Near-future quarterly financial projections

[jbih]

I think that Rob does a good analysis on today’s podcast:
Tesla Daily: Tesla News & Analysis by Rob Maurer on Apple Podcasts

Alternative link without Apple:

Tesla Daily Podcast

 

[brian45011]

How are they valuing the employee stock options? Are they using Black-Scholes? (Arguably they should use quotations from the listed options markets... but the employee options aren't listed options, having additional restrictions on trading and vesting.) If they're using Black-Scholes,... does rising volatility raise the published expense? Does a dropping stock price lower the published expense?

Likely similar to Section 16 Officer options (from the CEO award proxy):

In determining the grant date fair values of these option awards, we utilize the Black-Scholes option pricing model on the date of grant with the following assumptions:
Risk-free interest rate: 2.1 %
Expected term (in years): 6.1
Expected volatility: 42.0 %
Dividend yield: 0.0 %
​

 

[generalenthu]

Likely similar to Section 16 Officer options (from the CEO award proxy):

In determining the grant date fair values of these option awards, we utilize the Black-Scholes option pricing model on the date of grant with the following assumptions:
Risk-free interest rate: 2.1 %
Expected term (in years): 6.1
Expected volatility: 42.0 %
Dividend yield: 0.0 %
​

42! Wouldn't be surprised if that was from HGTG.

 

[bdy0627]

I'm wondering why the Street estimates are so low. That's only possible if they don't buy the deliveries and opex guidance and assume a big miss for one or both of these.

You can hardly blame them given Tesla's tendency to miss guidance on model 3 deliveries, but I think that's the difference. Pleasant surprises haven't happened with Tesla recently, but this time it seems quite likely.

 

[brian45011]

What am I missing?

"Finished goods inventory included vehicles in transit to fulfill customer orders, new vehicles available for immediate sale at our retail and service center locations, used Tesla vehicles and energy storage products."​

"On August 18, 2017, Tesla entered into an incentive compensation plan (the “Compensation Plan”) with Jon McNeill, Tesla’s President, Global Sales and Service, pursuant to which Mr. McNeill will be eligible to receive variable compensation upon the achievement of certain target levels of (i) vehicle deliveries during the third and fourth quarters of 2017, (ii) operational and financial metrics relating to vehicle service performance and costs during 2017, and (iii) customer satisfaction scores during 2017, with an
aggregate target payout amount of $700,000. The specific target levels pursuant to the Compensation Plan are to be separately determined, and payments pursuant to the Compensation Plan will be made in cash, stock options or restricted stock units."​

McNeill liquidated a lot of new and used inventory in 4Q17 that Tesla had been carrying for months and, in some cases, well over a year before he departed in on February 7, 2018.

"As the head of our sales and service organizations, Mr. McNeill has participated in periodic incentive plans based on specific customer-related metrics. In 2017, Mr. McNeill earned an aggregate $299,667 in variable compensation based on the achievement of certain target levels of (i) vehicle deliveries during the third and fourth quarters of 2017, (ii) operational and financial metrics relating to vehicle service performance and costs during 2017, and (iii) customer satisfaction scores during 2017."
​

Based on a cursory review of EV-CPO listings, the number and age of inventory vehicles seems to be creeping back up.

 

[brian45011]

elon may do it too but i was definitely referring to deepak, i don't know if i could find the call as transcripts have been locked up in many places.

"Deepak Ahuja - Tesla, Inc.

Deepak here. I mean, there are many factors. Clearly, the working capital benefit of the difference in the payable terms versus collecting cash is one of them. But also, it's our gross margin improvement on the business. With the – it's the higher volumes and the higher gross margins, I'm thinking higher gross profit, I'm stating the obvious here on Model 3. Our SNX volumes are increasing too in the second half. That's going to help us significantly. And all of our other businesses are improving their profitability.

While our OpEx is staying essentially flat, so massive leverage in the business. So when you combine all of that, that's what is giving us the cash flow from operations to fund the rest of our business and grow cash. I'm stating the obvious, but just sort of summarizing the whole point. Yeah."

Jason Wheeler was neither an echo nor a kiss up.

 

[GeorgeSymonds]

Based on a cursory review of EV-CPO listings, the number and age of inventory vehicles seems to be creeping back up.

I got shot on this thread for looking at the inventory sites hoevere New inventory also appears to be rising further since then with other inventory sites having several thousand new cars listed. EV-cpo has a strong policy of only listing the inventory Tesla list (although even their new inventory is on the up), the other sites like Tesla-info also locate hidden stock - the true picture is probably somewhere between the two.

However..

The increase in used inventory is probably just a sign of significantly increased numbers of people trading up as leases are ending or as part of the combined sales tactics (both offering early exit from lease deals and the changing referral schemes). It certainly seems possible they can pull leavers to boost new car sales should they need, it’s part of good management, but it’s an open qustiion to me on whether the cost of that appears elsewhere in the books and whether it’s material to the figures. There are two rough scenarios, Tesla have been able to boost MS and MX production beyond the historic ceiling there seems to have been, and this has lead to the increases in inventory, promotion etc but it’s effectively all upside. Reducing paint options etc. to speed up production is a possible indicator of this, only countered by the paint shop also needing to service M3 demand too. Or sales, MS especially, are a little weaker as some people are not unreasonably switching to M3 (the later more modern car). Maybe a bit of both is going on.

I think few will question the logic that production and sales will be setting new records again, and I don’t see it as being bearish to be a little conservative on the size of upswing even if floating the idea gets you called a troll by some.

 

[Fact Checking]

Or sales, MS especially, are a little weaker as some people are not unreasonably switching to M3 (the later more modern car). Maybe a bit of both is going on.

BTW., while that would be a fair expectation, but there's three trends that are working against this:

1)

S/X new orders were still record strong in Q2. From their Q2 update letter:

"Demand for Model S and Model X vehicles remains high, with Q2 2018 being our highest ever Q2 for Model S and Model X orders."​

Many of those orders were completed in Q3, there were reports about months of delivery times for new Model X orders back in the spring already.

2)

Lower price range Model S getting converted to a Model 3 Performance sale is a net positive for Tesla:

• Since they are 18650-limited, they can use the freed up cell output to make higher-margin S/X units
• Right now the Model 3 Performance possibly has higher gross margin already than an entry level Model S 75D.

Also Tesla can shift demand between S and X.

3)

In July Tesla announced the 200,000th U.S. delivery, so the $7.5k federal tax credit will only be available until the end of 2018. This certainly created new S/X orders in Q3, and will do it even in Q4.

Q3 sales from inventory could have been further helped by their recent announcement that they'd allow lease holders out of their lease before the term is up, if they take delivery by the end of September.

So that's three good reasons to not expect softening of S/X sales in Q3 and Q4 yet. Maybe in 2019/Q1-Q2 there might be first signs, but by that time their new 2170 capacity will be on-line and they'll be able to announce the 2170 based Model S/X major refresh and interior re-design.

 

[neroden]

Don't expect a 2170-based Model S / X until much later in 2019. Tesla's just got a lot on their plate. In addition to straightening out the serious delivery logistics problems, they have to spin up Powerwall/Powerpack production, resume building Superchargers, build the Service Centers they haven't been building, and get the Semis ready to build, and I don't think they're going to deploy a major change to the S/X until that stuff is well underway, which it is not yet.

 

[SPadival]

In addition to straightening out the serious delivery logistics problems, they have to spin up Powerwall/Powerpack production, resume building Superchargers, build the Service Centers they haven't been building, and get the Semis ready to build

...and fix the spare parts problem

Elon Musk‏ @elonmusk
Replying to @thereal_scottv
Yeah, that’s our problem. Service & parts supply in general will be the top Tesla priority after we get through the insane car delivery logistics of the next few weeks.

 

[jeewee3000]

Don't expect a 2170-based Model S / X until much later in 2019. Tesla's just got a lot on their plate. In addition to straightening out the serious delivery logistics problems, they have to spin up Powerwall/Powerpack production, resume building Superchargers, build the Service Centers they haven't been building, and get the Semis ready to build, and I don't think they're going to deploy a major change to the S/X until that stuff is well underway, which it is not yet.

This.

Updating the S and X (interior and/or battery) won't happen for some time for two main reasons:

1) It isn't necessary as they remain best-in-class currently and have yet to encounter proper competition. (e.g. the Audi E-tron will only have 400km of range and arrives in Q2 2019)

2) Tesla is using its time and resources as efficiently as possible to maximize growth. Therefore an S and X refresh is not at the top of the priorities list. Model 3, Model Y, semi and pickup truck are (i.e. producing those models, delivering 'em, and servicing 'em). And I still left out constant growth of supercharger network (including V2), software and AP development, ramp up of Tesla energy (any day now! /s), etc.

So yeah, S and X can wait. They're fine the way they are now.

 

[Boomer19]

a little early, but i had a few min.
bloomberg:

earnings estimated date 10/31
eps adj -.32
eps gaap -1.344
rev 6.064b
net inc adj -72.847m
net inc gaap -235.62m
op prof 131m
ebitda 691.1m
depreciation 447.62m
fcf 49.59m
capex -610.1m
nav 3.436b
net debt 9.05b
gross margin 18.214%

eps adj beat 5 of last 8
eps gaap missed 5 of last 8
rev beat 8 of 8
op profit 4-4 over last 8

forward estimates
q4 .754eps
q119 .426

 

[neroden]

The Street's estimates are hilarious; beats over the eps adj are pretty much guaranteed. gaap, not so clear because we don't have a proper picture on the stock options, though the lower stock price actually *helps* the quest for gaap profits. (I really dislike the expensing treatment of stock options; it was supposed to be a reform but it's basically wrong and you have to back it out to get meaningful numbers. They cause dilution, they should be figured as dilution.)

 

[bdohmeyer]

Tesla bear article today on SA provides a bullish view of ZEV

"Is Tesla Counting On A Billion Dollar Regulatory Credit Bonanza?"



If the estimates in my third table are correct Tesla’s current book of ZEV and GHG Credits could be as much as $650.2 million, including:

• $53.7 of unreported Q1 ZEV Credits;
• $151.5 million of unreported Q2 ZEV Credits;
• $345.5 million of anticipated Q3 ZEV Credits; and
• $99.5 million of anticipated Q3 GHG Credits.

Similarly, Tesla’s Q4 ZEV and GHG Credits could be as much as $508.3 million, including:

• $394.6 million of anticipated Q4 ZEV Credits; and
• $113.7 million of anticipated Q4 GHG Credits.

 

[bhzmark]

Tesla bear article today on SA provides a bullish view of ZEV

"Is Tesla Counting On A Billion Dollar Regulatory Credit Bonanza?"



If the estimates in my third table are correct Tesla’s current book of ZEV and GHG Credits could be as much as $650.2 million, including:

• $53.7 of unreported Q1 ZEV Credits;
• $151.5 million of unreported Q2 ZEV Credits;
• $345.5 million of anticipated Q3 ZEV Credits; and
• $99.5 million of anticipated Q3 GHG Credits.

Similarly, Tesla’s Q4 ZEV and GHG Credits could be as much as $508.3 million, including:

• $394.6 million of anticipated Q4 ZEV Credits; and
• $113.7 million of anticipated Q4 GHG Credits.

He's a long for now, and with good reason. He writes:

My Investment Strategy
When I completed my analysis for this article, I closed out my short position because I believe Tesla’s Q3 delivery numbers will be better than many expect and I fear that up to $650 million of unexpected regulatory credits will give rise to paroxysms of ecstasy among Tesla longs who will undoubtedly bid the stock price to unsustainable nosebleed highs.

I also believe Q3 is as good as it’s ever going to get for the following reasons:

• Tesla’s supply chain for the cathode powders required to make lithium-ion batteries for its EVs is limited to 100,000 Models S&X and 340,000 Model 3s per year.
• Tesla’s Fremont factory is already running at or near capacity and there’s very little room for short-term expansion of that capacity.
• While annualized production of 100,000 Models S&X and 250,000 Model 3s in Q3 won’t be the peak of the S-Curve, we’ll be able to see the peak from there and the sustainable growth story will deteriorate rapidly.
• Tesla’s US centric delivery program will rapidly run out of steam, even if it begins selling a lower priced version of the Model 3. Since Tesla won’t earn $7,500 per car in ZEV and GHG credits for vehicles sold in other countries, any profit margins it reports in Q3 and Q4 will be unsustainable in the long-term.
• I think ongoing SEC and Department of Justice investigations will significantly complicate Tesla’s efforts to raise additional capital until those investigations are concluded and the problems are resolved.

This afternoon I bought my first Tesla long position – $350 March 2019 calls. I intend to flip out of those calls and into long-dated puts after Tesla's Q3 conference call because I continue to believe the intrinsic value of Tesla’s stock is zero.

Disclosure: I am/we are long TSLA CALL OPTIONS.​

 

[erthquake]

He's a long for now, and with good reason. He writes:

My Investment Strategy
When I completed my analysis for this article, I closed out my short position because I believe Tesla’s Q3 delivery numbers will be better than many expect and I fear that up to $650 million of unexpected regulatory credits will give rise to paroxysms of ecstasy among Tesla longs who will undoubtedly bid the stock price to unsustainable nosebleed highs.

I also believe Q3 is as good as it’s ever going to get for the following reasons:

• Tesla’s supply chain for the cathode powders required to make lithium-ion batteries for its EVs is limited to 100,000 Models S&X and 340,000 Model 3s per year.
• Tesla’s Fremont factory is already running at or near capacity and there’s very little room for short-term expansion of that capacity.
• While annualized production of 100,000 Models S&X and 250,000 Model 3s in Q3 won’t be the peak of the S-Curve, we’ll be able to see the peak from there and the sustainable growth story will deteriorate rapidly.
• Tesla’s US centric delivery program will rapidly run out of steam, even if it begins selling a lower priced version of the Model 3. Since Tesla won’t earn $7,500 per car in ZEV and GHG credits for vehicles sold in other countries, any profit margins it reports in Q3 and Q4 will be unsustainable in the long-term.
• I think ongoing SEC and Department of Justice investigations will significantly complicate Tesla’s efforts to raise additional capital until those investigations are concluded and the problems are resolved.

This afternoon I bought my first Tesla long position – $350 March 2019 calls. I intend to flip out of those calls and into long-dated puts after Tesla's Q3 conference call because I continue to believe the intrinsic value of Tesla’s stock is zero.

Disclosure: I am/we are long TSLA CALL OPTIONS.​

If many shorts start to mimic that strategy, this might enhance buying pressure into the P/D report. But he’s making the same mistake shorts have been making since the beginning of the Model S program. US Model 3 sales won’t run out of steam. Every new Model 3 owner is a free advertiser that converts many of their coworkers, friends, and acquaintances.

 

[brian45011]

Lately, there has been renewed discussion of the effect ZEV credit sales will have going forward on TSLA's GAAP net profit (loss).

Delivery data source: California New Car Dealers Association (CNCDA)

From 10/1/16 through 9/30/17, Tesla delivered 17,912 vehicles in California.
From 9/1/16 through 8/31/17, Tesla was awarded 77,796 ZEV credits by California.
The periods do not align precisely, but that's about 4.34 ZEV credits/delivery.

From 10/1/16 through 9/30/17, Tesla reported Revenue (essentially Net Profits) of $258.4 million from ZEV credit sales.
From 9/1/16 through 8/31/17, Tesla sold 51,776 ZEV credits in California.
Again, the periods do not align precisely, but that's about $5,000/credit; and at 4.3 ZEV credits/vehicle about $22,500/vehicle delivered. HOWEVER, there are about a dozen other states that follow California's regulatory regime so those metrics are the upper bound of the $/ZEV credit and $/vehicle benefits.

From 10/1/17 through 6/30/18, Tesla delivered 35,162 vehicles in California. If it's ~4 credits/vehicle (because only 3.25/M3 ?) it's still about 140,000 credits earned or nearly double in three quarters all of FY17's awards. From 10/1/17 through 6/30/17, Tesla reported Revenue (essentially Net Profits) of $229 million from nationwide ZEV credit sales.

The question is how many can Tesla sell and at what price? This short, People's Grain on Twitter, argues a very pessimistic view which seems to be belied by the sales so far this fiscal year.

We'll all know more in three weeks. GHG/CAFE credits are not broken out in the non-GAAP reporting.

 

[neroden]

ZEV credits are unimportant, though I do agree that Tesla has no reason to hang onto them -- they'll be generating them so fast that selling them off for pocket change makes the most sense.

 

[Fact Checking]

From 10/1/17 through 6/30/18, Tesla delivered 35,162 vehicles in California. If it's ~4 credits/vehicle (because only 3.25/M3 ?) it's still about 140,000 credits earned or nearly double in three quarters all of FY17's awards. From 10/1/17 through 6/30/17, Tesla reported Revenue (essentially Net Profits) of $229 million from nationwide ZEV credit sales.

Here's Tesla's ZEV+GHG regulatory credits data, extracted from financial reports:

year         | deliveries | credits earned | per quarter | per unit
---          | ---        | ---            | ---         | ---
2016         | 76,230     | $302.3m        | $75.5m      | $3,965
2017         | 81,824     | $360.3m        | $90.0m      | $4,403
2018 (Q1+Q2) | 70,720     |  $80.3m        |             |

This means that the annual market that Tesla was able to tap into was never higher than $360m combined - and since 2016/2017 ICE carmakers have come out with more compliance cars that would earn them credits without them having to purchase them from Tesla.

With all that in mind, and without trying to be too clever to estimate per state and per country amounts (which would be a pretty fragile calculation even if the regulatory environment was static, which it isn't - the rules concerning ZEV credits changed in 2018):

• The lower, pessimistic boundary for credits would be somewhere around $300m annual, which would leave $220m for Q3 and Q4 - split into $110m/$110m. I believe this is close to what @luvb2b uses in his estimates.
  
• The upper boundary would be the around $4k per unit that Tesla managed to get historically, and with around 90K Model 3 units delivered this year by the end of Q3, and around 70K S+X units, that's roughly 140K units (because M3 credits are a bit lower), which gives an upper limit of $560m per year, or $470m remaining for Q3 and Q4 - $235m for Q3 and Q4 each.

But I think @luvb2b's arguments that ZEV credit demand is a largely fixed size market that is not expected to expand with supply are persuasive, so I'd go with the $100m estimate for the time being.

Tesla might also opt to sell all credits for this year in Q3, which would make it ~$200m in Q3 and close to zero in Q4.

 

[neroden]

I expect that the market for ZEV credits is terrible -- the regulations were relaxed so much for 2018 that most of the companies may not buy any -- so I'm actually expecting $0 in ZEV sales for Q3. :-( Should still give us positive cash flow, free cash flow, and non-GAAP profit, but GAAP profit is harder.