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Critique of Munro’s gross margin estimates

Discussion in 'TSLA Investor Discussions' started by strangecosmos, Jul 21, 2018.

  1. strangecosmos

    strangecosmos Non-Member

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  2. Tiger

    Tiger Member

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  3. neroden

    neroden Happy Model S Owner

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    #3 neroden, Jul 22, 2018
    Last edited: Jul 22, 2018
    Yes.

    For financial analysis purposes, when you're analyzing a growing company with huge economies of scale, the critical thing is to separate out fixed costs from variable costs. You want economic gross margin, which only includes variable costs, and then you want to add up fixed costs separately, to figure out how many cars the company needs to make to cover the fixed costs.

    it's completely useless to use GAAP numbers which include overhead.

    This person is saying that Munro's numbers don't include overhead and that GAAP numbers do include some overhead. They're probably right about that.

    In short, Munro's analysis is generating the numbers which are *useful* for financial analysis, and this... person... at Seeking Alpha is saying that the GAAP numbers may be worse for technical reasons which mean that they are *not useful* for financial analysis.

    If you take this person's critique seriously, add some amount to your SG&A estimates for "fixed costs which are dumped into cost of sales because GAAP rules suck". I would do that.

    Maybe if you do that you'll find that Tesla needs to make 8000 cars/week in order to break even. (Or 4000 cars per week. Or whatever.) I don't know, I haven't redone my calculations recently. But all it does is change the breakeven number of cars per week.
     
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  4. ValueAnalyst

    ValueAnalyst Well-Known Member

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    I read this article, and I agree with the analysis, mostly...

    The difference between Munro's estimate, which is contribution margin, and Tesla's calculation of gross margin is about 10 percent.

    For all intents and purposes, Munro/Germans' analyses corroborate Elon's "high 20s" by end-2019. Solid support from independent experts.
     
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  5. strangecosmos

    strangecosmos Non-Member

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    Looking back, Deepak said he expects depreciation to be “well below” $2,000 per car at a production rate of 5,000 Model 3s per week. Warranty may also be lower than the Seeking Alpha author is estimating. But these differences would change the gross margin figure by at most 4% — up to at most 11% from 7%.
     
  6. ValueAnalyst

    ValueAnalyst Well-Known Member

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    11% margin on base version would already be extremely bullish, but you also have to consider EAP/FSD, which are all margin.

    However one slices it, Munro/Germans' estimates are beyond any bull's dream. I'll just sit on my hands and let the bears squirm.
     
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  7. neroden

    neroden Happy Model S Owner

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    So, you seem to be flat-out ignoring my comment.

    Warren Buffett has said he'd rather have two dollars of non-GAAP-reported income than one dollar of GAAP reported income.

    If you have a reason to care specifically about how stuff is GAAP reported, please present it.

    Anyway, I conclude that this conversation is over; Munro and the guy at Seeking Alpha are simply calculating different numbers, and Munro's is the useful one.
     
  8. strangecosmos

    strangecosmos Non-Member

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    @neroden The Seeking Alpha author jaberwock is just trying to calculate gross margin the same way Tesla calculates gross margin, so that we can compare apples to apples.
     

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