Near-future quarterly financial projections

[ReflexFunds]

Yeah, but note that:

• End of Q4 if they were at 6k/week for 6 weeks and 4k/week for 2 weeks, so there's roughly 44k units in the pipeline - a growth of about 8k units or $240m with your $30k/unit payables estimate.

But there's no fault in being conservative - and your estimates are already higher than all honest Wall Street estimates, so it's not like you have any big incentives to increase the optimism of your numbers.

"Although our accounts payable increased as expected, our accounts receivables also increased by a similar
magnitude since the quarter ended on a Sunday, which limited our ability to collect cash from the banks financing our customer loans"

Here too they are putting it into writing that the primary reason for the receivables increase was due to the end of quarter bank settlement delay artifact.

Also, Q3 was a fantastic blow-out quarter already - Tesla had no reason to correct any apparent misconceptions about items that would help Q4 results.

I agree with all of this. On your last point though, Q4 is also going to be a blow-out quarter already, so it may make sense for them to hold back some slack in working capital for Q1. Q1 working capital could be more challenging on higher inventory in shipment to Europe & China, and possible lease options for the model 3. So they may choose to holdback some payables and receivables cash flow for Q1 so they can be confident they can increase cash balance despite repaying the $920m convert.

Other key potential upsides to my model are ZEV credits (could be up to another $300m profit & cash flow), inventory (could also see a reduction in Tesla's used car inventory & loaner fleet) and capex (+$100-150m cash flow). They will definitely increase capex in Q4, but some of this might increase capex accruals & payables rather than show in the reported PP&E purchases number (which is a cash based number). Capex related working capital does not flow through the cash flow statement so is not included in the cash flow payables number.

 

[Buckminster]

That could be a source for a significant upside surprise for cash flow figures in the ER

Q4 is also going to be a blow-out quarter already

Is Elon going to buy suitcases to stash the cash?

 

[Fact Checking]

Other key potential upsides to my model are ZEV credits (could be up to another $300m profit & cash flow), inventory (could also see a reduction in Tesla's used car inventory & loaner fleet) and capex (+$100-150m cash flow).

As a side note, some other potential upsides:

• Some deferred revenue recognition on reaching the V9 Autopilot milestones in Q4 - $100m?
• Tesla Energy might be ramping in Q1 - maybe they did in Q4 already?

Potential headwinds:

• It's unclear by how much ASP dropped due to the ~$10k discount to employees participating in the FSD beta test,
• Supercharger expansion accelerated in Q4, which might result in higher capex,
• China tariffs were estimated to $50m - could have ended up being more,
• Stock comp could have ticked up due to higher stock price after the Q3 ER.

 

[kbM3]

I agree with all of this. On your last point though, Q4 is also going to be a blow-out quarter already, so it may make sense for them to hold back some slack in working capital for Q1. Q1 working capital could be more challenging on higher inventory in shipment to Europe & China, and possible lease options for the model 3. So they may choose to holdback some payables and receivables cash flow for Q1 so they can be confident they can increase cash balance despite repaying the $920m convert.

Other key potential upsides to my model are ZEV credits (could be up to another $300m profit & cash flow), inventory (could also see a reduction in Tesla's used car inventory & loaner fleet) and capex (+$100-150m cash flow). They will definitely increase capex in Q4, but some of this might increase capex accruals & payables rather than show in the reported PP&E purchases number (which is a cash based number). Capex related working capital does not flow through the cash flow statement so is not included in the cash flow payables number.

I wouldn’t think they need to pull the lease trigger in q1. Even if they ramp production to 7k/week, I would guess they could sell 3k in U.S. and 4K worldwide without it.

 

[LargeHamCollider]

I wouldn’t think they need to pull the lease trigger in q1. Even if they ramp production to 7k/week, I would guess they could sell 3k in U.S. and 4K worldwide without it.

Agree, S/X should be soft in q1 but Model 3 should be even better than q4 with higher numbers AND higher ASP. I think S/X sales could drop to near 20,000 in q1 but this should be made up for by an extra 7k Model 3s and higher margins on all the 3s.

 

[Rebel44]

Agree, S/X should be soft in q1 but Model 3 should be even better than q4 with higher numbers AND higher ASP. I think S/X sales could drop to near 20,000 in q1 but this should be made up for by an extra 7k Model 3s and higher margins on all the 3s.

On the other hand, due to shipping times to the EU and China, there will be a lot more cars in transit at the end of Q1 - but I agree that ASP will be up.

 

[kbM3]

Agree, S/X should be soft in q1 but Model 3 should be even better than q4 with higher numbers AND higher ASP. I think S/X sales could drop to near 20,000 in q1 but this should be made up for by an extra 7k Model 3s and higher margins on all the 3s.

I keep forgetting S&X. Although they just pulled an anti-demand lever by dropping the lower priced versions, so they must have something up their sleeve

 

[Fact Checking]

On the other hand, due to shipping times to the EU and China, there will be a lot more cars in transit at the end of Q1 - but I agree that ASP will be up.

While I could be wrong about this, at least in the initial phase it's not necessarily the case that a lot of Model 3's "have to be in transit" at the end of Q1:

• If Tesla makes Model 3's for the EU and Chinese market in January and early February, they have time to ship them to Europe and China and deliver them.
• If mid-February Tesla switches over to U.S. production, they can do the regular end of quarter U.S. push with west coast deliveries timed last.
• In such a scenario they'd have similarly low inventory in Q1'19 as they had in Q3'18. (They probably won't have the end of year super low levels of inventory, because there probably won't be holidays and a factory shutdown/slowdown end of March.)
  
• They can again start making European and Chinese Model 3's at the beginning of April.

If Q1'19 U.S./Canadian demand is at least 50%-60% of Q4 demand they can do this and still grow both production and deliveries. With the price cuts there's no reason this shouldn't be possible.

There will be some increase in inventory in Q1: in Q4 they really cleaned shop - they'll have to re-fill showroom inventory and European stores and service centers will have to take test drive, loaner and service units into inventory.

 

[Rebel44]

While I could be wrong about this, at least in the initial phase it's not necessarily the case that a lot of Model 3's "have to be in transit" at the end of Q1:

• If Tesla makes Model 3's for the EU and Chinese market in January and early February, they have time to ship them to Europe and China and deliver them.
• If mid-February Tesla switches over to U.S. production, they can do the regular end of quarter U.S. push with west coast deliveries timed last.
• In such a scenario they'd have similarly low inventory in Q1'19 as they had in Q3'18. (They probably won't have the end of year super low levels of inventory, because there probably won't be holidays and a factory shutdown/slowdown end of March.)
  
• They can again start making European and Chinese Model 3's at the beginning of April.

If Q1'19 U.S./Canadian demand is at least 50%-60% of Q4 demand they can do this and still grow both production and deliveries. With the price cuts there's no reason this shouldn't be possible.

There will be some increase in inventory in Q1: in Q4 they really cleaned shop - they'll have to re-fill showroom inventory and European stores and service centers will have to take test drive, loaner and service units into inventory.

IMO, it would make a lot more sense to just produce and ship for all regions at the same time (or frequently switch between EU/China/EU etc. variants) - avoiding nasty logistics and delivery spikes that are likely to result in higher number of problems and unhappy customers.

 

[Fact Checking]

IMO, it would make a lot more sense to just produce and ship for all regions at the same time (or frequently switch between EU/China/EU etc. variants) - avoiding nasty logistics and delivery spikes that are likely to result in higher number of problems and unhappy customers.

It uses up a lot of capital: 10,000 Model 3's spending the end of a quarter on the Atlantic are tying up about ~$500m of Tesla's working capital.

I.e. it is a more capital efficient strategy to make European and Chinese versions early in the quarter, and switch over to U.S. production later in the quarter.

As Tesla grows the natural solution to this will be one Gigafactory per continent: in that case there will be no 40 day car shipment routes, every car can be shipped to the customer within a couple of days in the typical case.

 

[mrdoubleb]

Another thing to consider is that Model 3 (Fremont) door to (customer) door times should be less than for S/X.

These cars are fully assembled and shipped directly from SF in 3 weeks to Belgium, with Tesla`s target of getting it to customers in 1 week after that. S/X on the other hand is partially disassembled, transported to the gulf of Mexico on land/rail (I think they ship from Houston), shipped to Tilburg, re-assembled and re-tested/validated, than delivered to in-country showrooms. So money is tied up longer and European production is cut off sooner.

With Model 3, they may be able to keep on manufacturing for Europe (and maybe Asia as well) until mid-February, then switch to US East Coast and Canada, then switch to US West Coast like FC said.

 

[AudubonB]

MODERATOR:
To active posters: Would you care to let me know if you would like this thread's title to be updated to, for example, "Q418-Q219 Financial Projections"?

 

[AudubonB]

That was not a "funny" post. Let me know if you think it should be done.

 

[mongo]

That was not a "funny" post. Let me know if you think it should be done.

Your suggestion has merit. I thought it was funny that we are now discussing Q1 '19 in a '18 thread and I hadn't noticed.

Insightful would have been the most appropriate tag.

 

[mershaw2001]

MODERATOR:
To active posters: Would you care to let me know if you would like this thread's title to be updated to, for example, "Q418-Q219 Financial Projections"?

It seems like the title should be more along the lines of "detailed quarterly financial projections and quarterly financial models." This is one of the best threads and I think the one I reference the most as interesting data comes in. I think we should maintain it and have it just roll forward as long as those people who are better informed than I am are willing to post their models. I, for one, would love to hear from @luvb2b again and compare this quarter's with @ReflexFunds 's. I apologize to others that I have neglected to mention who have presented good models here.

 

[adiggs]

It uses up a lot of capital: 10,000 Model 3's spending the end of a quarter on the Atlantic are tying up about ~$500m of Tesla's working capital.

I.e. it is a more capital efficient strategy to make European and Chinese versions early in the quarter, and switch over to U.S. production later in the quarter.

As Tesla grows the natural solution to this will be one Gigafactory per continent: in that case there will be no 40 day car shipment routes, every car can be shipped to the customer within a couple of days in the typical case.

Does it really (be more capital efficient to manufacture for China / Europe at the beginning the quarter, and US at end of quarter)? I realize that a system that balances flow to all regions will show a lot more working capital at the arbitrary point in time (quarter end) from which numbers are drawn and reported. It looks to me like managing the business to make that end of quarter number look small doesn't change the actual working capital needs - it just shifts it around so it looks small at an arbitrary point in time (end of quarter).


If anything, I expect that the incremental work to tune the system so that in-transit vehicles surge at the beginning of the quarter and then get resolved at the end of the quarter, creates several problems:
- actual working capital in the first half of the quarter is artificially high. It's not a number that gets reported, but it's real and financing is needed for it.
- The delivery logistics system around the world is back end loaded - what does the delivery system (people mostly) do in the front half of the quarter (I mean, besides get paid)?
- As mentioned earlier, with the back end loading on the delivery system, you naturally get a system that is over provisioned in the front half of the quarter, and under provisioned in the back half of the quarter, naturally leading to a rushed / lower quality delivery experience for most deliveries.


I would prefer to see an emphasis from Tesla on metrics that drive actual working capital requirements, all 90 days of the quarter, and running a system that is optimized for both cost and experience. So instead of emphasizing working capital for in-transit vehicles at the end of the quarter, emphasize:
- manufacturing time (# days from "start of manufacturing" to "vehicle shipped"). One answer to the question of how efficiently and quickly vehicles go from parts to a finished vehicle that has left the factory.
- average delivery days (# days from "vehicle shipped" to "vehicle delivered") and report this separately for at least 3 regions, and possibly more if there's a compelling story (and then keep it consistent - without an internal view into the data, I lean towards 3 regions). Those 3 regions being North America (Canada / USA today, add Mexico when those deliveries start in the future), Asia (China, India, South Korea, Australia, etc..), and Europe. Add Africa, Middle East as additional regions in the future when that applies. Report this every quarter, and show how improvements in the delivery days is decreasing and why, and how that drives the average working capital requirement throughout the quarter.

Optimize for delivery days in the overall system, rather than in-transit vehicles at arbitrary points in time. Optimizing for delivery days will yield a process that gets vehicles into customers hands quickly when they arrive at a delivery center, rather than dumping overwhelming numbers of vehicles mid/late quarter that then sit for days or weeks before it's their turn to deliver, subject to the constraints of the delivery center to deliver the vehicle.

MHO

 

[ggr]

MODERATOR:
To active posters: Would you care to let me know if you would like this thread's title to be updated to, for example, "Q418-Q219 Financial Projections"?

Moderator wars: If it were I to do it, I would rename the thread to Near Future Quarterly Financial Projections. I don't know why you bothered asking. In fact... --ggr.

 

[AudubonB]

Ummm....that was my second choice.....

 

[TradingInvest]

I think there should be no doubt that Q4 will be GAAP positive. The reason is the same as why no doubt Q3 is GAAP positive. To sum it up: sales is huge and the company needs GAAP profit to join S&P.

The question is how big the profit is, and how the market will react. If the profit is higher than Q3 profit, the impact could be dramatic. Some trading systems look for that as confirmation.

In case there is a big drop, that might be the last chance to load the stock before breakout.

 

[Fact Checking]

It looks to me like managing the business to make that end of quarter number look small doesn't change the actual working capital needs - it just shifts it around so it looks small at an arbitrary point in time (end of quarter).

Correct - but the effect is so large with shipments across continents that even 100+ year old car companies like BMW are doing quarterly inventory management:

Those 20-40% fluctuations in BMW's levels of sales correspond to quarter boundaries (!).

So I don't think Tesla has any chance but to do smart inventory management. You are right that it's not a genuine improvement of working capital - it's more like a robust quarterly demonstration of working capital: it shows that there's no unhealthy growth in inventory, etc.

Tesla also renewed their efforts to improve delivery times in Q3 and Q4 - and that genuinely improves their working capital balance.