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Near-future quarterly financial projections

Discussion in 'TSLA Investor Discussions' started by luvb2b, May 23, 2018.

  1. Krugerrand

    Krugerrand Is Cat

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    You know what my level of accounting knowledge is; if Jack bought 5 magic beans and planted 3 of them, how many beers does he have left in the fridge?

    You accountants always trying to add drama and mystery and shoot outs and car chases and hidden rooms under 800 year old churches full of buried treasure to your job to make it more than the snooze fest it is. (Yeah, don’t care how I ended that sentence.) You will never be confused for John Wick. Ever. The end.
     
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  2. The Accountant

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    Haha - the mid-point of my range above ($125m-$250m) is $188m.
    Tesla just released it's 10Q. Idle Capacity charge was $189m in Q2.
    $189m is the upside we will see in Q3 with no shutdown at Fremont.

    From the 10Q
    "The increases were partially offset by idle capacity charges of $189 million and $213 million as a result of temporary suspension of production at the Fremont Factory during the three and six months ended June 30, 2020, respectively"
     
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  3. The Accountant

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    #3823 The Accountant, Jul 28, 2020
    Last edited: Jul 28, 2020
    In Q2, 2020, Tesla recorded $167m for Elon's award. Much of this was a 'catch-up" charge as a new tranche became probable.
    I show the difference in the CEO Award assumptions between Q2 vs Q3 below.

    EDIT:
    Just saw this in 10Q filed:
    "During the second quarter of 2020, an operational milestone under the 2018 CEO Performance Award of Adjusted EBITDA of $4.5 billion became probable of being met and consequently, we recognized a catch-up expense of $79 million in such quarter. During the third quarter of 2020, the second tranche vested and therefore the remaining unamortized expense of $95 million associated with such tranche, which was previously expected to be recognized ratably in future quarters through the first quarter of 2022 as determined on the grant date, will be accelerated into the third quarter of 2020"

    So there will be a $95m catch-up charge in Q3 2020. There was a catch up charge in Q2 of $79m.

    upload_2020-7-28_7-17-24.png
     
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  4. ByeByeJohnny

    ByeByeJohnny Member

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    Is this all from Elons compensation package? If so that's almost exactly half as already expensed or to be expensed. Does that mean Tesla sees 6 of 12 levels to be probable at this time? That would mean they think $400B market cap is probable. Or is the value of the higher levels higher in this regard so that it's actually maybe 8 of 12? That would mean around $500 probable.

    Any way to do the math on this?
     
  5. The Accountant

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    #3825 The Accountant, Jul 28, 2020
    Last edited: Jul 28, 2020
    I am not sure on how to do the math on this. My thinking is your second scenario. That something like 8 of the 12 tranches are probable.
    The strike price on the options are $350 per share for any of the tranches. My guess is tranches 9-12 with market caps ranging from 500B to 650B would have to be more expensive.

    For example
    Tranche #5 - Market Cap at $300B has share price at $1,500
    Tranche #11 - Market Cap at $600B has share price at $3,000
    If Elon achieves these tranches, he pays $350 per share. So I would think the later tranches have a higher impact to the P&L....but I'm not sure.
     
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  6. kengchang

    kengchang Active Member

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    There's also $20 million idle charge to Giga New York as well
     
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  7. The Accountant

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    Thanks for pointing that out; I had not seen that.
    It impacts how I compute Q3 earnings as I always start with the prior quarter as a starting point.
     
  8. Doggydogworld

    Doggydogworld Active Member

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    So there are two types of catch-ups:
    1. When an operational milestone becomes probable they catch up quarterly amortization back to 3/21/18
    2. When a tranche is earned they accelerate all future scheduled amortization into the current quarter​
    The 79m in Q2 was the first type and the 95m in Q3 is the second type.

    Here's how I break down quarterly comp expense for the 2018 CEO plan:
    Q1 2020
    66m - Amortize tranches 1-4

    Q2 2020
    66m - Amortize tranches 1-4
    22m - Catch-up because Tranche 1 was earned (final amortization was scheduled in Q3 2020)
    79m - Catch-up because 5th milestone deemed probable
    ---------
    167m - Total

    Q3 2020 (expected)
    47m - Amortize tranches 2-5
    95m - Catch-up because Tranche 2 was earned (last amortization was scheduled for Q1 2022)
    118m - Expected catch-when Tranche 3 is earned (last amortization was scheduled for Q1 2023)
    ----------
    260m - Total

    My estimates of cost and amortization for each tranche:
    1 - 277m amortized at 28m for 9.9 quarters
    2 - 256m amortized at 16m for 16 quarters
    3 - 240m amortized at 12m for 20 quarters
    4 - 225m amortized at 10.2m for 22 quarters
    5 - 208m amortized at 8.7m for 24 quarters
    6 - 193m amortized at xxm for xx quarters
    7 - 180m amortized at xxm for xx quarters
    8 - 167m amortized at xxm for xx quarters
    9 - 154m amortized at xxm for xx quarters
    10 - 141m amortized at xxm for xx quarters
    11 - 128m amortized at xxm for xx quarters
    12 - 115m amortized at xxm for xx quarters

    We know from SEC filings T1-3 total to 773m, we know T4 is 225m and T5 is 208m, and we know T6-12 total to 1078m. We also know some of the amortizations, e.g. quarterly amortization jumped from 56m to 66m after they deemed the 4th operational milestone to be probable. We can also triangulate from the catch-up numbers, e.g. 79m T5 catchup over 9.11 quarters since 3/21/18 = 8.7m/quarter. Similar math gives 10.2m/q for T4 and I used acceleration of remaining quarters to get 16m for T2 and 12m for T3.

    It seems Tranche 1 should amortize over an even 10 quarters, but I couldn't quite get the numbers to fit. Amortization started on 3/21/18 so 10 quarters would end 9/20/20, roughly 90% of the way through the quarter. The SEC filing says Q3 scheduled amortization was only 22m. That implies ~24m for a full quarter, but we know it's close to 28m. 9.9 quarters made the numbers fit. So sue me :)

    I was going to put 26/28/30/etc. quarters for T6-12 , but those would be pure guesses so I left them as unknowns.
     
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  9. kengchang

    kengchang Active Member

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    What's your take on this statement?

    As part of various governmental responses to the pandemic granted to companies globally, we received certain payroll related benefits which helped to reduce the impact of the COVID-19 pandemic on our financial results. Such payroll related benefits related to our direct headcount have been primarily netted against our idle capacity charges disclosed as well as marginally reduced our operating expenses. The impact of the idle capacity charges incurred in the current period were almost entirely offset by our cost savings initiatives and payroll related benefits.

    Does this mean payroll benefit + cost saving measure amounts to nearly $209 million? How would this play out in Q3?
     
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  10. The Accountant

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    This is very helpful. Thanks !!
     
  11. The Accountant

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    In SG&A they saved $120m from salary cuts and non-salary savings
    In R&D they saved $45m from the same actions.
    That's about $165m in savings total.
    Likely another $45m in savings in Cost of Goods Sold from manufactuing managment salary cuts and non-salary savings.

    I've added those costs back into Q3 in my estimates.

    EDIT: The biggest driver of Q3 profit improvement will come from the additional 54k cars sold (145k in Q3 vs 91k in Q2) and improving margins.
     
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  12. kengchang

    kengchang Active Member

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    Just found this, pay cut ended. So that means the $209M idle charge is a wash for Q3

    To: Tesla talent
    From: Tesla talent team
    Subject: launch of 2020 performance acceleration plan
    Date: July 1, 2020
    Dear Tesla employees,
    Following Valerie’s June 17 email, today we will launch Tesla’s new performance appraisal program, 2020 performance acceleration program. 2020 performance acceleration plan is the guideline for our organization to evaluate performance, provide feedback, set clear goals and expectations, and provide necessary support. It is also the main means by which we decide on promotions, raises, equity awards and other performance recognition. It is also the main way to evaluate the organization of the company and the conditions required for its continued success.
    The new 2020 performance acceleration plan is released to all employees today, which will be a semi annual process. Here are some of the key time points in the plan:
    Timeline:
    From June 29: end of pay cut
    July 1: performance acceleration
    July 27: managers start sending performance appraisal reports
    August 7: all Tesla employees can see the performance appraisal report on the company’s internal website
    resources:
     
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  13. The Accountant

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    I noticed the titles were wrong on the charts. Here are the corrected titles:

    Q1 vs Q2
    upload_2020-7-28_15-25-54.png
     
  14. Doggydogworld

    Doggydogworld Active Member

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    Random 10-Q notes:

    They recognized all 140m of deferred reg credit revenue in Q2. Of the remaining 642m recognized in 1H, 600m was in AR on 6/30/20!

    Bears called out Tesla for dropping language from the Q1 10-Q saying they recognize revenue for sale of auto regulatory credits "when control of the regulatory credits is transferred". Gordon Johnson (ha) claimed this let them recognize revenue for credits before selling them. But the language is back this quarter, on page 12. Any conspiracy theorist worth his salt would say this only applies to "credits", though, not to the FCA pooling agreement :)

    They reduced Auto Sales Revenue 60m and Auto COGS 37m based on higher likelihood Resale Value Guarantee vehicles would be put back to them. This is for the "new style" RVGs which they recognize as sales less a return allowance. The old-style RVGs continue to roll off, one will finish up this quarter and the other is now under 100m on the balance sheet.

    Still around 1300/car warranty provision. Higher than GM/F/etc. but probably typical for premium brands. Claims 62m, down from 81m in
    Q1, probably due to work-from-home and stay-at-home orders.

    Long lived international assets jumped 450m in Q2 after increasing 197m in Q1. Increases were small in 2019. I don't see how a 1b++ GF3 Phase I fits in there. Speaking of conspiracy theories, I've long suspected Phase I was "free". This year's increases would be Phase II showing up in Construction in Progress (+248m net ytd).

    PP&E depreciation was 356m in Q2, -15m Q/Q and +21m Y/Y. A whole new factory in China and a whole new production line in Fremont, yet no additional depreciation. That's interesting. Tooling depreciation was probably down 15m on lower production, but I see this as more support of my free GF3 theory.

    Effectively zero additions to Panasonic equipment at GF1 this year. IMHO this puts a stake in the heart of the theory that Panasonic expanded to 54 GWh there (a Pana exec said they were able to do so if asked, and some bulls took that as a fait accompli).

    They borrowed 700m on their China loan agreements. Almost no convertible bond holders opted for early conversion in Q2. I don't understand this at all, delta is 1.0 and they aren't liquid.
     
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  15. Zhelko Dimic

    Zhelko Dimic Careful bull

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    #3835 Zhelko Dimic, Jul 28, 2020
    Last edited: Jul 28, 2020
    I don't think this is the case - later tranches having the higher impact. Value of reward is set at the time of grant, as per the probability of achievement, i.e. cost of options granted, I _think_ based on Black_Scholes model. I'm quite confident this isn't how much Musk would actually get. Again, I think (vaguely remember) overall reward for all tranches was estimated as $2B worth, even though Musk would get $50B+ if exercised at strike prices of the last reward. I also assume (vaguely remember?) that overall value of the reward was then divided with the number of tranches, as otherwise initial tranches would have been way more valuable (easier to achieve, same expiration date), to not unduly burden financial results.

    Having said that, conditions for third tranche will become fulfilled during the Q3 (average capitalization 200B+ over 6 months + 3.5B EBITDA/year), so they'll have to catch up on second tranche, recognize some higher number for third tranche (like this Q), or even fully catch up (assuming there is enough profit), and speed up recognition of fourth tranche. If SP continue rocking, Elon's rewards are going to become airbrake, so SP doesn't go fully ballistic ;) Or maybe market starts looking trough that, as that will become just a dilution thing, rather than the real expense.:rolleyes:

    We should expect 200-300M charge for CEO reward in Q3, depending how Musk and Zach want to play it. I would assume they'd like to load Q3 and Q4 with CEO reward, so they have less catchup in Q1 '21, as that's seasonally weak quarter.
     
  16. The Accountant

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    Thanks. Your Q3 is aligned with what @Doggydogworld estimated (a few posts earlier) at $260m.
     
  17. Zhelko Dimic

    Zhelko Dimic Careful bull

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    #3837 Zhelko Dimic, Jul 28, 2020
    Last edited: Jul 28, 2020
    I missed that post.
    @Doggydogworld is completely right. His post is precisely describing what I was trying to vaguely remember. As usual, his work is dependable and appreciated :) Disregard me in the future - my only area of excellence is napkin math ;)

    [EDIT] on second look, we may see more than $260M if they choose to accelerate future tranches as probable. I think I remember they've done this already in previous quarters, from reading some 10Qs. And again, strategically, it may make sense to load up Q3/Q4 to the gills, and yet produce decent profits; while during CC call blaming modest profits on CEO reward due to stock performance :) Wouldn't that be fun? "C'mon guys, stop bidding our stock price, so we can show you how much real profit we can make!"
     
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  18. The Accountant

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    Your napkin math works better than my spreadsheet:D
     
  19. graphilwar

    graphilwar Member

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    I’ve been reading the 10Qs to try to get a sense for how much the China Gigafactory cost to build so far.

    Is it the “China Loan agreement”, which has 741M unpaid balance on page 24 of the Q2 2020 10Q?

    Or is it somewhere else.
     
  20. Doggydogworld

    Doggydogworld Active Member

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    Balance is 1462m as of 6/30/20. The 741m was 12/31/19. The China Loan Agreements include a RMB 9b Fixed Asset Facility, RMB 6.75b of Working Capital Facilities and a RMB 5b facility that finances vehicles in transit to China. They don't really have vehicles in transit to China at EOQ, so that last facility's balance should be near zero.

    They don't disclose the split between Fixed Asset and Working Capital borrowing. China was 1/3 of Q2 deliveries and 1/4 of revenue, I'd guess it has 1b+ of the 4b inventory plus a little AR, etc. So maybe they have 800m drawn on the Working Capital facility and 650m against the factory? That 650m would include both Phase I and progress payments on the new construction.
     
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