3Q18 Free Cash Flow

[ValueAnalyst]

Many bulls and most bears point to Tesla's near-term liquidity need as the number one issue capping the stock price, but I expect Tesla's 3Q18 Free Cash Flow to surprise most market participants, and once and for all, resolve this conundrum in favor of bulls.

Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. This cash can be used for expansion, stock buybacks, dividends, reducing debt, or other purposes. It is calculated with the following formula:

FCF = Operating Cash Flow - Capital Expenditures

The following is the company's latest cash flow statement, included in the First Quarter 2018 Update Letter:



Please feel free to share your math and reasoning below. Thanks!

 

[ValueAnalyst]

ValueAnalyst on Twitter

 

[Cartegena]

Many bulls and most bears point to Tesla's near-term liquidity need as the number one issue capping the stock price, but I expect Tesla's 3Q18 Free Cash Flow to surprise most market participants, and once and for all, resolve this conundrum in favor of bulls.

Free cash flow (FCF) is a measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. This cash can be used for expansion, stock buybacks, dividends, reducing debt, or other purposes. It is calculated with the following formula:

FCF = Operating Cash Flow - Capital Expenditures

The following is the company's latest cash flow statement, included in the First Quarter 2018 Update Letter:

View attachment 316949

Please feel free to share your math and reasoning below. Thanks!

Am I looking at this correctly--

In the first quarter the loss from operations was $784.6 million but the cash flow only decreased by $745.3 million because Tesla got $371.7 million because of Cash from Financing Activities?

 

[ValueAnalyst]

Am I looking at this correctly--

In the first quarter the loss from operations was $784.6 million but the cash flow only decreased by $745.3 million because Tesla got $371.7 million because of Cash from Financing Activities?

Unfortunately cash flow statement formatting is never easy to follow, but here's how the math works:

Net loss for the quarter = $784m
+ $416m in depreciation add-back since it's a non-cash expense and this is a cash flow statement
+ $142m in stock-based compensation since it's a non-cash expense and this is a cash flow statement
+/- bunch of adj to add-back/remove "accrual accounting" expenses that are important but do not belong in a cash flow statement
= Net cash used in operating activities of $398 million

- Net cash used in investing activities of $729 million (mostly capital expenditures)
+ Net cash provided by financing activities of $372 million (mostly borrowed funds)
+ $10m in exchange rate impact
= $745m in net change in cash from quarter-beg to quarter-end

In summary:
- $398m in operating
- $728m in investing
+ $372m in financing
+ $10m in exchange rate
= $745m in QoQ change in cash balance

In English: Tesla used ~$400m in operating activities and invested ~$700m, financed by (i) ~$350m borrowed funds and (ii) $750m cash on hand

Prediction: Tesla's operating cash flow will soon turn positive, and it will start investing from internally generated rather than borrowed funds.

Hope that helps.

 

[Reality]

4 votes of 1b or more?

 

[Tiger]

4 votes of 1b or more?

Simple. 3 months 4 weeks per month 5.000 pcs cars per week $17.000 average take home per car totals $1.020.000.000, i.e., excess of $1B. And these numbers are conservative and do not count other parts of Tesla's business imperium. Short squeeze warned.

 

[ValueAnalyst]

Simple. 3 months 4 weeks per month 5.000 pcs cars per week $17.000 average take home per car totals $1.020.000.000, i.e., excess of $1B. And these numbers are conservative and do not count other parts of Tesla's business imperium. Short squeeze warned.

That’s only Model 3. Also have to consider higher Model S/X deliveries, as well as growing Energy installations. This is only GAAP net income part of the equation.

For free cas flow: add back depreciation, subtract regular maintenance CapEx of $250m or so and minimal growth CapEx, and add cash flows generated due to negative cash conversion cycle.

 

[Reality]

Simple. 3 months 4 weeks per month 5.000 pcs cars per week $17.000 average take home per car totals $1.020.000.000, i.e., excess of $1B. And these numbers are conservative and do not count other parts of Tesla's business imperium. Short squeeze warned.

I am not sure we are talking about the same FCF

 

[jhm]

Unfortunately cash flow statement formatting is never easy to follow, but here's how the math works:

Net loss for the quarter = $784m
+ $416m in depreciation add-back since it's a non-cash expense and this is a cash flow statement
+ $142m in stock-based compensation since it's a non-cash expense and this is a cash flow statement
+/- bunch of adj to add-back/remove "accrual accounting" expenses that are important but do not belong in a cash flow statement
= Net cash used in operating activities of $398 million

- Net cash used in investing activities of $729 million (mostly capital expenditures)
+ Net cash provided by financing activities of $372 million (mostly borrowed funds)
+ $10m in exchange rate impact
= $745m in net change in cash from quarter-beg to quarter-end

In summary:
- $398m in operating
- $728m in investing
+ $372m in financing
+ $10m in exchange rate
= $745m in QoQ change in cash balance

In English: Tesla used ~$400m in operating activities and invested ~$700m, financed by (i) ~$350m borrowed funds and (ii) $750m cash on hand

Prediction: Tesla's operating cash flow will soon turn positive, and it will start investing from internally generated rather than borrowed funds.

Hope that helps.

Here is how I understand FCF for Q1

Net cash used in operating activities: ($398M)
Net cash used in investing activities: ($729M)
==================================
Free cash flow: ($1127M)

Am I doing this right?

We are looking for operating cash flow to become large enough to fund the investing cash flow. When this happens, the company is essentially self-funding.

 

[ValueAnalyst]

Here is how I understand FCF for Q1

Net cash used in operating activities: ($398M)
Net cash used in investing activities: ($729M)
==================================
Free cash flow: ($1127M)

Am I doing this right?

We are looking for operating cash flow to become large enough to fund the investing cash flow. When this happens, the company is essentially self-funding.

Almost there. I look at slightly different versions for each company, and for Tesla:

Net cash used in operating activities: ($398M)
Capital expenditures: ($656M)
==================================
Free cash flow: ($1054M)

The next level or analysis would be breaking down CapEx into its two components...

1. Maintenance CapEx; and
2. Growth CapEx

... and only subtracting the Maintenance CapEx from Operating Cash Flows in order to estimate the steady-state free cash flow generation capacity of the business.

 

[jhm]

Almost there. I look at slightly different versions for each company, and for Tesla:

Net cash used in operating activities: ($398M)
Capital expenditures: ($656M)
==================================
Free cash flow: ($1054M)

The next level or analysis would be breaking down CapEx into its two components...

1. Maintenance CapEx; and
2. Growth CapEx

... and only subtracting the Maintenance CapEx from Operating Cash Flows in order to estimate the steady-state free cash flow generation capacity of the business.

You can try to split maintenance from growth, but the desire steady state is growing revenue over 50% year. So we might want to model that out. There's a certain amount of capex as ratio to revenue needed each quarter to sustain high growth. I wonder what the ratio needs to be.