Near-future quarterly financial projections

[neroden]

It's a disappointment how little they are even at production rates of 5k/week.

No, that's not at all a disappointment. 5k/week was always "breakeven" level. It is "breakeven" level, just as I expected. They need to get to 10k/week for significant profit, and I've known (and said) that for years. The real disappointment is that they're still stuck at 5k/week.

My only worry is about production/delivery rates. The demand in Europe is obviously there, and Tesla has obviously been unable to supply it. What's the holdup? Why can't Fremont do 7k/week? Why did they ship a mere 20K cars to Europe in Q1 (they really needed to be shipping at least 30K)?

 

[schonelucht]

No, that's not at all a disappointment. 5k/week was always "breakeven" level. It is "breakeven" level, just as I expected.

This remains to be seen. If even Elon is saying 'slight loss' then there is fair possibility we'll be looking at a hefty loss instead.

My only worry is about production/delivery rates. The demand in Europe is obviously there, and Tesla has obviously been unable to supply it. What's the holdup? Why can't Fremont do 7k/week? Why did they ship a mere 20K cars to Europe in Q1 (they really needed to be shipping at least 30K)?

There is inventory in Europe right now. One guy ordered April 8th, will get his car next Wednesday. Granted, they don't have inventory for all models and it's not much but that they have inventory at all for recent orders is concerning. Also, it doesn't seem that shipment schedule ramped up. They sent at most a few hunderd cars to Japan and the next carrier due for SF is currently idling along the coast of Portland. Unless they start shipping soon, Europe/China may once again be restricted to 40k Model 3 because of capacity issues at Pier 80.

 

[tmoz]

5600 via Bloomberg. Not bad if they can inch that up during the year.
However, what about model S and X numbers? These are key to health too.
Probably should have made the model Y before model 3, but perhaps there was more risk there as model Y might have taken longer to bring on line, and according to Musk, model 3 almost didn't make it out on time.
But once again - would like to see a healthy model S.
Good news is that EVs are only 2% of the market and there are a lot of potential buyers out there.
Anyone know what percentage of new cars is in the > $40,000 price range? Those are the potential untapped customers.

 

[Doggydogworld]

There is inventory in Europe right now. One guy ordered April 8th, will get his car next Wednesday. Granted, they don't have inventory for all models and it's not much but that they have inventory at all for recent orders is concerning. Also, it doesn't seem that shipment schedule ramped up. They sent at most a few hunderd cars to Japan and the next carrier due for SF is currently idling along the coast of Portland. Unless they start shipping soon, Europe/China may once again be restricted to 40k Model 3 because of capacity issues at Pier 80.

There is always some inventory because people reject the car at delivery or their financing doesn't come through or whatever. They have not exhausted pent-up AWD/P demand in Europe yet, otherwise they'd open RWD/MR/SR+ for ordering.

I don't know why they didn't start loading ships on 4/1, though. Or why they stopped loading ships in early March in the first place. Their stop/start overseas production cadence is wildly inefficient and they've promised for a year to smooth it out. But Musk keeps coming back for 'one last hit' from the crack pipe.

 

[generalenthu]

@neroden you have written elsewhere that Tesla can get half a billion in pooling payments over next 3 years. Do you have any reason to believe it won't be significantly higher based on the phasing in of stricter standards?

 

[schonelucht]

There is always some inventory because people reject the car at delivery or their financing doesn't come through or whatever.

In case you didn't notice : this was handed to a non-reservation holder who ordered 3 days ago. I would agree it would be insignificant if it went someone who ordered in December.

They have not exhausted pent-up AWD/P demand in Europe yet, otherwise they'd open RWD/MR/SR+ for ordering.

Obvkously. But they seem to have exhausted demand for a small number of combinations. That in itself is concerning to me.

 

[Doggydogworld]

In case you didn't notice : this was handed to a non-reservation holder who ordered 3 days ago. I would agree it would be insignificant if it went someone who ordered in December.

I'm saying the car he got was originally intended for someone who ordered in December but who couldn't or wouldn't take delivery.

I'm pretty sure Tesla did not send "extra" unsold Model 3s to Europe to put on lots until someone bought them. On the other hand, I'm pretty sure they did send unsold Model 3s to China to avoid the potential tariff step-up.

 

[SPadival]

OT: Guys, some of the bulls have to accept that Tesla makes cars to be put on inventory - i.e. without a ready buyer identified already. The days of exclusively made-to-order car manufacturing are over. That said, this is done for efficiency gains from batch building cars. Nothing to be ashamed about.

 

[Doggydogworld]

OT: Guys, some of the bulls have to accept that Tesla makes cars to be put on inventory - i.e. without a ready buyer identified already. The days of exclusively made-to-order car manufacturing are over. That said, this is done for efficiency gains from batch building cars. Nothing to be ashamed about.

I don't think anyone questions that at this point, except a handful of true believers whose faith transcends arithmetic. Tesla had 20k Model 3s in inventory on 3/31, of which roughly 12k were unsold.

My point is they don't send those unsold Model 3s to Europe at this stage of the game. They're still filling backorders there. They build in batches that are sized proportional to existing orders and match VINs to waiting buyers within a few days of production.

They're already past the backorder stage in the US (except for SR which still does not exist). Here they send new production to staging lots around the country where the cars wait for a matching order to come in. Delivery then happens very quickly, often within a few days.

 

[tmoz]

Here they send new production to staging lots around the country where the cars wait for a matching order to come in.

That's what I've heard from the Tempe, Az delivery center guys as well

 

[neroden]

So, Tesla's going to take a large one-time cash hit over the course of this year as they switch to build-to-inventory, just from the inventory buildup. I can see why they are doing it, but ouch.

More importantly, can they get production up to the target rate? Specifically, they have to be able to do so for European models. Do they still have a shortage of Euro-spec parts? Someone should ask on the conference call. Or is it just serious downtime from switching between US-spec and Euro-spec models? (Which is also bad.)

 

[SBenson]

Leasing and especially the way it came out is quite interesting.

Looking for input from informed folks in this space (just tagging a few names I know @schonelucht @luvb2b @brian45011 )

Income Statement:

So my understanding is due to the recent rule changes, Tesla can book the full price as revenue if the lease is offered with a purchase option. However, given that Tesla is explicitly saying that there will NOT be a purchase option at the end of the lease term, I believe Tesla can only book the lease payments towards revenue. So in essence revenues and cost of revenues would be pared down, but of course opex will not be. This creates egregious loses. Seems like SCTY all over again.

Cash Flow:

If Tesla were to securitize or use a Bank facility, my understanding is that they can monetize only the cash payments. But the residual value can't be. So in essence Tesla could be capturing cash flow that is less than cash costs per car. Or more simply, the cash flow even in case of monetisation of lease payments would be substantially lower than the cash revenue of a non-lease sale. Can TSLA afford this? We are looking at ~2Bil cash at end of Q1. How would TSLA sustain this cash drain?

Balance Sheet:

Ah, who cares. TSLA has book value of about $28 per share. When did that ever matter.

 

[Doggydogworld]

Income Statement:

So my understanding is due to the recent rule changes, Tesla can book the full price as revenue if the lease is offered with a purchase option.

I don't think that's correct, unless something major changed very recently.

I believe Tesla can only book the lease payments towards revenue. So in essence revenues and cost of revenues would be pared down, but of course opex will not be. This creates egregious loses. Seems like SCTY all over again.

This is how they've done it for S/X and, IMHO, will continue to do it for S/X/3. It's not like SCTY because leases will be ~20% of deliveries vs. 90%+, are for 3 years instead of 20 and SG&A is not egregiously out of line.

Cash Flow:

If Tesla were to securitize or use a Bank facility, my understanding is that they can monetize only the cash payments. But the residual value can't be.

Warehouse lines and securitizations both lend against the full value of the car. They don't lend 100% of MSRP, of course, but it's generally enough to cover COGS.​

 

[Zhelko Dimic]

Warehouse lines and securitizations both lend against the full value of the car. They don't lend 100% of MSRP, of course, but it's generally enough to cover COGS.​

Warehouse line lends 85% of COGS or 70% of MSRP as per Musk on one of the calls.
He made this comment in the context of value of increased delivery efficiency and cash flow impact that 10 day delivery offers over 1 month delivery, sometime in Q3 '18, or Q3 CC maybe.

 

[Doggydogworld]

Warehouse line lends 85% of COGS or 70% of MSRP as per Musk on one of the calls.
He made this comment in the context of value of increased delivery efficiency and cash flow impact that 10 day delivery offers over 1 month delivery, sometime in Q3 '18, or Q3 CC maybe.

He was talking about the ABL (Credit Agreement in the 10-K). Warehouse lines generally lend more, because there's a customer with approved credit on the hook for the payments.

There's also a difference between COGS and cash COGS which exclude depreciation, warranty reserve, etc., but that's really getting into the weeds.

 

[tmoz]

So big question - is demand firm or soft? Is advertising needed if demand has softened? Can Tesla glide on M S, X, and 3 sales at the 5000 unit per week number until the Model Y and or Pickup Truck start production?

 

[bdy0627]

So big question - is demand firm or soft? Is advertising needed if demand has softened? Can Tesla glide on M S, X, and 3 sales at the 5000 unit per week number until the Model Y and or Pickup Truck start production?

The situation is more nuanced than that. Demand appears to have softened for the higher trims in the U.S. It's probably softening in Europe for higher trims pretty soon. There is no indication that it is softening in China. There is no compelling reason to think demand for the lower trims has softened anywhere since they have not produced many of those yet, nor have they delivered any of those to Europe or China. The softening of demand for the higher trims in the U.S. appears to have happened perhaps more rapidly than Tesla anticipated, and before Tesla was able to ramp production to well above 5,000 per week. That's my take.

 

[EVNow]

The situation is more nuanced than that. Demand appears to have softened for the higher trims in the U.S. It's probably softening in Europe for higher trims pretty soon. There is no indication that it is softening in China. There is no compelling reason to think demand for the lower trims has softened anywhere since they have not produced many of those yet, nor have they delivered any of those to Europe or China. The softening of demand for the higher trims in the U.S. appears to have happened perhaps more rapidly than Tesla anticipated, and before Tesla was able to ramp production to well above 5,000 per week. That's my take.

Definitely in the US there isn't enough demand suck up all the production of higher trims. Not sure about EU/China, yet. But it shouldn't be surprising if that were to happen in a quarter or two.

In the US they delivered 147k higher trim 3s till, including, Q4. Do we expect latent demand for that many higher trim 3s in EU/China ?

My only worry is about production/delivery rates. The demand in Europe is obviously there, and Tesla has obviously been unable to supply it. What's the holdup? Why can't Fremont do 7k/week? Why did they ship a mere 20K cars to Europe in Q1 (they really needed to be shipping at least 30K)?

IIRC, Musk said they will get to 7k/wk only by end of the year. Considering last quarter was the first time they made EU spec 3s, the rate this quarter will be instructive. Also last time they had problems with delivery (so much so they had delivered so few cars with 2 weeks to go) - so may be the didn't try hard to increase production rates.

In the US - the issue would be how much of base 3s to make vs others. They have a lot of demand for base 3s - but that would reduce ASP. so, they have to play a delicate game now of managing the mix.

 

[heltok]

I assume demand in Europe will grow with deliveries initially as many Germans, Frenchs, Danes, Swiss etc are not aware of Model 3, Tesla or the tax situation...

 

[Doggydogworld]

In the US they delivered 147k higher trim 3s till, including, Q4. Do we expect latent demand for that many higher trim 3s in EU/China ?

A big slug of that 147k was MR at 38,500 after tax credit. About the same as SR+ in two months.

I expected Europe+China to be a bit less than US+Canada. Europe seems to have hit the wall at ~25k AWD/P. I think they'd have done another ~25k of LR-RWD/MR or whatever, but Tesla went straight to SR+ instead. That should produce a nice demand surge that lasts into Q3.

I have no idea what to think about China. They sent 8 boats and only delivered 6-7k Model 3s in Q1. It made sense to stockpile ahead of a possible tariff step-up, but the numbers were still much lower than I expected.

IIRC, Musk said they will get to 7k/wk only by end of the year.

Musk said 350-500k Model 3s. Even if China somehow ran at full speed all of Q4, that requires 6.4k-10k/week from Fremont in Q2/Q3/Q4.

In the US - the issue would be how much of base 3s to make vs others. They have a lot of demand for base 3s -

We don't know this yet. There should have been some pent-up demand, but it seems not.

Tesla is trying to shift the narrative away from Model 3 to FSD. There's a reason for that.​