Near-future quarterly financial projections

[The Accountant]

My Earnings estimate for Q3 2020
Record Revenues of $8.2B
Record Operating Income of $625m
Record Operating Margin of 7.7%
Record GAAP Earnings of $356m
Record non-GAAP Earnings of $806m
GAAP Profit of $356m higher than Reg Credits of $230m

Some key points:
- SG&A includes $190m for Elon's Performance Award; this may be understated by about $60-$80m. It depends on how Tesla determines probability of additional milestone achievements. I believe I have the most likely scenario in my estimates.
- There is a potential GAAP upside from a tax benefit of $1.4B to $1.6B if Tesla unwinds some of their Deferred Tax Valuation Allowance. I am assuming this will happen in Q4 but may come in Q3.

 

[The Accountant]

Galileo Russell is estimating > $0.5 billion earnings for Q3. At 3:12 mark spreadsheet, he did estimate the ASP per vehicle to be $52.2K/vehicle. A little on the high side. The Accountant did explain to me earlier as to why the ASP would be lower this quarter. I looked on Yahoo Finance today, and Q3 2020 expected EPS is $0.56/share x 931 million share = $0.52 billion. However, I think whatever The Accountant comes up with will be more accurate.

Analysts provide EPS guidance on Non-GAAP "fully diluted" EPS.
So their $0.56 would be comparable to my $0.77
I think they have understated Elon's Performance Award expenses - outerwise I think they would have been lower than $0.56.

 

[Doggydogworld]

My Earnings estimate for Q3 2020
Record Revenues of $8.2B
Record Operating Income of $625m
Record Operating Margin of 7.7%
Record GAAP Earnings of $356m
Record non-GAAP Earnings of $806m
GAAP Profit of $356m higher than Reg Credits of $230m
View attachment 595277

Some key points:
- SG&A includes $190m for Elon's Performance Award; this may be understated by about $60-$80m. It depends on how Tesla determines probability of additional milestone achievements. I believe I have the most likely scenario in my estimates.
- There is a potential GAAP upside from a tax benefit of $1.4B to $1.6B if Tesla unwinds some of their Deferred Tax Valuation Allowance. I am assuming this will happen in Q4 but may come in Q3.

Your Q2 2020 Auto Sales/Lease Revenue should be 4751, I think.

Auto Sale/Lease gross margin (ex-credits) was 20% in Q1. It dipped below 19% in Q2 due to the idle factory charge. I see it returning to 20% or maybe 21% as better utilization and improved China localization offset the price cuts. Your estimates imply 23-24%. A return to 20% would generate a bit less than 1600m gross profit, assuming 230m in reg credits.

 

[The Accountant]

Your Q2 2020 Auto Sales/Lease Revenue should be 4751, I think.

Auto Sale/Lease gross margin (ex-credits) was 20% in Q1. It dipped below 19% in Q2 due to the idle factory charge. I see it returning to 20% or maybe 21% as better utilization and improved China localization offset the price cuts. Your estimates imply 23-24%. A return to 20% would generate a bit less than 1600m gross profit, assuming 230m in reg credits.

I think we vary because of the FSD one time revenue in Q2:

 

[The Accountant]

@Doggydogworld
Here are some details on my margins:

My Q3 "pure margin" above is better than Q2 because I have the model Y making up a larger portion of the total sales compared to Q2 and the Model Y had the best margins in my analysis vs Models S, X and 3.

 

[tmp131]

Analysts provide EPS guidance on Non-GAAP "fully diluted" EPS.
So their $0.56 would be comparable to my $0.77
I think they have understated Elon's Performance Award expenses - outerwise I think they would have been lower than $0.56.

View attachment 595280

Thanks for all the analysis.
Maybe too good to be true: this article below the CRFA analyst states the regulatory credit estimate will be $560 million for Q3. If it is, Tesla will have a blowout quarter.

Where Elon Musk and Tesla earn real credit 'eating the lunch' of auto competitors

 

[dc_h]

@Doggydogworld
Here are some details on my margins:
View attachment 595323

My Q3 "pure margin" above is better than Q2 because I have the model Y making up a larger portion of the total sales compared to Q2 and the Model Y had the best margins in my analysis vs Models S, X and 3.

Should MIC Model 3 margins be close to Fremont Model Y margins? With volume up to 40,000 Shanghai should start improving overall margins in Q3. With the 8% China price cuts going into Q4, margins should have been pretty high in Q3.

 

[The Accountant]

Should MIC Model 3 margins be close to Fremont Model Y margins? With volume up to 40,000 Shanghai should start improving overall margins in Q3. With the 8% China price cuts going into Q4, margins should have been pretty high in Q3.

yes - My model has Model Y Fremont and Model 3 Shanghai with similar margins: Model Y 22.8% and MiC Model 3 at 23.9%. I have the Model 3 at Fremont at 18.5%.
With the Q4 China price cuts, the 23.9% margin should be lower in Q4 unless they can continue to reduce manufacturing costs to maintain that margin.

 

[The Accountant]

Thanks for all the analysis.
Maybe too good to be true: this article below the CRFA analyst states the regulatory credit estimate will be $560 million for Q3. If it is, Tesla will have a blowout quarter.

Where Elon Musk and Tesla earn real credit 'eating the lunch' of auto competitors

I would have estimated higher than the $230m that I show but Zach guided lower during the Q2 call. I am hoping Zach was sandbagging and we do see a larger number. Fingers crossed !

 

[st_lopes]

I would have estimated higher than the $230m that I show but Zach guided lower during the Q2 call. I am hoping Zach was sandbagging and we do see a larger number. Fingers crossed !

I do think Zach is completely sandbagging. While details of the FCA contract aren’t known, it would seem reasonable that for every car sold in Europe Tesla receives an agreed to fee from FCA (in exchange for FCA getting to count Tesla in its fleet for emissions regulation purposes). So, one would assume that more sales in Europe = more reg credit revenue. We now know that this was a record quarter for Europe.

This is completely different that the credit trade system in California, where price of the credits fluctuate and revenue recognition would be predicated on Tesla selling (finding a buyer) the credit on the market (deferred revenue until that second step occurs).

So, yes, $600M in realized reg credits is entirely possible, and dare I say $700M+ in GAAP earnings. I don’t even want to think about what releasing the VA on tax assets would do.

The best part of it all is that EU will more than likely extend their emissions penalty programs, providing runway for further contract extensions (read: longer term reg credit revenue) for EV manufacturers.

 

[bkp_duke]

If Tesla gets 700M+ in GAAP earnings, I would like to watch Gordon's head explode.

 

[st_lopes]

@Doggydogworld
Here are some details on my margins:
View attachment 595323

My Q3 "pure margin" above is better than Q2 because I have the model Y making up a larger portion of the total sales compared to Q2 and the Model Y had the best margins in my analysis vs Models S, X and 3.

Did you end up revisiting the FSD recognition rate after they released EAP pricing? Or is that all factored in to your EAP amount in margins?

 

[The Accountant]

If Tesla gets 700M+ in GAAP earnings, I would like to watch Gordon's head explode.

Gordon Johnson's Information Minister.

 

[The Accountant]

Did you end up revisiting the FSD recognition rate after they released EAP pricing? Or is that all factored in to your EAP amount in margins?

I had always used the assumption that 50% of FSD is recognized immediately and 50% deferred. As you alluded to, when the EAP pricing came out, it was clear that something more than 50% of FSD pricing should be taken at purchase. I was not sure how to model this so I just added $100 to the selling price of every car. If the take-rate is 33% than it is the equivalent of adding $300 to the FSD upfront recognition.
So I am taking $4,300 upfront and $3,700 is deferred. But it may be more like $5k upfront and $3k deferred. I will true this up once the ER is reported.

 

[dc_h]

yes - My model has Model Y Fremont and Model 3 Shanghai with similar margins: Model Y 22.8% and MiC Model 3 at 23.9%. I have the Model 3 at Fremont at 18.5%.
With the Q4 China price cuts, the 23.9% margin should be lower in Q4 unless they can continue to reduce manufacturing costs to maintain that margin.

Brilliant.
I think MIC M3 margins should decline only 1-2%, with LFP batteries reducing costs significantly and increasing capacity by 30-50%. We should know more about projections on the earnings call. Volume will more then make up for 1-2% margin hit.

 

[Doggydogworld]

@DoggydogworldMy Q3 "pure margin" above is better than Q2 because I have the model Y making up a larger portion of the total sales compared to Q2 and the Model Y had the best margins in my analysis vs Models S, X and 3.

That's reasonable. I personally don't expect uplift because mix didn't shift that much and they dropped Y price in early July to almost where 3 was a few months prior. But you've worked the numbers a lot harder than me.

With the 8% China price cuts going into Q4, margins should have been pretty high in Q3.

Interesting theory

I think MIC M3 margins should decline only 1-2%, with LFP batteries reducing costs significantly and increasing capacity by 30-50%.

Unless they massively overpay for NMC the move to LFP should save ~$1000. They cut price ~3k. And they cut LR price which still uses NMC by ~5k. I don't think higher volume will help much, they have almost no GF3 assets on the book to depreciate and other costs are mostly variable. Increased localization should help, though.

I do think Zach is completely sandbagging. While details of the FCA contract aren’t known, it would seem reasonable that for every car sold in Europe Tesla receives an agreed to fee from FCA (in exchange for FCA getting to count Tesla in its fleet for emissions regulation purposes). So, one would assume that more sales in Europe = more reg credit revenue.

It doesn't seem to work that way. Q2 sales in Europe were way down yet reg credit revenue was up. And FCA statements are generally consistent with Zach's. They have a lot of flexibility in how they set up the pooling agreement, and Tesla was strongly motivated to front-load it. There's no reason for FCA to object to front-loading, especially if it earns a discount.

We now know that this was a record quarter for Europe.

"Record" for 2020, maybe, but nowhere near last year's Q4 and probably down Y/Y as well.

 

[st_lopes]

It doesn't seem to work that way. Q2 sales in Europe were way down yet reg credit revenue was up. And FCA statements are generally consistent with Zach's. They have a lot of flexibility in how they set up the pooling agreement, and Tesla was strongly motivated to front-load it. There's no reason for FCA to object to front-loading, especially if it earns a discount.

I suspect there’s a mix of variables that dictate how much credit is generated per car sold by Tesla (eg dependent on FCA’s sales mix and volume in a given period; to your point perhaps a variable scale based on how many units Tesla sells in a year as well as based on timing of sale).

Ultimately, accounting recognition would be based upon when the credit is earned (as opposed to when sold, like US ZEV credits). That’s an important distinction, because absent some kind of secondary event needing to occur (ie, outside of the car being sold), Tesla would book a reg credit revenue amount for every car sold in Europe in the quarter.

Moreover, I believe that both Tesla and FCA have commented on expecting H2 to have similar reg credit revenue / expense as H1 on their respective earnings calls.

"Record" for 2020, maybe, but nowhere near last year's Q4 and probably down Y/Y as well.

Given that Q3 Europe sales would be up sequentially, it could point to an expected increase in reg credit revenues generated under that agreement.

That said, it’s entirely possible that the agreement is structured in a way that front loads to H1 or perhaps the H1 amounts are actually tied to prior year sales due to some kind of second event needing to trigger “earning”, and thus a sudden drop in reg credit revenue in Q3 could happen.

Wouldn’t it be great if they just published the contract details...

One more thing to consider would be foreign exchange. I would assume that these credits are settled in EUR. Could be favorable to Tesla’s financial presentation as well.

 

[Boomer19]

as of today, bloomberg consensus estimates

its fluid data/incomplete - not all analysts weighed in yet, and this is only ones that bloomberg includes in the subscription package i use...some remain locked

so for 'the acct' and luvb2b (hopefully luv doing well) & others interested, just trying to sprinkle more data for you

EPS, Adj: .554
EPS, GAAP: .353
Rev: 8.281b
operating profit: 544.8m
EBIT: 846m
EBITDA: 1.312b
pre-tax profit: 476.218m
net inc, Adj: 555.125m
gross margin: 19.703%

implied 1 day move ~9.5%

 

[EVNow]

It doesn't seem to work that way. Q2 sales in Europe were way down yet reg credit revenue was up. And FCA statements are generally consistent with Zach's. They have a lot of flexibility in how they set up the pooling agreement, and Tesla was strongly motivated to front-load it. There's no reason for FCA to object to front-loading, especially if it earns a discount.

Yes - this is the reason I gave up on trying to forecast Q2. If they can show whatever amount of credit they want - getting to profit would always be possible. I might try to do some forecasting again this quarter - even though I no longer play the ER with calls (too expensive).

 

[Robocop]

I had always used the assumption that 50% of FSD is recognized immediately and 50% deferred. As you alluded to, when the EAP pricing came out, it was clear that something more than 50% of FSD pricing should be taken at purchase. I was not sure how to model this so I just added $100 to the selling price of every car. If the take-rate is 33% than it is the equivalent of adding $300 to the FSD upfront recognition.
So I am taking $4,300 upfront and $3,700 is deferred. But it may be more like $5k upfront and $3k deferred. I will true this up once the ER is reported.

There was one earnings call where I swear Elon indicated that they recognized some % of FSD, and increased that % slowly over time with each update that brings them closer to FSD. I could be wrong but I remember that distinctly. So they may be recognizing below 50% at this point, and may only hit 100% several years from now.