Near-future quarterly financial projections

[erha]

What’s the take on the coming quarters?

I was forced to sell quite a bit a few months ago, but I’m soon in a position where I can start buying again.

Is Q4 and Q1 going to be ruff? That might give some nice buying opportunities.

 

[Doggydogworld]

What’s the take on the coming quarters?

I was forced to sell quite a bit a few months ago, but I’m soon in a position where I can start buying again.

Is Q4 and Q1 going to be ruff? That might give some nice buying opportunities.

Demand will be high in Q4 due to seasonality, expiring tax credits in the US and (especially) the looming BIK adjustment in the Netherlands. Instead of cutting prices, Tesla has been raising them slightly, also pointing to robust demand. Tesla may be sending to unsold inventory cars to China to insulate against a possible tariff hike, but I don't see that hurting Q4 profitability (might even help).

I don't expect another large reduction in COGS, but Q3's cuts should persist. Stuff like forex gain probably won't repeat, and may reverse, but I doubt that's enough to drive Q4 below breakeven. They can always pull more of the $500m deferred FSD revenue from the cookie jar.

October overseas sales were down due to lack of supply and the InsideEVs October US number could come in low because they put almost all cars on ships last month. That could present a buying opportunity, but IMHO it's a long shot. InsideEVs has to guess quite a bit and were way too high in July. I suspect they'll be too high again in October.

Q1 will be a down quarter. I expect them to dial Fremont back in preparation of Model Y launch. Nobody here agrees. We'll see.

 

[EVNow]

Q1 will be a down quarter. I expect them to dial Fremont back in preparation of Model Y launch. Nobody here agrees. We'll see.

I think the reduction in 3 production in Fremont will be balanced by GF3 production. Even at 1k/wk, GF3 production would be ~12k and that should make up for 2 weeks of complete Fremont shutdown.

 

[JohnnyEnglish]

Looking at the trend of the model 3 production figures for the last year it seems like Fremont is getting close to the 350k annual production rate that they were targetting. Not sure if the current limit is the production line capability or the battery production at GF1. However clearly time for the baton to be passed to GF3 to take things on to 500k annual production rate

 

[Darkfox021]

Looking at the trend of the model 3 production figures for the last year it seems like Fremont is getting close to the 350k annual production rate that they were targetting. Not sure if the current limit is the production line capability or the battery production at GF1. However clearly time for the baton to be passed to GF3 to take things on to 500k annual production rate

To add additional uncertainty about the bottleneck, there are apparently ~7k GF1-made battery packs at GF3. It probably means that GF1 is ahead of Fremont, but could Fremont have built cars for these extra packs?

Tesla Gigafactory 3 Has ~7,000 Battery Packs In Stock For Chinese Model 3 Production, Will Use LG Chem Cells In 2020 | CleanTechnica

I think it's most likely that as LG ramps up to produce the GF3 cells, these extra packs will go towards Y. The timing almost seems planned.

 

[EVNow]

To add additional uncertainty about the bottleneck, there are apparently ~7k GF1-made battery packs at GF3. It probably means that GF1 is ahead of Fremont, but could Fremont have built cars for these extra packs?

Tesla Gigafactory 3 Has ~7,000 Battery Packs In Stock For Chinese Model 3 Production, Will Use LG Chem Cells In 2020 | CleanTechnica

I think it's most likely that as LG ramps up to produce the GF3 cells, these extra packs will go towards Y. The timing almost seems planned.

Getting battery packs shipped to GF3 makes sense. Even Nissan had to ship batteries to TN when they first started making Leafs there.

 

[electracity]

Looking at the trend of the model 3 production figures for the last year it seems like Fremont is getting close to the 350k annual production rate that they were targetting. Not sure if the current limit is the production line capability or the battery production at GF1. However clearly time for the baton to be passed to GF3 to take things on to 500k annual production rate

They are going to need to produce more than 350K to meet Y and 3 demand in North America IMO. They have certainly been prepping for model Y production for a couple years, probably moving unnecessary functions out of the main factory building. But what production they are targeting for Fremont is unknown.

Financially Q1 will be the most uncertain. I presume Tesla will use the normally slowest quarter to prep Fremont for Q2 MY production. Ideally Shanghai makes enough cars to be impactful. A misinterpretation by the market of Tesla's relatively poor Q1 production could be a buying opportunity.

IMO the only really interesting Q1 number would be higher than expected sales. Poor Q1 performance would be simply timing issues.

 

[JohnnyEnglish]

They are going to need to produce more than 350K to meet Y and 3 demand in North America IMO. They have certainly been prepping for model Y production for a couple years, probably moving unnecessary functions out of the main factory building. But what production they are targeting for Fremont is unknown.

Financially Q1 will be the most uncertain. I presume Tesla will use the normally slowest quarter to prep Fremont for Q2 MY production. Ideally Shanghai makes enough cars to be impactful. A misinterpretation by the market of Tesla's relatively poor Q1 production could be a buying opportunity.

IMO the only really interesting Q1 number would be higher than expected sales. Poor Q1 performance would be simply timing issues.

Agree. I was only meaning 350k Model 3 production at Fremont. I am guessing that the new Model Y line will have at least the same capacity as the Model 3 line. So the total capacity at Fremont next year should be something like 80k S/X, 350k 3 and 350k Y.

 

[electracity]

So the total capacity at Fremont next year should be something like 80k S/X, 350k 3 and 350k Y.

I think that high a number is impossible. Most of the model Y increase probably has to come out of a model 3 decrease. The line they are adding is for general assembly. But every part of the factory would have to be increased substantially to double gen 3 numbers. If they had that kind of space the model 3 "tent" would not have been needed.

As a company 50% YOY unit growth has always been a good guess. For 2020 that increase would include China.

For 2020 my key factors are 1) Non-China model 3 demand as the Y goes into production and 2) Ability to ramp Y.

Sparks could also be the limiting factor on 2020 production. There are a number of potential choke points which is why 50% YOU unit increase is hard to exceed.

 

[ReflexFunds]

I think that high a number is impossible. Most of the model Y increase probably has to come out of a model 3 decrease. The line they are adding is for general assembly. But every part of the factory would have to be increased substantially to double gen 3 numbers. If they had that kind of space the model 3 "tent" would not have been needed.

As a company 50% YOY unit growth has always been a good guess. For 2020 that increase would include China.

For 2020 my key factors are 1) Non-China model 3 demand as the Y goes into production and 2) Ability to ramp Y.

Sparks could also be the limiting factor on 2020 production. There are a number of potential choke points which is why 50% YOU unit increase is hard to exceed.

The Model Y production equipment was ordered before Tesla even chose Fremont as the location.
Elon has also said very clearly that Model Y production will not disrupt Model 3 production and that the company is assuming there will be no cannibalisation of Model 3 demand from Model Y.
Possibly at somepoint Tesla will work to make the Model 3 and Model Y lines flexible and interchangeable, but it is very clear that Model Y is net new production capacity at Fremont. Another 7k per week seems most likely.

 

[JohnnyEnglish]

I think that high a number is impossible. Most of the model Y increase probably has to come out of a model 3 decrease. The line they are adding is for general assembly. But every part of the factory would have to be increased substantially to double gen 3 numbers. If they had that kind of space the model 3 "tent" would not have been needed.

As a company 50% YOY unit growth has always been a good guess. For 2020 that increase would include China.

For 2020 my key factors are 1) Non-China model 3 demand as the Y goes into production and 2) Ability to ramp Y.

Sparks could also be the limiting factor on 2020 production. There are a number of potential choke points which is why 50% YOU unit increase is hard to exceed.

I was stating capacity, not production. It will take time for them to reach that level of production and I agree there will be choke points/constraints to overcome - in GF1 as well as in Fremont.

 

[Doggydogworld]

The Model Y production equipment was ordered before Tesla even chose Fremont as the location.

Tooling I can believe. Dies don't care where they'll be used. But equipment? No. You have to know where that stuff is going and how it will interface with pre-existing building and equipment (if any).

They originally spec'd Model 3 stamping, body and paint for 10k/week. That's a very normal 2 shift factory. They ran into some problems and assembly turned into a disaster, so they re-targeted for 7k/week. The new level was roughly based on 3k for each internal final assembly line plus 1k in the tent.

The obvious "capex-light" approach is to finally utilize the full 10k capacity for stamping, body and paint and add third 3k/week internal final assembly line (GA5) for Model Y. They can also assemble Y in the tent and re-fit one or both of the two existing internal GA lines so they can switch between 3 and Y.

With this approach 3+Y target volume is 10k/week. I figure the split will be 60-70% Y after a year or so.

 

[anon]

Tooling I can believe. Dies don't care where they'll be used. But equipment? No. You have to know where that stuff is going and how it will interface with pre-existing building and equipment (if any).

They originally spec'd Model 3 stamping, body and paint for 10k/week. That's a very normal 2 shift factory. They ran into some problems and assembly turned into a disaster, so they re-targeted for 7k/week. The new level was roughly based on 3k for each internal final assembly line plus 1k in the tent.

The obvious "capex-light" approach is to finally utilize the full 10k capacity for stamping, body and paint and add third 3k/week internal final assembly line (GA5) for Model Y. They can also assemble Y in the tent and re-fit one or both of the two existing internal GA lines so they can switch between 3 and Y.

With this approach 3+Y target volume is 10k/week. I figure the split will be 60-70% Y after a year or so.

Something else worth considering - if S/X numbers remain down next year (after a possibly temporary increase just for Q4), there may be additional paint capacity (and stamping capacity? I'm not sure to what extent that is shared with S/X) available to add a few hundred more Ys per week, perhaps even 1000 at some times.

 

[kbM3]

Tooling I can believe. Dies don't care where they'll be used. But equipment? No. You have to know where that stuff is going and how it will interface with pre-existing building and equipment (if any).

They originally spec'd Model 3 stamping, body and paint for 10k/week. That's a very normal 2 shift factory. They ran into some problems and assembly turned into a disaster, so they re-targeted for 7k/week. The new level was roughly based on 3k for each internal final assembly line plus 1k in the tent.

The obvious "capex-light" approach is to finally utilize the full 10k capacity for stamping, body and paint and add third 3k/week internal final assembly line (GA5) for Model Y. They can also assemble Y in the tent and re-fit one or both of the two existing internal GA lines so they can switch between 3 and Y.

With this approach 3+Y target volume is 10k/week. I figure the split will be 60-70% Y after a year or so.

My understanding is:

The original plan was 5k / week, then optimize the line, then duplicate to 10k / week.

When the China trade war heated up, they decided they could speed up the 5k / week line to 7k / week and move 3k / week to China, rather than exporting those 3k / week.

 

[ReflexFunds]

Tooling I can believe. Dies don't care where they'll be used. But equipment? No. You have to know where that stuff is going and how it will interface with pre-existing building and equipment (if any).

They originally spec'd Model 3 stamping, body and paint for 10k/week. That's a very normal 2 shift factory. They ran into some problems and assembly turned into a disaster, so they re-targeted for 7k/week. The new level was roughly based on 3k for each internal final assembly line plus 1k in the tent.

The obvious "capex-light" approach is to finally utilize the full 10k capacity for stamping, body and paint and add third 3k/week internal final assembly line (GA5) for Model Y. They can also assemble Y in the tent and re-fit one or both of the two existing internal GA lines so they can switch between 3 and Y.

With this approach 3+Y target volume is 10k/week. I figure the split will be 60-70% Y after a year or so.

Tesla only installed production equipment to get Model 3 to 5k per week. They were waiting to get to 5k before signing off on installation of duplicated equipment to get to 10k per week. However in the meantime the trade war happened so they prioritised GF3 ahead of the Fremont Model 3 stage 2. At this point they tried instead to make small investments and modifications to push Model 3 equipment past its design specifications towards 7k per week. There were likely parts of the Model 3 production line that were installed with 10k design capacity meant for both stage 1 and stage 2, but the initial 10k target was based on a second wave of capex and machinery/equipment.

Elon and Tesla discussed this two stage plan multiple times including in 3Q17 - "We will provide an update when we announce Q4 production and delivery numbers in the first few days of January. With respect to the timing for producing 10,000 units per week, it has always been our intention to implement that capacity addition after we have achieved a 5,000 per week run rate. That will enable us to make the next generation of automation even better while making our capex spend significantly more efficient."

 

[electracity]

Elon has also said very clearly that Model Y production will not disrupt Model 3 production and that the company is assuming there will be no cannibalisation of Model 3 demand from Model Y.

I believe Musk said that he did not expect model 3 production to decrease. I took that to mean that the decrease from Fremont would be offset by China production.

I don't see how its possible to add a lot of MY production out of Fremont while maintaining current M3 production.

I was stating capacity, not production. It will take time for them to reach that level of production and I agree there will be choke points/constraints to overcome - in GF1 as well as in Fremont.

Still too high IMO for a plant the size of Fremont.

 

[ReflexFunds]

I believe Musk said that he did not expect model 3 production to decrease. I took that to mean that the decrease from Fremont would be offset by China production.

I don't see how its possible to add a lot of MY production out of Fremont while maintaining current M3 production.


Still too high IMO for a plant the size of Fremont.

Elon was pretty clear - "We do not expect it to interfere. Yeah, the body line is separate, the paint line is -- basically we do not expect it to interfere with Model 3. No, we do not expect any downtime. "

There is no magic limit on how many cars Fremont can produce. If there was Tesla obviously would have continued with their plan to build Model Y in GF1. We would have none of this talk of Model 3 production being gutted if they had gone ahead installing their equipment in GF1.
At Fremont they are installing new equipment, building new buildings and improving logistics.
I think Elon and Tesla need to state this more clearly in their next report. They are not going to reduce Model 3 capacity to make way for Model Y. This would be taking 2 steps forward and one step back.

 

[EVNow]

They are not going to reduce Model 3 capacity to make way for Model Y. This would be taking 2 steps forward and one step back.

Lets think about long term demand. The idea is obviously to produce 3 and Y in 3 continents. Fremont would produce for NA (and SA), GF3 for Asia and GF4 for EU.

Musk has said earlier, the demand for 3 is about 700k annually, worldwide. Let us say Y demand is slightly more - 800k. The split could be
Fremont - 250k + 300k
China - 250k + 300k
EU - 200k + 200k

Given that the current demand is
NA - 200k
China - 100k
EU - 120k

And the current production is ~ 350k in Fremont.

Ideally, Tesla build capacity such that they can vary the mix of 3/Y as needed to match demand. They need separate factories for Semi & Pickup.

 

[Thekiwi]

I think people are underestimating Q1. Tesla is going to have quite a large backlog of SR+ orders in Q1 to meet (it doesn’t look like they are shipping many internationally in Q4 - SR+ expected delivery is already moved to Q1 in many countries). Plus it will be the first full quarter of GF3 production.

I continue to believe the often quoted comment by Elon where he said “ Q1 will be tough” was purely in regards to quarter on quarter sequential growth (Which is what he was talking about in the previous sentence on that call.) Therefore I am expecting Q1 result will be something closer to the Q4 result in terms of deliveries (perhaps a decrease in revenue due to the Model mix skewing lower).

 

[EVNow]

I think people are underestimating Q1. Tesla is going to have quite a large backlog of SR+ orders in Q1 to meet (it doesn’t look like they are shipping many internationally in Q4 - SR+ expected delivery is already moved to Q1 in many countries). Plus it will be the first full quarter of GF3 production.

I continue to believe the often quoted comment by Elon where he said “ Q1 will be tough” was purely in regards to quarter on quarter sequential growth (Which is what he was talking about in the previous sentence on that call.) Therefore I am expecting Q1 result will be something closer to the Q4 result in terms of deliveries (perhaps a decrease in revenue due to the Model mix skewing lower).

Undoubtedly he was talking about serially increasing deliveries.

But, how do you go from "tough" to "something closer to the Q4" ? I'd expect a meaningful dip in Q1. Some upside possible from GF3 and make it even - but not something I'd bet on.

My current estimate is 95k in Q1. I think meaningful downside & upside possibilities remain.