Near-future quarterly financial projections

[brian45011]

Also, I dont think anyone would care about gaming the tax code other than people who are anti-EV's/subsidies in general. I am super ok with gaming it in fact think it would be silly not to.

As I cynic: the US IRS has no clue how many credit-eligible vehicles any manufacturer has delivered for sale or lease other than what the manufacturer certifies to them quarterly:

.05 Quarterly Reporting of Sales of Qualified Vehicles. A manufacturer ... that has received an acknowledgment of its certification from the Service must submit to the Service, in accordance with section 6 of this notice, a report of the number of qualified plug-in electric drive motor vehicles sold by the manufacturer ... to consumers or retail dealers during the calendar quarter. The quarterly report must contain the following:

(1) The name, address, and taxpayer identification number of the reporting entity.

(2) The number of qualified vehicles sold by the reporting entity to consumers or retail dealers during the calendar quarter.

(3) The make, model, model year, and any other appropriate identifiers of the qualified vehicles sold during the calendar quarter.

(4) A declaration, applicable to the quarterly report and any accompanying documents, signed by a person currently authorized to bind the manufacturer ... in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this report, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this report are true, correct, and complete.”

Internal Revenue Bulletin: 2009-48 | Internal Revenue Service
​

Only Ford, Mercedes, and BMW allow their reports to be seen by the public. IRC 30D Plug In Electric Drive Motor Vehicle Credit Quarterly Sales | Internal Revenue Service

Taxpayers who buy vehicles for re-sale (flips) are not eligible to claim the credit. It's obvious flips have been prevalent in the early days of M3 deliveries.
tesla in Cars & Trucks | eBay

If the IRC is not taking action to curtail this obvious fraud on the US Treasury (and honest tax-paying citizens) what makes anyone think they will care if GM, Tesla, or any other manufacturer is off a few calendar days when they report the 200,000 th eligible delivery? The US revenue collection infrastructure is founded on public trust. John Koskinen, Lois Lerner, et. al. have tremendously eroded that trust. It's increasingly a game of report what you think you won't get caught at.

 

[STARR X]

The above post got me thinking. What happens when an EV is sold in the USA but the taxpayer, for whatever reason, does not take the $7,500 credit? Would it be safe to assume out of the 200,000 buyers that a very small percentage didn’t take it? How does this effect things?

 

[brian45011]

they wouldn't divert s/x that could be sold into the usa. s/x have higher margins and cash flow vs a 3, so given a choice, you sell every s/x you can and defer 3's as needed. i believe this is what you're observing with 3's going to canada in droves.

Buyers in the Canadian province of Ontario have benefitted from some of the world's most generous EV incentives. Rebates in Ontario range from about $5,000 to $7,000 for a plug-in hybrid, such as the Toyota Prius Prime—to $14,000 for a Nissan LEAF or Chevrolet Bolt. Those incentives for the purchase of an electric car or plug-in hybrid are now restricted to vehicles selling for below $75,000. Tesla's expensive models are not listed on Ontario's Ministry of Transportation Incentives page.

Electric-Car Incentives Are Shifting, And Vanishing in Some Cases


FWIW, I attended a local S/X drive event in late May. Magically, the sales person was able to find a new (odometer 50 miles) 75 kwh RWD S locally (in a jurisdiction where Tesla has no dealer license) and offered to remove the AP to get the price lower.

 

[mongo]

The above post got me thinking. What happens when an EV is sold in the USA but the taxpayer, for whatever reason, does not take the $7,500 credit? Would it be safe to assume out of the 200,000 buyers that a very small percentage didn’t take it? How does this effect things?

Non-credit taking does not effect anything (other than IRS revenue) . The criteria for the phase out is vehicles sold, not vehicles eligible or vehicles claimed.

 

[luvb2b]

while i don't have insight into what the take rates for various drivetrains might be, i do feel strongly that asp in 2018q3 will rise meaningfully from the 56k asp i estimated for 2018q1. 2018q2 i expect would be steady vs. 2018q1. 2018q4 a slight dip vs. 2018q3 as i expect some short range and fewer performance in the mix.

Do we have some decent insight into the likely minimum number of buyers of the performance model 3 as well as the likely minimum Tesla can produce in Q3? If we think Tesla will produce about 50,000 model 3s in Q3, is 20,000 performance versions for Q3 overly optimistic? What do you think the breakdown will be in Q3 between performance (ASP around $83k), LR AWD (ASP around $60k), and the LR RWD (ASP around $55k)? If Tesla strongly shifts toward performance and AWD versions for Q3 and Q4, the revenue numbers are going to be quite good. I don't want to be overly optimistic but I also think Tesla will skew towards as many performance versions as they can make for these next 2 quarters, as well as shifting from LR RWD to mostly LR AWD. I don't think there would be much ramp time needed since there is not much difference manufacturing these variants. If they can produce an average of even 1,600 performance versions with a 1 week shutdown, that would amount to about 20,000 for the quarter. That seems quite doable to me, and the demand should be there. If they are able to do this then the ASP could be up around $66-68k for these 2 quarters, which is exactly what Tesla needs right now. Here are some numbers as an example:

Q2
Delivered ASP Revenue
Model X 10500 $108,000 $1,134,000,000
Model S 11500 $96,000 $1,104,000,000
Model 3 23000 $55,000 $1,265,000,000
Total 45000 $3,503,000,000

Q3
Delivered ASP Revenue
Model X 12000 $108,000 $1,296,000,000
Model S 15000 $96,000 $1,440,000,000
Model 3 Performance 20000 $83,000 $1,660,000,000
Model 3 LR AWD 20000 $60,000 $1,200,000,000
Model 3 LR 10000 $55,000 $550,000,000
Total 77000 $6,146,000,000
Model 3 ASP $68,200

Q4
Delivered ASP Revenue
Model X 13000 $108,000 $1,404,000,000
Model S 15000 $96,000 $1,440,000,000
Model 3 Performance 20000 $83,000 $1,660,000,000
Model 3 LR AWD 30000 $60,000 $1,800,000,000
Model 3 LR 10000 $55,000 $550,000,000
Total 88000 $6,854,000,000
Model 3 ASP $66,833

 

[luvb2b]

@brian45011 regarding elements of depreciation that go into cogs for model 3: i know tooling goes into depreciation on the units-of-production method. would there be other fixed depreciation that goes into cogs, which is then a fixed amount depreciated over a variable number of units (the number produced)?

Interesting. Joined Tesla in 2006; "Hired to develop the control systems for a two speed transmission for the original Tesla Roadster. "

" Collaborated with other Tesla teams to establish manufacturing capacity for these products in Tesla factories in Fremont and Reno, and contract factories in China, Mexico, Taiwan, and Thailand."

Sounds like he left to get in on the ground floor for a small alternate agricultural start-up.

 

[bhzmark]

, i do feel strongly that asp in 2018q3 will rise meaningfully from the 56k asp i estimated for 2018q1

I agree that is likely. And I laugh at the thought of a short finding that asp and GM increased as production volume also increased.

 

[luvb2b]

very surprised keybanc raising up 3 deliveries for q2 to 30k. that would imply no gaming of the 200k i think and no withholding of deliveries, and then much of my modeling would be wrong around this quarter.

on the other hand, it could be canadian demand far exceeds my view.

or they are just wrong. i think it's b or c.

 

[mongo]

very surprised keybanc raising up 3 deliveries for q2 to 30k. that would imply no gaming of the 200k i think and no withholding of deliveries, and then much of my modeling would be wrong around this quarter.

on the other hand, it could be canadian demand far exceeds my view.

or they are just wrong. i think it's b or c.

Variant of c) their sample set was not-representative...

 

[schonelucht]

very surprised keybanc raising up 3 deliveries for q2 to 30k. that would imply no gaming of the 200k i think and no withholding of deliveries, and then much of my modeling would be wrong around this quarter.

on the other hand, it could be canadian demand far exceeds my view.

or they are just wrong. i think it's b or c.

I have a hard time with 30k deliveries projection too. The 10-11k in April/May is pretty much established in my mind. And deliveries (both finished and planned) for the month of June have not spiked at all while we are nearly halfway through. Honestly at this point I am seeing less than 20k deliveries for the quarter.

 

[schonelucht]

How much to adjust SG&A for Q3 and Q4 downwards by a certain amount in function of the terminations announced today? Elon's talking about salaried positions. I am assuming R&D and service departments remain on a hiring spree (as well as production explicitly mentioned in the email)? Straight 9%?

 

[adiggs]

How much to adjust SG&A for Q3 and Q4 downwards by a certain amount in function of the terminations announced today? Elon's talking about salaried positions. I am assuming R&D and service departments remain on a hiring spree (as well as production explicitly mentioned in the email)? Straight 9%?

And how much to allow for the severance? I would expect there to be one-time severance charges in either Q2 or Q3 depending on when people separate. Considering how close we are to Q3, my guess is that separation happens in Q3 and that'll also be when the severance payments occur. It'll also happen early enough in the quarter that the severance will be the bulk of the pay for those individuals in the quarter. I'd guess at the pay + severance in Q3, overall, to work out to about what Q3 pay would have been -- so I wouldn't change Q3 up or down based on this.

Then in Q4 we see the worker pay component of SG&A shrink by the 9% of employees that have separated.

 

[schonelucht]

Why would the severance not be booked this quarter? They’ll go this quarter too. Financials this quarter will be bad. Thinking further. 40k employees. 3600 let go. None in production (20k?), none in R&D (2k?) none in service (2k?). Means 3600 positions in remaining16000. That’s over 1 in 5. Maybe reduction in sg&a will be sharper?

 

[Reality]

severance 100% goes to Q2


im guessing the cuts are HEAVILY to RD, i would bet that SGA continues to rise QoQ

 

[schonelucht]

Cutting in R&D seems impossible without long term negative consequences. Cutting positions in sales centers and solar city is a lot easier.

 

[Reality]

Cutting in R&D seems impossible without long term negative consequences. Cutting positions in sales centers and solar city is a lot easier.

i agree, but my thesis is that tesla is not thinking about the long term, so i think RD gets hit hard

 

[schonelucht]

Why would r&d be a more logical target dor a company not thinking about long term than sg&a positions?

 

[adiggs]

Why would the severance not be booked this quarter? They’ll go this quarter too. Financials this quarter will be bad. Thinking further. 40k employees. 3600 let go. None in production (20k?), none in R&D (2k?) none in service (2k?). Means 3600 positions in remaining16000. That’s over 1 in 5. Maybe reduction in sg&a will be sharper?

It depends on how aggressive Tesla is about setting separation dates. The severance won't be paid until the final work day - it might be that Tesla makes a point of doing the separations this month, but that's a couple of weeks to go from announcement to walking out the door. That's pretty fast / abrupt.

When I've seen this in the past, a month from announcement to walking out the door was more typical. To the degree that people run a process or know some piece of the company and need to train their replacement, the month provides a better time frame to figure out who is going, who is staying, who is taking over for who, what work just simply stops and isn't done any more, and time for people to train each other.

But ultimately, I don't know and don't have particular insight into the particulars of Tesla's situation. Only the observation that to book the severance in Q2, they gotta be hopping big time the next 2 weeks.

I make the additional observation that cutting 9% of the employee base in the next couple of weeks will also be a pretty big distraction from the theoretical focus of the end of this month and quarter.

 

[Reality]

Why would r&d be a more logical target dor a company not thinking about long term than sg&a positions?

because RD today doesnt contribute to the top line today


i agree on the SGA for the solar stuff, i just think thats so minimal


i could be wrong, im not even sure it matters, but this doesnt feel like an 'efficiency' cut, this feels like a 'we are running out of cash cut'


but im biased

 

[mershaw2001]

i have heard people were asked to take their stuff and leave yesterday. so there's no delay, those people are already gone.

@schonelucht, won't be straight 9% as opex definitely has some depreciation in it. as @adiggs mentioned will be ~9% of salary costs.

this increases further the likelihood of gaap profits in q3/q4 due to the opex reduction. it also forces a downward revision on q2 gaap eps estimates as i think all the severance charges are taken this quarter.

@Reality i am loosely hearing that cuts are across the board, so not necessarily tipped towards r&d. opex (sg&a + r&d) will rise q/q this quarter due to the severance charges. you won't see the effect of the reduction cleanly until q3 unless they choose to disclose the split of severance charges vs. vanilla opex.

i'll try to incorporate all the above and other useful inputs/suggestions i received into a revised q2-q4 model over coming days.

not in a huge hurry to post b/c i was listening to a podcast yesterday discussing tesla's next few quarters and it sounded like the whole thing could have been lifted from here with no citation. not that i mind people using my work, just that it would be nice if they didn't pass it off as their own.

The work that is put into this thread is currently the meat of this discussion board. Thank you again to those who have contributed.