DaveT’s Q4 2014 Earnings Preview
Q4 2013 earnings is just a few days away (Feb 19) so I’ll share my Q4 estimates. The TMC community has been generous so it’s an honor to contribute.
Quick Summary:
$680m revenue (non-GAAP)
25.3% gross margin excluding ZEV income
$34m income (non-GAAP)
$0.21 eps (non-GAAP)
$21m loss (GAAP)
-$0.17 eps (GAAP)
Here are the key numbers to look out for.
1. Total Revenues (non-GAAP)
I’ve forecasted 6880 deliveries with an avg sales price of around $95k. The reason I’ve done this is because in Q3 I think Tesla benefited from early European signatures but in Q4 I think the number of signatures and fully loaded cars to Europe might have decreased. $103 asp for Q3 was an abnormally high number IMO. I think $95k is more realistic for this quarter and I’d imagine it to fall a bit in coming quarters as well. So, at $95k asp, I’m projecting total non-GAAP revenue at $680m.
2. Gross margins w/o ZEV income
It will be important for Tesla to deliver strong gross margin numbers, around 25% excluding ZEV income. 24-26% would meet shareholder expectations, anything more would exceed.
3. non-GAAP income and eps
At $680m non-GAAP revenue and a 25.3% gross margin w/o ZEV income, I’m forecasting a non-GAAP income of $34m. I’m estimating a non-GAAP eps (diluted) of $0.21 eps. Tesla needs to report over $700m to exceed shareholder expectations (ie., $100k ASP would bring in $710m revenue, $45m non-GAAP income, and non-GAAP $0.29 eps, diluted.
4. GAAP eps
I’m estimating a GAAP eps of -$0.17 eps, basic. Even if they brought in $710m, GAAP eps would be -$0.08. The only way for TSLA to be GAAP positive this quarter is if they can have strong ZEV credit income along with strong revenue. If they can achieve $28m in ZEV income (with my existing 6880 deliveries at $95k asp), then I’m showing a GAAP profit of $0.03 eps. However, Tesla management has said multiple times to expect near zero ZEV credit in Q4 2013. So, I think it’s wise to heed their advice, and thus I’ve forecasted $3m in ZEV credit. But it’s interesting to note that Tesla can be pushed into GAAP positive territory with strong ZEV income if that occurs in Q1 2014 or later.
Overall, I think Tesla will report a strong quarter, but the bigger question is will it meet shareholder expectations. With a high-growth momentum stock like TSLA, the analyst estimates sometimes are on the low-end. The reason being is because the analysts aren’t the ones usually holding TSLA stock. The people holding TSLA stock are Tesla believers (both institution and retail), traders and momentum investors. The typical shareholder is very bullish on TSLA and after the recent $60 rise in the past month, shareholders will have high expectations going into Q4 earnings.
Since Tesla pre-announced deliveries for Q4, the key part of the earnings report/call will likely be in other areas.
Here are they key areas to watch out for besides what I mentioned above (ie., revenue, GM, eps, etc)
:
1. FY 2014 delivery guidance
Tesla will likely share how many vehicles they’re planning to deliver in 2014. While I think they could guide as high as 37,500, I think they’ll play it conservatively and guide at 35,000 units for 2014. I’m expecting this to meet shareholder expectations.
2. Battery Gigafactory
Elon is expected to share more details on the battery gigafactory. Some people have dilution fears (ie., the gigafactory will need a large stock offering to fund it). I’m optimistic that Elon will have a creative plan to tackle the gigafactory and financing it. Further, I don’t think the full financing amount needs to be done up front. If Tesla needs to raise $1 billion this year for the gigafactory (since it could take 1-2 years to build), then that’s only diluting the stock 1/25 (out of the current $25b valuation). I don’t think shareholders need to fear dilution as Tesla’s valuation is high enough to make dilution less severe. Further, Elon can involve partners and creative funding mechanisms to prevent stock dilution. Regardless, the battery gigafactory is going to be something to focus on in the shareholder letter and earnings conference call. Personally, I think if presented well the gigafactory presents upside to TSLA’s valuation.
3. Production ramp
If TSLA gives FY 2014 guidance then that will answer most of the questions regarding how fast they can ramp in 2014. However, if they don’t offer 2014 guidance for units delivered, then it’s going to be important for TSLA to show that it’s ramping and scaling production (or has immediate plans) in a meaningful way.
4. 2014 Gross Margin guidance
If Tesla offers guidance for 2014 gross margin, this has potential upside to TSLA’s valuation. More specifically, if TSLA guides to reach 30% gross margin by end of 2014 then this will be significant as it shows that Tesla is doing what most people thought they couldn’t do (ie., make high-margins on the Model S).
5. Model X and S demand
I don’t think this will happen in Q4 ER, but at some point this year people will wake up to the fact that demand for Model X is very strong. On TMC we know Model X reservations are already at around 12,000. And I think Model X demand could be at least as high as the Model S. At some point (maybe this year), people will realize that Model S global demand is at 50k+ units/year and Model X global demand is at 50k+ unit/year. If you do the simple math (100k units x $100k asp = $10b x 30% gross margin = $3b GM x .5 (expenses) = $1.5b income. Give it a 25x forward multiple and you’re looking at a $37.5b valuation or close to a $300 stock price). In other words, if Model S remains robust (ie., U.S., Europe, China) and Tesla is able to ramp production significantly, and if Model X reservation pace picks up (test drives are supposedly starting in Autumn this year), then it could become clear to the market that Tesla is headed to 100k Model S/X per year in a couple years, and that could take the stock higher. I wouldn’t be surprised to see TSLA print $300 at some point this year. That being said, if TSLA runs into challenges (ie., production challenges, safety issues, fires, etc), then the stock could get hit as the valuation is based on future earnings potential and a generous multiple.
Overall, I think Tesla is in control. They can release as much good news as they deem fit in Q4 ER. However, my hunch is that they’ll be somewhat conservative and space out the good news/expectations throughout the year.
Sleepyhead and I will be co-hosting a google hangout on the evening of earnings (Feb 19) where we’ll evaluate the earnings report/call and share our thoughts.
ps., I'm open-sourcing the spreadsheet I've created. Feel free to add your own numbers and share your creations.
download excel spreadsheet:
View attachment Q4-2013.xlsx
*note: I originally created the spreadsheet on Numbers (Mac) so I'm not sure if it exported the excel file correctly or not, so some functions/formulas might not work.
