Near-future quarterly financial projections

[John Beans]

This inspired me to learn about the accounting for certain types of leases where you do NOT allow purchase after lease. Those who already know should skip over this post. I'm not an accountant, I just play one on TV.

Check out PWC's guide to lease accounting here, and check out page 4-20 where they give an example of such a lease (see the assumptions at the top of the page). They give an example for purchasing a printer (so the numbers are smaller), but the result is this:

• Revenue booked at sale is the initial lease payment plus the prevent value of the planned lease payments
• COGS booked is the normal COGS minus the present value of the residual

So the net result is that revenue is an immediate booking of all of the lease payments (time-discounted), while the COGS is the portion of COGS the lessee "uses up." So, for a three year lease with an estimated residual value of 50% (just guessing), the lease sale would be like selling half a car, with some added margin for financing profit. So less revenue, higher profit margin % due to financing profit, as well as the added risk of residual value.

Cash-wise not so great, because you have 100% of the COGS upfront, a small upfront payment, and a stream of inflows for three years, and at the end the company owns a depreciated car.

 

[Doggydogworld]

This inspired me to learn about the accounting for certain types of leases where you do NOT allow purchase after lease. Those who already know should skip over this post. I'm not an accountant, I just play one on TV.

Check out PWC's guide to lease accounting here, and check out page 4-20 where they give an example of such a lease (see the assumptions at the top of the page). They give an example for purchasing a printer (so the numbers are smaller), but the result is this:

• Revenue booked at sale is the initial lease payment plus the prevent value of the planned lease payments
• COGS booked is the normal COGS minus the present value of the residual

So the net result is that revenue is an immediate booking of all of the lease payments (time-discounted), while the COGS is the portion of COGS the lessee "uses up." So, for a three year lease with an estimated residual value of 50% (just guessing), the lease sale would be like selling half a car, with some added margin for financing profit. So less revenue, higher profit margin % due to financing profit, as well as the added risk of residual value.

Cash-wise not so great, because you have 100% of the COGS upfront, a small upfront payment, and a stream of inflows for three years, and at the end the company owns a depreciated car.

I think you read that wrong. Sale-type lease typically applies when the residual value is zero or near-zero. Car lease residual is ~50% of MSRP. Tesla always accounted for these leases as leases, and until recently counted sales with residual value guarantees as leases.

I don't see where purchase option at end of lease has anything to do with sale-type treatment.

 

[Todd Burch]

One thing to consider: Troy’s spreadsheet probably skews toward US sales. New markets likely have higher initial ASP, and there were several in Q3. If I had to guess, I would suspect that Troy’s numbers underestimate ASP.

 

[EVNow]

One thing to consider: Troy’s spreadsheet probably skews toward US sales. New markets likely have higher initial ASP, and there were several in Q3. If I had to guess, I would suspect that Troy’s numbers underestimate ASP.

I'm looking at Troy's survey spreadsheet for trends rather than absolute numbers.

 

[Todd Burch]

I'm looking at Troy's survey spreadsheet for trends rather than absolute numbers.

Useful, but a trend in US data would not be representative of ASP in a new market, as higher ASP orders would probably be prioritized, right?

 

[EVNow]

Useful, but a trend in US data would not be representative of ASP in a new market, as higher ASP orders would probably be prioritized, right?

That is for 3, right ? No new markets for S/X.

For 3 - we have a decent idea about the trim split, from the survey, NY registrations and EU registrations. Looks like the SR+ proportion went down a bit compared to last quarter. So 1K more ASP looks possible.

 

[Todd Burch]

That is for 3, right ? No new markets for S/X.

For 3 - we have a decent idea about the trim split, from the survey, NY registrations and EU registrations. Looks like the SR+ proportion went down a bit compared to last quarter. So 1K more ASP looks possible.

Yes, 3–but what about Australia, NZ, Japan, etc?

 

[Thekiwi]

Yes, 3–but what about Australia, NZ, Japan, etc?

FYI - i dont know about other countries, but the majority of deliveries in New Zealand in Q3 were SR+ models. (About a 55/45% SR+/P mix)

 

[Todd Burch]

FYI - i dont know about other countries, but the majority of deliveries in New Zealand in Q3 were SR+ models. (About a 55/45% SR+/P mix)

45% P is well above the average P mix and supports my point that newer markets have a higher ASP.

 

[EVNow]

45% P is well above the average P mix and supports my point that newer markets have a higher ASP.

Yes, newer markets have always had higher ASP, since Tesla can prioritize higher trims.

Also, I think in US the P price was too high - and cutting that price should help stabilize the trim mix and ASP.

 

[EVNow]

Here is my Q3 low-mid-high scenarios. These are not worst / best case scenarios - just what I think is the range of likely outcomes.

The variables are the ASPs & Margin. Any extra regulatory credits or recognition of deferred revenue will provide upside potential.

 

[Svetlin]

Here is my Q3 low-mid-high scenarios. These are not worst / best case scenarios - just what I think is the range of likely outcomes.

The variables are the ASPs & Margin. Any extra regulatory credits or recognition of deferred revenue will provide upside potential.

View attachment 466762

Thanks, as always, for sharing your work. Tesla already reported that leased vehicles were 15% for Model S/X and 8% for Model 3.

 

[EVNow]

Thanks, as always, for sharing your work. Tesla already reported that leased vehicles were 15% for Model S/X and 8% for Model 3.

Oh yes - that chart has the old 5% I didn't update. Doesn't change the other numbers. I'll post the updated chart.

 

[Bobfitz1]

Here is my Q3 low-mid-high scenarios. These are not worst / best case scenarios - just what I think is the range of likely outcomes.

The variables are the ASPs & Margin. Any extra regulatory credits or recognition of deferred revenue will provide upside potential.

Does your methodology for these scenarios allow for estimates of Free Cash Flow in Q3? Apologies if it's a dumb question. Many on TMC assert that FCF is in many ways the most significant financial measure for a high growth company like Tesla.

 

[Doggydogworld]

Does your methodology for these scenarios allow for estimates of Free Cash Flow in Q3? Apologies if it's a dumb question. Many on TMC assert that FCF is in many ways the most significant financial measure for a high growth company like Tesla.

The bottom line on his chart is OCF (it's misnamed, BTW, should be "Net cash provided by operating activiites").

FCF = OCF - Capex

Tesla guided 500-750m capex per quarter in 2H 2019, but they keep coming in way below guidance so I doubt Q3 will be higher than 400m. I'll guesstimate 800m OCF and 400m FCF. Cash balance will increase 200m or so since some FCF goes toward debt paydown.

 

[EVNow]

Does your methodology for these scenarios allow for estimates of Free Cash Flow in Q3? Apologies if it's a dumb question. Many on TMC assert that FCF is in many ways the most significant financial measure for a high growth company like Tesla.

Yes, as @Doggydogworld points out the last line in the chart is FCF (+ capex). Since capex has been around $250M in Q1 & Q2 - and will likely be less than $500M in Q3, Tesla will have a large positive FCF in Q3.

The bottom line on his chart is OCF (it's misnamed, BTW, should be "Net cash provided by operating activiites").

Yes - I'm just using the heading Tesla uses for reference.

 

[FrankSG]

Here is my Q3 low-mid-high scenarios. These are not worst / best case scenarios - just what I think is the range of likely outcomes.

The variables are the ASPs & Margin. Any extra regulatory credits or recognition of deferred revenue will provide upside potential.

View attachment 466762

Do your ASPs include credits? Either way they don't look right to me:

• Due to price cuts at start of quarter, M3 ASP should be lower than in Q2.
• M3 also didn't start delivering SR+ in volume in EU until Q3, further negatively impacting ASP this quarter.
• No more discounted pre-raven S+X means S+X ASP should be higher than Q2 imo. Although my model has Q2 ASP a little under 90k, so I think your Q3 estimation isn't that far off.

Would be interested to see the rest of your income statement, because I have about same revenue as your mid est (6,301M), but bottom line similar to your low est of -1.62$ GAAP EPS.

 

[EVNow]

Do your ASPs include credits? Either way they don't look right to me:

• Due to price cuts at start of quarter, M3 ASP should be lower than in Q2.
• M3 also didn't start delivering SR+ in volume in EU until Q3, further negatively impacting ASP this quarter.
• No more discounted pre-raven S+X means S+X ASP should be higher than Q2 imo. Although my model has Q2 ASP a little under 90k, so I think your Q3 estimation isn't that far off.

Would be interested to see the rest of your income statement, because I have about same revenue as your mid est (6,301M), but bottom line similar to your low est of -1.62$ GAAP EPS.

Yes, includes reg credits.

There has been a lot of discussion on ASP both in this thread and in the market thread. There is registration data available from Europe, NY and from surveys on TMC. Analyst comments about Tesla saying the ASP has stabilized around $50k for 3. Also note that in Q2 Tesla sold majority - not even most - of the pre-Ravens.

I’ll post the full spreadsheet tomorrow.

 

[FrankSG]

Yes, includes reg credits.

There has been a lot of discussion on ASP both in this thread and in the market thread. There is registration data available from Europe, NY and from surveys on TMC. Analyst comments about Tesla saying the ASP has stabilized around $50k for 3.

Was not aware of this. That's great!

Also note that in Q2 Tesla sold majority - not even most - of the pre-Ravens.

Not sure if I'm misunderstanding what you're saying here, but if majority of the pre-Ravens was sold in Q2 (at discount), that means S+X ASPs and margins should trend up in Q3, right?

I’ll post the full spreadsheet tomorrow.

Cool, thanks!

 

[jeewee3000]

Here is my Q3 low-mid-high scenarios. These are not worst / best case scenarios - just what I think is the range of likely outcomes.

The variables are the ASPs & Margin. Any extra regulatory credits or recognition of deferred revenue will provide upside potential.

View attachment 466762

Thanks for sharing your estimates.