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Barclays note in Business Insider

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scottm

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Jun 13, 2014
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  • Tesla is not only selling "build to orders" cars, but also selling cars available for immediate sale. While elevated finished goods inventory is somewhat a function of in-transit vehicles, it is also a reflection of a new strategy of holding new cars available for immediate sale (beyond loaners and showroom models), as well as potentially used cars. This is a departure from the past – indicating that Tesla production is not as much of a build-to-order model as it had been historically.
  • Capital spending has been for Tesla Model S and Model X upgrades — not its big gigafactory. Capital spending data (as seen in “Construction in Progress” PP&E) indicates that Tesla is spending ahead of demand. However, with only $107mn of spend on the gigafactory to date, plus minimal spend on gigafactory/Model 3 reflected in R&D and SG&A, it is yet another reminder that Tesla has yet to realize the uptick in spend associated with the gigafactory and Model 3.
  • Customer deposits now include pre-delivery prepayments. Whereas the customer deposit line has historically been a gauge of order activity, the inclusion of prepayments now makes it more difficult to gauge underlying order activity.
On the bright side, Barclays said that Tesla is making progress on some key product milestones, as stock grant data shows that the Model X Beta prototype is complete, while the Model 3 Alpha prototype is considered "probable of achievement." Barclays has "Equal Weight" rating and a $190 price target on Tesla shares.


Barclays problems in Tesla 10-K - Business Insider
 
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There are 3 big problems buried in Tesla's annual report

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  • Mar. 2, 2015, 9:08 AM







Here's Barclays:

  • Tesla is not only selling "build to orders" cars, but also selling cars available for immediate sale. While elevated finished goods inventory is somewhat a function of in-transit vehicles, it is also a reflection of a new strategy of holding new cars available for immediate sale (beyond loaners and showroom models), as well as potentially used cars. This is a departure from the past – indicating that Tesla production is not as much of a build-to-order model as it had been historically.
  • Capital spending has been for Tesla Model S and Model X upgrades — not its big gigafactory. Capital spending data (as seen in “Construction in Progress” PP&E) indicates that Tesla is spending ahead of demand. However, with only $107mn of spend on the gigafactory to date, plus minimal spend on gigafactory/Model 3 reflected in R&D and SG&A, it is yet another reminder that Tesla has yet to realize the uptick in spend associated with the gigafactory and Model 3.
  • Customer deposits now include pre-delivery prepayments. Whereas the customer deposit line has historically been a gauge of order activity, the inclusion of prepayments now makes it more difficult to gauge underlying order activity.
On the bright side, Barclays said that Tesla is making progress on some key product milestones, as stock grant data shows that the Model X Beta prototype is complete, while the Model 3 Alpha prototype is considered "probable of achievement." Barclays has "Equal Weight" rating and a $190 price target on Tesla shares.


Barclays problems in Tesla 10-K - Business Insider

His first point is a hypothesis that Tesla has moved from strictly built to order to creating some inventory for purchase. There are various alternative hypotheses as to why finished goods inventory increased. Given Tesla has 10,000 unfilled orders for the Model S, I doubt his hypothesis is correct.

Surprised he did not pick up on something quite bullish in the 10-K- Tesla expects to qualify additional lithium ion battery cell manufacturers this year. Having additional supplier(s) to Panasonic would mean Tesla could enter the stationary storage market on a scale near term I don't believe anyone outside the company thought possible. Tesla is expected to make an announcement about stationary storage product offerings in the next couple of months.
 
I know Tesla has some inventory over here. This is because Tesla had a lot of cancellations/reorders when they announced the P85D. I'm sure this is a lot of the answer.
Me too. In January the last time I was in a Tesla store, there was a beautiful fully loaded P85+ that was refused on delivery because the buyer wanted to get a P85D instead. I asked how much that set the buyer back. He forfeited the deposit plus 5% of the purchase price. They had several other cars with quite minimal miles of use.

If you figure a couple of these cases per store, you get hundreds of abandoned deliveries and lightly used vehicles. Autopilot and the D have been quite disruptive. But if buyers are willing to forfeit 5% or so just to get the D, then it just proves how strong the demand is. This sort of disruotion is a very good thing, because that's what it takes to disrupt the whole industry.
 
I know Tesla has some inventory over here. This is because Tesla had a lot of cancellations/reorders when they announced the P85D. I'm sure this is a lot of the answer.

Another component is the 1400 cars that were shipped but not delivered due to weather and vacations, etc. I was at the Watertown (Boston) SC for a 12V battery issue the morning of Jan 3 and the lot was full of new cars. The SC staff confirmed these were cars rushed out at the end of the year but the buyers weren't around to take delivery. That would push up the finished goods inventory a material amount - and then go right back down a week or two later.
 
Perhaps I should point out the obvious. This FUD is the result of dredging through the 10-K looking for any shred of an issue that bears might exploit. So what did the FUDmasters yield for all their labor? Three trifflingly small issues. These guys really do not have bigger fish to fry. Apparently top line growth is strong, gross margin impresive, and operating expenses in line with the current growth phase of the company. Growing to over 10,500 employees is quite impressive. The bears got nothing.
 
Perhaps I should point out the obvious. This FUD is the result of dredging through the 10-K looking for any shred of an issue that bears might exploit. So what did the FUDmasters yield for all their labor? Three trifflingly small issues. These guys really do not have bigger fish to fry. Apparently top line growth is strong, gross margin impresive, and operating expenses in line with the current growth phase of the company. Growing to over 10,500 employees is quite impressive. The bears got nothing.

How about this as a triflingly small issue: Tesla to owners: Please don't pimp your rides - Yahoo Finance - I mean this has reached a level or insanity that I've rarely seen.