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[JRP3]

In response to this analysis of Tesla this comment does a breakdown of Tesla's numbers and concludes that they will miss the Q1 estimates. Thoughts?

 

[Zzzz...]

In response to this analysis of Tesla this comment does a breakdown of Tesla's numbers and concludes that they will miss the Q1 estimates. Thoughts?

While I do not have a crystal ball, I think skeptic is most likely correct and TM wont be in black.

But there are few things that might help TM to make it:

1) Share based compensations would be even higher in Q1(most definitely)
2) Even lower R&D
3) SG&A optimizations could lead to not too big increase of it
4) 5000 cars instead of 4500
5) Even higher GM, but this one is not very likely.

 

[Discoducky]

I'd add less overtime, better efficiencies of scale and more EV credits. 4500 of mixed optioned deliveries should turn them black.

 

[techmaven]

In response to this analysis of Tesla this comment does a breakdown of Tesla's numbers and concludes that they will miss the Q1 estimates. Thoughts?

I posted my response and I've reproduced it here:

On gross margin, TSLA's statement reads, "Q1 gross margin is projected to improve to the mid-teens percentage range" which is published in the 8K. The Morgan Stanley analyst specifically asked about this issue during the earning Q&A and the CFO Deepak Ahuja's response was:

"I think if you consider the combination of Model S sales, of our powertrain sales, our development revenue and mid-teens gross margin, I think the guidance would probably lead you to somewhere along those lines close to something in the break-even range to slightly positive. It should be close to break-even, and we were hoping to beat that."

Based on that, I believe TSLA believes they will have a mid-teen GM on average for the entire quarter. They obviously are the ones that might know, now that the factory is mostly up and running for the Model S. One hopes that they have been able to place firm pricing orders for materials and parts for all of Q1 2013, so that this number is reasonable. That is of course a different issue at the beginning of Q4 2012 where they were still ramping production.

Looking at average selling price, a more reasonable number is based on 30% 60kWh Model S's at $82,000 each and 50% 85kWh Model S's at $95,000 each and 20% Performance Model S's at $109,000 each, the ASP is $93,900. Of course, TSLA could always choose to fulfill more 85kWh and performance models to tweak their ASP as they see fit. Further, no 40kWh models will likely ship in Q1 and likely all the cars will have air suspensions.

Using a reasonable ASP of $94,000 and 15% gross margin, then that only changes the calculation by roughly $5 million higher. Therefore that can't be it. I agree that ZEV credits isn't it, so the only other items in the CFO's statement are power train sales and development revenue.

Now, TSLA ended the quarter with $268 million in inventory. That's a lot. That's almost 8 weeks worth of Model S inventory which doesn't make sense. Given that TSLA had issues with the holidays and delivering vehicles that were likely completely expensed, that's probably 100 vehicles which is $10 million dollars in additional revenue above and beyond the normal overhang of parts/materials in and cars out. That still leaves a lot of inventory. I presume power trains include the battery, so maybe TSLA bought a lot of Panasonic batteries in order to qualify for the next pricing tiers? Given the order level, that would seem to make financial sense if they have the cash. Again, a significant delivery of power train sales would help explain the inventory level and the revenue shortfall given the guidance and the expected Model S sales.

 

[nikwest]

Also they might have crossed the minimum amount of battery purchases from Panasonic to get better prices. In addition their contracts are in Yen, which recently lost some value against the dollar.

 

[Citizen-T]

I find it really hard to believe with all the insight they have (being this far into the quarter) that they could be so confident they are going to be profitable and be wrong. Furthermore, I find it even harder to believe that some outsider, by taking educated guesses on a few metrics has "proven" that they can't.

 

[Doug_G]

Now, TSLA ended the quarter with $268 million in inventory. That's a lot. That's almost 8 weeks worth of Model S inventory which doesn't make sense. Given that TSLA had issues with the holidays and delivering vehicles that were likely completely expensed, that's probably 100 vehicles which is $10 million dollars in additional revenue above and beyond the normal overhang of parts/materials in and cars out. That still leaves a lot of inventory. I presume power trains include the battery, so maybe TSLA bought a lot of Panasonic batteries in order to qualify for the next pricing tiers? Given the order level, that would seem to make financial sense if they have the cash. Again, a significant delivery of power train sales would help explain the inventory level and the revenue shortfall given the guidance and the expected Model S sales.

They're so new in the game I'm sure they haven't got "Just In Time" working yet. Nothing worse than "Just Too Late." In their shoes I'd make sure I have lots of parts inventory to avoid any risk of shutting down the line.

 

[VoltAir]

This is a very good thread. Just a note to nikwest: I thought the $/Y would help, too, but found that this is not so. From Paragraph 8(a) Payment terms in the redacted Tesla/Panasonic agreement: "Payment by Tesla for Items shall be in United States Dollars..." Any ForEx upside goes to Panasonic.

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I find it really hard to believe with all the insight they have (being this far into the quarter) that they could be so confident they are going to be profitable and be wrong. Furthermore, I find it even harder to believe that some outsider, by taking educated guesses on a few metrics has "proven" that they can't.

I agree. And yet in late May last year, with delays in production equipment and looming supply chain issues, they tightened revenue guidance by raising the low estimate from $550M to $560M. The precipitous fall from production and revenue guidance was probably far more predictable than we all knew. It's just so hard to admit setbacks in a fast-moving, driven org like this one.

Techmaven's words give us a clue as to how this could happen: "I believe TSLA believes...". The Fremont people are working at a feverish pace, and they want to believe they are on track to the plan. CEO/CFO aren't lying to us, I'm certain. But I believe in this pressure-cooker environment many people COULD be saying what they think must be said, and from the top down there is a feedback loop of self-deception.

I don't think Q1 will be profitable by Musk's measure (just over breakeven non-GAAP). I also don't think it wil be a tragic miss. The questions are (1) how will a noticeable miss be perceived, and (2) in the course of the earnings miss, how is cash holding up.

 

[nikwest]

This is a very good thread. Just a note to nikwest: I thought the $/Y would help, too, but found that this is not so. From Paragraph 8(a) Payment terms in the redacted Tesla/Panasonic agreement: "Payment by Tesla for Items shall be in United States Dollars..." Any ForEx upside goes to Panasonic.

Thanks for clearing this up. I just thought I read it differently somewhere else, but this coming from the source is always the best option ;-)
And it also makes much more sense that Tesla does not also take on the ForEx risk for the most expensive component of an already risky ramp up phase.

 

[Norbert]

I am not sure about the ZEV credit numbers, and from the conference call only remember that the year-end goal of 25% is without ZEV credits.

So if one ignores that, and assumes for the moment that Tesla will deliver 85 kWh orders first, so also ignoring 60 kWH deliveries (for the time being), then one may be able to use the Q4 automotive sales number, $294,377k, divide by 2400 and multiply by 4500, to get the Q1 2013 number (which would include similar ZEV credits): $551,957k

He is right that signature price diff needs to be subtracted, however 500 of those 1000 were sold already in Q3, so just maybe $2 million less (since it is on average more than $3k). So about $550 million remaining, for automotive sales.

His reasoning about turning "mid-teens" into 11% seems bogus to me, since all those calculations should already be included in Tesla's number. So if one uses 15%, that's a gross profit of about $82 million, without development services, about $25 million more than his number without development services.

That would equate to a net loss of $1 million for Q1 (using his remaining calculation as is), within the margin of error away from a "slight profit".

Obviously not a great calculation, but neither is his.

(60 kWh deliveries being an unknown number...the main missing factor here)