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Near-future quarterly financial projections

Discussion in 'TSLA Investor Discussions' started by luvb2b, May 23, 2018.

  1. StarFoxisDown!

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    I'll be curious to see how the Jerome email impacted margins and waste in Q2. In the email, he remarked the efficiencies in production in both Freemont and Giga1 was higher than it's ever been.
     
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  2. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    Money previously spent on capital equipment. The primary difference between cash accounting and accrual accounting.

    Yes. It's dilution, which is accounted for elsewhere if you are valuing the stock, so it is double counting.
     
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  3. Doggydogworld

    Doggydogworld Member

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    It's not double counting. Paying employees 1m shares of TSLA is the same as selling 1m shares to investors and paying the 230m to employees in cash. In both cases the 1m extra shares dilutes earnings and the 230m is an expense. It's misleading to count the 230m expense in one case and not the other.
     
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  4. neroden

    neroden Model S Owner and Frustrated Tesla Fan

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    #2344 neroden, Jul 10, 2019
    Last edited: Jul 10, 2019
    No, it's double counting for the purposes of figuring out how the business is doing.

    It is most emphatically NOT accounted for the same way as selling 1m shares to investors and paying 230m to employees in cash, which would actually not be crazy. While the shares act as dilution and the "expense" is marked as an expense, the $230 million *addition to capital* is not properly accounted for in the case of employee stock payments.

    There's something wrong with the accounting when "common stock issued" adds $94,017 to paid-in-capital, but "stock-based compensation" subtracts $146,825, but counts as $208,378 in costs on the profit-and-loss sheet. It's nonsense.

    I think the primary problem is with stock *options*, which are required to be "valued" according to an arbitrary theoretical model which bears no relation to reality in the case of Tesla. The actual effective cost is reflected in the dilution when the options are exercised (or expire worthless!) and the number booked to "profit and loss" is just made-up guesswork. (It also doesn't reflect how much cash they'd have to pay if they were paying cash rather than options, so it's also useless for that purpose.)

    I don't know whether the accounting for grants of restricted stock units is actually that bad, because I haven't paid much attention to it. More people take the options, and the accounting there is totally unhelpful.

    ====
    I realized that there's something else which might clarify why I consider them double-counting.

    Whenever I'm modeling profit per share, I'm modelling it fully diluted, aka worst-case, all the options get executed. I'm also modelling based on expected future dilution. The bogus Black-Scholes or Monte Carlo numbers being subtracted from the profit are not helpful to me, and are essentially not real costs relative to my modelling.

    It would be useful if companies to report how many options (covering how many shares of stock) and how many shares were issued to employees each quarter. Which they are NOT required to do -- I figure it by comparing the fully diluted shares outstanding from one quarter to the next and finding a trendline. Putting a dollar valuation on them is exceedingly misleading.

    ====
    So, some deep accounting/investment philosophy background. The goal of fundamentals analysis is to figure out future sustainable cashflow.

    Accrual accounting, as used for GAAP profit/loss statements, is supposed to be a tool for figuring this out. Accounting for capital purchases as assets and using depreciation schedules is essentially a way of smoothing out cashflow over time. So is treating accounts receivable as an asset and accounts payable as a liability -- you're removing the "choppy" effect of payment timing and only looking at sales. So is treating inventory as an asset -- with steady production, you're removing some of the the effect of seasonal sales trends. You get the picture. This is what accrual accounting is for, from an investment perspective: time-smoothing the cash flow statement.

    ("Cash flow is real, profit is theoretical"/"cash accounting is real, accrual accounting is theoretical". But cash accounting has huge swings in very short time periods and can therefore be misleading regarding long-term trends.)

    Anyway, if you're analyzing a stock, you want to back out the stock-based compensation "costs", because they don't affect cash flow -- ever. (Although the options actually lead to incoming cash flow when exercised.)

    Since you're interested in *per share* cash flow, you do want to use fully diluted shares, which assume that all the options are exercised; and estimate a rate of future dilution based on the trend. This will get you meaningful per-share cash flow projections, and adding the fake dollar costs of "stock based compensation" will get you the wrong numbers -- you already figured the effect of that on future cashflow into the dilution, if you're doing it right.

    If you figure that eventually the company will have to stop offering stock options and will have to pay more cash to employees as a substitute; or that they'll have to provide employee stock by buying it on the open market; you might want to estimate what that cost will be in the future (because it will affect cash flow). However, the models required by GAAP most certainly do not tell you that. The real numbers depend on the future stock price, and therefore will be dependent on other aspects of your stock valuation model! The only thing useful to the analyst is the amount of options and amount of stock being issued, not a bogus Black-Scholes or Monte Carlo valuation of them.
     
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  5. EVNow

    EVNow Well-Known Member

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    #2345 EVNow, Jul 11, 2019
    Last edited: Jul 11, 2019
    Trying to figure out high, low and medium case for P&L and Cash Flow.

    Interesting to note that the medium case gets Tesla to as much op cash flow as in the best ever quarter, Q3.

    Q2Est.png

    ps : Yahoo analyst forecasts. Many of the 22 analyst forecasts are from before P&D release.

    EPS :

    High : 0.5
    Avg : (0.52)
    Low : (1.52)

    Revenue :

    High : $7.17B
    Avg : $6.39B
    Low : $5.73B
     
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  6. FrankSG

    FrankSG Member

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    Are these GAAP or non-GAAP?
     
  7. kbM3

    kbM3 Active Member

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    Shouldn’t your low estimate have 10-15% Model 3 lease rate?
     
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  8. EVNow

    EVNow Well-Known Member

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    non-GAAP.
     
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  9. Stars aligned

    Stars aligned Member

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    Nice make up and nice details on the revenue side, but I don't buy it, because there's no attention / reasoning on the cost side and the GAAP P/L vs. Cash Flow ratio is totally inconsistent with Q3 where we had similar revenues.

    If this ratio would be consistent we would have a GAAP profit.
     
  10. EVNow

    EVNow Well-Known Member

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    Q3 mix was totally different. All high optioned LR selling above $50k. We are not going to get that kind of ASP again.

    Esp. when you consider that Q3 had 10k more S/X compared to Q2 and those were not deeply discounted like the pre-Raven ones were in Q2.

    So, why do you expect p&l to be "consistent" with Q3 ?

    BTW, compare Q3 and Q4. With higher deliveries and almost same ASP, they still got lower profits because of slightly lower margins (and non-automotive).
     
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  11. EVNow

    EVNow Well-Known Member

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    IMO, that is not realistic. Model 3 leases aren't that popular anecdotally - and matches with what we know in terms difference between 3 & S/X.
     
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  12. Doggydogworld

    Doggydogworld Member

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    It doesn't seem possible for Model 3 ASP to stay almost perfectly flat for 5 consecutive quarters. Q1/Q2 of 2018 were all LR-RWD with a 56k+ ASP then Q3 comes along with all those AWD/P in the mix and bump it by less than 1k??? I think Tesla's coarse "% leased" throws the numbers off, though there's no way to prove it.

    I think mix shift will take about 4k out of Model 3 ASP. That's moving form a 10/80/10 mix of SR+/AWD/P in Q1 to 50/40/10 in Q2. That's also based on constant 39.9/49.9/59.9k pricing, but as we all know pricing was far from constant. I won't even attempt to untangle all that, but my gut says price moves reduced ASP another 1-2k from Q1. That gets us into the 50-51k range, lower than I would have guessed.

    S/X ASP is even harder to figure. They cut prices, especially Performance, and heavily discounted pre-Raven. But they probably sold ~5k Ravens at full price. I'd say low 90s ASP, but that's a guess.

    BTW, the earnings letters say 27,710 S/X delivered in Q3 2018, 22,319 in Q2, etc. Doesn't change the results, but I noticed you used actual numbers after Q3.
     
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  13. EVNow

    EVNow Well-Known Member

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    Yes, ASP and margin are what we have to watch out for.

    My ASP is essentially based on 2 things
    - CFO saying the US ASP is stabilizing around $50k
    - EU, China are still mostly selling higher trims

    Obviously, one thing that helped ASP in Q1 was non-ZEV (FCA) credits. Also, even SR+ etc ASPs won't be base price but I'd expect some options like color, FSD etc. If I assume SR+/AWD/P prices as 44.8/54.8/64.8 and avg of 2k credits, I get an ASP of 56.8k (10/80/10 mix). If I change the mix to 50/50/10 - with same prices, we get to 52.8k ASP - so, $4k less as you are saying.

    BTW, didn't they have some issues with AWD in Q3 ? They couldn't make enough of those and tried to shift people to LR ? I do agree that with all these changes, Model 3 ASP looking so flat is surprisingly.

    Every $1k less of ASP for M3 makes the bottomline $15m less.
     
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  14. Doggydogworld

    Doggydogworld Member

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    On April 24 Zach said:
    ...we want to note that North American ASPs are close to $50,000, with the majority of our orders being from long-range bearings of Model 3.

    Tesla wasn't eligible for Canada's incentive then (the rules changed on May 2, immediately after Tesla's 93 mile gambit). Zach was talking about new orders and later said there was an initial surge of SR+, so I figure US was roughly 60% SR+ over the full quarter and Canada was closer to 90% SR+. That's ~34k SR+ in North America. Europe had ~1.6k (zero in Norway, 14% in the Netherlands, 11% in Spain and I assume ~12% elsewhere). China is anyone's guess, 1.4k SR+ there would give 37k total. That's a 48/42/10 mix vs. my 50/40/10 guess. 45/45/10 would raise my ASP range to 51-52k. I originally thought 53k.

    I include 5-6k for options, credits and destination charge in a 2k/2k/1.5k split. If Q1's 3.5k/car emission credits persist that will boost ASP. So would more FSD recognition. "New FSD" is all deferred, but they probably recognized some "old FSD" revenue in Q2.

    I don't recall a lasting AWD production issue in Q3, but Tesla was surprised by AWD/P order strength. Those variants had a 2-3 month wait throughout the quarter while RWD was "within 2 weeks".

    Only at constant margin. It's a 77.6m hit at constant COGS. Reality is in between.

    Model 3 COGS were 45k in Q1. Mix shift will reduce that ~2k, fixed cost absorption and other cost savings another ~0.5k. 51.5k ASP and 42.5k COGS is ~18% gross margin with upside possible from emissions credits and FSD revenue recognition. This is another reason Musk is pushing FSD so hard, even without Robofantasy it's the only way left to get margins back up.
     
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  15. EVNow

    EVNow Well-Known Member

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    #2355 EVNow, Jul 13, 2019
    Last edited: Jul 13, 2019
    I wonder whether they make more money in options. Just paint is 1.5k, wheels 1.5k more. White interior is 1k. We aren't even talking about FSD at 6k.

    BTW, how does FSD figure in ASP & Margin ? I'm guessing it won't - since it is all deferred revenue - in which case avg options may be 2k ...

    ps : Not all deferred. Some of it can be recognized because some features have been delivered.
     
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  16. EinSV

    EinSV Active Member

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    #2356 EinSV, Jul 13, 2019
    Last edited: Jul 13, 2019
    My impression is that Tesla has been conservative about recognizing AP/FSD revenue, but 3 out of 6 features of the FSD package are currently functional with driver supervision and another (Summon) is partially functional.

    Also, before Tesla repackaged what used to be EAP plus FSD at $5K and $3K to AP plus FSD at $3K and $6K these functions were part of EAP revenue that presumably was recognized. So it seems to me that with the current active feature set Tesla easily could justify recognizing at least the $2000 in revenue per car that was shifted from EAP to FSD, and deferring the rest.


    Full Self-Driving Capability
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    • Summon: your parked car will come find you anywhere in a parking lot. Really.
    Coming later this year:
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  17. Doggydogworld

    Doggydogworld Member

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    Average paint is close to 1000. Black is the most popular color. Take rate on white interior is very low. I assume half upgrade the wheels, but that's probably too optimistic. Performance already includes 20", so no upgrades there.

    Yeah, I wrote "new FSD" but was thinking of old FSD. They deferred part of old EAP and all of old FSD. They now count all AP and some of FSD. Take rate used to be so low this partial recognition wouldn't really move the needle. 10% take rate and $2k recognition would boost ASP $200.

    The wild card is how much previously deferred EAP/FSD revenue they recognize. $150m would juice margins 200 bpp. They can use that cookie jar to get back to 20%.
     
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  18. tmoz

    tmoz S85D, Prius PiP

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    I'd really like to know more about the stop light and stop sign software, because I don't think I'd trust it for a long time. Visual recognition plus a map of every stop sign and stop light?
    That will be a really big step forward. If someone gets killed, that would put a damper on sales, as well as the brand and whole idea of self driving. I'm thinking if stop light and sign recognition comes out later, it would start as a back up to humans, or at least insist that the driver stay engaged as an emergency back up - will be interesting to see how they roll this out.
     
  19. EVNow

    EVNow Well-Known Member

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    #2359 EVNow, Jul 13, 2019
    Last edited: Jul 13, 2019
    They gave the % leased in Q1 as 2%. With that I get 3 ASP as $56,820. If the lease percent was 1.6%, it would be 56,319 and if it was 2.4% it would be 57,339. So, a max range of $1k because of rounding of lease percent.

    So, either the 10/80/10 mix is off or the estimated options/credits is off for Q1. With your estimates 3 ASP comes to 54.5k. Even with 1.6% lease to get to that ASP for 3 we need an ASP of 110k+ for S/X. I don't think 10/80/10 is all that off - that means options + credits are a little more. Most probably because they have a good FSD take rate and recognize a portion of it as revenue. I think options + credits + delivery comes to about 7.5k (instead of 5.5k).
     
  20. M3BlueGeorgia

    M3BlueGeorgia Member

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    Compared to Q4-2018 Tesla sold 10K less Model S & X (bigger losses for Model S), but 14K more Model 3 (SR+ added), so you could view that the SR+ volume replaced the lost Model S volume at half the price and probably slightly lower margin percentages.

    Compute all that in, and I'd say Q2-19 will be down around US$-500M in revenue compare to Q4-19 and down -$125M in GAAP profit, so Q2-2019 would be between breakeven and a small loss. I'd hope they can achieve a GAAP loss of around -$50M.
    But it should be a good quarter for cashflow. Perhaps around +$1.2B.
     

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