Near-future quarterly financial projections

[FrankSG]

Also, from looking at some of the spreadsheets, it seems that even though net unit volumes are higher, the big reason for flat to declining revenues (YoY) are due to the ASP of S,X coming down by about $14k (about $243M in potential/lost revenue) and M3 ASP coming down by about $6k ($470M revenue), in addition to about a 10k drop in S,X unit sales ($910M revenue). (Total about $1.6B in potential revenue.)

In other words, gains in net unit sales were offset by significant declines in ASPs across the board and a significant decline in the high end S,X unit sales.

I guess some of these declines are expected, particularly M3 ASP (as lower trim models were introduced), but the significant S,X ASP and unit sales declines is what I think was not unexpected (especially if we were looking forward from last year).

This is spot on. Although as a long term investor I am not too disappointed by this, because I don't think it influences Tesla's long term potential much, if at all. The S+X have sort of served their purpose, and it makes more sense right now to focus on 3+Y+Truck than to refresh S+X.

S+X brought in ~9B in revenue and ~2.25B in profits in their BEST year (2018).

3 will bring in about ~14.5B in revenue, and ~2.35B in profits this year, and still has a lot of room for further growth.

Y could bring in as much as 45B in revenue and close to 10B in profits per year at full scale.

Truck will also bring in significantly more than S+X ever have and ever will.

Another important consideration is that for now they appear battery cell supply constrained, and having a larger # of FSD capable cars on the road will mean more profits from the future Tesla Network. Thus it makes sense to produce more vehicles with smaller batteries than less vehicles with bigger batteries until they resolve their battery cell supply constraint.

 

[electracity]

Thus it makes sense to produce more vehicles with smaller batteries than less vehicles with bigger batteries until they resolve their battery cell supply constraint.

The smaller battery vehicles are lower margin. So I'm not sure how Tesla manages a battery shortage.

I also don't see how Tesla has the capacity to make the truck in volume. The model Y could have a million unit annual demand in a couple of years. The RAV4 alone sells about a half million units in the U.S. The Y, as a medium size hatch, also seems to be the right Tesla for what Europeans want in a car.

The purpose of the pickup this year is obviously to respond to Rivian.

I think Tesla loses interest in the lower margin 3 once the Y begins to ramp next summer. I see a production constrained Tesla where the P versions of both cars are produced for inventory while buyers of lesser version wait in the queue.

 

[RobStark]

This is spot on. Although as a long term investor I am not too disappointed by this, because I don't think it influences Tesla's long term potential much, if at all. The S+X have sort of served their purpose, and it makes more sense right now to focus on 3+Y+Truck than to refresh S+X.


Another important consideration is that for now they appear battery cell supply constrained, and having a larger # of FSD capable cars on the road will mean more profits from the future Tesla Network. Thus it makes sense to produce more vehicles with smaller batteries than less vehicles with bigger batteries until they resolve their battery cell supply constraint.

Gen II vehicles have a different cell supply than Model 3.

Panasonic's Japanese factories can produce ~8 GWh of 18650s per year so Tesla can make 80k Gen II vehicles with 100 kWh packs but Tesla is currently far off the 80k/year pace. Not only do Gen II vehicles deliver fat margins they are also halo vehicles/aspirational vehicles.

It makes people desire a Tesla. Even if they can't afford a 100D Plaid, they might end up getting a Model 3 SR+ instead.

Selling Model 3 without paid advertisements with increasingly more direct competitors like Polestar 2 and VW ID.3 and without Gen II vehicles lighting up the internet beating Porsche et al becomes increasing more difficult.

Model 3/Y and likely Pickup will get their cells from Nevada GF.

 

[FrankSG]

The smaller battery vehicles are lower margin. So I'm not sure how Tesla manages a battery shortage.

I also don't see how Tesla has the capacity to make the truck in volume. The model Y could have a million unit annual demand in a couple of years. The RAV4 alone sells about a half million units in the U.S. The Y, as a medium size hatch, also seems to be the right Tesla for what Europeans want in a car.

The purpose of the pickup this year is obviously to respond to Rivian.

I think Tesla loses interest in the lower margin 3 once the Y begins to ramp next summer. I see a production constrained Tesla where the P versions of both cars are produced for inventory while buyers of lesser version wait in the queue.

This is why Tesla taking matters into their own hands in terms of cell production, and their announcements with regards to this at Battery Investor Day are so important.

I asked about this specifically on say.com, but the question isn't getting enough upvotes.
Say

 

[EVNow]

So I would have thought S,X ASP would be higher in Q3 vs Q2 due to pre-Raven discounts in Q2. But you folks are saying that even though Raven sales dominated Q3, Tesla significantly lowered their price (that is lowered S,X prices) in Q3.

That was my earlier assumption as well - I thought S&X ASP would be higher and 3 ASP would be lower.

But I revised based on data (imperfect) that we have.
- Troy's survey shows S&X ASP going down significantly and 3 going up by 1k (because of big cut in S&X prices).
- Then we have an analyst saying Tesla says the 3 ASP has stabilized around 50k.
- The model mix we have from some EU countries and NY shows more AWD/P than SR+ in Q3
- Registration data from 22 states shows lower ASP (not clear which one or compared to what)

In other words, gains in net unit sales were offset by significant declines in ASPs across the board and a significant decline in the high end S,X unit sales.

Right. This is an artifact of selling high priced models in the beginning. If Tesla sold all the trims from the beginning we won't have this big ASP swings. BTW, its not just ASP reduction - there has been a big margin reduction has well that affects profitability. If the margin was 25% as it was in Q3 '18, instead of 200M gaap loss we'd have 100M profit, even with reduced ASP.

I guess some of these declines are expected, particularly M3 ASP (as lower trim models were introduced), but the significant S,X ASP and unit sales declines is what I think was not unexpected (especially if we were looking forward from last year).

I guess you mean "not expected". Yes, the S&X volume had been so steady for several quarters that we didn't anticipate such a big drop in volume - 35%.​

 

[electracity]

If Q4 ASP declines and building inventory spooks the market it could be a good buying opportunity. Leading into model Y production Tesla is going to want to make a lot of inventory Model 3 and keep the factory fully staffed. Some trends could look poor.

So I predicted some (not all) not so great numbers but an Elon who is relaxed about the situation. I'll also predict as little model Y talk from Tesla as possible but plenty on news to distract from imminent Y production: Pickup, batteries, and maybe the semi will go into early production.

I'll also predict SP back in the 300s next year, assuming the Orange Toddler doesn't nuke a tropical storm or Finland.

 

[electracity]

This is why Tesla taking matters into their own hands in terms of cell production, and their announcements with regards to this at Battery Investor Day are so important.

I asked about this specifically on say.com, but the question isn't getting enough upvotes.
Say

Tesla would launch the Y ASAP even if they are battery constrained. Q1 is the slowest auto quarter and the right time to make the changes to start substaintial Y production in Q2.

The high end Y supplants production of the low end 3. That's an easy choice to make IMO.

 

[EVNow]

If Q4 ASP declines and building inventory spooks the market it could be a good buying opportunity. Leading into model Y production Tesla is going to want to make a lot of inventory Model 3 and keep the factory fully staffed. Some trends could look poor.

I don't think we'll see any Q4 ASP declines compared to Q3. I don't think there will be inventory build up either - Tesla simply doesn't have the production capacity.

After Q3 ER I'll start looking at Q1 '20. I'd expect a decrease in deliveries - 80s or 90s depending on how GF3 ramp up goes. I don't expect any volume production of Y in Q1 to materially affect earnings. Q2 onwards is when I'd expect a real boost in SP. But then - just one big player buying or selling can hugely affect SP.

 

[Antares Nebula]

Appreciate the responses. Just to clarify, the $4k S,X ASP drop in Q3 from Q2 is due to drop in Raven S,X prices in Q3, or to still large units of pre-Raven discounted sales in Q3, or unknown (at this time)? In other words, is it due to further S,X price reductions on the latest models in Q3, or to moving still large quantities of older, discounted S,Xs? (If the latter, then is it possible that we can see an S,X ASP increase in Q4?)

 

[Antares Nebula]

Yes, I agree that ASPs and units will likely stabilize and move up from here (barring further reductions in M3 prices or even lower trim models introduced). Particularly, I think S,X unit and ASPs should stabilize. They had really taken a beating and this should be the bottom IMO.

We can see just how much of a demand collapse there was with S,X by not only looking at the unit sales decline, but also the ASP decline. I did not realize the latter was so significant. If S,X ASP was equivalent to last year's price, that is $14k higher, unit sales would have been even lower, likely closer to 10k instead of 17k currently. In other words, we have a 10k (27k to 17k) YoY unit sale drop, even given a significant $14k ASP reduction. IMO this cannot all be explained by M3 cannibalization, but calls out the urgent need for an S,X refresh/update (beyond Raven).

I know the lower end models (3, Y) are ultimately more significant to growth and the longer term mission, but I agree with some of the other posts where the halo effect of the S,X is also important. I don't want to belabor the point I made elsewhere, but I think long term demand for S,X can be above 20k, and likely with higher ASPs, if/when they update the S,X with all the latest tech. (Note also that it is the difference in S,X unit sales and ASPs YoY that is currently the difference between Tesla reporting higher revenue and GAAP profit in Q2 and possibly Q3, and also the likely difference between the current share price and a significantly higher one.)

 

[Right_Said_Fred]

That was my earlier assumption as well - I thought S&X ASP would be higher and 3 ASP would be lower.

But I revised based on data (imperfect) that we have.
- Troy's survey shows S&X ASP going down significantly and 3 going up by 1k (because of big cut in S&X prices).
- Then we have an analyst saying Tesla says the 3 ASP has stabilized around 50k.
- The model mix we have from some EU countries and NY shows more AWD/P than SR+ in Q3
- Registration data from 22 states shows lower ASP (not clear which one or compared to what)

​

I'm having a hard time trusting Troy's much lower ASP numbers for S and X in Q3, for these reasons:

- Tesla lowered S and X prices on 1 March, when it switched to Standard Range and Long Range. This would have resulted in an ASP drop in Q2, less so in Q3.
- Tesla heavily discounted the old 75D and 100D models in Q2, there were not so many left to sell in Q3.
- Tesla discontinued the Standard Range (which was $5000 cheaper than the Long Range) on 1 July. This means that in Q3 the more expensive Longer Range represented a higher percentage of sales.

​

 

[Doggydogworld]

Also, from looking at some of the spreadsheets, it seems that even though net unit volumes are higher, the big reason for flat to declining revenues (YoY) are due to the ASP of S,X coming down by about $14k (about $243M in potential/lost revenue) and M3 ASP coming down by about $6k ($470M revenue), in addition to about a 10k drop in S,X unit sales ($910M revenue). (Total about $1.6B in potential revenue.)

Leasing also drives the revenue decline. A decline due to leasing is nowhere near as big of a deal as a decline due to lower ASP or deliveries.

- Troy's survey shows S&X ASP going down significantly and 3 going up by 1k (because of big cut in S&X prices).

Doesn't Troy calculate ASP from mix and MSRP, with no provision for discounting?

It's weird that we have a better feel for Model 3 ASP, which should be more in flux with new markets opening and such, than for S/X which have been around for ages.

 

[EVNow]

Doesn't Troy calculate ASP from mix and MSRP, with no provision for discounting?

Right - because historically there hasn't been much discounting. The other thing with Troy's survey is that - we wouldn't expect people just buying inventory cars to take that survey. It is more for people who order and wait for their cars.

It's weird that we have a better feel for Model 3 ASP, which should be more in flux with new markets opening and such, than for S/X which have been around for ages.

I think Tesla manages ASP for 3 much more carefully - because even small changes their affects revenue/eps quite a bit. Given sudden decrease in S/X demand they don't have much leverage in S/X.​

 

[electracity]

I think Tesla manages ASP for 3 much more carefully - because even small changes their affects revenue/eps quite a bit. Given sudden decrease in S/X demand they don't have much leverage in S/X.

I think Tesla manages the 3 margin by launching the model Y. Doing Y in true volume in the second half of 2020 likely produces much better financials even at the same car volume of the model 3 alone.

I don't believe the Y will be any more than a re-skinning of the 3, regardless of Tesla patent filings. Getting the Y into production should be no more than 5% of the effort and risk compared to launching the model 3. Trying to make significant upgrades risks squandering the excellent competitive advantage Tesla has created.

My plan for Tesla would be 1) Make the Y a simple re-skinning of the model 3 2) Become production constrained and concentrate on building higher margin Y and 3 3) Use the excess demand to justify/fund quickly expanding production capacity in China.

Tesla's competitors have left a huge opening for Tesla and the Y is needed to exploit the advantage. Tesla slowing the Y introduction in an attempt to implement more of Musk's production dreams is very risky IMO.

I don't expect Musk to say much about accelerated Y production later today. I don't think next 3 quarterly financials will mean much except to those people actively trading the stock.

 

[EVNow]

I think Tesla manages the 3 margin by launching the model Y. Doing Y in true volume in the second half of 2020 likely produces much better financials even at the same car volume of the model 3 alone.

Once Y launches in volume I don't think we will have similar concerns about Tesla eps. It is just a short term concern.

 

[trentbridge]

I think that the lower the base price Tesla makes a vehicle - be it Model S/X or Model 3 - the probability that the customer will choose more expensive options like white interior or red color increases. In other words, if Tesla drops the base price by $2000, do we not expect a greater uptake of colors and interior options because the money goes further than before the price decreased? Therefore a drop in the ASP might only reduce revenue by a fraction as more options are taken up?

 

[kbM3]

I think Tesla manages the 3 margin by launching the model Y. Doing Y in true volume in the second half of 2020 likely produces much better financials even at the same car volume of the model 3 alone.

I don't believe the Y will be any more than a re-skinning of the 3, regardless of Tesla patent filings. Getting the Y into production should be no more than 5% of the effort and risk compared to launching the model 3. Trying to make significant upgrades risks squandering the excellent competitive advantage Tesla has created.

My plan for Tesla would be 1) Make the Y a simple re-skinning of the model 3 2) Become production constrained and concentrate on building higher margin Y and 3 3) Use the excess demand to justify/fund quickly expanding production capacity in China.

Tesla's competitors have left a huge opening for Tesla and the Y is needed to exploit the advantage. Tesla slowing the Y introduction in an attempt to implement more of Musk's production dreams is very risky IMO.

I don't expect Musk to say much about accelerated Y production later today. I don't think next 3 quarterly financials will mean much except to those people actively trading the stock.

Doubt Y will only be a reskinning:

1) Tesla is all about improving the manufacturing lines themselves.
2) Elon has stated:
A) The Model Y will be a manufacturing revolution.
B) In spite of larger size, it will only cost as much as Model 3 to produce.
C) The Model Y will have the new wiring harness.

The true question to me, is will the initial GF3 Model 3 lines incorporate changes to ensure higher compatibility with Model Y. E.g. new wiring harness.

 

[electracity]

Doubt Y will only be a reskinning:

1) Tesla is all about improving the manufacturing lines themselves.
2) Elon has stated:
A) The Model Y will be a manufacturing revolution.
B) In spite of larger size, it will only cost as much as Model 3 to produce.
C) The Model Y will have the new wiring harness.

The true question to me, is will the initial GF3 Model 3 lines incorporate changes to ensure higher compatibility with Model Y. E.g. new wiring harness.

I'm fairly certain that the "manufacturing revolution" is Musk circa 2017 that was recanted. Tesla has filed patents for a rigid wiring harness and a unibody casting machine, but I'm not aware of any statements from Tesla saying that these features will be implemented in the Y.

I don't see the upside of making changes beyond a re-skinning of the model 3. But if the Y doesn't make it to customers until the end of next year then you may be right. They risk non-China model 3 sales flattening next year IMO. The market wants a CUV, not a sedan.

Of course I'm assuming that fancier manufacturing screws up the early launch of the Y. But perhaps they can be early and fancy.

 

[kbM3]

I'm fairly certain that the "manufacturing revolution" is Musk circa 2017 that was recanted. Tesla has filed patents for a rigid wiring harness and a unibody casting machine, but I'm not aware of any statements from Tesla saying that these features will be implemented in the Y.

I don't see the upside of making changes beyond a re-skinning of the model 3. But if the Y doesn't make it to customers until the end of next year then you may be right. They risk non-China model 3 sales flattening next year IMO. The market wants a CUV, not a sedan.

Of course I'm assuming that fancier manufacturing screws up the early launch of the Y. But perhaps they can be early and fancy.

No he reiterated it more recently. Last conf. call or one before, I believe?

 

[generalenthu]

Just whoa