Near-future quarterly financial projections

[Prunesquallor]

CEO Performance Award and Implications to Q3 2020

View attachment 587383

Tranches 2 & 3
In Q3 2020, Elon will have achieved tranches 2 & 3 of the CEO Award. This is highlighted in green on the schedule. As you can see, it will impact the Q3 P&L by $111m and $130m for tranches 2 & 3, respectively.

Tranche 4
For tranche 4 to be achieved, the market cap needs to reach $250b (the operational milestone of $3b EBITDA has already been achieved). If TSLA’s share price averages $406 from now until Sept 30, it will bring the 6-month average to $250b…earning Elon Tranche 4. This would mean that the $122m (in yellow) would be accelerated into Q3. I now suspect that the $5b cap raise was done to tap the brakes on the share price to avoid another large “Elon” charge to Q3. The CEO Award charge in Q3 is estimated at $260m. If tranche 4 is earned, then the total CEO Award charge would increase to $382m.

Tranche 6
Tranche 6 is currently deemed “not probable”. If Tesla changes its assessment to “probable”, I estimate a catch-up charge in Q3 of about $75m. However, to deem it probable, we would have to conclude that the average market cap of $350b is probable (this is likely) and one additional Operational Milestone is now probable (a 6th milestone). My guess is the $6b EBITDA would be the milestone deemed probable if you had to pick one. Here is an interesting consequence to this: if $6b EBITDA is probable, then it is “more likely than not” that Tesla will have taxable income thereby releasing some of the Deferred Tax Valuation Allowance. Thus, if tranche 6 is deemed probable, we will see a $75m charge but offsetting this would be a tax benefit from reversal of a portion of the Tax Allowance.

Many thanks to @Doggydogworld & @Zhelko Dimic who have provided me with some accounting insight for the CEO Performance Award.

So you’re saying Tesla needed to keep the market cap low to increase profits.
This is why I can never be an accountant

Might also explain Elon's "you do what you have to do" tweet.

 

[Artful Dodger]

if $6b EBITDA is probable, then it is “more likely than not” that Tesla will have taxable income thereby releasing some of the Deferred Tax Valuation Allowance.

Indeed, the VA (which was about ~$1.93B from the 2019 10-K) is likely large enough to 'cover the GAAP' for the accounting cost of the entire 2018 CEO Compensation Plan. That is, funding* all 12 tranches and while simultaneously TSLA surpasses $650B in Market Cap.

This may happen over the next 2-3 yrs and the buildouts continue at Shanghai, Berlin, and Austin. Shareholders should be very pleased.

If this was the plan back in 2018, I tip my hat to the Accounting team at Tesla, and the BoD Committee who approved this plan.

Brilliant. Simply brilliant.

** NOTE: It is very important to remember that there is no actual cash cost associated with Elon's compensation package: it is all stock options issued by Tesla, and thus having no cash cost. Further the rules of the plan state that Elon may not sell (except to pay taxes owing) ANY of the stock earned and duly granted for at least 5 years after those stock options vest. IE: shares from Tranche 1 which vested in Jun 2020 may not be sold before Jun 2025. Tesla is VERY likely to be a $650B Mkt Cap by then, and Elon will be on to his next compensation plan.

$10T by 2030 anyone?

Cheers!

 

[mongo]

** NOTE: It is very important to remember that there is no actual cash cost associated with Elon's compensation package: it is all stock options issued by Tesla, and thus having no cash cost. Further the rules of the plan state that Elon may not sell (except to pay taxes owing) ANY of the stock earned and duly granted for at least 5 years after those stock options vest. IE: shares from Tranche 1 which vested in Jun 2020 may not be sold before Jun 2025. Tesla is VERY likely to be a $650B Mkt Cap by then, and Elon will be on to his next compensation plan.

$10T by 2030 anyone?

Cheers!

Minor correction: Elon must hold the shares for 5 years after exercise. He must exercise vested options by January 20, 2028 (the end of the 10 year comoensation plan). In other words, he can wait and avoid taxes. Exercised shares may be sold immediately to cover the exercise price and taxes.

 

[The Accountant]

My latest Q3 2020 Forecast (P&L)

• Reduced Deliveries to 142k (originally 145k)
• Model Y of 32k is higher than most estimates I have seen published
• GAAP Net Income $301m is higher than Reg Credits of $230m (not reliant on Reg Credits for GAAP Profit)
• I estimate that Tesla needs a minimum of 133k units delivered to show GAAP profit without Reg Credit benefits.
• Operating Expenses in Q3 are high due to CEO Performance Award costs (tranche 2 & 3 are achieved)

 

[The Accountant]

My Latest Cash Flow for Q3 2020

• Estimating $532m in Free Cash Flow

 

[Doggydogworld]

CEO Performance Award and Implications to Q3 2020

View attachment 587383

Tranches 2 & 3
In Q3 2020, Elon will have achieved tranches 2 & 3 of the CEO Award. This is highlighted in green on the schedule. As you can see, it will impact the Q3 P&L by $111m and $130m for tranches 2 & 3, respectively.

Tranche 4
For tranche 4 to be achieved, the market cap needs to reach $250b (the operational milestone of $3b EBITDA has already been achieved). If TSLA’s share price averages $406 from now until Sept 30, it will bring the 6-month average to $250b…earning Elon Tranche 4. This would mean that the $122m (in yellow) would be accelerated into Q3. I now suspect that the $5b cap raise was done to tap the brakes on the share price to avoid another large “Elon” charge to Q3. The CEO Award charge in Q3 is estimated at $260m. If tranche 4 is earned, then the total CEO Award charge would increase to $382m.

Tranche 6
Tranche 6 is currently deemed “not probable”. If Tesla changes its assessment to “probable”, I estimate a catch-up charge in Q3 of about $75m. However, to deem it probable, we would have to conclude that the average market cap of $350b is probable (this is likely) and one additional Operational Milestone is now probable (a 6th milestone). My guess is the $6b EBITDA would be the milestone deemed probable if you had to pick one. Here is an interesting consequence to this: if $6b EBITDA is probable, then it is “more likely than not” that Tesla will have taxable income thereby releasing some of the Deferred Tax Valuation Allowance. Thus, if tranche 6 is deemed probable, we will see a $75m charge but offsetting this would be a tax benefit from reversal of a portion of the Tax Allowance.

Many thanks to @Doggydogworld & @Zhelko Dimic who have provided me with some accounting insight for the CEO Performance Award.

Terrific work!

Minor detail re: "to deem it probable, we would have to conclude that the average market cap of $350b is probable....". The board only decides if operational milestones are probable. The board does not opine on probability of market cap milestones. This is by design, you don't want the board to comment even indirectly on future stock price movement.

Your Q3 estimates also look good. We may have to give you a raise!

 

[kengchang]

@The Accountant Not sure if this would help you Reflex Research on Twitter: "1) A thread on Elon’s stock comp bonus awards & why it has limited impact to $TSLA's P&L. In March 2018 Elon was awarded 20.3 million stock options (with $350 strike price) to be released in 12 tranches after operational (revenue or EBITDA) & market cap goals are reached." / Twitter on the CEO comp plan

 

[Bet TSLA]

• GAAP Net Income $301m is higher than Reg Credits of $230m (not reliant on Reg Credits for GAAP Profit)

Not if Elon gets tranche 4 in Q3, which you have elsewhere estimated at $122M. It would be better if that not happen.

 

[The Accountant]

Not if Elon gets tranche 4 in Q3, which you have elsewhere estimated at $122M. It would be better if that not happen.

In an earlier post, I had estimated that if the Stock Price averaged $406 for the remainder of September, then Elon would earn tranche 4.
The $406 was incorrect as I was counting weekends. The stock would need to trade at $478 to reach the 6 month market cap average of $250B. Considering the SP is currently at $372, averaging $478 in the next 13 trading days may not be likely - hopefully we're safe.

 

[Bet TSLA]

In an earlier post, I had estimated that if the Stock Price averaged $406 for the remainder of September, then Elon would earn tranche 4.
The $406 was incorrect as I was counting weekends. The stock would need to trade at $478 to reach the 6 month market cap average of $250B. Considering the SP is currently at $372, averaging $478 in the next 13 trading days may not be likely - hopefully we're safe.

Yes, that sounds safer. But not if we see S&P inclusion shortly. That does seem fairly unlikely at this point though.

 

[Stretch2727]

In an earlier post, I had estimated that if the Stock Price averaged $406 for the remainder of September, then Elon would earn tranche 4.
The $406 was incorrect as I was counting weekends. The stock would need to trade at $478 to reach the 6 month market cap average of $250B. Considering the SP is currently at $372, averaging $478 in the next 13 trading days may not be likely - hopefully we're safe.

Crazy that we are now hoping for the stock to stay down to avoid a non cash expense this quarter.

 

[EinSV]

Crazy that we are now hoping for the stock to stay down to avoid a non cash expense this quarter.

I can think of worse fates than the stock price rising so fast that Elon's next bonus level is triggered.

 

[ammulder]

Tranche 4
For tranche 4 to be achieved, the market cap needs to reach $250b (the operational milestone of $3b EBITDA has already been achieved).

I'm confused about this part. It looks from the diagram you included like only three operational milestones have been achieved (including $3B EBITDA). Wouldn't a fourth need to be achieved in conjunction with the $250B market cap in order to unlock Tranche 4? My reading was that every market cap goal (including the first) required an operational milestone.

 

[Artful Dodger]

The $406 was incorrect as I was counting weekends. The stock would need to trade at $478 to reach the 6 month market cap average of $250B. Considering the SP is currently at $372, averaging $478 in the next 13 trading days may not be likely - hopefully we're safe.

Mkt Cap is also based on the number of outstanding shares, with their effective date. We do not have perfect information on those data, but:

• based on SEC filings for shares outstanding,
  
• the 3 CEO comp. tranches vested over the past 6 mths, and
• the recent $5 Billion Cap Raise:
  • eff. date Sep 9th (per SEC filing)
    
  • # of shares issued is unknown
  • VWAP for shares assumed at $450
  • Est'd # of shares issued is 11.1M

Given these assumptions, my spreadsheet estimates the SP would need to avg $505.68 over the remainder of Q3 for the 4th tranche to vest (that is, Mkt Cap 6mth trailing avg exceeds $250B). Sounds unlikely, but we can dream, wot?

On the other hand, if the SP stays at exactly $372.72 (Sep 11 Close), then the 6-mth trailing Avg Mkt Cap would exceed $250B on Oct 08, 2020.

Yup, maths are hard...

Cheers!

 

[The Accountant]

I'm confused about this part. It looks from the diagram you included like only three operational milestones have been achieved (including $3B EBITDA). Wouldn't a fourth need to be achieved in conjunction with the $250B market cap in order to unlock Tranche 4? My reading was that every market cap goal (including the first) required an operational milestone.

You're correct; my comment is wrong. The $3B EBITDA was used for Tranche 3 Achievement.
For Tranche 4 to be achieved we need the $250B market cap and the $4.5B EBITDA milestone. I am expecting that Tesla will Achieve the $4.5B EBITDA now in Q3. So it is still possible to get a additional P&L charge for Tranche 4.(6 month average market cap at Sept 30 needs to be $250B or higher and Adjusted EBITDA for past 12 months as to be $4.5B).
Thanks for pointing out my error.

 

[mongo]

the 3 CEO comp. tranches vested over the past 6 mths,

Vested, not exercised. The shares do not exist at this point.

 

[Thekiwi]

My Latest Cash Flow for Q3 2020

• Estimating $532m in Free Cash Flow

View attachment 587428

I’m just stating this, not implying anything about fairness etc:

$450 million stock based compensation / 150,000 cars is $3,000 per car.

 

[kengchang]

I’m just stating this, not implying anything about fairness etc:

$450 million stock based compensation / 150,000 cars is $3,000 per car.

Cheaper than paying salary to compete with FANG in the Bay area and it's more attractive to factory line worker.

@The Accountant
Would you mind breaking out the Stock Comp line to CEO Award and Employee? That should provide some additional clarity.

 

[st_lopes]

I’m just stating this, not implying anything about fairness etc:

$450 million stock based compensation / 150,000 cars is $3,000 per car.

You don’t think of it as earned over the first 1M vehicles? The operational goals and market cap are cumulative.

 

[mongo]

I’m just stating this, not implying anything about fairness etc:

$450 million stock based compensation / 150,000 cars is $3,000 per car.

It's a stock grant, cost per car is $0 (regardless of what GAAP accounting says). If Elon took a salary, then it would impact the cash level profit.