Near-future quarterly financial projections

[EVNow]

@EVNow -- Agreed on all of that. My post was most relevant to some of the P/E ratios being bandied about in this thread. Market participants may focus on the 10-20% top-line growth of 2019 rather than the 80% of 2018 and 50% (or whatever) of 2020. And that would impact the P/E that they believe is appropriate.

I think it all comes down to what an analyst thinks are the likely 2020 Deliveries, ASP, Margin, Revenue & Profit.
- Those who assign lower values for all these will also assign lower P/E.

- Those who assign higher values for some/all of these will probably assign higher P/E.

A 20% revenue growth would mean about 420k (!) deliveries in 2020. Or higher deliveries with lower ASP - which would be mean Tesla has to cut prices since noone thinks Y and GF3 wll have lower ASP. In both these case, it makes perfect sense to use lower P/E.

If 50% growth in revenue (with > 530k deliveries) is assumed - would they use higher P/E ?

BTW, what is a good example of a company growing at 50% (or 20%) with comparable revenue/profit as Tesla ?
​

 

[Rarity]

BTW, what is a good example of a company growing at 50% (or 20%) with comparable revenue/profit as Tesla ?

For the 50% revenue growth figure, currently there is nobody. Historically, there are no great analogies. The closest that I have found at least with regard to revenue and gross margins is Amazon at the end of 2009, its 15th year in operations. Here are the numbers: Valuation.

At end of 2009, it was finishing up a year of 28% revenue growth and its top line stood at $24.5 billion. Its gross margins for the year were 23%. It's net profit for the year was $902 million. Its end-of-the-year market cap was $59.8 billion, meaning that its P/S was 2.4 and its P/E was 66. Amazon went on to post revenue growth of 40% and 41% in 2010 and 2011, respectively.

For the 20% revenue growth figure, I haven't searched for an analogy.

 

[Doggydogworld]

I think it all comes down to what an analyst thinks are the likely 2020 Deliveries, ASP, Margin, Revenue & Profit.
- Those who assign lower values for all these will also assign lower P/E.

- Those who assign higher values for some/all of these will probably assign higher P/E.

A 20% revenue growth would mean about 420k (!) deliveries in 2020. Or higher deliveries with lower ASP - which would be mean Tesla has to cut prices since noone thinks Y and GF3 wll have lower ASP. In both these case, it makes perfect sense to use lower P/E.

If 50% growth in revenue (with > 530k deliveries) is assumed - would they use higher P/E ?

BTW, what is a good example of a company growing at 50% (or 20%) with comparable revenue/profit as Tesla ?
​

Intel grew revenue from a little over $1b in 1986 to $33.7b in 2000, 26% CAGR. Tesla will go from 1b to 34b in less than 8 years. Of course Intel was massively profitable while Tesla loses money every year.

Microsoft grew even faster over that period, 40% CAGR, but with much lower revenue numbers (0.2b to 23b). Thanks to high s/w margins, though, Microsoft profits were almost as high as Intel's (e.g. 9.4b vs. 12b in 2000).

Changing gears, does anyone have thoughts on Q1? Franco shows one ship per week in January, similar to Q2 and Q3 but less than half the Q4 rate. He hasn't shown a schedule that far in advance before, maybe it's just a placeholder while Tesla fine tunes their Q1 plan? Barring a big price cut I expect US deliveries to be down seasonally, so it seems they need to ship even more cars than in Q4. Not to China or the Netherlands, of course, but UK, Korea and ???

 

[EVNow]

Intel grew revenue from a little over $1b in 1986 to $33.7b in 2000, 26% CAGR. Tesla will go from 1b to 34b in less than 8 years. Of course Intel was massively profitable while Tesla loses money every year.

Microsoft grew even faster over that period, 40% CAGR, but with much lower revenue numbers (0.2b to 23b). Thanks to high s/w margins, though, Microsoft profits were almost as high as Intel's (e.g. 9.4b vs. 12b in 2000).

Yes - very difficult to get any company similar to Tesla to compare. ps: Some of the fast growing s/w companies have p/e of over 100.

Changing gears, does anyone have thoughts on Q1? Franco shows one ship per week in January, similar to Q2 and Q3 but less than half the Q4 rate. He hasn't shown a schedule that far in advance before, maybe it's just a placeholder while Tesla fine tunes their Q1 plan? Barring a big price cut I expect US deliveries to be down seasonally, so it seems they need to ship even more cars than in Q4. Not to China or the Netherlands, of course, but UK, Korea and ???

My expectation is - they will ship less and sell less in Q1 compared to Q4. But, make up somewhat with GF3 deliveries.

Q1 could be 85k from Fremont vs 106k in Q4. Add some 10k from GF3, we get to 95k total in Q1.

 

[Thekiwi]

BTW, what is a good example of a company growing at 50% (or 20%) with comparable revenue/profit as Tesla ?
​

One is a company and the other a product line within a company, but the comparison isn’t too far off:

Tesla:
2016: $7 Billion
2017: $11.75 Billion
2018: $21.5 Billion
2019*: $24 Billion
2020*: $37 Billion
2021*: $64 Billion
(* = projections/WAGs)

“iPhone”

2008: $6.7 Billion
2009: $13 Billion
2010: $25 Billion
2011: $46 Billion
2012: $79 Billion
...
2018: $167 Billion

 

[hobbes]

Franco shows one ship per week in January, similar to Q2 and Q3 but less than half the Q4 rate. He hasn't shown a schedule that far in advance before, maybe it's just a placeholder while Tesla fine tunes their Q1 plan? Barring a big price cut I expect US deliveries to be down seasonally, so it seems they need to ship even more cars than in Q4. Not to China or the Netherlands, of course, but UK, Korea and ???

IIRC Franco´s spreadsheet shows ships that are officially scheduled with the harbour, so no wild guesses. But more ships could be added. Also, possibly the Teslas per ship could be increased (as measured in loading days per ship). So if they don´t do ride sharing with other manufacturers any more they won´t need as many ships. I am not sure though how long they have done sharing or if they already stopped that.

Otherwise I agree that most likely China will make up for some of the slowdown in NA and Europe. A lot of hype there around GF3 but only symbolic deliveries of made in China Model 3s. They have a lot of time to pre-produce and distribute to start selling a lot in Q1. We have seen how fast delivery numbers can increase in Netherlands and China is a whole different order of magnitude especially as cars are now produced locally.

 

[kbM3]

Everyone is calculating very good profits for 2020, but couldn’t spinning up large battery cell production(as we expect Tesla to announce during Battery Investor Day), put a big dint in them?

 

[kbM3]

I posted my estimate sometime back. I've only done 2020. Your numbers don't look out of whack, though. I've only assumed marginal increase in reg credits and margin. But I assumed ~400M in FSD revenue over Q1/Q2.

Your EPS seems to suddenly jump in Q4 '20 from Q3 '20. My EPS goes up gradually. It would be nice if you can post your delivery numbers & ASP, if you have them.

View attachment 484836

You have a $7M drop in leasing revenue in Q1.

Assuming lease payments of $1.5k / quarter per Model 3 and 8k Model 3’s leased per quarter, shouldn’t Model 3 lease revenue be increasing at $12M per quarter until 10 quarters from now, when older Model 3 leases start ending? Was there a particular reason for the drop from q4 to q1?

 

[mongo]

Everyone is calculating very good profits for 2020, but couldn’t spinning up large battery cell production(as we expect Tesla to announce during Battery Investor Day), put a big dint in them?

Wouldn't that impact cash flow / CapEx versus Profit and Loss?

 

[Doggydogworld]

But more ships could be added.

That's what I'm thinking. Schedule a ship a week now, then add as needed. BTW, I don't think these ships are ever completely empty. Kind of like those big moving vans on the highway carrying 4-6 households worth of furniture. Drop one load off here, pick up another one there. When Zach said they were fully loading ships people got carried away doing 6k cars per ship math, but that's not how it works.

Anyway, I normally think in terms of a 20% seasonal drop from Q4 to Q1. The Q1 US drop was much worse, though, over 50% for S/X and over 60% for Model 3. And it would have been even worse without the three price cuts in January and February. The tax credit cut obviously exacerbated the seasonal effect, but there was more to it than that. Also, S/X fell 62% in Europe with more than half coming from the Netherlands (-98% on incentive cuts).

I thought they'd reduce Fremont Model 3 output in Q1 2020 to accelerate the Model Y transition, but Elon shot that idea down. So if Fremont makes 90k Model 3s next quarter, where do they go?

30k - US (-30% from Q4 but +30% Y/Y)
10k - UK (+100% from Q3/Q4 on new incentive starting April 6)
2k - The Netherlands (-85% on BIK change)
13k - Rest of Europe (return to Q3 levels after being starved in Q4)
2k - Canada (??)
1k - China
5k - Korea, Australia, etc.
------
63k

I can't see them adding 27k to inventory. What am I missing?

Everyone is calculating very good profits for 2020, but couldn’t spinning up large battery cell production(as we expect Tesla to announce during Battery Investor Day), put a big dint in them?

I don't see meaningful cell production in 2020. GF1 can fully supply Fremont, IMHO, and LG/CATL will supply GF3. Cell production is hard, and you can't fix mistakes with OTAs. I see a single line making low volumes of cells around mid-year, with an eye toward real production in 2021.

 

[Doggydogworld]

You have a $7M drop in leasing revenue in Q1.

Assuming lease payments of $1.5k / quarter per Model 3 and 8k Model 3’s leased per quarter, shouldn’t Model 3 lease revenue be increasing at $12M per quarter until 10 quarters from now, when older Model 3 leases start ending? Was there a particular reason for the drop from q4 to q1?

You are correct.Leasing revenue and COGS are a function of fleet size and the Model 3 lease fleet grows every quarter. S/X lease fleet is shrinking a little, but not nearly enough to offset the Model 3 growth.

 

[EVNow]

You have a $7M drop in leasing revenue in Q1.

Assuming lease payments of $1.5k / quarter per Model 3 and 8k Model 3’s leased per quarter, shouldn’t Model 3 lease revenue be increasing at $12M per quarter until 10 quarters from now, when older Model 3 leases start ending? Was there a particular reason for the drop from q4 to q1?

You are correct.Leasing revenue and COGS are a function of fleet size and the Model 3 lease fleet grows every quarter. S/X lease fleet is shrinking a little, but not nearly enough to offset the Model 3 growth.

Good catch. I'm using old thumb rules when Model 3 lease had not started in earnest and S&X was falling. Will update.

 

[kbM3]

Wouldn't that impact cash flow / CapEx versus Profit and Loss?

My limited understanding of accounting is exactly why I phrased that as a question. I based the question on my new understanding that profitability is greatly reduced during product ramps because of under-utilization, less well trained workforce, extra shipping cost, unfamiliar supply chain management... I reasoned those same factors would apply even for components of the main product.

 

[kbM3]

You are correct.Leasing revenue and COGS are a function of fleet size and the Model 3 lease fleet grows every quarter. S/X lease fleet is shrinking a little, but not nearly enough to offset the Model 3 growth.

Thanks. It was something I thought about, after learning from some of your past posts that explained how leasing works

 

[mongo]

My limited understanding of accounting is exactly why I phrased that as a question. I based the question on my new understanding that profitability is greatly reduced during product ramps because of under-utilization, less well trained workforce, extra shipping cost, unfamiliar supply chain management... I reasoned those same factors would apply even for components of the main product.

Yeah, based on the accountant's summary, once they start production, a low build rate could have a negative impact due to high COGS on low volume. However, if they do not "sell" the cells to themselves, then it may just track via inventory costs and have a diluted impact on vehicle margins.

 

[Thekiwi]

That's what I'm thinking. Schedule a ship a week now, then add as needed. BTW, I don't think these ships are ever completely empty. Kind of like those big moving vans on the highway carrying 4-6 households worth of furniture. Drop one load off here, pick up another one there. When Zach said they were fully loading ships people got carried away doing 6k cars per ship math, but that's not how it works.

Anyway, I normally think in terms of a 20% seasonal drop from Q4 to Q1. The Q1 US drop was much worse, though, over 50% for S/X and over 60% for Model 3. And it would have been even worse without the three price cuts in January and February. The tax credit cut obviously exacerbated the seasonal effect, but there was more to it than that. Also, S/X fell 62% in Europe with more than half coming from the Netherlands (-98% on incentive cuts).

I thought they'd reduce Fremont Model 3 output in Q1 2020 to accelerate the Model Y transition, but Elon shot that idea down. So if Fremont makes 90k Model 3s next quarter, where do they go?

30k - US (-30% from Q4 but +30% Y/Y)
10k - UK (+100% from Q3/Q4 on new incentive starting April 6)
2k - The Netherlands (-85% on BIK change)
13k - Rest of Europe (return to Q3 levels after being starved in Q4)
2k - Canada (??)
1k - China
5k - Korea, Australia, etc.
------
63k

I can't see them adding 27k to inventory. What am I missing?

I don't see meaningful cell production in 2020. GF1 can fully supply Fremont, IMHO, and LG/CATL will supply GF3. Cell production is hard, and you can't fix mistakes with OTAs. I see a single line making low volumes of cells around mid-year, with an eye toward real production in 2021.

I think your China number is too low - plenty of customers will still want LR & performance models I imagine. As I understand it, the BIK change in the Netherlands is still advantageous for EVs, so volumes might pick up towards end of quarter again. Canada seems low as well, there wasn't any incentive change there was there? The "Rest of Europe" should have better supply of the SR+ than the last 2 quarters did which may improve numbers.

The big question is the US number, the pull forward amount should be less than last year with the half as big step down in tax incentive ($1875 vs $3750), and the SR+ will be available for the whole of Q1 (vs the Feb launch announcement in the year ago quarter) and none of the negative effects of the year ago period (Consumer reports pulling model 3 from the recommended list, layoff & store closure negative press). Also Tesla has slowly ramped up the model 3 pricing during Q4, leaving room for a potential price drop in Q1 to combat the end of tax incentive and/or the introduction of some limited time free or discounted upgrade options.

 

[Fact Checking]

30k - US (-30% from Q4 but +30% Y/Y)
10k - UK (+100% from Q3/Q4 on new incentive starting April 6)
2k - The Netherlands (-85% on BIK change)
13k - Rest of Europe (return to Q3 levels after being starved in Q4)
2k - Canada (??)
1k - China
5k - Korea, Australia, etc.
------
63k

I can't see them adding 27k to inventory. What am I missing?

• Germany could release some deferred demand due to the new, generous incentives: €6,000 and €4,000.
• NL BIK demand will fall off a cliff because leasing companies are effectively acting as Tesla dealers, but regular non-BIK EV purchases are still very advantageous compared to ICE vehicles. Much larger market than Norway and a Teslafication wave might have started.
• Korea might be bigger than 4k ... very generous incentives, but Tesla starved them due to tax cliffs in the U.S. and NL. Big market.
• FSD features and a much more positive environment than in early 2019 might generate more organic demand in the US. HW3 upgrades and city FSD might drive additional FSD upgrades.
• Tesla might do preemptive price cuts in the U.S., due to the end of the tax credit. This would unlock buyers who didn't have much federal tax liabilities.
• China 1k sales looks conservative, but they might indeed concentrate all demand to GF3. I think any U.S. unit displaced by MIC units will be a margin improvement for Tesla, so they'll push customers towards that.
• Elon indeed said that Model Y rampup won't disrupt Model 3 production in principle, but if Tesla redirects Model 3 supplies to Model Y, Wall Street won't complain about the higher margins as long as total deliveries and Fremont utilization is good ...

 

[EVNow]

I thought they'd reduce Fremont Model 3 output in Q1 2020 to accelerate the Model Y transition, but Elon shot that idea down.

I'd disregard what Musk said "in principle". They know how many orders are left over from Q4 and will have a good idea about the rate of orders in Q1. They will adjust the Model 3 production - and explain the reduced output to Model Y preparations. As long as they make a profit in Q1 - everyone will be happy (and TSLA gets added to S&P 500).

BTW, if they have drawn down the inventory a lot in Q4, they can add that back in Q1. Also, Fremont + GF3 Model 3 production may be flat or slightly increased in Q1 from Q4.

I've Q4 production as 85k and Q1 '20 production as 87k. Inventory goes down from 15k to 8k in Q4 and comes back to 15k in Q1.

 

[EVNow]

You have a $7M drop in leasing revenue in Q1.

Assuming lease payments of $1.5k / quarter per Model 3 and 8k Model 3’s leased per quarter, shouldn’t Model 3 lease revenue be increasing at $12M per quarter until 10 quarters from now, when older Model 3 leases start ending? Was there a particular reason for the drop from q4 to q1?

I made some changes based on this idea. I made assumptions like 60% residual, 5% int rate, 8% down payment. Also, that down payment in counted as revenue. Because of this last item - the lease revenue can indeed come down in Q1 compared to Q4, if the deliveries in Q1 are sufficiently lower than Q4. As you can see below there are 2 additions and 2 subtractions. With my delivery number assumptions, it doesn't happen - its flat.

Lease Revenue for Q4 =

Lease Revenue for Q3 +
Down payment on new Q4 leases +
One month lease payment on new Q4 leases -
Down payment on new Q3 leases -
One month lease payment on new Q3 '16 leases

ps : accounting for the way Tesla delivers most cars in the 3rd month makes this more complicated. I'd have to adjust a few more things ...​

 

[dc_h]

I thought they'd reduce Fremont Model 3 output in Q1 2020 to accelerate the Model Y transition, but Elon shot that idea down. So if Fremont makes 90k Model 3s next quarter, where do they go?

30k - US (-30% from Q4 but +30% Y/Y)
10k - UK (+100% from Q3/Q4 on new incentive starting April 6)
2k - The Netherlands (-85% on BIK change)
13k - Rest of Europe (return to Q3 levels after being starved in Q4)
2k - Canada (??)
1k - China
5k - Korea, Australia, etc.
------
63k

At least 10,000 inventory build is probably needed. They’ve cleared out showrooms to sell everything they have.
USA is a wild card, but that seems reasonable.
UK also probably on target. Europe should be up more excluding Netherlands. Norway probably has pent up demand and will go back to 5,000 from under 2000 this quarter. New markets in Eastern Europe could be another 2000 deliveries and Germany should improve with GF4 announcement. Tesla becoming more German should make the car more socially acceptable. China 5000 seems reasonable as well with LR and performance demand. Lastly Korea, Japan and ANZ should be closer to 10,000.
30k USA
10k UK
5k Netherlands
5k Norway + 15k rest of Europe.
5k China
10k rest of Asia.
That’s still only 80,000 plus MIC Model 3 deliveries. Adding 10-15k to inventories seems reasonable before cranking up deliveries in Q2.