@luvb2b I dug into the EAP revenues and based on my initial research and calculations, I think they will recognize about $67.5 million in Q12017 (this is my base case). My bull case puts them at $90 million and the bear case at $45 million. I’ll break down my assumptions over the take-rate of the options first and then the percentage of revenue that they will recognize after.
Base-case assumptions:
Q42016 deliveries with AP2 hardware: 40% of deliveries or 9,000 vehicles (they delivered 22,252 in Q4). They started producing AP2 vehicles on October 19th
All Tesla Cars Being Produced Now Have Full Self-Driving Hardware which is about 3 weeks into the quarter. I’m assuming all vehicles produced in the first 3 weeks were delivered during Q4 (2,200 per week times 3 weeks is 6,600 vehicles). They had a delivery overhang from Q3 of 5,500 vehicles. The total non-AP2 cars delivered in Q4 is about 12,000 vehicles. I’ll take another 1,000 off of this for non-AP2 inventory cars.
EAP and FSD take-rates: 80% EAP, 20% FSD. This seems reasonable based on the discussion in the general thread and how popular the autopilot features seem to be in the media. My analysis done below of the deferred revenues reported in the Q4 10-K supports take-rates that are close to this.
With these take-rates and 9,000 AP2 vehicles delivered in Q42016, I get $41.4 million in EAP and FSD revenues, most of which cannot be recognized.
Percentage of EAP revenue recognizable in Q42016: 15%. The first roll-out of AP2 went to 1,000 cars on December 31, 2016. It had very basic functionality, but something was delivered nonetheless. With 1,000 cars recognizing 15% of EAP, $750,000 was recognized in Q42016, leaving $40.65 million as deferred revenue. This isn’t significant, and the actual amount recognized could be 0%. But to be conservative, recognizing a portion in Q42016 means less revenues in Q12017.
This leaves total deferred AP2 revenues of $40.65 million at the end of 2016. Looking at the Summary of Significant Accounting Policies on the 10-K, Tesla discloses the following for deferred revenues: As of December 31, 2016, and 2015 we had deferred $291.2 million and $138.2 million related relating to the purchase of vehicle maintenance and service plans, access to our Supercharger network, internet connectivity,
autopilot and over-the-air software updates. In the previous quarterly filings in 2016, Tesla does not mention autopilot in the deferred revenue disclosure. Therefore, the deferred autopilot revenue is 100% related to EAP and FSD. They also break out how much of the deferred revenue amount relates to each deliverable. I made a quick table summarizing this for Q42015 all the way to Q32016. From here, I looked at the QoQ changes in each category to estimate Q42016’s breakdown. I projected Q4 using the growth rates from Q2 to Q3 as it is the largest since they had record deliveries. Obviously they delivered less in Q4 than in Q3, but this gives a conservative estimate of how much of the deferred revenue can be attributed to autopilot. Using these conservative assumptions, I end up with $40.1 million in deferred autopilot revenue, which is quite close to my deferred revenue from the take-rate calculations.
Q12017 deliveries with AP2 hardware: 100% of deliveries or 25,000 vehicles. I doubt there would be many, if any, non-AP2 deliveries in Q12017.
I used the same EAP and FSD take-rates in Q12017. With 25,000 AP2 vehicles delivered, I get $115 million in EAP and FSD revenues, some of which can now be recognized. At the end of Q1, there are 34,000 AP2 vehicles (9,000 from Q4 plus 25,000 from Q1). Using the 80% take-rate out EAP, 27,200 of these vehicles have some EAP revenue that can be recognized in Q1. This post is getting fairly long, so I’ll make another post to discuss the percentage of revenue that can be recognized in Q1. My current assumption is 50% of the EAP revenue, which at $5,000 per car and 27,200 cars (less the $750,000 recognized in Q42016), puts autopilot revenues in Q12017 of $67.25 million. For the 50%, I’m looking at the EAP option description on the order page and comparing it to the features currently available, and also looking at some PwC software revenue recognition guidance:
https://www.pwc.com/us/en/cfodirect...guides/pwc-revenue-recognition-march-2009.pdf
Summary:
Base-case assumptions: 40% of Q4 deliveries have AP2 hardware (or 10,000 vehicles). EAP and FSD take-rates of 80% and 20%. 50% of EAP revenue recognized in Q1. $67.25 million revenue recognized in Q1.
Bull-case assumptions: 45% of Q4 deliveries have AP2 hardware (or 10,000 vehicles). EAP and FSD take-rates of 85% and 25%. 60% of EAP revenue recognized in Q1. $88.5 million revenue recognized in Q1.
Bear-case assumptions: 35% of Q4 deliveries have AP2 hardware (or 8,000 vehicles). EAP and FSD take-rates of 70% and 10%. 40% of EAP revenue recognized in Q1. $43.7 million revenue recognized in Q1.
That's what I have so far but I'm still tweaking it. The base case of $67.25 million lines up quite nicely with your assumed $65 million. Thanks for sharing your model with us it's very helpful!