Near-future quarterly financial projections

[kbM3]

Q3 2020 vs Q3 2019
- Record Deliveries - 145,000
- Record Sales - $8.3B
- Record Operatiing Income - $752m
- Record GAAP Income - $490M
- Impressive Operaing Leverage - Growth of 188%

View attachment 569200

Don’t you think Tesla will be increasing Operating Expenses more rapidly, rather than generate large profits?

1) Elon mentioned in the call a target of 1-2%.
2) It seems like they’ve not been expanding Service Centers and V3 Supercharging rapidly enough and there’s articles like this one...
Tesla is looking for real estate in the Northeast to 'open lots of service centers', says President of Automotive - Electrek

 

[The Accountant]

Don’t you think Tesla will be increasing Operating Expenses more rapidly, rather than generate large profits?

1) Elon mentioned in the call a target of 1-2%.
2) It seems like they’ve not been expanding Service Centers and V3 Supercharging rapidly enough and there’s articles like this one...
Tesla is looking for real estate in the Northeast to 'open lots of service centers', says President of Automotive - Electrek

It's a good question; I had to look this up in the 10K to be sure. The cost of Service Centers and Superchargers are included in Cost of Revenues and not Operating Expenses.

From the 2019 10K:
Cost of services and other revenue increased $890 million, or 47%, in the year ended December 31, 2019 as compared to the year ended December 31, 2018. The increase was primarily due to the costs of ........ Additionally, there were increases in the costs of our new service centers, additional service personnel in existing and new service centers, Mobile Service capabilities, parts distribution centers and investment in new body shops to provide maintenance services to our rapidly growing fleet of vehicles.

Also
Cost of automotive sales revenue includes direct parts, material and labor costs, manufacturing overhead, including depreciation costs of tooling and machinery, shipping and logistic costs, vehicle connectivity costs, allocations of electricity and infrastructure costs related to our Supercharger network, and reserves for estimated warranty expenses. Cost of automotive sales revenues also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand.

 

[Stretch2727]

So with the pending $5B in new capital has any one looked at what Tesla can save in interest expense? I see about $170M in interest expense per quarter on the income statement. Does it even make sense to pay down some debt to improve the income statement? With the future projected free cash flows well above $1B a quarter I just don't think there is a need for all of the $5B for growth. What would you do if you were Zach?

 

[mblakele]

So with the pending $5B in new capital has any one looked at what Tesla can save in interest expense? I see about $170M in interest expense per quarter on the income statement. Does it even make sense to pay down some debt to improve the income statement? With the future projected free cash flows well above $1B a quarter I just don't think there is a need for all of the $5B for growth. What would you do if you were Zach?

Maybe nothing? If Tesla doesn't have a good use for the cash, they may not sell any of those new shares at all. Zach may be looking at it as yet another potential source of cash, should he need it — like a line of credit, not like money in the bank.

 

[mongo]

Tesla could use cash for:
Model 3 lease acquisition (Tesla Network in general)
Internal semi fleet
Factory construction
CapEx purchases for new factory equipmemt
Inventory expenses for the new vehicle line ramp ups

Since it all hinges on their free cash flow, the optional raise is a great approach. If there are no speed bumps, it may not be needed much, if at all.

 

[XHabjab]

So with the pending $5B in new capital has any one looked at what Tesla can save in interest expense? I see about $170M in interest expense per quarter on the income statement. Does it even make sense to pay down some debt to improve the income statement? With the future projected free cash flows well above $1B a quarter I just don't think there is a need for all of the $5B for growth. What would you do if you were Zach?

Elon has said it doesn't make sense to raise capital to pay down debt (which TSLAQ mangled into claiming he promised they wouldn't raise capital at all, ... just before the last capital raise).
Here are a few ideas, just shooting from the hip without research:

• Provide planned funding for any or all of the 3 factories under construction. We don't know what the plan was there. A capital raise could have been one of the unstated needs we are/were not privy to.
• Yet another Gigafactory? I haven't yet seen anything working towards the Semi or Roadster.
• Upgrades etc. (1) We don't know the impact of the new casting hardware for example. Might be a winner, maybe they want 4 more. (2) Surely they are figuring out how to automate more things in Fremont. More robots please. (3, 4, ...) insert your own ideas here. There's room for plenty.
• More service centers. Lots more.
• Ditto with Superchargers.

At any rate, there are plenty of things to spend money on. Elon doesn't seem interested in reducing debt (although I wouldn't be surprised to see some payoff+new debt to reduce interest rate or change terms).

 

[Doggydogworld]

So with the pending $5B in new capital has any one looked at what Tesla can save in interest expense? I see about $170M in interest expense per quarter on the income statement. Does it even make sense to pay down some debt to improve the income statement? With the future projected free cash flows well above $1B a quarter I just don't think there is a need for all of the $5B for growth. What would you do if you were Zach?

Most of that interest expense is non-cash. They do have 1.8b of 5.3% straight bonds which is 24m/quarter. I'd call those. They won't pay off the non-recourse financing that backs their solar and auto lease portfolios (I'm not even sure they could in some cases). But that's all low rate stuff. The ABL rate is also low, though they could pay it down and save a few million per quarter.

The 4.2b of convertibles have low coupons, but Tesla accrues interest at higher imputed rates (6-8%, IIRC) so most of the ~75m/quarter interest related to these bonds is non-cash. The gap between carrying value and unpaid balance shown in 10-Q Note 10 is mostly this non-cash interest to be accrued between now and maturity. I think paying those off early would accelerate that ~600m of non-cash interest, but don't quote me on that. I also don't think Tesla can call those bonds early. Bondholders have the right to convert early due to TSLA's high price, and I'm a little surprised they haven't. Maybe they want Tesla to offer an inducement, as companies sometimes do.

Some of the other interest is capitalized leases. I guess in theory Tesla could buy the properties outright and eliminate that, but it wouldn't be a great use of capital.

 

[kengchang]

Most of that interest expense is non-cash. They do have 1.8b of 5.3% straight bonds which is 24m/quarter. I'd call those. They won't pay off the non-recourse financing that backs their solar and auto lease portfolios (I'm not even sure they could in some cases). But that's all low rate stuff. The ABL rate is also low, though they could pay it down and save a few million per quarter.

The 4.2b of convertibles have low coupons, but Tesla accrues interest at higher imputed rates (6-8%, IIRC) so most of the ~75m/quarter interest related to these bonds is non-cash. The gap between carrying value and unpaid balance shown in 10-Q Note 10 is mostly this non-cash interest to be accrued between now and maturity. I think paying those off early would accelerate that ~600m of non-cash interest, but don't quote me on that. I also don't think Tesla can call those bonds early. Bondholders have the right to convert early due to TSLA's high price, and I'm a little surprised they haven't. Maybe they want Tesla to offer an inducement, as companies sometimes do.

Some of the other interest is capitalized leases. I guess in theory Tesla could buy the properties outright and eliminate that, but it wouldn't be a great use of capital.

What is the implication if Tesla offers 50% cash/stock upon bond maturation? Is the 50% cash based on the bond face value? If that's the case, who wouldn't convert prior to the maturation

 

[Doggydogworld]

What is the implication if Tesla offers 50% cash/stock upon bond maturation? Is the 50% cash based on the bond face value? If that's the case, who wouldn't convert prior to the maturation

Bondholders get full value at maturity no matter if Tesla elects all cash, all stock or a mix. The simple way to do 50/50 would be half the shares given by the conversion ratio plus cash on an as-converted basis. So if you're supposed to get 16 (new) shares per bond and the stock is at 400 they'd give you 8 shares plus $3200 cash. I think the actual formula is more complex and you end up with a different ratio, though.

 

[Doggydogworld]

Tesla to Export Model Y to Europe in Q4?

I put a question on the main board about this to see if anyone had heard anything, but I'll give more details here. The first clue was ship watchers reporting RCC Asia carried some LHD Model Ys. Those could be showroom/test drive cars so people in Europe can place orders this month for Q4 delivery. Or not.

Now US Model Y wait time just jumped from 2-4 weeks, where it had been since May or so, to 10-14 weeks. That's the long-familiar pattern we see when Tesla produces overseas cars almost exclusively the first 6-7 weeks of the new quarter.

I don't see Tesla shipping Ys to China, since GF3 will be building them w/o tariffs in three months. And the rest of APAC is just bits and pieces. But Europe is a major market and the competition (esp. ID.4/Enyaq) is trying to get a jump on GF4. I could absolutely see Tesla pivoting quickly to boost market share in that red-hot market. It also suggests they're pretty confident about ramping Model Y output very soon. On the other hand, it wouldn't be such a great signal for US/Europe Model 3 demand.

 

[Compton]

Tesla to Export Model Y to Europe in Q4?

I put a question on the main board about this to see if anyone had heard anything, but I'll give more details here. The first clue was ship watchers reporting RCC Asia carried some LHD Model Ys. Those could be showroom/test drive cars so people in Europe can place orders this month for Q4 delivery. Or not.

Now US Model Y wait time just jumped from 2-4 weeks, where it had been since May or so, to 10-14 weeks. That's the long-familiar pattern we see when Tesla produces overseas cars almost exclusively the first 6-7 weeks of the new quarter.

I don't see Tesla shipping Ys to China, since GF3 will be building them w/o tariffs in three months. And the rest of APAC is just bits and pieces. But Europe is a major market and the competition (esp. ID.4/Enyaq) is trying to get a jump on GF4. I could absolutely see Tesla pivoting quickly to boost market share in that red-hot market. It also suggests they're pretty confident about ramping Model Y output very soon. On the other hand, it wouldn't be such a great signal for US/Europe Model 3 demand.

S/X have the same delivery time (10-14 weeks) as of today so it's not Y specific. No "overseas shipping" hypothesis required. [Insert battery day speculation here].

 

[BlindPass]

Tesla to Export Model Y to Europe in Q4?

I put a question on the main board about this to see if anyone had heard anything, but I'll give more details here. The first clue was ship watchers reporting RCC Asia carried some LHD Model Ys. Those could be showroom/test drive cars so people in Europe can place orders this month for Q4 delivery. Or not.

Now US Model Y wait time just jumped from 2-4 weeks, where it had been since May or so, to 10-14 weeks. That's the long-familiar pattern we see when Tesla produces overseas cars almost exclusively the first 6-7 weeks of the new quarter.

I don't see Tesla shipping Ys to China, since GF3 will be building them w/o tariffs in three months. And the rest of APAC is just bits and pieces. But Europe is a major market and the competition (esp. ID.4/Enyaq) is trying to get a jump on GF4. I could absolutely see Tesla pivoting quickly to boost market share in that red-hot market. It also suggests they're pretty confident about ramping Model Y output very soon. On the other hand, it wouldn't be such a great signal for US/Europe Model 3 demand.

Your last point about the M3- there could be a lot of cannibalism there, right? How many MY sold simply mean less M3 (and even S and X) rather than the CUV of the MY enticing new buyers to Tesla?

As a big EV fan, I believe Tesla will gain buyers naturally. But is the MY speeding that up appreciably?

HoI have to remind myself that to

 

[MC3OZ]

S/X have the same delivery time (10-14 weeks) as of today so it's not Y specific. No "overseas shipping" hypothesis required. [Insert battery day speculation here].

For Model Y they are starting up the new casting machine...

Could be that they produce an inventory supply of new castings for the rest of September, shut down later in September and cut the line over to the new casting, probably a fairly quick risk free change..

Also with the remaining production Q3 allocated to West Coast, allow 2-4 weeks shipping, that is about 5-7 weeks of the 10 week delay accounted for... maybe there is an order backlog.. they probably don't have excess Model Y inventory...

The mad end of quarter delivery scramble is about a predictable as some of the bear analysts talking points...

 

[Doggydogworld]

Your last point about the M3- there could be a lot of cannibalism there, right? How many MY sold simply mean less M3 (and even S and X) rather than the CUV of the MY enticing new buyers to Tesla?

I figure 40-50% of Model 3 buyers instead choose Model Y once available. And Model Y attracts a similar number of new buyers that wouldn't have bought Model 3 because they require a hatch, more space, etc. Just rough guesses.

Shipping Ys to Europe in Q4 would give better margin than introducing lower cost versions (e.g. LR-RWD) in the US. We'll see.

S/X have the same delivery time (10-14 weeks) as of today so it's not Y specific. No "overseas shipping" hypothesis required.

S/X still show 2-4 weeks for me in TX. But they will switch to 6-10 weeks soon enough. So will Model 3. That is the overseas shipping hypothesis. They switch late in the quarter because Tesla builds overseas cars almost exclusively the first 6 weeks of the following quarter. Model Y was the exception in Q2, staying at 2-4 weeks while S/X/3 switched to 6-10 because Tesla did not build overseas Ys in early Q3.

 

[elasalle]

I figure 40-50% of Model 3 buyers instead choose Model Y once available. And Model Y attracts a similar number of new buyers that wouldn't have bought Model 3 because they require a hatch, more space, etc. Just rough guesses.

Shipping Ys to Europe in Q4 would give better margin than introducing lower cost versions (e.g. LR-RWD) in the US. We'll see.

S/X still show 2-4 weeks for me in TX. But they will switch to 6-10 weeks soon enough. So will Model 3. That is the overseas shipping hypothesis. They switch late in the quarter because they build overseas cars almost exclusively the first 6 weeks of the following quarter. Model Y was the exception in Q2, staying at 2-4 weeks while S/X/3 switched to 6-10 because Tesla did not build overseas Ys in early Q3.

Q1 might be best time to ship MY to Europe, and try to pad the seasonality dip. cheers!!

 

[BlindPass]

I figure 40-50% of Model 3 buyers instead choose Model Y once available. And Model Y attracts a similar number of new buyers that wouldn't have bought Model 3 because they require a hatch, more space, etc. Just rough guesses..

Seems reasonable. Contained in your last group, The MY should have a little “internal” Tesla bump, pulling previous buyers back for the latest offering, whereas otherwise they would hold their current EV.

 

[vikings123]

Tesla to Export Model Y to Europe in Q4?

I put a question on the main board about this to see if anyone had heard anything, but I'll give more details here. The first clue was ship watchers reporting RCC Asia carried some LHD Model Ys. Those could be showroom/test drive cars so people in Europe can place orders this month for Q4 delivery. Or not.

Now US Model Y wait time just jumped from 2-4 weeks, where it had been since May or so, to 10-14 weeks. That's the long-familiar pattern we see when Tesla produces overseas cars almost exclusively the first 6-7 weeks of the new quarter.

I don't see Tesla shipping Ys to China, since GF3 will be building them w/o tariffs in three months. And the rest of APAC is just bits and pieces. But Europe is a major market and the competition (esp. ID.4/Enyaq) is trying to get a jump on GF4. I could absolutely see Tesla pivoting quickly to boost market share in that red-hot market. It also suggests they're pretty confident about ramping Model Y output very soon. On the other hand, it wouldn't be such a great signal for US/Europe Model 3 demand.

We know that Tesla also has a RWD and 7 seater backlog for the model Y. I think this is about Tesla trying to capture some of the small SUV market for Europe. That said I don’t think anybody in Europe can order a model Y. So unless we see something change on the order page soon we should be able to rule out this theory.

The other angle is demand/supply. Could it be that we have a combination of high demand but not enough supply, think production issues or battery supply constraints?

 

[tmp131]

Shipping Ys to Europe in Q4 would give better margin than introducing lower cost versions (e.g. LR-RWD) in the US. We'll see.
[/QUOT

Q3 2020 vs Q3 2019
- Record Deliveries - 145,000
- Record Sales - $8.3B
- Record Operatiing Income - $752m
- Record GAAP Income - $490M
- Impressive Operaing Leverage - Growth of 188%

View attachment 569200

Why do you think the ASP for Q3 will be lower than Q2?
Q3 2020 projection: automotive: $7.116 billion/145000 vehicles = $49.08K/vehicle
Q2 2020: (Tesla Q2 2020 update): automotive revenue: $4.751 billion (no regulatory credit)/90891 vehicles = $52.3K/vehicle
A difference of ~$3.3K
I would think there will be more model Y sold and those are higher price than model 3 would increase ASP. I know there was the Made in China Tesla model 3 price cuts. Troy Teslike on Twitter predicted ~10K more model Y in Q3 vs. Q2, ~ 4K more Model S/X in Q3 vs. Q2. and ~12K more MIC model 3 in Q3 vs. Q2. I think the increase in model s/x and Y would counterbalance the price cuts of MIC model 3. I know there was a price cuts in late May 2020 on USA Model 3 by $2K and S/X by $5K.

 

[tmp131]

Shipping Ys to Europe in Q4 would give better margin than introducing lower cost versions (e.g. LR-RWD) in the US. We'll see.

Sorry, I meant to say: I agree with this.

 

[Doggydogworld]

Why do you think the ASP for Q3 will be lower than Q2?
Q3 2020 projection: automotive: $7.116 billion/145000 vehicles = $49.08K/vehicle
Q2 2020: (Tesla Q2 2020 update): automotive revenue: $4.751 billion (no regulatory credit)/90891 vehicles = $52.3K/vehicle
A difference of ~$3.3K
I would think there will be more model Y sold and those are higher price than model 3 would increase ASP. I know there was the Made in China Tesla model 3 price cuts. Troy Teslike on Twitter predicted ~10K more model Y in Q3 vs. Q2, ~ 4K more Model S/X in Q3 vs. Q2. and ~12K more MIC model 3 in Q3 vs. Q2. I think the increase in model s/x and Y would counterbalance the price cuts of MIC model 3. I know there was a price cuts in late May 2020 on USA Model 3 by $2K and S/X by $5K.

Tesla cut Model Y price $3k in early July. The late May S/X/3 cuts will be in force all of Q3 vs. only part of Q2. Also the mix shifts another 130 bpp away from S/X. On the flip side, Tesla did not cut in Europe, as many (perhaps including The Acc't) expected and the hinted LR-RWD Model Y did not happen.