Near-future quarterly financial projections

[vgrinshpun]

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.

There are 10 ZEV States including CA.

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 ?)

BEVs with CA certified range of 350 miles or more (UDDS Test Cycle) earn 4 ZEV credits. M3 AWD and P variants UDDS Test Cycle range is 455.32 miles, RWD - 495.10, so each earns 4 ZEV credits. Overall almost all cars in Tesla current lineup earn 4 credits with the exception of MS 75D (3.96) and MX 75D (3.68). As a practical matter it can be assumed that all cars in Tesla lineup earns 4 ZEV credits.

https://www.arb.ca.gov/msprog/zevprog/zevtutorial/zev_tutorial_webcast.pdf

Subject Top Page: Passenger Car, Light Duty Truck, and Medium Duty Vehicle Executive Orders - 2018

 

[vgrinshpun]

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.

And yet as of August 31 2016 Toyota had 42,709 ZEV credits, or about 9% as related for their sales volume during the same period (457,055 units), which is enough for few years ahead, but during the following period it bought a whopping 35,200 credits, which based on their sales of 385,394 (9/1/2016 - 8/31/2017) equals 19%. Ultimately, we will know whether Tesla sold any credits within a month from now, before the Q3 ER report...

Zero Emission Vehicle Credits

Zero Emission Vehicle Credits

 

[ValueAnalyst]

Doesn't this put a $2,000 lower limit to the likely price Tesla is charging for its ZEV credits?

Nissan Offering $2,000 Cash Back On 2018 LEAF (In ZEV States)

It wouldn't make sense for Nissan to pay its customers $2,000, if it could get the credits from Tesla from $1,000; and at $1,000 per credit, $200M in ZEV credits is a reasonable expectation for Q3.

 

[generalenthu]

I think we need a separate thread for this. While the mandate for 2018 is pretty weak, it starts to become more stringent each year.

https://www.arb.ca.gov/msprog/zevprog/zevregs/1962.2_Clean.pdf

So there is some incentive to stock pile credits, if these manufactures don't have a pipeline of attractive EVs.

 

[ValueAnalyst]

I think we need a separate thread for this. While the mandate for 2018 is pretty weak, it starts to become more stringent each year.

https://www.arb.ca.gov/msprog/zevprog/zevregs/1962.2_Clean.pdf

So there is some incentive to stock pile credits, if these manufactures don't have a pipeline of attractive EVs.

Exactly, and not only that, but higher Model 3 volumes going forward will eat into even existing sales of their Tesla Killers!

 

[vgrinshpun]

Doesn't this put a $2,000 lower limit to the likely price Tesla is charging for its ZEV credits?

Nissan Offering $2,000 Cash Back On 2018 LEAF (In ZEV States)

It wouldn't make sense for Nissan to pay its customers $2,000, if it could get the credits from Tesla from $1,000; and at $1,000 per credit, $200M in ZEV credits is a reasonable expectation for Q3.

Unfortunately, not.
Just based on ZEV Credit data from Ca, NY, NJ and OR (I was not able to locate data from other states) and Tesla ERs for the corresponding period the value per ZEV is between $1,668 and $3,570, based on assumption whether Q3 2016 credits were sold by Tesla before or after August 31 2016.
If Tesla sold ZEV credits in other 6 ZEV states, the value per ZEV credit would go down from what is shown above.

 

[ValueAnalyst]

Doesn't this put a $2,000 lower limit to the likely price Tesla is charging for its ZEV credits?

Nissan Offering $2,000 Cash Back On 2018 LEAF (In ZEV States)

It wouldn't make sense for Nissan to pay its customers $2,000, if it could get the credits from Tesla from $1,000; and at $1,000 per credit, $200M in ZEV credits is a reasonable expectation for Q3.

Correction: LEAF gets ~2 credits, so the implied lower limit would be $1,000 per credit.

 

[EVNow]

Correction: LEAF gets ~2 credits, so the implied lower limit would be $1,000 per credit.

Its complicated.

Product managers get promotion budget and a target sales they should achieve. Using the customer credit to imply ZEV credit is likely not accurate.

ps : From what I remember, Nissan has piled up a lot of ZEV credit and wouldn't need to buy any.

 

[StockCynic]

CARB and CAFE standards are currently being challenged by the administration. They are undergoing the requisite public comment period at the moment, however, as we have seen with the tariffs the public comment period is seemingly nothing but a formality for this administration. Comment period ends October 23rd I believe, the entire regulatory system governing CARB and CAFE could be eliminated by the end of the year, all ZEV and Ghg credits would be worthless.

 

[EVNow]

Comment period ends October 23rd I believe, the entire regulatory system governing CARB and CAFE could be eliminated by the end of the year, all ZEV and Ghg credits would be worthless.

That will be challenged in courts. The mid term results can also have an impact, esp. if the Senate flips.

 

[neroden]

Attempts to remove California's right to set its own air quality standards are DOA. The Trump maladministration can issue whatever fake regulations they want, they'll be slapped with an injunction before they go into effect. The law's clear enough about that and the states won't stop enforcing the law just because Trump is lawless.

 

[StockCynic]

Attempts to remove California's right to set its own air quality standards are DOA. The Trump maladministration can issue whatever fake regulations they want, they'll be slapped with an injunction before they go into effect. The law's clear enough about that and the states won't stop enforcing the law just because Trump is lawless.

Well actually no, the Clean Air Act only requires the EPA to grant California a waiver so long as California's standards are deemed necessary "to meet compelling and extraordinary conditions". That phrase is the key, those conditions are interpreted by the EPA bureaucracy, if the conditions are no longer compelling and extraordinary then the EPA is under no obligation to continue to grant California a waver. That is partly what is currently being discussed in public comment. Now sure I am confident that California will sue, however the case will eventually reach the supreme court where it is highly likely that the regulations would be struck down.

In the meantime automakers will probably be hesitant to spend lots of money on something that could be worth zero.

 

[omgwtfbyobbq]

Well actually no, the Clean Air Act only requires the EPA to grant California a waiver so long as California's standards are deemed necessary "to meet compelling and extraordinary conditions". That phrase is the key, those conditions are interpreted by the EPA bureaucracy, if the conditions are no longer compelling and extraordinary then the EPA is under no obligation to continue to grant California a waver. That is partly what is currently being discussed in public comment. Now sure I am confident that California will sue, however the case will eventually reach the supreme court where it is highly likely that the regulations would be struck down.

In the meantime automakers will probably be hesitant to spend lots of money on something that could be worth zero.

California's ZEV mandate will likely be OK.

The Trump Administration is on weaker ground insofar as it seeks to prevent California from requiring automakers to sell Zero Emission Vehicles (ZEVs, i.e. electric cars) in the state. While ZEVs reduce greenhouse gas emissions, they reduce emissions of traditional pollutants as well. Thus this requirement fits more comfortably into the relevant CAA criteria. For the same reasons, I think it is difficult to argue that the ZEV requirements are preempted under the EPCA as standards "related to" fuel economy too.

Will EPA Trump California's Clean Air Act Waiver?

Especially since smog is still a problem and is worse than it's been in decades.

87 days of smog: Southern California just saw its longest streak of bad air in decades - Los Angeles Times

Tossing CA's GHG emissions waiver is more feasible, but even then I think it's an uphill battle since CA has already been granted a waiver. The Trump administration has the burden of showing that the GHG waiver should be revoked.

John Pendergrass, vice president, programs and publications at the Environmental Law Institute, in Washington, D.C., said he expects much of the legal burden will be on EPA.

“They’ll have to be able to show whatever research – not just their support for what they want to do – but they have to explain why the prior decisions are no longer valid,” he said. “Then they have to go through the process of doing that, take comments, etc. It could take a while.”

Throw into the timing mix the number of potential legal openings to fight back against EPA on these issues, said Patrick Parenteau, a professor in Vermont School of Law’s Institute for Energy and the Environment. “There’s nothing in statutes that suggests the administration has the power to rescind a waiver once granted,” he said.

Concerns over California vehicle waiver threat » Yale Climate Connections
https://fas.org/sgp/crs/misc/R44699.pdf

 

[neroden]

Well actually no, the Clean Air Act only requires the EPA to grant California a waiver so long as California's standards are deemed necessary "to meet compelling and extraordinary conditions". That phrase is the key, those conditions are interpreted by the EPA bureaucracy, if the conditions are no longer compelling and extraordinary then the EPA is under no obligation to continue to grant California a waver. That is partly what is currently being discussed in public comment. Now sure I am confident that California will sue, however the case will eventually reach the supreme court where it is highly likely that the regulations would be struck down.

The case goes to the Ninth Circuit first, who will issue a temporary injunction and leave the California standards in place indefinitely while the case very, very slowly crawls through the court system. Congress's intention was clear.

Also, John Roberts cares about his reputation. If the Supreme Court keeps making bullshit rulings which are clearly founded in political bias, he knows what's going to happen to his reputation. It's actually extremely dangerous for the Supreme Court to make a ruling against state governments representing the majority of the country's population; it risks the delegitimization of the Supreme Court. I don't think he'll do it.

If he does, California has other methods to strongarm the automakers (and with the Supreme Court considered illegitimate, they'll use them). The automakers would rather have certainty with CARB standards than the uncertainty of things like bans on import of out-of-state cars, and other things California could unilaterally enforce. Even the automakers aren't going to want to risk that, once their legal departments think about it.

 

[bhzmark]

bans on import of out-of-state cars, and other things California could unilaterally enforce.

Dormant Commerce Clause - Wikipedia

might be tough for Cal to do something so blatantly discriminatory against out of state cars.

 

[brian45011]

1. QUARTER

   ASSUMPTIONS

   S &X DELIVERIES

   M3 DELVERIES

   S & X % LEASED

   S & X ASP ($k)

   S & X GM %

   M3 % LEASED

   M3 ASP ($k)

   M3 GM %

   ZEV CREDIT SALES

   GHG/CAFE CREDIT SALES

   SOLAR MW

   ENERGY STORAGE MWH

   REVENUE

   S & X SALES

   M3 SALES

   AUTO LEASING

   ENERGY GEN/STOR

   SERVICES & OTHER

   REVENUE TOTAL

   COST OF REVENUE

   S & X SALES

   M3 SALES

   AUTO LEASING

   ENERGY GEN/STOR

   SERVICES & OTHER

   COST OF REVENUE TOTAL

   GROSS PROFIT

   OPERATING EXPENSE

   R&D

   SG&A

   INTEREST INCOME

   INTEREST EXPENSE

   OTHER (EXPENSE) INCOME

   TAXES

   NET (LOSS)/ INCOME

   NCI LAYOFF

   NET (LOSS)/INCOME SH

   [TD2] B [/TD2][TD2] L [/TD2][TD2] L-B DIFF> [/TD2] [TD2]23,500[/TD2][TD2]26,400[/TD2][TD2]2,900[/TD2] [TD2]52,500[/TD2][TD2]51,800[/TD2][TD2] -700 [/TD2] [TD2]0.10[/TD2][TD2] ? [/TD2][TD2] - [/TD2] [TD2]$103.0[/TD2][TD2]$104.0[/TD2][TD2]$1.0[/TD2] [TD2]26[/TD2][TD2]27[/TD2][TD2]1.0[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]$55.5[/TD2][TD2]$59.0[/TD2][TD2]$1.5[/TD2] [TD2]13.0[/TD2][TD2]16.0[/TD2][TD2]3.0[/TD2] [TD2]$125,000[/TD2][TD2]$100,000[/TD2][TD2] -$25,000 [/TD2] [TD2]$50,000[/TD2][TD2] ? [/TD2][TD2] - [/TD2] [TD2]92.5[/TD2][TD2]?[/TD2][TD2] - [/TD2] [TD2]362.5[/TD2][TD2] ? [/TD2][TD2] - [/TD2] [TD2]$2,353,450[/TD2][TD2]$2,653,408[/TD2][TD2]$299,958[/TD2] [TD2]$3,018,750[/TD2][TD2]$3,056,200[/TD2][TD2]$37,450[/TD2] [TD2]$252,500[/TD2][TD2]$200,737[/TD2][TD2] -$51,763 [/TD2] [TD2]$412,295[/TD2][TD2]$371,450[/TD2][TD2] -$40,485 [/TD2] [TD2] $277,044 [/TD2][TD2] $300,000 [/TD2][TD2] $22,956 [/TD2] [TD2] $6,314,039 [/TD2][TD2] $6,581,795 [/TD2][TD2] $267,756 [/TD2] [TD2]$1,612,053[/TD2][TD2]$1,886,069[/TD2][TD2]$274,016[/TD2] [TD2]$2,626,312[/TD2][TD2]$2,567,208[/TD2][TD2] -$59,105 [/TD2] [TD2]$143,400[/TD2][TD2]$124,457[/TD2][TD2] -$18,943 [/TD2] [TD2]$363,693[/TD2][TD2]$309,173[/TD2][TD2] -$54,520 [/TD2] [TD2] $396,246 [/TD2][TD2] $394,999 [/TD2][TD2] -$1,247 [/TD2] [TD2] $5,141,705 [/TD2][TD2] $5,281,906 [/TD2][TD2] $140,202 [/TD2] [TD2] $1,172,335 [/TD2][TD2] $1,299,889 [/TD2][TD2] $127,555 [/TD2] [TD2]$406,149[/TD2][TD2]$395,000[/TD2][TD2] -$11,149 [/TD2] [TD2]$825,000[/TD2][TD2]$760,000[/TD2][TD2] -$65,000 [/TD2] [TD2] -$5,300 [/TD2][TD2] -$6,000 [/TD2][TD2] -$700 [/TD2] [TD2]$178,935[/TD2][TD2]$160,000[/TD2][TD2]$18,935[/TD2] [TD2]$35,000[/TD2][TD2]$12,000[/TD2][TD2] -$23,000 [/TD2] [TD2]$5,000[/TD2][TD2]$19,999[/TD2][TD2]$14,999[/TD2] [TD2] -$272,450 [/TD2][TD2] -$41,110 [/TD2][TD2] $231,340 [/TD2] [TD2] -$35,000 [/TD2][TD2] -$50,001 [/TD2][TD2] -$15,001 [/TD2] [TD2] -$237,450 [/TD2][TD2] $8,891 [/TD2][TD2] $246,341 [/TD2]
   Explanation of Differences relative to luvb2b's numbers:
   1. Reduced MS/MX deliveries based on subjective impressions about first two months of the quarter versus corresponding prior quarters; perceived inventory accretion; Chinese tariffs, and age of styling compared to newer and more economical M3. Partially offset by more profitable Auto Leasing.
      
      
   2. Reduced M3 ASPs and GM% based on 11,166 vehicles in transit at beginning of quarter which carry 2Q18 values.
      
      
   3. Reduced Services & Other Revenue--do not think GM% will improve that much.
      
      
   4. Increase SG&A because of increased scale, delivery Hell, and significant additional legal and consulting expense arising out of tweet controversy, and effect of high turnover increasing recruiting, training and administrative expenses. (Some of the barnacles may have been retained initially to remedy errors by in-experienced new hires.)

Just spitballing until the delivery report and the CARB FY 2017 ZEV release.

 

[CuriousSunbird]

Just spitballing until the delivery report and the CARB FY 2017 ZEV release.

I think you pretty much nailed it (subject as always to ZEV uncertainty).

 

[winfield100]

Dormant Commerce Clause - Wikipedia

might be tough for Cal to do something so blatantly discriminatory against out of state cars.

2017/2018 Planetary economies from various sources.
I seem to recall California has already told the present administration to politely "pound sand" a few times already
(in Trillions of dollars)
1 United States 20,412.87 (including California)
2 China 14,092.51
3 Japan 5,167.05
4 Germany 4,211.64
5 United Kingdom 2,936.29
6 France 2,925.10
7 India 2,848.23
8 California 2,747.00 (this number fluctuates, Calif was as high as number 5
9 Italy 2,181.97
10 Brazil 2,138.92
11 Canada 1,798.51
12 Russia 1,719.90

If you add in the states of Oregon, Washington, and Vancouver, British Columbia, Canada, the entire "Left Coast and Pacific Northwest", it's over $3 Trillion, which pops it up to number 5

 

[Fact Checking]

Reduced M3 ASPs and GM% based on 11,166 vehicles in transit at beginning of quarter which carry 2Q18 values.

So I only had a quick look at your numbers, but this reduction looks (wildly) invalid for several reasons:

• You reduced ASP from $59k to $55.5k, while the Troy Model tracker estimates Q3 ASP based on deliveries - i.e. Q2-made cars will be accounted in the Q3. Troy's tracking estimates a current average ASP for Q3 of $60.2k.
• But even if we take the 11,166 Q2-made Model 3's in transit, they are a minority of the cars delivered in Q3. If we go with your estimate of 52,500 Q3 deliveries then that still leaves 41,334 Q3-made cars delivered in Q3 - and you assign an inexplicably low ASP of $56k to them - which is barely higher than the Q2 ASP of $55.4k.

Fixing that omission alone adds about +$246m in revenue to your estimate.

But there's more that looks unsupported:

• The Troy Model S/X tracker is currently projecting a Q3 S/X ASP of about $106.5k - you used $102k.
• You used 23,500 Model S/X deliveries, while Tesla guided for 27,000. I.e. you are predicting a serious miss.
• These two factors account for a potential revenue gap of $476m (!).
• You also reduced Model S/X margins from 27% to 26% - another drop of $24m in revenue.
• You inexplicably reduced Model 3 gross margin to 13%, which is significantly below the guided 15%. Considering that ASP increased significantly in Q3 due to the much higher than expected take-rate of AWD, EAP/FSD and Performance, these will increase not just revenue but margins as well. I.e. even a 15% assumption might turn out to be conservative. This factor alone removes at least $63m of net income.

Increase SG&A because of increased scale, delivery Hell, and significant additional legal and consulting expense arising out of tweet controversy, and effect of high turnover increasing recruiting, training and administrative expenses. (Some of the barnacles may have been retained initially to remedy errors by in-experienced new hires.)

Legal and consulting expense is likely in the peanuts category - litigation tends to be the most expensive in the immediate pre-trial phase, none of them are at that stage yet, and unlikely to get there. The facts are also pretty narrow in most of the controversies which limit the scope of any discovery (another source of litigation expense).

You increased Model S/X Sales expenses by $274m - why? They are mature products, if then Model S/X became more efficient and margins improved significantly in Q2 already. Q3 margins might be even better due to higher deliveries, which distributes fixed costs/overhead more.

That's it at a quick glance - your automotive revenue estimate seems to be off by an around half a billion dollars, which affects all the other numbers negatively.

Anyway, Q3 delivery numbers will allow us to narrow these ranges a lot better.

 

[neroden]

Dormant Commerce Clause - Wikipedia

might be tough for Cal to do something so blatantly discriminatory against out of state cars.

All a matter of who has the larger police force and the popular support, and in this case, it's California. I learned a while back about certain obscure laws which NY has been enforcing for years even though the federal courts have claimed that they're not constitutional; the feds have no power or will to do anything about it, while NY cares and has manpower to enforce them, so guess who wins.

I've been realizing that we're coming into situations where the deployable number of people who agree on the social standards is more important than obscure legal documents; it happened with marijuana laws and it will happen with other things if the Republicans try to go too far outside the bounds of public opinion. In the case of pollution laws in California, people are pretty damn angry at the idea of reintroducing more smog to California.

This is not a particularly popular political analysis... yet. But recall Andrew Jackson's famous statement -- "John Marshall has made his decision; now let him enforce it." Call me a "constructivist" if you will, to use IR terms (Intl Prof may understand).

Any further discussion on this belongs over in the market politics thread.