Near-future quarterly financial projections

[st_lopes]

Others will no doubt reply with much more knowledge than I - but from a simplistic level: Most CapEx spending is turning cash into assets so doesn't result in a "loss" that shows up on the income statement.

For example: if you spend $1 Billion on a new factory, you end up with $1 Billion less cash, and add a factory worth $1 Billion to your assets.

That $1B asset will eventually be depreciated, but very gradually as a component of cost of goods sold for each piece of inventory produced from that factory.

In other words, increasing CAPEX today does nothing to your current gross profit. It will be slowly depreciated in to your cost of goods sold coming out of that factory in the future.

 

[AudubonB]

@The Accountant :

Your two delivery scenarios of 170K & 181.5K both have SG&A at the same $818 million. As you refine your model, will you likewise be showing SG&A diverging?

 

[The Accountant]

@The Accountant :

Your two delivery scenarios of 170K & 181.5K both have SG&A at the same $818 million. As you refine your model, will you likewise be showing SG&A diverging?

That's a good question to help claify how my model works. Changes to the delivery number only impact costs in the areas of Cost of Revenues, sometimes called Cost of Goods Sold (COGS) and income Taxes. These are the true variable costs that will flucuate with the number of units sold.
My model increases Selling, General and Adminstrative (SG&A) costs over the prior quarter based on the number of new sales stores, new hires in sales and corporate offices and an increase in related stock compenstation. I generally use a trend and then refine it for the CEO Stock award.

So at the moment, I am assuming that Tesla can delivery either 170k or 181.5k units with the same amout of SG&A ($818m).

Edit: SG&A decreases in Q4 ($818m) vs Q3 ($888m) due to a decrease in the CEO Award expense.

 

[bkp_duke]

Have you modeled in if Tesla decides to defer some of the revenue to Q1?

Elon has made it clear he wants to never be beholden to the credit markets again, and that requires consistent profitability. With Q1 historically being Tesla's weakest quarter, I wonder if the finance guys in Tesla are thinking about deferring some of that revenue to make sure Q1 numbers look good.

Just food for thought.

 

[st_lopes]

Have you modeled in if Tesla decides to defer some of the revenue to Q1?

Elon has made it clear he wants to never be beholden to the credit markets again, and that requires consistent profitability. With Q1 historically being Tesla's weakest quarter, I wonder if the finance guys in Tesla are thinking about deferring some of that revenue to make sure Q1 numbers look good.

Just food for thought.

I’m not convinced that they have that much control over their credit revenue recognition anymore. They did when it was a cap and trade system (like the US). However with bulk coming from EU pooling, they don’t have the additional step of selling the credit (after have earned it). Under the pool agreements they are presold.

 

[bkp_duke]

I’m not convinced that they have that much control over their credit revenue recognition anymore. They did when it was a cap and trade system (like the US). However with bulk coming from EU pooling, they don’t have the additional step of selling the credit (after have earned it). Under the pool agreements they are presold.

That's not the credit I was referring to. I meant credit in terms of CAPITAL (i.e. banks).

Tesla can claim Tax credits and FSD revenue basically at will, in any quarter that they want. Those are what I was referring to.

I understand that the environmental credits basically are claimed in the quarter that they are received.

 

[st_lopes]

That's not the credit I was referring to. I meant credit in terms of CAPITAL (i.e. banks).

Tesla can claim Tax credits and FSD revenue basically at will, in any quarter that they want. Those are what I was referring to.

I understand that the environmental credits basically are claimed in the quarter that they are received.

My mistake.

The tax valuation allowance also isn’t that flexible. It will be a binary all or nothing and with the amount of operating leverage they are now showing, it will be difficult to convince auditors that they should keep an allowance.

FSD would have some flexibility in terms of how much subjectivity is involved in valuing the different unreleased features.

From their 10-Q they do seem to be very conservative on warranty reserves (their actual warrant expense is still a fraction of the reserved amount) as well as on their buyback guarantees (every time they drop price of a trim they increase their buyback reserves, which reduce current period revenues). Both of those could be deferral levers.

 

[FrankSG]

Here is my very preliminary estimate for Q4. These will change as I get more information throughout the Qtr but I am providing them now to show how explosive these results will be.
Please note:

• I have below 170k and 181.5k delivery scenarios (the 181.5k gets us to 500k for the year)
• I have not included any Deferred Tax Valaution Allowance release. I will likely add this to my final forecast and should amount to about a $1.4B to $1.6B benefit
• There is also the possibility for Revenue Recognition of deferred FSD revenues perhaps as high as $700m to $800m if the current FSD beta gets released to all FSD owners this quarter.
• Note that even without the Tax Benefit and FSD Deferred Revenue recognition (mentioned above), Tesla should show Revenues of $10.4B to 10.9B this quarter with GAAP profits of $700m-$800m and non-GAAP profits of $1.2B.

View attachment 604662

I'm getting very similar numbers. Off of 180k deliveries, I'm getting:

• $10.9B Revenue.
• $890M GAAP Profit
• $1.29B Non-GAAP Profit

 

[The Accountant]

I'm getting very similar numbers. Off of 180k deliveries, I'm getting:

• $10.9B Revenue.
• $890M GAAP Profit
• $1.29B Non-GAAP Profit

Good to see we are aligned.
For my 170,000 delivery scenario, the non-GAAP earnings of $1,159m generates $1.08 per share in earnings.
This would be 23.7% higher than what Analysts are expecting. They show $0.87 eps (per Yahoo finance). See below.

 

[dc_h]

Good to see we are aligned.
For my 170,000 delivery scenario, the non-GAAP earnings of $1,159m generates $1.08 per share in earnings.
This would be 23.7% higher than what Analysts are expecting. They show $0.87 eps (per Yahoo finance). See below.

View attachment 605849

What would happen to your estimates if China delivers over 65,000 MIC Model 3s in Q4? They made over 23,000 in October, so are on track to build about 70,000 cars in Q4 in Shanghai. They are likely to build and deliver a couple thousand Model Y's as well, but not likely a financially material Y count. If they made 70,000 and sold 65,000 MIC M3's, margins should be higher and delivered cars should be close to 190,000 or a little more. If credits remain steady, shouldn't we be looking at earnings over $1.50 per share? I assume MIC 3 & Y margins will be about 5 basis points higher, moving GAAP Income from Operations from 9.2% to over 10%, or 809 million to about 1.2 billion.

• Site Model Delivered
• China M3: 65,000
• China MY: 2000
• Fremont M3: 60,000
• Fremont MY: 45,000
• Fremont SX: 20,000

 

[The Accountant]

What would happen to your estimates if China delivers over 65,000 MIC Model 3s in Q4? They made over 23,000 in October, so are on track to build about 70,000 cars in Q4 in Shanghai. They are likely to build and deliver a couple thousand Model Y's as well, but not likely a financially material Y count. If they made 70,000 and sold 65,000 MIC M3's, margins should be higher and delivered cars should be close to 190,000 or a little more. If credits remain steady, shouldn't we be looking at earnings over $1.50 per share? I assume MIC 3 & Y margins will be about 5 basis points higher, moving GAAP Income from Operations from 9.2% to over 10%, or 809 million to about 1.2 billion.

• Site Model Delivered
• China M3: 65,000
• China MY: 2000
• Fremont M3: 60,000
• Fremont MY: 45,000
• Fremont SX: 20,000

I entered the deliveries you suggested into my model and adjusted the Model 3 margins to reflect the MiC Europe deliveres.
The numbers are reflected below showing a comparison to my current 170k delivery assumption.
We don't quite yet hit the $1B GAAP profit but the results would be impressive none the less.

 

[Remster32]

Reposting this from the main thread.

Deutsche Bank hosted Martin Viecha at their AutoTech Conference this week. Here were their takeaways.

Highlights:

• Low-teens operating margin target in the mid-term. Better KPI than gross margin.
  
• FSD subscription offering next year, potentially bucketed in several tiers for different functionality.
• FSD team is primarily focused on city driving in North America at the moment.
• Megapack order book is filled out into 2023. Unlimited demand!
• Expected to ship 3.3 GWh in storage this year (vs. 1.65 GWh in 2019). Expects that to double in 2021.

 

[dc_h]

Reposting this from the main thread.

Deutsche Bank hosted Martin Viecha at their AutoTech Conference this week. Here were their takeaways.

Highlights:

• Low-teens operating margin target in the mid-term. Better KPI than gross margin.
  
• FSD subscription offering next year, potentially bucketed in several tiers for different functionality.
• FSD team is primarily focused on city driving in North America at the moment.
• Megapack order book is filled out into 2023. Unlimited demand!
• Expected to ship 3.3 GWh in storage this year (vs. 1.65 GWh in 2019). Expects that to double in 2021.

View attachment 608006

Operating margins were 9.2 in Q3 in the teens would be insane. With revenue nearly doubling next year, operating revenue would be about 3x or even 4x from Q3 this year. 3 billion in quarterly operating income in q3 2021 would put those crazy $14 a share estimates in the realm of the possible.

 

[JohnnyEnglish]

Highlights:

• Low-teens operating margin target in the mid-term. Better KPI than gross margin.
  
• FSD subscription offering next year, potentially bucketed in several tiers for different functionality.
• FSD team is primarily focused on city driving in North America at the moment.
• Megapack order book is filled out into 2023. Unlimited demand!
• Expected to ship 3.3 GWh in storage this year (vs. 1.65 GWh in 2019). Expects that to double in 2021.

View attachment 608006

3.3GWh this year would imply 1.9GWh in Q4 which would be 3 times higher than what has been shipped in any previous quarter. Certainly won't complain if that is the case. I have updated my spreadsheet accordingly. @The Accountant, this will probably have an impact on your Q4 estimates.

 

[petit_bateau]

3.3GWh this year would imply 1.9GWh in Q4 which would be 3 times higher than what has been shipped in any previous quarter. Certainly won't complain if that is the case. I have updated my spreadsheet accordingly. @The Accountant, this will probably have an impact on your Q4 estimates.

Indeed, this is useful. This suggests a lower rate of acceleration in the diversion of cells to stationary vs vehicles than I based an earlier estimate on. This in turn implies that TSLA (and humanity in general) are going to be cell-constrained for longer. To give scale this estimate (below) achieves 20 mln vehicles/yr in 2030 at an average of 85 kWh/veh by then.

 

[ByeByeJohnny]

3.3GWh this year would imply 1.9GWh in Q4 which would be 3 times higher than what has been shipped in any previous quarter. Certainly won't complain if that is the case. I have updated my spreadsheet accordingly. @The Accountant, this will probably have an impact on your Q4 estimates.

Rob Maurer in his youtube daily seeming to think 3.3GWh was not a new number from their meeting with Tesla but rather related to a Tesla prediction from late 19/early 20. So his take was that 1.9 in Q4 was probably not gonna be correct.

 

[The Accountant]

3.3GWh this year would imply 1.9GWh in Q4 which would be 3 times higher than what has been shipped in any previous quarter. Certainly won't complain if that is the case. I have updated my spreadsheet accordingly. @The Accountant, this will probably have an impact on your Q4 estimates.

I wonder what this will do for Tesla Energy gross margins; this is difficult to model.
Here are the Tesla Energy gross margins from past Qtrs:

Q1 2019: 2.4%
Q2 2019: 11.6%
Q3 2019: 21.9%
Q4 2019: 11.7%
Q1 2020: 3.8%
Q2 2020: 11.1%
Q3 2020: 3.6%

As you can see, the GMs are all over the place.
From the Tesla Q3 10Q, we can see that the thin margins are coming from the Solar Roof business and not Storage:

Gross margin for energy generation and storage decreased from 22% to 4% in the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to lower gross margins in our solar cash and loan business driven by higher costs from temporary manufacturing underutilization of our Solar Roof ramp and reduced average selling prices on our solar cash and loan jobs as a result of our low cost solar strategy.​

For Q4, my model is currently using 3.6% margins (similar to Q3) but I may take this up a bit as Storage may more than double in Q4 vs Q3 (1.9GWh vs 0.8GWh). If I knew the revenue split between Solar and Storage, I could make projections on their margins, but I don't have that visibility. To be conservative, I will move margins to 5% for Q4. I will continue to monitor this.

Any comments or insights are welcomed.

 

[The Accountant]

Rob Maurer in his youtube daily seeming to think 3.3GWh was not a new number from their meeting with Tesla but rather related to a Tesla prediction from late 19/early 20. So his take was that 1.9 in Q4 was probably not gonna be correct.

Storage in past Qtrs (MWh):

Q3 2019: 470
Q4 2019: 530
Q1 2020: 260
Q2 2020: 419
Q3 2020: 759
Q4 2020: ??​

Perhaps 900-1,000 MWh for Q4 2020?

 

[ByeByeJohnny]

I think they can break 1,000 MWh for Q4. Hopefully the limiting factor on the energy side is soon not gonna be production but how fast they can ramp up everything else (permits, contractors etc). The demand is there to sell several times what they are at the moment.

 

[JohnnyEnglish]

I wonder what this will do for Tesla Energy gross margins; this is difficult to model.
Here are the Tesla Energy gross margins from past Qtrs:

Q1 2019: 2.4%
Q2 2019: 11.6%
Q3 2019: 21.9%
Q4 2019: 11.7%
Q1 2020: 3.8%
Q2 2020: 11.1%
Q3 2020: 3.6%

As you can see, the GMs are all over the place.
From the Tesla Q3 10Q, we can see that the thin margins are coming from the Solar Roof business and not Storage:

Gross margin for energy generation and storage decreased from 22% to 4% in the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to lower gross margins in our solar cash and loan business driven by higher costs from temporary manufacturing underutilization of our Solar Roof ramp and reduced average selling prices on our solar cash and loan jobs as a result of our low cost solar strategy.​

For Q4, my model is currently using 3.6% margins (similar to Q3) but I may take this up a bit as Storage may more than double in Q4 vs Q3 (1.9GWh vs 0.8GWh). If I knew the revenue split between Solar and Storage, I could make projections on their margins, but I don't have that visibility. To be conservative, I will move margins to 5% for Q4. I will continue to monitor this.

Any comments or insights are welcomed.

Fully agree, the mix of businesses and the ramps make it very difficult to predict. In addition the megapack projects may well have stage payments against project milestones. A couple of weeks ago I built my 2021 prediction sheet and assumed a 20% per quarter increase in MWh delivered (to roughly double the annual deliveries in '21) and applied a 2% improvement in margins per quarter (assuming 4% margin in Q4 2020). I will then tune these assumptions as the year progresses. As I did not have any additional information regarding solar and home storage I applied the same approach.

This is all speculative but given the uncertainties it was the best approach I could think of. Any alternatives/improvements would be gratefully accepted