Articles/megaposts by sleepyhead

[sleepyhead]

First, excellent article. Thanks for writing it up, referring back to Q2 shareholder letter and for posting the excel docs.

Just curious do you remember when/where you heard Elon saying 2015 will be the year for high EPS?

I can't remember, but that was not his exact quote but rather my interpretation of it; I thought it was a well known quote here on TMC so I just quickly paraphrased it while typing on my phone. His words were something like this:

We will not show high profits in 2014. 2015 will be the year for that.

I haven't had a chance to read your megapost yet, but I am glad that you came up with a lower EPS and pointed out that EPS will not be the driving force for the stock price post earnings. Most of our EPS estimate difference comes from ZEV credits - about $0.10 EPS worth. I have no idea what ZEV will come in at, so I basically slashed it in half; and then you cut it in half again. It may turn out that I was not conservative enough with my guess.

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~735 40kWh cars were delivered, basically all in Q2. The average 40kWh car probably had an ASP of around $65-70k ($57.4k base and most likely much less equipped than the average car). These 735 cars from Q2 are being replaced by US deliveries with an average ASP of around $95-100k, so we're looking at about $30k*735 difference or about $22 million net difference.

Your EU numbers (1400) look about right, but there's no difference in signature/non-signature pricing. The key is standard v. performance v. performance plus. My EU data about configurations comes from this spreadsheet. Compiling that data gives me these approximations...

Config	Percentage	Est. ASP*
P85+	25.5%	$118,000
P85	38%	$107,000
85	34%	$96,000
60	3.5%	$84,000

* These are pretty much guesses, so change the numbers to suit your liking if you disagree. Also note most early EU reservations were under the original pricing scheme.

This gives a total EU ASP of $106,330.

The number of US deliveries doesn't have a huge effect on ASP in these calculations so lets guess 4300. So to get to sleepy's ASP we would need a $99.9k ASP for US deliveries.

I posted this image in the Q3 predictions thread, but it's relevant here as well. The numbers show the configuration types and base ASP (sans options) per 1000 VINs for US deliveries only. Q2 is roughly 7500-14k and Q3 is roughly VIN 14k-22k. Q3 looks like the base ASP will be about $3k higher, but this graph does not include the $2500 price increase that was not a major part of Q2 but will be in effect for most of Q3. Also, Performance plus will give a bit of a boost. So I'll say US delivery ASP will go up about $5.5k from Q2 or around $98-99k.

There's a lot of assumptions here, but I'm pretty confident in a 100k-102k ASP for Q3.

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Thanks for your great post. I was going to write something similar to what you wrote in the first paragraph, but the rest of the information, especially the graph, is amazing.

My ASP number might be aggressive, but I also factored in the 3% price increase for international sales to allow for currency fluctuation. On top of that the USD has weakened in Q3 quite a bit and international prices are fixed at the local currency, so this will boost ASP even more.

I also factored in an increased number of P+ sales that were not available in Q1. I think that the $100k - $103k range is most reasonable so I took the middle of the road.

I also thought that my delivery number might be conservative, so I thought that a higher ASP to offset that wouldn't overstate my top line. After seeing DaveT estimate 5650, I am not sure about the conservativeness of my delivery number, but it looks to be in the right ball park.

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Thanks for all your hard work, Sleepy, and others. It seems to me that a lot of the recent volatility in stock price has been driven by growing investor awareness of -- and puzzlement in -- the VIN data. At one point it appeared to be surging like crazy, and I truly believe that helped fuel the rise to $190+, boosted by numerous Internet claims that 6-7k+ cars would be delivered in Q3. Then, as VIN trends tailed off, and Q3 estimates came back down to the 5500-ish level, confidence of the biggest bulls ebbed a little and the stock became vulnerable. Today a Seeking Alpha article uses the recent fall to claim both that Q3 will be beat and that US sales are plummeting. I hope Elon and team will take the opportunity tonight to clarify how the VIN system works (eg, what is the range of timings between issuance of VIN and a car entering production, and are there sometimes gaps in the numerical sequence?) and/or introduce some other sales tracker. The current situation seems to me to create risks of people getting hurt.

One other note: Elon opened the last shareholders letter by reminding people that maximizing profit is NOT the company's goal any time soon. I personally am not that concerned whether EPS hit, smashed or missed. Much more relevant to me is whether they communicate that demand is rising fast and that all the pieces are in place for a 2x production ramp-up for 2014. If they say that clearly, Wednesday will be bright green.

Great point on the VIN assignments and I completely agree with you that the stock price was going up when Craig's work on this topic got widely publicized. After the market figured out that Tesla isn't building 700 cars/week, the stock corrected 20%. I know that the fires played a big part, but the fires should have only had a temporary effect on share price and TSLA would have been above $200 today if TSLA was in fact producing 700/week.

I really hope Elon addresses this as well, since misinterpreting such information like this is dangerous. It is a reason why I thought that TSLA would be around $220 today on ER day. Since actual production is 20% below 700, it makes sense that the stock is 20% below 220. I think that we are in a good spot valuation-wise going into ER.

If TSLA says that it can hit 35k - 40k production in 2014, then the stock might take off post ER again.

 

[justdoit]

Thanks for all your hard work, Sleepy, and others. It seems to me that a lot of the recent volatility in stock price has been driven by growing investor awareness of -- and puzzlement in -- the VIN data. At one point it appeared to be surging like crazy, and I truly believe that helped fuel the rise to $190+, boosted by numerous Internet claims that 6-7k+ cars would be delivered in Q3. Then, as VIN trends tailed off, and Q3 estimates came back down to the 5500-ish level, confidence of the biggest bulls ebbed a little and the stock became vulnerable. Today a Seeking Alpha article uses the recent fall to claim both that Q3 will be beat and that US sales are plummeting. I hope Elon and team will take the opportunity tonight to clarify how the VIN system works (eg, what is the range of timings between issuance of VIN and a car entering production, and are there sometimes gaps in the numerical sequence?) and/or introduce some other sales tracker. The current situation seems to me to create risks of people getting hurt.

One other note: Elon opened the last shareholders letter by reminding people that maximizing profit is NOT the company's goal any time soon. I personally am not that concerned whether EPS hit, smashed or missed. Much more relevant to me is whether they communicate that demand is rising fast and that all the pieces are in place for a 2x production ramp-up for 2014. If they say that clearly, Wednesday will be bright green.

Just a note on that VIN chart slowing down, Elon did say that sales took a hit after the first fire but picked up after the blog post. If that's the case and the VIN data starts to also show that (that graph starts to trend up again) then that's pretty powerful b/c at least VIN data gives us an idea about the rate of sales.

 

[sleepyhead]

Just a note on that VIN chart slowing down, Elon did say that sales took a hit after the first fire but picked up after the blog post. If that's the case and the VIN data starts to also show that (that graph starts to trend up again) then that's pretty powerful b/c at least VIN data gives us an idea about the rate of sales.

I am sure that the VIN chart is useful data, but I have not been able to discover how to use it yet.

I am not sure what triggers a VIN assignment, but I wouldn't be surprised if VIN's get assigned when all of the parts for a car are procured; in which case Craig's chart is not very useful in determining demand or production (since they order parts in batches). I think that it is dangerous data and was part of the cause for TSLA's volatility over the past two months; both on the way up and down.

Hopefully Elon addresses this issue on the CC today. Media really picked up on this topic and there are already two SA articles based on Craig's VIN assignment graph, and both articles are erroneous and flat out bad.

Craig has done a great job of putting the data together, but unfortunately everyone is misinterpreting the data either accidentally or on purpose to create more FUD.

edit: there are already two SA articles today that are using Craig's graph as the basis for their arguments.

 

[DonPedro]

We must (for now) kill the VIN analyses. They are adding unwanted volatility to the stock and creating FUD (and, in some cases, completely unrealistic expectations).

Craig has himself been very diligent in pointing out that we do not know what the data means yet. Emails to Norwegian customers have plainly stated that the assignment is random/arbitrary. This is supported by the fact that people ordering almost simultaneously and taking delivery almost concurrently ... but still getting their VINs assigned months apart (and with very different numbers).

Let's face it: The reason VIN assignment changed was that the old system enabled people to track production by tracking VINs. Do we really think that Tesla are so stupid they are not able to assign VINs in such a way that they stop giving away production figures?

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By the way: Great job, Sleepy. The main difference from your projection to mine is ASP, where I think you are right. 22% GM is also on the aggressive side, but I like the assumption. They are getting a few % for free in Q4 (because of price increases), so if it is 22% in Q3 I think it will be way above 25% in Q4. So 22% now would be a very strong forward signal.

The wild cards are of course ZEV, R&D, SG&A. If they all move in one direction they could distort the picture, but I have a sense that Tesla would be managing that actively.

 

[sleepyhead]

I used 22% GM because in Q3 they are getting the added benefit of high margin signature vehicles and positive currency movements.

If they can't get significantly more than half way to 25% (19.1% would be half way) then I fear they will not reach 25% in Q4, especially with the dollar strengthening.

At one point I thought they might achieve 25% in Q3 (not out of the question completely) but my gut tells me it will be between 21% and 24%.

I could be very wrong on this.

I wildcards are ZEV, SG&A, and R&D (as DonPedro properly pointed out), but Tesla said in Q2 shareholder letter that they will be profitable without taking into account any ZEV revenue. That assumption was based on 5000 deliveries, but with 5700 deliveries they should easily exceed $0.10 EPS without ZEV. ZEV revenue is just a bonus.

 

[vgrinshpun]

If they can't get significantly more than half way to 25% (19.1% would be half way) then I fear they will not reach 25% in Q4, especially with the dollar strengthening.
.

In the interview linked below Elon states that currently the main focus of his work is increasing production. This presumably indicates that they already hit 25% margin (some time in October?) as he repeatedly indicated before that improving the margin was the main focus until the 25% threshold was exceeded.

Verpasste Zukunft

 

[techmaven]

We must (for now) kill the VIN analyses. They are adding unwanted volatility to the stock and creating FUD (and, in some cases, completely unrealistic expectations).

This. Once European deliveries commenced and the time between sourcing parts for production to actual deliveries could range from 3 weeks to 5 months, VIN assignment became meaningless. Add to it that Tesla may be obfuscating the assignments or least changing the method of assignment, any short term analysis has become impossible.

I'm pretty certain that the price increases had little effect on GM in Q3. If you placed an order for a P85 in the second week of August, the car wasn't delivered until end of Sept. So only those in the U.S. that ordered P85's in the first 2-3 weeks of the price increase and chose to use the new pricing scheme would count towards Q3. Mine, for instance, went under the old pricing scheme during that time period. There were a lot of cars being delivered at the end of Q3 - so much so that I had to travel 2 hours to pick up my car. We don't know the mix of old versus new pricing, but I would hazard to guess that less than 50% of those cars have the new pricing scheme. If you not ordering a P85 or P85+ or getting delivery outside the U.S., it is likely that your order under the new pricing scheme could not have been delivered in Q3.

The upshot of all of this is that the effect of the new pricing scheme is actually in Q4, so a slightly disappointing GM number in Q3 would still get a boost in Q4 from the pricing change.

 

[ckessel]

I'm pretty certain that the price increases had little effect on GM in Q3.

Yes and no. Probably not the specific increase you're thinking of, but Tesla has been increasing prices for the last year. First the across the board increase, then more expensive rims, upped the warranty cost, added costs for the rear carbon fibre spoiler, etc. It's been a steady stream of small increases and so the average sale price of the car, at least the top end cars, has been steadily increasing.

Getting the same decked out P85 I got December 2012 would cost me a good 10-15% more now than it did then for the same car.

 

[techmaven]

It's been a steady stream of small increases and so the average sale price of the car, at least the top end cars, has been steadily increasing.

I agree with that. Q3 is also the first quarter that had full availability of the P85+, and certainly there must have been quite a few people that waited for the early reviews of delivered P85+'s before ordering. So definitely the top line optioned out car price has been increasing. However, the big pricing change that took effect August 1st has probably little effect in Q3. That would have been 5% on the price of my P85. Tesla did make a number of options pricier while unbundling a slew of options, so even if ASP's don't shift as much, there should be a good effect on GM. That change will take effect mostly in Q4.

 

[hershey101]

So I ordered my car back in Jan '13. I ordered the P85 for 105K. The exact same car today costs $120K (just in case anyone wants to compare prices). And I think it cost about the same back during the summer as well... So they definitely increased the prices on stuff I was interested in buying. (No 21" wheels or P85+ for me. The Northeast winters & pot holes don't work well for the bigger rims).

 

[DaveT]

In the interview linked below Elon states that currently the main focus of his work is increasing production. This presumably indicates that they already hit 25% margin (some time in October?) as he repeatedly indicated before that improving the margin was the main focus until the 25% threshold was exceeded.

Verpasste Zukunft

I think it's stretching things to use that quote from Elon to say that it indicates they've reached 25% GM already. Elon has mentioned that he's been focusing on production issues all year (along with service during the spring and now Model X design). Saying that he's focusing on increasing production doesn't presume that they've hit 25% (ie., when the interview took place in October). Also, gross margin improvements need to be started/implemented months in advance so pretty much 99% of the GM improvements to reach 25% have already been implemented but that doesn't necessarily mean that they've reached that 25% target. All it means is that the improvements have been implemented and it could take some time to realize them. I'm not saying they haven't reached 25% GM in October, I just think it's highly unlikely but we'll see how much progress they've made with GM when earnings get released soon.

 

[fjm9898]

One thing people some people might be over looking when talking about GM is that is averaged over the quarter when reported in the ER (at least this is my understanding). This is why i have always kept a 20% GM in my calculations. They would have to be at 25% now to really be any higher, or had a nice gap up, or they ended Q2 alot higher then i thought. (last being most likely the case) Doesnt hurt to be conservative though.

 

[sleepyhead]

My understanding is that in Q2 Tesla produced 400/week until something changed in June to reach 550/week (probably with overtime for quarter end push). So the pieces for higher GM in Q3 have been put into place in early June, and started materializing 6-8 weeks later as Elon once stated. Sigs, P+, no 40kWh, less 60kWh, should have a huge impact on GM. I think there might be a nice surprise.

I might be a little aggressive on my GM target, but I would be very disappointed if it is below 20%.

One weakness in my model is that I assumed all cars get GHG/Cafe credits (I think DaveT didn't change this either when using my spreadsheet). If EU cars don't get those credits then my revenue is overstated by about $4m and EPS by $0.02 - $0.03. Not a material impact, but something to keep in mind. I will try to research this topic later.

There are also all sorts of unknown variables that are attached to EU deliveries that are impossible to model in without having any previous EU sales. We will have to dig into the financials from Q3 to find out how EU deliveries are impacting the financials.

 

[vgrinshpun]

I think it's stretching things to use that quote from Elon to say that it indicates they've reached 25% GM already.

That is why I used presumably in my post. Presumably = reasonable as assumption. There was no intent to indicate certainty.

Elon has mentioned that he's been focusing on production issues all year (along with service during the spring and now Model X design).

This is the first time when Elon publically stated that his main focus is increasing production. He did mentioned focus on production issues before, but increasing production was not one of those issues. In fact during the Q1 there was a specific question about increasing production which Elon responded to by indicating that it does not make much sence to focus on increasing the production before reaching the target margin. He than emphasized that main focus was reaching the target margin.

I'm not saying they haven't reached 25% GM in OctoberI just think it's highly unlikely but we'll see how much progress they've made with GM when earnings get released soon.

I would not use "highly unlikely" charachterization here. The guidance was that average gross margin in Q4 will be 25%. Simplifying margin progress as a straight line and taking into account that some cars produced in Q3 will be delivered and accounted for in Q4 would indicate that they need to be at 25% before the midpoint of the quarter. It is not certain that they have hit 25% margin in October, but it is likely.

 

[DaveT]

It is not certain that they have hit 25% margin in October, but it is likely.

Sure it's possible. I'm just hesitant to say "likely" until we have more evidence. Earnings in a few hours should give us some clues. I was thinking they'd hit 25% GM in early-mid November to average barely over 25% for Q4 but if Tesla reports higher than expected GM for Q3, then they definitely could have hit 25% GM in October.

 

[vgrinshpun]

Sure it's possible. I'm just hesitant to say "likely" until we have more evidence. Earnings in a few hours should give us some clues. I was thinking they'd hit 25% GM in early-mid November to average barely over 25% for Q4 but if Tesla reports higher than expected GM for Q3, then they definitely could have hit 25% GM in October.

Got it. Hesitant to say likely = highly unlikely:smile:

 

[DaveT]

Got it. Hesitant to say likely = highly unlikely:smile:

Sorry I should have said I personally don't think it's likely. Highly unlikely was probably too strong language. I just want to see more evidence that Tesla was close to 25% GM exiting Q3 before moving up my expectations of them hitting 25% GM in October vs my current early-mid November expectations. Again we'll find out in a few hours.

 

[DonPedro]

One thing people some people might be over looking when talking about GM is that is averaged over the quarter when reported in the ER (at least this is my understanding). This is why i have always kept a 20% GM in my calculations. They would have to be at 25% now to really be any higher, or had a nice gap up, or they ended Q2 alot higher then i thought. (last being most likely the case) Doesnt hurt to be conservative though.

Well, counts in both ends of the quarter. For instance: 14% in Q2 might have been 9% at the start and 19% at the end. Then Q3 could be 22% by starting at the same 19% and ending at 25%.

 

[sleepyhead]

Bloomberg will be talking about TSLA right now after commercial break.

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Bloomberg will be talking about TSLA right now after commercial break.

Cory Johnson says TSLA had two models, but got rid of one because of low demand and kept only one model starting at $82k. Also said that Tesla is losing money hand over fist on every car sold.

Barclays Auto Analyst says that Model S and X can support $100 share price, but to get to $200 valuation it needs to produce 500k - 600k cars by end of decade. Says that S and X can see about 70k demand worldwide. They have $140 price target. He expects TSLA to beat estimates by 500 deliveries, and also forecasts EPS beat. Says that the immediate (next year) future looks bright for Tesla, but when you look at long term it starts to get dicey. Current car is a great value against other high end vehicles, but Gen3 at $35k-$45k might have issues (it sounded to me like he doesn't believe Tesla can achieve long range battery pack at those prices).

Bill Maloney - says that the chart does not look good and today's action was weak.

Consensus - not a good idea to get into TSLA right now.

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Ironically, I saw CJ earlier on Bloomberg today talking about Twitter and he kept talking about how optimistic he is about everything and that he always looks for positives and silver linings. That his brain is designed to always look for positives, blah, blah, blah.

So he took Twitters numbers (can't remember exact numbers but here is the gist of it): Rev - $150m, costs - $215mln, loss -$65m.

But if you strip out stock based compensation and depreciation (seriously, I have never heard anyone stripping out depreciation), then you get a $9m profit.


I never heard him ever try to find any positives in TSLA or Tesla, even though the company is the most positive thing that has happened to the planet in 2013.

 

[callnaveen]

Thank you so much for your help Sleepy, you the best.. .being on vacation you are contributing so much. Good luck to all.