I don't think this "annually" is correct. I thought they did it quarterly. This seems to agree:
From: | S&P 500 Historical Components & Changes
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Near-future quarterly financial projections
- Thread starter luvb2b
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From: | S&P 500 Historical Components & Changes
The Accountant
Active Member
You may be correct - not sure. I took the wording straight from the S&P U.S. Indices Methodology report on their website.
Perhaps you qualify annually but enter on a quarterly bases. Just because a company qualifies does not mean it enters the S&P 500. The index is limited to 500. Thus you need to wait until a company comes off the S&P 500 because of a merger or they no longer qualify
...but I am still not sure.
EVNow
Well-Known Member
Interesting - so if they prioritize getting into S&P - they will pull some strings to make it happen. Get that City NOA out in Q1 '20 for eg. That should be good for a few hundred million $ of deferred revenue recognition.
EVNow
Well-Known Member
Now we have to see if those companies had all met the target before May of the (previous) year.
I don't think the company needs to disqualify. They just pick the largest companies so others will fall out.
The Accountant
Active Member
By the way - if Tesla were to enter the S&P 500 today, they would rank at # 101 ahead of Colgate-Palmolive and just behind Raytheon on a ranking of Market Cap Size.
$59.1B -Raytheon Market Cap
$58.8B -Tesla Market Cap
$58.7B -Colgate Market Cap
That wording is under S&P Total Market Index (September) and S&P 500 Top 50 (June).
The S&P 500 itself is part of the S&P 1500 Composite Indices (400, 500, and 600) which states: Changes to index composition are made on an as-needed basis. There is no scheduled reconstitution. Rather, changes in response to corporate actions and market developments can be made at any time. Constituent changes are typically announced one to five days before they are scheduled to be implemented. Announcements are available to the public via our Web site, www.spdji.com, before or at the same time they are available to clients or the affected companies.
Also: the rules say should be GAAP profitable previous quarter and sum of last 4, not need nor must.
Companies leave the index quite often, and are immediately replaced. Companies get taken private, or merge with another company already in the 500, and are (this is my understanding) replaced by the highest market cap eligible company. During the rebalancing, they just take the lowest market caps out, and replace with the top of the eligible list, until they run out of eligibles or they would be replacing a company with one with a lower market cap (rebalancing always increases the total market cap, while that is often not the case with, say, the merger of big companies). Anyway Tesla is already well into the middle range of the market caps, so it's a shoe-in once it is eligible.
To be eligible at the end of Q4, Tesla would have to overcome the bad Q1 result. It would need a GAAP net profit of just over $866M to do that. Now, comparing 866M to 143M seems like a huge swing, and highly unlikely. But remember, this is the difference of two very large numbers, namely total revenue and total expenditures. A small percentage shift (in the good direction) of either or both of these numbers allows a large swing in the result. We'd need a positive swing of $723M in Q4, but note that the swing from Q2 to Q3 was $551M. We'd need just under 12% of the revenue, or say 6% improvement in expenditure and 6% revenue growth together. I no longer think this is completely impossible, with GF3 coming on line. 2020Q1 should be easy ;-)
Earlier this year Elon predicted production of 500,000 cars between 1 July 2019 and 1 July 2020. Your estimate of 430.000 for that period does indeed seem conservative. Are you accounting for 'Elon time'?
EVNow
Well-Known Member
I missed that prediction.
The infamous 500k tweet was basically a rate of 10k per week by the end of Q4. But that assumed 3k/wk from GF3 - I don't think anyone thinks that's going to happen.
Q1 & Q2 of '20 are going to be difficult to predict because of GF3 and Y ramp up. The assumption is one of slow ramp up. I can easily see the forecasts getting shifted up by a quarter, in which case we'll probably get 20 or 30k more in 2020. But I do have 537k delivered in 2020 now.
most of what you said is correct - however, there are index members going in and coming out all the time. so usually it's quite soon after the qualifications are met at that tesla would get into the s&p 500.
EVNow
Well-Known Member
Zach said in the ER call that he thinks there is headwind when GF3 and then Y are ramping up. Lots of labor with low output. So, I would not assume a big margin improvement in Q4/Q1. Infact we should expect either a slight margin reduction or flat margins in Q4/Q1.
Q1 '20 is possible but that depends on Q4 being a much better quarter than Q3 and Q1 not having a gaap loss. To me it seems a safer assumption would be after Q2 '20, TSLA will meet the financial viability criteria.
Doggydogworld
Active Member
I don't think GF3 building and equipment depreciation will hit COGS. Tooling depreciation is per unit, so there's no ramp-up hit there either. Labor will hit COGS, but what's 3000 employees at Shanghai rates, maybe $20m per quarter fully burdened? It's a rounding error.
Model Y shouldn't be much of a hit, either, unless they really screw it up.
EVNow
Well-Known Member
Yes, $20m is about right.
Is GF3 really free ? I know they will pay some kind of lease - but is it just nominal ? If its market rate - it should atleast be equal to depreciation.
ps : The land grant fees is ~$100M.
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Doggydogworld
Active Member
Tesla won't say, but the milestones attached to it are consistent with nominal rent. Similar to GF2. The Nio deal Shanghai reneged on was nominal rent for five years. Tesla prepaid the land lease, I think 140m for 50 years. That's 0.7m/quarter, not even a rounding error.
dc_h
Active Member
I think this is Elon’s current obsession and likely to be the thing he’ll be most optimistic about. Somehow they’ve gotten him to relax on timelines and go quiet on the Y and Shanghai production. If they hit 10,000 roofs in a quarter in 2020 that would be amazing, but I wouldn’t be ready to add to a model. I hope that changes and they really do ramp up that fast or even 200-300 a week by summer, I think it would be an emerging win. They should be a billion a quarter in TE battery deliveries, if they can add 500 million a quarter in solar in 2020, that’s close to 7 billion in TE revenue, which is 2017 total revenue.
dc_h
Active Member
The biggest risk to 500,000 rate is LG battery supply for Shanghai. Fremont is adding a line for the Y and GF1 is building about 10,000 packs a week. Fremont appears on track for about 105,000 this quarter. Shanghai will be 3000 to 5000 most likely. That’s pretty close to the 125k rate needed for 500,000 rate.
Doggydogworld
Active Member
No, Elon meant what he tweeted. The lawyer forced him to "clarify" it late that night to be consistent with prior company guidance and not violate the (first) SEC settlement. But the lawyer resigned the next day and Musk went back to his original meaning. He forecast 420-600k in 2019 on the 2/28 private call. That was based on 350-500k Model 3s and 70-100k S/X. Both were clearly CY19, not end-of-year run rates.
I generally ignore Musk's blue sky ramblings. Not because "Elon promised XYZ so he's a fraud". But his forecasts at best provide directional info. I pay more attention to official company numbers, but even those can be way off, e.g.:
- Jan 30 guidance of ~21k S/X in Q1 (actual 12k)
- Q1 update letter claiming they still might produce 500k cars in CY19, depending on Shanghai (actual ~365k).
- Q2 update letter claiming 500k production in 12 months ending 6/30/19 (actual 425-450k?)
- Q1 update letter claiming they still might produce 500k cars in CY19, depending on Shanghai (actual ~365k).
- Q2 update letter claiming 500k production in 12 months ending 6/30/19 (actual 425-450k?)
They dropped all numerical guidance from the latest letter, except 360k units which is in the bag. Maybe that's the best approach - it sure didn't hurt the stock price!
I see <100k in Q1. It's seasonally slow anyway and incentive cliffs will pull demand into Q4. It's the ideal time to dial Fremont back for general improvements and Model Y prep. With solid GF3 output and Model Y ramping Q2 should set a new record, maybe 125k.
Re-listen to the ARK podcast from earlier* in that week:
On the Road to Full Autonomy With Elon Musk — FYI Podcast
5:03 : Estimates are guess work. numbers can vary greatly in volume due to exponential curve and shifts in time.
9:30: Generally, when I say 5k/wk, that is peak production, sustained run rate is 80-85% of that.
* Tweet was evening of Feb 19, podcast was released Feb 19th in the afternoon and recorded earlier in the week.
EVNow
Well-Known Member
I don't know what Musk exactly meant - but there was a lot of talk about 7k/wk in US + 3k/wk in GF3 to get to 10k/wk at the end of the year in the Q4 ER call. So, I think in Musk's mind they had come a long way from just a handful per week to 500k/yr (~10k/wk) when he tweeted in the context of 4k cars lined up to ship.
In anycase, getting back to the future - my forecast for Q1 is 95k deliveries. This gets them close to break-even on gaap. So, getting to S&P 500 after Q1 will depend on this - though they can probably recognize quite a bit of deferred revenue if they manage to release City NOA in Q1.
Yes, Q2 even without much Y (I'm assuming 6k) - they can hit ~120k as GF3 should have ramped up by them.
