Near-future quarterly financial projections

[Zhelko Dimic]

From a cursory look the baseline bear thesis seems to be
a) Q4 order flow will be weak, as the reservation book dried out. If not q4, it's q1.
b) Tesla hasn't raised money despite doing heroic maneuvers in cash management - signals that it CAN'T raise money
c) SP trending down to <253 makes convertible bonds cash-only payment
d) All together Tesla won't have money to pay the bonds

I think the first order of business is to watch for item-a. I don't know the best tool to watch it. Perhaps see how Troy's delivery estimate for Q4 changes over next few weeks. If it trends down, it's substantial trouble. But again, it could be too late by the time there is real tangible info.

There is considerable confusion/disagreement over gasparino's tweets even among bears. My interpretation is that the bankers are forward looking and are expecting the play above and thus getting ahead of the game in pitching pre-packs and dip financing. Their interest is in making IB fee. They don't care which way the chips fall.

I understand the theory of reflexivity. Though my opinion is that there gotta be something tangible as a trigger. Sub-prime loans and various forms of inter-bank lending and so forth were legit triggers that were there in 08/09.

Perhaps Musk's perplexing behavior is symptom of the problem as opposed to the problem itself.

Musk hoped to create a bidding war by putting out a fake price as secured. Why did he make such a desperate all-in feat to take Tesla private? Is SEC somehow blocking Musk from raising funds? Would going private take that risk away? Why is he so pissed at SEC? Just because of COB timeout? or is there something bigger?

So far I haven't seen a legitimate reason for why Musk went with the original go-private tweets. The only thing that makes sense, is that he sought cover from SEC (even before the latest charges). Going private is the way to accomplish it.

or maybe he is simply overdosing himself with drugs and lost his mind... Which ever reason pleases you... But unless you know why he did what he did, you don't know what you are getting yourself into.

Ultimately, I very much agree with luv. Be cognizant of the risk and exposure you have.

(full disclosure: i was all out few months ago, just watching the drama from sidelines)

It's possible that Musk's behaviour is symptom of the trouble, rather than the trouble itself.
But I give much higher chance to possibility his behaviour is result of another relationship failure and him lashing out at the world. He also desperately wants to be right in anything and everything, as otherwise he'd have to consider possibility that it was him that was wrong in a relationship, and not the other person. Doesn't mesh well with his personality, of one that is persistent, never giving up, never surrendering, always (or at least mostly always) being right.

 

[bdy0627]

Do you have a link to Coakley's analysis? I can't find the estimate you're referring to.

Here's the twitter link:
TheElectricRoadTrip on Twitter

 

[lklundin]

Do you have a link to Coakley's analysis? I can't find the estimate you're referring to.

Per the above screenshots, Coakley just says that he has 10 years of experience making such models and that he knows what he is doing...

 

[traxila]

Is this thread at the point where we are taking the possibility of TSLA going bankrupt as significant? Now? At this point in time with the ramp that TSLA is in the midst of?

I am confused.

 

[Yuri_G]

Is this thread at the point where we are taking the possibility of TSLA going bankrupt as significant? Now? At this point in time with the ramp that TSLA is in the midst of?

I am confused.

The only conclusion I can come to is the negative sentiment around the stock price is affecting longs' judgment on the health of the company. Luv's models have been close in the past and even if she/he isn't on point this quarter, the model is hinting that the results have a good chance of positively surprising.

 

[brian45011]

Well it's fancy to say that the base model has 18% gross margin because Sandy Munro had a spreadsheet, but Tesla is giving 15% guidance on a 60k$ priced vehicle. You have to square the math with reality somehow.

Over 20% of the M3 deliveries were built in 2Q18 when GM% was "slightly positive."

 

[defc0n]

i know a lot of people look to models like mine to give some comfort at times like these.

i believe price action should not be ignored, and reflexivity is a real thing.

soros's concept of reflexivity is the idea that the fundamentals and share price are intertwined: a rising share price can create its own positive fundamentals and a falling share price can create its own negative fundamentals.

on the positive side, imagine that rising share price implies investors who bought shares might cash some out to buy teslas. any needed financing is easily available by selling shares. suppliers and other creditors are willing to extend easy terms because they have confidence in the company due to its rising share price.

the opposite also happens. we all remember the biggest and best financial institutions in the world being brought to their knees as share prices and confidence in those entities collapsed in 2008-09.

i mention this because the share price is sending a totally different message from what my modeling would suggest. i don't know what will happen, but here's one way my model could be an epic fail.

in my model the cash balance grows on the back of payables. imagine for a moment a few suppliers saying we need to be paid sooner. with a model-estimated ~5b of payables outstanding at the end of this quarter, it wouldn't take much and suddenly the cash balance is not growing enough to easily cover upcoming debt payments.

to cover those debt payment: a share sale or a refinancing... and just imagine the terms on those were they needed. this may look better after 18q3 earnings, but there's also the chance that the overhang of the investigations + elon's behavior is enough to keep people from believing guidance.

fundamentals have zero importance once trust is broken - particularly in companies that have high leverage.

i have no idea how the future will play out. i am simply alerting people that risk should be managed and considered with an open mind to the possibilities.

i will regret posting my model if people believe it blindly and lose lots of money. please accept my reminder to always keep an open mind about the risks, to make your own independent judgements, and to not place over-reliance on any one data point (such as a model).

edit: i just saw the discussion around gasparino's tweets. without agreeing or disagreeing with the specifics of his content, i would say the general idea that a declining share price can create its own deteriorating fundamentals (i.e., soros's reflexivity) is valid. leveraged companies that lose the confidence of the markets can get in trouble very quickly. i guess i just repeated what i said above.

I think you’re not giving yourself enough credit.

Model 3 Takes Measurable Step Forward in Production | Loup Ventures

They too believe Tesla will be cash flow positive.

I believe it all comes down to what the Model 3 gross margin ends up being.

 

[Johan]

It seems unlikely to my amateur eye that they would be playing it so close and so tight financially that a small change in sentiment could shift their financials, through bonds becoming cash-only payable and a negative domino effect with suppliers effecting terms, from "self sustained growth and sky is the limit" to "soon to be bancrupt" in two weeks..?

 

[bdy0627]

Is this thread at the point where we are taking the possibility of TSLA going bankrupt as significant? Now? At this point in time with the ramp that TSLA is in the midst of?

I am confused.

I didn't mean to create that impression. My intent was to get some informed opinions about some possibilities for the net cash flow for Q3. Obviously, we have Luv's modeling, which has typically been conservative/realistic. Given many bears' stance that positive cash flow appears to be impossible for Tesla to achieve for Q3, yet Luv's modeling shows $600M, do we think it's realistic it may be below $300M? Anything over that I see as a huge positive surprise with the current sentiment, under it is more of a mild surprise.

 

[SPadival]

in my model the cash balance grows on the back of payables. imagine for a moment a few suppliers saying we need to be paid sooner. with a model-estimated ~5b of payables outstanding at the end of this quarter, it wouldn't take much and suddenly the cash balance is not growing enough to easily cover upcoming debt payments.

That is precisely the short's angle of attack. Gabe Hoffman, a 2 bit short (with terrible performance) was gloating about it on CNBC. However, as Ross Gerber pointed out, Panasonic, one of the key suppliers/partners is actually accelerating their investment in GF1 and publicly accepted it is partly their fault for the slow production ramp.

Also, there is this.. I don't think Tesla will ask for a discount if not from a position of strength? (CNBC cannot spell "discounts" )
Tesla explains why it asked some suppliers for retroactive discounts

I would hasten to add that this does not detract from your overall point about risk management !!

 

[omgwtfbyobbq]

Here's the twitter link:
TheElectricRoadTrip on Twitter

In that case, professional designation or not, I wouldn't take the opinion of someone who can't figure out what quarter it is seriously. There's likely a reason why Coakley doesn'y have any substantive analysis.

 

[Remus]

Any supplier who does that can say goodbye to future business with Tesla.

Not necessarily. It's a complicated dance between the two, depending on who has better leverage.

 

[Remus]

Seriously?! You spend time in Tesla investment forum and not knowing why Musk want to take Tesla private?!

From a cursory look the baseline bear thesis seems to be
a) Q4 order flow will be weak, as the reservation book dried out. If not q4, it's q1.
b) Tesla hasn't raised money despite doing heroic maneuvers in cash management - signals that it CAN'T raise money
c) SP trending down to <253 makes convertible bonds cash-only payment
d) All together Tesla won't have money to pay the bonds

I think the first order of business is to watch for item-a. I don't know the best tool to watch it. Perhaps see how Troy's delivery estimate for Q4 changes over next few weeks. If it trends down, it's substantial trouble. But again, it could be too late by the time there is real tangible info.

There is considerable confusion/disagreement over gasparino's tweets even among bears. My interpretation is that the bankers are forward looking and are expecting the play above and thus getting ahead of the game in pitching pre-packs and dip financing. Their interest is in making IB fee. They don't care which way the chips fall.

I understand the theory of reflexivity. Though my opinion is that there gotta be something tangible as a trigger. Sub-prime loans and various forms of inter-bank lending and so forth were legit triggers that were there in 08/09.

Perhaps Musk's perplexing behavior is symptom of the problem as opposed to the problem itself.

Musk hoped to create a bidding war by putting out a fake price as secured. Why did he make such a desperate all-in feat to take Tesla private? Is SEC somehow blocking Musk from raising funds? Would going private take that risk away? Why is he so pissed at SEC? Just because of COB timeout? or is there something bigger?

So far I haven't seen a legitimate reason for why Musk went with the original go-private tweets. The only thing that makes sense, is that he sought cover from SEC (even before the latest charges). Going private is the way to accomplish it.

or maybe he is simply overdosing himself with drugs and lost his mind... Which ever reason pleases you... But unless you know why he did what he did, you don't know what you are getting yourself into.

Ultimately, I very much agree with luv. Be cognizant of the risk and exposure you have.

(full disclosure: i was all out few months ago, just watching the drama from sidelines)

 

[neroden]

in my model the cash balance grows on the back of payables. imagine for a moment a few suppliers saying we need to be paid sooner.

I've considered this...

with a model-estimated ~5b of payables outstanding at the end of this quarter, it wouldn't take much and suddenly the cash balance is not growing enough to easily cover upcoming debt payments.

...but Tesla is coming into the third quarter with 2.2 billion in cash and 3 billion in payables.

Some of the suppliers might demand earlier payment, but how many?

You're thinking an increase of 1.8 billion in accounts payable for Q3 and then an actual reduction in accounts payable for Q4.

I haven't heard anything in the way of rumors of major suppliers demanding shorter payment terms; we know Panasonic is actually being *more* generous. Others have Tesla as a major customer and wouldn't want to harm them financially. On the other hand, several of Tesla's major suppliers are companies whose businesses are as generic and diversified as steel and aluminum companies, who are large and tend to offer absolutely standard terms to everyone, not individualized terms based on credit rating.

Tesla would have to have a large percentage of the payables called in early to have a cash flow crisis. For Q3, it seems like would have to be 39%; for Q4, 53%. It currently seems quite implausible to me. Even if 10% or 20% of the accounts payable demanded upfront payment, I don't see a problem.

 

[neroden]

I do see that this guy mentions negative cash was $700M last quarter, but that's wrong. That was Q1. Last quarter was -$400M, so we are talking about a turnaround of around $1.1B between Q2 and Luv's estimate.

Yeah. That dudebro doesn't know *sugar* about financial analysis -- not even being able to quote the number from the correct quarter is disqualifying.

 

[neroden]

Yeah I mean the p model is like 9k$ of 100% margin. They flip a bit in the software that's all. And they are selling a boat load. Eap, as fact checking points out, is high uptake and nearly 100% margin. How is Tesla not pulling 30+% margins this quarter with the mix it is selling?

GAAP has this weird and rather arbitrary concept called depreciation. Some of it is per unit, which is sort of OK (but not really), but some of it is per time period, which is reliably distorting.

If Tesla used a different form of accounting (which isn't allowed), you'd see what was really going on. There's a very high cash margin, but also very high fixed costs, and some of the fixed costs are stuffed in the GAAP gross margin rather than on a separate accounting line item where I think they belong.

In addition, early in the ramp there will be higher truly variable costs than later (because they're making some dumb mistakes, which they are fixing -- variable costs go down with experience) and higher fixed costs than later (for the same reason, experience).

So effectively the GAAP gross margin from early in a ramp-up is simply misleading: it's a combination of higher variable costs than steady-state, with depreciation divided over too few cars and higher fixed costs than steady-state divided over too few cars.

The crucial number for a business like this is always the topline number: how many cars produced/delivered/paid for per day/week/month/quarter? Production ramp delays are deadly; Tesla really was at very severe risk for the last nine months due to those delays. NOW Tesla's out of the woods.

So of course *now* the stock goes down? It should have gone down last January if it were trading on business fundamentals, which it clearly wasn't.

 

[ThereAre4Cars]

There's a very high cash margin, but also very high fixed costs

I'm familiar with the concepts although not in any detailed manner. But how big is the fixed cost? If you look at the cash flow statements from Q2 of 2017 to Q2 of 2018 the Depreciation & Amortization line went up only 96M$, so that's before model 3 and after. Let's say the equipment is depreciated over 5 years so that's 20 quarters and that 100M$ would add up to 2B$ which sounds ballpark reasonable. If that's approximately correct then delivering 20k is 5k$ per unit, 50k is 2k$ per, and 100k is 1k$ per. In other words, after Q3 there isn't a significant dilution remaining.

What do you figure is the size of this fixed number and what source do you get it from?

Also since you have accounting skills. Is there any chance the S/X margins improve simply because the model 3 reuses quite a bit of the same capital equipment (Body shop, paint, Factory itself, etc)? I don't think this has been included in any model I've seen.

I mean fundamentally when I think bottom-up about it, I have a hard time understanding why the 35k$ would have such a hard time being profitable when a Camry starts at 24k$. The battery might cost 7.5k$ at MOST, but then the relative complexities\cost\sheer material of everything else *seems* about the same.

 

[ThereAre4Cars]

So of course *now* the stock goes down? It should have gone down last January if it were trading on business fundamentals, which it clearly wasn't.

Yeah I think late Q1 was really the darkest period when they were still struggling to get out 2k\week and quality issues were rampant and the press and Elon's Ambien tweeting started to intertwine and get nasty. I am really shocked by this recent turn in the SP (some of it is likely macro as well) but steeling my nerves and buying into it. I think there's a lot of money betting on a self-reinforcing spiral potentially involving customer angst about bankruptcy, and the smart money is using the fact that the dumb money (and financial media) won't realize the actual difference in financial situation until the earnings report is actually released.

 

[Reciprocity]

From a cursory look the baseline bear thesis seems to be
a) Q4 order flow will be weak, as the reservation book dried out. If not q4, it's q1.
b) Tesla hasn't raised money despite doing heroic maneuvers in cash management - signals that it CAN'T raise money
c) SP trending down to <253 makes convertible bonds cash-only payment
d) All together Tesla won't have money to pay the bonds

I think the first order of business is to watch for item-a. I don't know the best tool to watch it. Perhaps see how Troy's delivery estimate for Q4 changes over next few weeks. If it trends down, it's substantial trouble. But again, it could be too late by the time there is real tangible info.

There is considerable confusion/disagreement over gasparino's tweets even among bears. My interpretation is that the bankers are forward looking and are expecting the play above and thus getting ahead of the game in pitching pre-packs and dip financing. Their interest is in making IB fee. They don't care which way the chips fall.

I understand the theory of reflexivity. Though my opinion is that there gotta be something tangible as a trigger. Sub-prime loans and various forms of inter-bank lending and so forth were legit triggers that were there in 08/09.

Perhaps Musk's perplexing behavior is symptom of the problem as opposed to the problem itself.

Musk hoped to create a bidding war by putting out a fake price as secured. Why did he make such a desperate all-in feat to take Tesla private? Is SEC somehow blocking Musk from raising funds? Would going private take that risk away? Why is he so pissed at SEC? Just because of COB timeout? or is there something bigger?

So far I haven't seen a legitimate reason for why Musk went with the original go-private tweets. The only thing that makes sense, is that he sought cover from SEC (even before the latest charges). Going private is the way to accomplish it.

or maybe he is simply overdosing himself with drugs and lost his mind... Which ever reason pleases you... But unless you know why he did what he did, you don't know what you are getting yourself into.

Ultimately, I very much agree with luv. Be cognizant of the risk and exposure you have.

(full disclosure: i was all out few months ago, just watching the drama from sidelines)

Elon has been taking about going private for some time. It's his obsession on shorts and bad press generated by shorts. The timing is interesting to me. The company was in the process of burning the shorts and he seemed to want to cut that off and cap the stock price, so that a private deal could be done. Now the risk is that the stock price gets so low that it's a takeout Target. How low does it have to do before stockholders would sell to anyone for $200 a share. If Elon can get it together with his tweeting, we might find out. It's also a double edged sword, because you wouldn't want a Tesla without Elon, but now it's becoming the opposite. Under $200 beggarb of Elons tweets could mean that you wouldn't want Tesla unless Elon was gone.

I don't how why shorts get to Elon so much, they have but done nearly as much damage to the mission as a handful of terrible tweets from Elon. From the sbotc, pedo and funding secured tweets the stock is down over 100pts multiple times this year. Before this year, shorts had been trounced in the market with billions in Mark to market losses every year. Short burn of the century had turned into the long burn off the year. And the biggest victims are Tesla employees who have busted their asses. Elon needs to get his *sugar* started away, post haste, or a take out won't seem like a crazy thought.

 

[Reciprocity]

I mean fundamentally when I think bottom-up about it, I have a hard time understanding why the 35k$ would have such a hard time being profitable when a Camry starts at 24k$. The battery might cost 7.5k$ at MOST, but then the relative complexities\cost\sheer material of everything else *seems* about the same.

Just commenting on this part. The 55KWh SR pack will be down to $5500 by 2020. The fuel savings and oil changes alone is enough to pay for the pack in 5 years. Faster if you drive a lot and even faster if you have solar. Takes no consideration for saving a few thousand on the gas engine and simpler manufacturing process. There's also charging and electric motors, but it's clear to see where this is going.

FYI, the whole $100/KWh cost required to make EV cost the same as ice, does not take into account fuel and maint. Savings. Only physical costs of the drive train. That's sillt when you can have $2k/y in fuel and maint.