inc-115,000-125,000-56,635-186,092
    interest-65,000-65,000-4,409-40,098
    pretax income-180,000-190,000-61,044-226,190
    taxes00-599848
    after tax income-180,000-190,000-61,643-225,342
    non-cont int-275,000-250,000-327,679-278,557
    solarcity net inc95,00060,000266,03653,215
     
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  2. surfside

    surfside Member

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    So before you posted about some of the depreciation related to tooling being linked to production, my base assumption was that all depreciation and amortization expense was a purely fixed cost irrespective of production and deliveries.

    While I started my career with one of the Big 4 accounting firms, it has been nearly 15 years since I worked in public accounting, so I am clearly a little rusty. My initial gut feeling was the same as yours -- you don't shift depreciation quarter to quarter based on deliveries.

    However, after doing some more thinking and reading, I'm 90+% sure that depreciation and amortization related to fixed manufacturing overhead is in fact capitalized into inventory and therefore deferred into future periods if sales do not match production (the scenario we had in 4Q2016). So gross margins in 4Q2016 should not have been materially impacted by the mismatch of production vs. deliveries as we had suspected.

    Sorry for contributing to a detour down the wrong rabbit hole.

    surfside
     
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  3. luvb2b

    luvb2b Member

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    thanks! in my modeling i deferred to @brian45011 's opinion because he known much more about it than me. with you on the same page i feel comfortable it's been incorporated the right way.

    the more conservative model above does show a 27.5% non-gaap gross margin, only because it has to in order to get the gaap gross margin to the 29% target.

    it's a balance, if i start to reduce zev sales then i have to boost non-gaap gross margins to keep the gaap gross margin on point. as i boost zev sales, non-gaap margins can be lower and still get me up to 29% gaap gross margin.

     
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  4. surfside

    surfside Member

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    Thank you for all your good work on getting into the details in order to try and produce a robust model, particularly with regard to SolarCity. I learned a lot by digging through the SolarCity 10-Ks and analyzing 4Q 2016 SolarCity performance.

    TMC is such a great resource and community; thanks for your willingness to share the result of all your work here.

    surfside
     
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  5. S3XYTSLA

    S3XYTSLA New Member

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    Do you think the stock reacts similar to what it did in Q1 2013?
    any price targets near term and long term...


     
  6. geneclean55

    geneclean55 Active Member

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    Will you be using any particular options strategies to play this ER?
    Thanks for sharing!
     
  7. luvb2b

    luvb2b Member

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    i am torn. the biggest problem is that despite an awesome earnings beat, the earnings quality is somewhat poor as they are swinging on these solarcity nci's which are poorly understood by most.

    however, the s&p index committee doesn't care about that. they care about gaap profitability. and if they put together 3 quarters that add up to near zero (see post in general thread), the risk that they post one more quarter of profit and get added becomes very high. i think you would start to pull in institutions that front run the s&p additions at that point.

    the q2 guidance will be important too - i think based on deliveries already scheduled in june for new orders that they may well run a full book of business again. there's the negative of the recent price cuts flowing through revenue and existing inventory. depending on solar city contributions, guidance for a q2 profit will be enough to levitate the stock into the 3 launch.

    in 2013 the stock went from around 35-40 a bit before earnings to 70-80 after. you're not going to get a near doubling in share price, i am quite sure. but a 10-20% move? sure. the analyst community is really far offsides if my model is correct, and i believe it will take at least 30-50 points of price movement to get them more in line with where i think they should be.

     
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  8. luvb2b

    luvb2b Member

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    i'll use a combined package of may and november calls. the november calls i need in case they guide to a q2 profit, because that will bring the s&p index add firmly into play. i can't emphasize enough how valuable that it is - @ggr talked about it in the other thread as did @Paracelsus. so much money is indexed these days and those buyers pay literally anything when they come into a stock. that will also tighten up the float so that future movements could be wilder. for that, i need either september or november exposure, preferably at or just out of the money to get that kick up in implied volatility.

    the nearby out of the money calls feel very expensive, so i will limit my participation there. i just can't bring myself to expect a $90 move despite how big a beat i expect. even the may 350's require a move to 375 to earn 10x the premium. seems a stretch. i did do a few may 375's but mostly because i think the stock will drift higher into earnings and i will be able to sell those ahead of earnings with maybe a 30-50% gain.

    what i may do is use a combination of common and may in-the-money calls, with the idea of selling common into an afterhours beat and leaving the may calls as a core position. i'm still finalizing my plan and i wouldn't suggest anyone do what i am doing. it's just the way i view the trading landscape and the way i view earnings that determines how i position for it.

    i'm especially interested in protecting against an unexpected disaster, so i will measure my position sizes and then limit them so that if the stock drops to 260-270 on a miss i will escape with just a flesh wound.

     
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  9. schonelucht

    schonelucht Active Member

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    Very solid work. I am grossly inline on the car side of business, except that I am not sure they'll be able to move as many ZEV credits. The industry is flush with them. On SolarCity you have done a lot of work but I am not convinced on the repeatability of the losses attributed to NCIs and VIEs. It's unfortunately a lot of money that could go either way. I am not making any trading bets on it this time around.
     
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  10. luvb2b

    luvb2b Member

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    thanks. good comments.

    just curious- if they don't move a lot of zev credits, how do you reconcile guidance to match what happened in q3? or, are you just not attaching a lot of weight to their guidance?

    on solar city's nci's - here are the last 9 quarters. those losses go back even further if you look. if this is not repeatable, i am going to be eating my foot.

    -327.68 -278.56 -194.77 -258.12 -236.51 -215.19 -133.373 -125.412 -137.881

    i'll say it again. i will be eating my foot if that number is not -200 million or less (-250, -300 million).


     
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  11. schonelucht

    schonelucht Active Member

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    Yeah, not attaching a lot of weight to guidance here. To realise ZEV credits you need a buyer. And the only possible interested parties are large corporations that aren't that easy to read.
     
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  12. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    I don't think there will be any AP revenue in Q1. That shifts your model for non-GAAP earnings down to 0.34 profit (high case) to 0.33 loss (low case). Which... well, honestly, even the low case is going to beat "analyst consensus expectations". If there are no ZEV credits, of course, which is a real possibility, it would be even worse.

    The key thing is that the error bars in these estimates are high due to a lot of unpredictable elements. I think the way the market's reacted in the past, the key thing would be if it's above 0 or not. I'm sort of seeing the mean estimate approximately *at* zero (which, remember, would still beat consensus), but the market reaction is going to be totally overblown if it's positive, and I think the variance is too high to tell whether it will be or not. For pscyhological purposes I will assume not, but really, *respect the uncertainty*.

    I think if there is a report of a loss which is of smaller magnitude than the average analyst estimate, that is probably baked into the price and will cause little reaction.
     
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  13. luvb2b

    luvb2b Member

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    i just go by the gross margin guide on the last call. you don't get to meet that guidance without either:
    a. lots of zev credits driving 5% spread between gaap and non gaap margins
    b. less credits and a lower gross margin spread difference but higher than guided gaap margins

    take your pick. someone would have to be really inept to guide margin including zev credits 5% above margin without zev credits, and then not sell any credits. i can't make that bet.

    you can't take ap out in isolation because it will move the gross margin 2% away from guidance. that was a key principle i maintained - that reporting in feb they would have a good handle on margins for a quarter ending in march, barring execution flubs that didn't happen this time.

    the low model i posted i think is too conservative and i placed my bet on the higher model. i think it tips over $1 non gaap.

    there's always unpredictable elements which is why usually it pays well to get it right :)

     
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  14. Turing

    Turing Member

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    How close to accurate has Tesla been in the past in regards to gross margin guidance?
     
  15. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Tesla always undershot gross margin guidance in the past. Not by *much*, but...
     
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  16. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    OK, I've been thinking about this, and I have some further thoughts.
    (1) Preproduction expense at SolarCity should be up in Q1 and Q2.
    (2) I don't think the ZEV credits will be worth much in Q1 or Q2. IF we use the Q4 numbers, that drops your model by $107.0 M
    (3) I think they recognize the Autopilot revenue in Q2 rather than Q1.

    However,
    (4) I think you've vastly lowballed the portion of the SolarCity "loss" attributable to noncontrolling interests. I certainly don't properly understand the HLBV method, but I get the strong impression that SCTY takes substantial "losses" in the quarter of installation while the non-controlling interests take "losses" in the rest of the first five years or so as the tax assets from accelerated depreciation are claimed and reduce the value of the VIE. (Since a VIE containing panels with accelerated depreciation deductions available is worth more than one with fully tax-depreciated panels).

    I could be wrong, but I believe the increases in the losses attributable to noncontrolling interests are due to a larger percentage of the panels being "older". So with fewer new lease installs, we should expect those numbers to keep going up for quite a while. Going from -$275 M to -$327.7 M adds *$52.7 M*.

    For S&P 500 purposes, we have Q3 2016 at +21.9M, Q4 2016 at -121.3M.
    Your model would give us 98.9 in Q1 and by "same as last time" projection, 54.9 in Q2 (no AP revenue).
    If I shift the AP revenue to Q2, these swap places.
    If I go with a lower ZEV assumption, -52.1 and -8.1.
    But if I add back more non-controlling interest losses, that gives +0.6 and +44.6. That's not enough to reach "sum over four quarters is profitable".

    I don't think it's likely to be done without a big ZEV sale and I don't think that's likely since Musk has been talking about how ZEV credits are worthless now. Maybe Tesla Energy will boom enough in Q2 to do it, maybe not.

    However, even with "really low" gross margins on Model 3, I really think they're extremely likely to hit "sum over four quarters is profitable" at the end of Q3. (I think 10% gross margins would do the trick.) Probably reported in early November. When does S&P have its committee meetings?

    Anyway, I've been trying to figure out how much money is in S&P 500 index funds, both in absolute terms and as a percentage of the total S&P 500 market cap. It looks like it's at least 4%, after adding up 12 of the larger and more prominent funds, but probably more. This is also the percentage of Tesla's float which would have to be purchased by S&P funds if TSLA was added to the S&P 500. It's a lot. I don't think that could be done in one day. What an interesting market distortion these funds are causing.

    Of course they might leave it out of the S&P 500 due to the large percentage of the stock which is not floated. But it seems fairly unlikely at this point.
     
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  17. Turing

    Turing Member

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    #117 Turing, Apr 18, 2017
    Last edited: Apr 18, 2017
    Is it possible that Tesla could book a portion of AP2 revenue in Q1 and the rest in Q2? Does it have to be all or nothing?
     
  18. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Yeah, that's possible. (I kind of don't actually care when they book it, as long as it's this year...)
     
  19. luvb2b

    luvb2b Member

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    thanks for thinking this through with me.
    my first question: without zev credits how do they make good on gross margin guidance that was printed in the q4 letter? that guidance says "we got a zev sale coming".

    s&p stocks are added and removed all the time. major rebalances often come near quarter end. index addition brings a whole host of closet indexers in too.


     
  20. schonelucht

    schonelucht Active Member

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    When you put the numbers like that it is indeed hard for me to keep saying there is doubt about their future performance. I guess my main hangup about it all is that I have a very hard time understanding how these losses work in reality. Ie, where do they come from? Are they from the installed base and therefore proportional to that number? Are they related to sales in the last quarter(s)? Etc. I guess what I am saying either these constructs go above my financial head or there is just too little information available to understand them. Either way, for me personally, I don't like investing in something where I don't even understand the basics.
     

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