I haven't run the numbers yet on Q1 with data from Q4 ER incorporated, but I'm not too worried about SG&A for now. They said the $82M SBC increase was "almost entirely" due to the CEO Grant, so it sounds like the CEO grant was on the order of $70M. So real SG&A likely only increased by ~$30M.
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
Near-future quarterly financial projections
- Thread starter luvb2b
- Start date
I haven't run the numbers yet on Q1 with data from Q4 ER incorporated, but I'm not too worried about SG&A for now. They said the $82M SBC increase was "almost entirely" due to the CEO Grant, so it sounds like the CEO grant was on the order of $70M. So real SG&A likely only increased by ~$30M.
@The Accountant might have extra insight or corrections here as I haven't followed stock option accounting closely, but my understanding is the expense its totally unrelated to share price and market cap.
Tesla reserves for each tranche of the stock options based purely on whether they think the operational milestone will be met and then splits the cost of this tranche over a number of years (i think generally 4).
Tesla's total maximum cumulative P&L cost for the stock options award is fixed at $2,283m - this was the value of the 20.3 million performance conditioned warrants issued (with expected maturities up to 10 years) on the grant date.
Different tranches had different value at grant date depending on probability of achieving the operational goal and how far out of the money the market cap threshold was in March 2018.
Tesla has so far been expensing for the first 3 tranches of the the stock awards at a cost of $56m per quarter.
The change in Q4 was that a 4th performance goal is now expected to be achieved and cumulative cost of this fourth tranche since the grant date in March 2018 had to be booked for $72m. So this $72m for tranche 4 was 1.75 years worth of catch up - or $10m per quarter.
So Q120 should return to an Elon bonus expense of $56m for the first three tranches plus $10m for the fourth tranche - so $66m (down from $128m in 4Q19).
I don't think any extra expense will have to be booked at all when the market cap thresholds are actually met and when the stock is actually issued.
In future, when further operational milestones are first considered probable of achievement, the catch up expense will be <$10m * number of quarters since 1Q18, and the normalised addition to quarterly cost will be + <$10m. (<$10m because future tranches will all have lower value than tranche 4 because the probability of achievement at grant date was lower).
I'm not sure if the 4th operational milestone which triggered in Q4 was $35bn revenue or $4.5bn EBITDA, but ideally $35bn revenue, $4.5bn EBITDA and $6.5bn EBITDA will all be considered likely by the end of 2020.
If these two extra milestones are booked in 2020, one off catch up cost should be $120-140m and run rate cost should increase to $80-85m. Overall it means a maximum of ~$480m Elon bonus cost booked in 2020 vs $295m in 2019.
Last edited:
Someone more knowledgeable than I, please chime in. And @ReflexFunds did. thank you!
Agreed, it is all prepaid in the vesting period.
Ohhhh, they used warrants to lock in the cost? That explains it. They don't need to factor in the actual stock price at grant.
Thank you!
<Multiple pages of incorrect guesses>
On the upside, this is tracked as a future expense and will produce more deferred tax offsets applied in the future when the options are granted.
They didn't actually buy call options to cover the potential dilution as far as I know. However I think they still should do.
Performance conditioned warrants is just the name I made up to describe the 20.3m stock options granted to Elon in March 2018.
But whatever these options are called, they were valued in March 2018 for accounting purposes, and I believe this value is fixed forever for P&L purposes no matter what change in the share price or what share price actually is when they vest. All that changes quarter to quarter is at what rate this $2.3bn maximum cumulative P&L cost is being booked to P&L.
EVNow
Well-Known Member
I saw the $2B present value of the future options - but is that the fair market value to be shown per GAAP when the stock option is given ?
The full P&L impact is all fixed on the grant date (March 2018) as far as I understand. All that varies is how quickly this is being booked in the accounts.
There should be no P&L change shown when the stock option meets its market cap conditions. It’s just equity accounts and dilution that gets impacted by the actual shares issuance.
EVNow
Well-Known Member
This looks to be correct. See page 40 below.
https://ir.tesla.com/static-files/55362f0a-ee8a-4fcc-ba11-cc09194974b6
Still we'll have to figure out the possible SGA impact every quarter.
THANK YOU!
I missed that page with the relevant data. Now it all lines up with my Googling, right down to the Black-Scholes numbers.
Thanks, I didn't realise this document was available.
So I think its quite clear from the calculations in my above post that the run rate quarterly cost will be ~$66m now that they are reserving for four tranches of share awards.
The question is mostly on during which quarters they first consider the next operational milestones probable of achievement.
If this happens in 2020, the one off catch up SG&A cost will be 8-11 quarters (since 1Q18) * ~$5-10m (likely closer to $10m, but we know at least that tranche 5 will be worth less than tranche 4). Then the quarterly run rate will also increase by $5-10m.
However if they start considering $4.5bn or $6.5bn EBITDA probable, its very likely they will have to release their deferred tax reserve into profit during the same quarter, so any further one off bonus SG&A catch up costs will be massively dwarfed by one off deferred tax profit.
Last edited:
Doggydogworld
Active Member
The number of years is called the 'expected achievement period'. It's either the time until they expect to meet the operational milestone or the time a Monte Carlo simulation estimates it will take to meet the market cap milestone. Generally it will take longer to meet the market cap milestone, though if TSLA went to 1800 or something that would change.
I agree the aggregate potential cost was fixed on day one. Great point. I don't see where tranche value depends on achievement probability, though. I figure each tranche is valued at 228m, give or take.
Yes, unless they deem another operational milestone to be probable in Q1. The 35m Revenue and 4.5b AEBIDTA milestones are almost equally probable, IMHO. I don't know which one they deemed probable in Q4, but the other is probably coming soon.
Agreed. Another important point.
The plan seems to envision 8% AEBITDA margins. They were ~12% in 2019 and >15% in the seasonally strong second half. This despite a huge drop in high margin S/X sales. It seems Tesla cut costs much more effectively than management expected. I'll need to see this continue before counting the 6.5b chicken, though.
Great post, thanks.
The final total value is $2,283m (disclosed each quarter), so it would be $190m per tranche if split evenly however, from the quarterly disclosures (quoted below) we can see the first 3 tranches were worth $431m + $167m (9M19 booked) + $175m (FY18 booked) = $773m or $258m per tranche. The remaining 9 unlikely tranches were then just worth an average $168m each. So it seems that somehow more distant tranches are valued less. On a quarterly cost basis the more distant tranches are also likely to be booked over a larger time period, so as well as a lower total value for each tranche, it will also likely be distributed over more years of P&L .
I think at 4Q the bonus will look something like this:
"As of September 30, 2019, we had $431 million of total unrecognized stock-based compensation expense for the operational milestones that were achieved but not vested or were considered probable of achievement, which will be recognized over a weighted-average period of 2.5 years. As of September 30, 2019, we had unrecognized stock-based compensation expense of $1.51 billion for the operational milestones that were considered not probable of achievement. For the three and nine months ended September 30, 2019, we recorded stock-based compensation expense of $56 million and $167 million, respectively, related to the 2018 CEO Performance Award. For the three months ended September 30, 2018, we recorded stock-based compensation expense of $56 million related to this award. From March 21, 2018, when the grant was approved by our stockholders, through September 30, 2018, we recorded stock-based compensation expense of $119 million related to the 2018 CEO Performance Award."
EVNow
Well-Known Member
Why do you think they are doing a catch up ?
Looks to me they are looking at total reward probable at a point and recognizing it over the next 2.9 years (about 10%). That's how they got 55M from the 540M of probable reward in Q2 '19.
As of March 31, 2019, we had $543.0 million of total unrecognized stock-based compensation expense for the operational milestones that were achieved but not vested or considered probable of achievement , which will be recognized over a weighted-average period of 2.9 years. As of March 31, 2019, we had unrecognized stock-based compensation expense of $1.51 billion for the operational milestones that were considered not probable of achievement . For the three months ended March 31, 2019, we recorded stock-based compensation expense of $55.0 million related to the 2018 CEO Performance Award. From March 21, 2018, when the grant was approved by our stockholders, through March 31, 2018, we recorded stock-based compensation expense of $6.7 million related to the 2018 CEO Performance Award.
ps : Or as @Doggydogworld is pointing out - it could be that each tranche gets its own likely time of becoming a reality and they provision equally in the quarters remaining from now until that time. This looks more consistent than trying to do catchups.
So, the $72m could be the total rather than the extra one time catchup provision. Going forward it will be $72m instead of $55m ?
Last edited:
The $56m of quarterly cost they have been booking relates to the $773m total value of the first three tranches, all of which have been considered probable since the award was granted. See my post above. This $773m appears to be booked over an average 3.5 years but within that tranche one may be distributed over less years and tranche 3 for longer.
In Q4 we have just gone from 3 tranches to 4 tranches being reserved for. This did not increase the normalised quarterly cost more than 100% from $56m to $56m + $72m. Most of the cost in Q4 was one off catch up for tranche 4. You can do the calculations to see that the quarterly run rate growth going from 3 tranches to 4 tranches is only ~$10m, so from $56m to $66m.
"In addition, if an operational milestone that was not considered probable at the grant date later becomes probable, we will record at such time cumulative catch-up expense for the service provided between the grant date and such time, which may be material depending on the length of such period."
EVNow
Well-Known Member
Urgh … this makes it difficult to forecast. On any quarter they may decide something is worth provisioning for and record a $100 million GAAP expense.
Good thing, wall st goes by non-GAAP EPS. This gaap profit is only important for S&P inclusion.
Its hardish to forecast, but you can model which operational goals are likely in the near term.
Most likely Elon bonus costs will be down $62m QoQ in Q1 to $66m.
However if Tesla decide the fifth operational goal is now likely (whichever of $35bn revenue and $4.5bn EBITDA they haven't already done) then it should be up ~$10-20m QoQ to ~$138-148m.
How does that interact with the market cap goal also having to be met? Is it assumed those will be achieved if the operational goals are?
Yes market cap goals are separate from the P&L.
P&L is only impacted by meeting operational goals.
It’s just conservative accounting - booking all the costs even if the market cap criteria is still uncertain to be met.
I have been updating my model with the Q4 data and trying to get a first pass estimate for Q1 production and sales. For production I am assuming the following:
17k S/X
85k 3 (10 weeks Fremont @7k, 10 weeks GF3 @1.5k)
8k Y (8 weeks @1k)
For deliveries:
17k S/X
76.5k 3 (assuming 1 week of production is in transit at the end of the quarter)
7k Y (assuming 1 week of production is in transit at the end of the quarter)
With the possible exception of the S/X figures I think I am being conservative. These figures give a small profit in Q1 before the impact of the potential 1 off items - FCA, FSD etc.
Any comments on this logic?
17k S/X
85k 3 (10 weeks Fremont @7k, 10 weeks GF3 @1.5k)
8k Y (8 weeks @1k)
For deliveries:
17k S/X
76.5k 3 (assuming 1 week of production is in transit at the end of the quarter)
7k Y (assuming 1 week of production is in transit at the end of the quarter)
With the possible exception of the S/X figures I think I am being conservative. These figures give a small profit in Q1 before the impact of the potential 1 off items - FCA, FSD etc.
Any comments on this logic?
EVNow
Well-Known Member
I'm assuming 95k deliveries - which is similar to your s/x/3. But 0 Y. They said something about March config studio - not sure they'll deliver many Ys. May be 2k.
ps : Zach said ...
On Model Y, we expect first deliveries in limited quantities later this quarter and will ramp over subsequent quarters. As mentioned previously, we are forecasting higher gross margins on Model Y compared to the Model 3.
Last edited:
