Near-future quarterly financial projections

[EVNow]

Your Model 3 ASP is way too low. You're trying to shoehorn 12.1k S/X and 50.9k 3s into 3509m of revenue, which obviously doesn't fit. You need to use 4010m revenue instead. The 3509m is after a 501m reduction due an adjustment for prior period sales with Resale Value Guarantees. Similarly, you need to add back 409m of COGS. ASP/Revs should be something like:

(12,091 S/X sold - 1,260 S/X leased) * 100k S/X ASP + (50,928 Model 3s sold * 55k 3 ASP) = 4010m

I guess at 100k ASP for S/X due to massive discounting in the last month when most of the sales happened. This was partially offset by a shift in mix as they stopped making 75Ds and only sold those out of inventory.

Yes, I missed that. So, that extra 92 million loss is actually a one time cost.

So, now I estimate the ASPs as 103k and 57k. If S&X ASP is 100k, then 3 ASP would have to be 58k. Both are quite possible, I guess.

During the ER CFO talked about ASP of 3 being low when they started SR+ but is now creeping up to 50k, where he thought it would stabilize. I've to listen to that again - may be that was just US ?

Your effective gross margin is lower than Tesla's 20.3% because they include leasing and you do not. Leasing margins are higher due to the way they calculate them. Instead of:

(sales price - COGS) / sales price

leasing gm is:

(sales price - COGS) / (sales price - residual value)

The smaller denominator makes gross margin higher. When the lease ends, if the customer buys the car Tesla recognizes the residual as both revenue and COGS. If Tesla gets the car back they recognize CPO sale price as revenue and residual as COGS (both go into Services & Other).

So, what this means the entire margin is attributed to the period of lease, rather than life of the car. Not the most conservative way to account for it, but probably closer to market reality.

 

[bdy0627]

$50k ASP for model 3 in Q2 seems high to me now that we are seeing such a high ratio of SR+ in the U.S. inventory. I just calculated ASP of $45,820 for the current Chicago model 3 inventory, which has a total of 31. Roughly 60% are SR+. That may skew toward the higher trims a bit over time since there is probably some pent up demand to work through for the lower trims, as Zach alluded to in the call. It may take a couple of quarters to work through the pent up lower trim demand. Europe sales will bring the ASP up. What are opinions for model 3 ASP in Q2? Does $50k seem about right +/-$1k?

 

[EVNow]

Zack says a little less than 50k at present in US. Higher in EU and China.

My expectation is that in Q2 it is still over $50k. Only when China starts making cheaper 3s in Q1 will the ASP go down below 50k - but cost goes down too.

 

[Doggydogworld]

So, now I estimate the ASPs as 103k and 57k. If S&X ASP is 100k, then 3 ASP would have to be 58k. Both are quite possible, I guess.

103k and 57k sounds good. That's what I had as a first cut, then I made a math error when writing my reply.

During the ER CFO talked about ASP of 3 being low when they started SR+ but is now creeping up to 50k, where he thought it would stabilize. I've to listen to that again - may be that was just US ?

Just US and just order flow, I think. Actual March deliveries were not that SR-heavy. He implied the stabilized ratio was close to 50/50. I previously estimated stable AWD/P US demand at ~1200/week, using very limited data. I expected SR+ to be 2000+, but the lack of pent-up SR+ demand and this 50/50 ratio tell me I was wrong.

I'm starting to think total sustained US demand is ~2500/week. Add another ~3000 for Europe/Asia and Fremont only needs to make 5-6k/week by end of Q3, dropping below 5k/week as Shanghai comes online. No wonder they're looking to build Model Y in Fremont! It also explains the 360-400k guidance and sudden emphasis on Robodream.

So, what this means the entire margin is attributed to the period of lease, rather than life of the car.

Yes. Usually 12 quarters. It was nice while S/X leasing pool was stable - Model 3 leasing is going to mess the numbers up.

 

[Zhelko Dimic]

$50k ASP for model 3 in Q2 seems high to me now that we are seeing such a high ratio of SR+ in the U.S. inventory. I just calculated ASP of $45,820 for the current Chicago model 3 inventory, which has a total of 31. Roughly 60% are SR+. That may skew toward the higher trims a bit over time since there is probably some pent up demand to work through for the lower trims, as Zach alluded to in the call. It may take a couple of quarters to work through the pent up lower trim demand. Europe sales will bring the ASP up. What are opinions for model 3 ASP in Q2? Does $50k seem about right +/-$1k?

Yes. Tesla also may be gearing their inventory strategy towards SR+, from the position that these are opportunistic, walk-in sales, and that higher trims are ordered by better informed customers likelier to order online. Just a guess. I don't know if I'm right, and if I'm right, I don't know if Tesla is right. But it certainly seems like a lesser risk to stuff channels with $40K cars, rather than $60K cars. Potential pool of buyers that is yet to be reached and uncovered is just much greater.

Speaking of demand, I think everyone forgot, including Tesla, idea of press fleet. I guess living in a world of 'production problem', rather than demand problem stymied thinking on this subject.

One press fleet manager, two interns (to wash cars and prep paperwork), and 10 cars for the fleet, they can orchestrate probably 500 free articles and reviews a year in newspapers/magazines/youtube/websites. (Journalists usually get car for a week).

Talk about cheap alternative to advertising (500K a year, or something), and this is something that every car company does. If anyone needs a press fleet manager, I know ex Porsche fleet manager, he'd kill it, fantastic person (lookup Rick Bye: PERFORMANCE DRIVING EXPERIENCE: Lapping up the thrills at Old Mosport – WHEELS.ca).

 

[Zhelko Dimic]

...

I'm starting to think total sustained US demand is ~2500/week. Add another ~3000 for Europe/Asia and Fremont only needs to make 5-6k/week by end of Q3, dropping below 5k/week as Shanghai comes online. No wonder they're looking to build Model Y in Fremont! It also explains the 360-400k guidance and sudden emphasis on Robodream.
​

...

Entirely possible. I wrote elsewhere on the subject of difference btw. return buyers vs buyer that is a convert to the brand. People are people, they go with familiar, and customer preferences are relatively slow to change on mass.

Out of 500K BMW 3 Series sales every year, high percentage, maybe 60-80% are return buyers. I.e. only 100K-200K of 3 Series buyers are converts to the brand.

For Tesla, that ratio is currently in the high 90s%, so selling 250K a year from any product line may be interpreted as a soundly beating BMW.

If this theory is right (and I don't know it is, feel free to challenge it), consequence is that we won't see 500K-1M volumes from any Tesla product line until few years from now; or until Tesla becomes even more phenomenal in capturing mindshare of car buying public. All of this may have been just hidden with a pent-up demand that Tesla tapped into.

This is big part of my concern that current SP drop doesn't have a quick fix. Again, I don't know that this theory is sound, but it feels to me that some variant of it is playing out.

 

[DaveT]

In my opinion Tesla is effectively bankrupt. The only reason it hasn't declared one is that the suppliers are holding it up.

As many have pointed out elsewhere, the Accounts Payable is usually delayed by a quarter. The sequential revenue drop is quite steep. If AP scaled normally, Cash would be lower by another 1Bil+.

So intra-quarter cash would most likely have turned negative. If Tesla paid suppliers on usual timelines that is.

Tesla needs to raise a few billion within a span of low single digit weeks. Or else this is game over already.

@SBenson Actually I do agree that Tesla's cash situation was probably dire mid-quarter Q1. And probably will face a mid-quarter Q2 cash crunch as well.

I'm unclear though on why you think they'd be on the verge of declaring bankruptcy when if they really needed money, what's stopping them from raising capital?

note: btw, I do think they'll announce a cap raise next week.

 

[mongo]

Entirely possible. I wrote elsewhere on the subject of difference btw. return buyers vs buyer that is a convert to the brand. People are people, they go with familiar, and customer preferences are relatively slow to change on mass.

Out of 500K BMW 3 Series sales every year, high percentage, maybe 60-80% are return buyers. I.e. only 100K-200K of 3 Series buyers are converts to the brand.

For Tesla, that ratio is currently in the high 90s%, so selling 250K a year from any product line may be interpreted as a soundly beating BMW.

If this theory is right (and I don't know it is, feel free to challenge it), consequence is that we won't see 500K-1M volumes from any Tesla product line until few years from now; or until Tesla becomes even more phenomenal in capturing mindshare of car buying public. All of this may have been just hidden with a pent-up demand that Tesla tapped into.

This is big part of my concern that current SP drop doesn't have a quick fix. Again, I don't know that this theory is sound, but it feels to me that some variant of it is playing out.

I brlive uou are incorrect about the stat you are referring to: 80.5% to 92% of Tesla owners would buy another Tesla as their next car. Survey: 92% Of Tesla Owners Will Buy Tesla Again, 55% To Purchase A Model 3
Much different from 90% of buyers being returning Tesla owners.
Tesla Has The Highest Customer Loyalty Of All Car Brands | CleanTechnica
Conquest/ defection rate for Tesla is 13.77 to 1. For every one Tesla owner that does not buy another Tesla, there are almost 14 non-Tesla owners that do.

For reference, in 2016 Subaru had the best conquest/ ratio at a meer 3.5.
Subaru is #1 at Luring Buyers Away from its Competitors; Can they Retain the Ranking in 2017? | Torque News

Of course, thr numbers look weird due to size of current owner pool vs current sales rate, frequency of purchase, current fleet age, and EV longevity. However, the concern that only Tesla owners buy Teslas is unfounded at this point in time.

 

[EVNow]

I'm starting to think total sustained US demand is ~2500/week. Add another ~3000 for Europe/Asia and Fremont only needs to make 5-6k/week by end of Q3, dropping below 5k/week as Shanghai comes online. No wonder they're looking to build Model Y in Fremont! It also explains the 360-400k guidance and sudden emphasis on Robodream.

I've always thought just like S&X are interchangeable lines, 3 & Y should be too. This allows Tesla to shift the mix per demand. Especially once both China & EU come online.

The guidance also makes sense when we look at possible Shanghai rates. They are saying 1k/wk by the end of the year, hopefully. So, we should count no more than 10k from Shanghai this year. The following would give a total of 405k production. I expect them to fill the pipeline more (i.e. more cars in inventory) and we get delivery of about 380k.

Q1 : 62k (5k/wk) + 12k S&X
Q2 : 78k (6k/wk) + 20k S&X
Q3 : 85k (6.5k/wk) + 25k S&X
Q4 : 95k (7.5k/wk) + 25k S&X

Ofcourse this assumes no cell constraints.

 

[Zhelko Dimic]

I brlive uou are incorrect about the stat you are referring to: 80.5% to 92% of Tesla owners would buy another Tesla as their next car. Survey: 92% Of Tesla Owners Will Buy Tesla Again, 55% To Purchase A Model 3
Much different from 90% of buyers being returning Tesla owners.
Tesla Has The Highest Customer Loyalty Of All Car Brands | CleanTechnica
Conquest/ defection rate for Tesla is 13.77 to 1. For every one Tesla owner that does not buy another Tesla, there are almost 14 non-Tesla owners that do.

For reference, in 2016 Subaru had the best conquest/ ratio at a meer 3.5.
Subaru is #1 at Luring Buyers Away from its Competitors; Can they Retain the Ranking in 2017? | Torque News

Of course, thr numbers look weird due to size of current owner pool vs current sales rate, frequency of purchase, current fleet age, and EV longevity. However, the concern that only Tesla owners buy Teslas is unfounded at this point in time.

You misunderstood what I was saying. My sentence preceding 'high 90s%' comment is convoluted, but still correct to set 'high 90s%' are conquest sales to people new to the brand, exactly opposite of what you think I said. My discussion is re ratio of new to the brand buyers vs. repeat buyers when M3 sale happen, has nothing to do with defection ratio...

BTW, I was wrong in that it could be low to mid 90%s instead of high 90s%: Tesla commented that 3.5% of current trade ins on M3 are MS, add few percents for people that buy M3 as a secondary car to MS/MX, prob low to mid 90%s

 

[mongo]

You misunderstood what I was saying. My sentence preceding 'high 90s%' comment is convoluted, but still correct to set 'high 90s%' are conquest sales to people new to the brand, exactly opposite of what you think I said. My discussion is re ratio of new to the brand buyers vs. repeat buyers when M3 sale happen, has nothing to do with defection ratio...

BTW, I was wrong in that it could be low to mid 90%s instead of high 90s%: Tesla commented that 3.5% of current trade ins on M3 are MS, add few percents for people that buy M3 as a secondary car to MS/MX, prob low to mid 90%s

Ah, I was confused due to theoretical lack of demand reference which fit more with a high 'only repeat buyers' rate than a high loyalty and conquest rate. I see you were suggesting that the overall situation could be due to pent up demand vs continuous demand. (Am i closer?)

 

[Navin]

@SBenson Actually I do agree that Tesla's cash situation was probably dire mid-quarter Q1. And probably will face a mid-quarter Q2 cash crunch as well.

I'm unclear though on why you think they'd be on the verge of declaring bankruptcy when if they really needed money, what's stopping them from raising capital?

note: btw, I do think they'll announce a cap raise next week.

Why do you say this week?? Is that even possible to do so quickly??

 

[DaveT]

Why do you say this week?? Is that even possible to do so quickly??

Announce cap raise this week, takes a couple weeks to get the money, and then they'll have it before the mid-quarter cash crunch.

 

[Navin]

Announce cap raise this week, takes a couple weeks to get the money, and then they'll have it before the mid-quarter cash crunch.

Makes sense. Do you have a copy of the Audio discussion you had recently following autonomy day? What’s your general take on Tesla after being there and this week’s events. Value your opinion.

 

[techmaven]

They had another increase in AR... to $1.05 billion and their inventory levels were also high with +$700 million which is likely mostly the in-transit inventory. Their DPO had been dropping and now back up. Without extreme geographical batching and by delivering more cars to US earlier, their working capital needs are reduced while also reducing the total number of deliveries they can muster within a quarter. They should have bit this bullet in Q4, but there are a slew of things that they could have done better in the past two quarters.

@SBenson their growth was always going to be on the backs of their suppliers. That's the way it is. The cash conversion cycle during the ramp in 2018 was effectively the arbitrage between the time to receive payment and the time to pay out to suppliers. But since they dropped DPO in Q3 and Q4 to historically low levels, going back up shouldn't be considered being propped up by their suppliers.

If that $700 million increase in inventory is mostly sold through and they bring down the AR since the last day of the quarter was on Sunday with extreme levels of deliveries in the last weekend overseas, then they received a cash infusion in the beginning of Q2. The quarterly snapshot wasn't kind. If you compare to Q1, 2018, the revenue was almost the same... around $100 million difference. The difference in AR though is almost $400 million. That seems to be about where I had expected them to be.. $2,220 + $400 = $2.62 billion.

 

[EVNow]

Announce cap raise this week, takes a couple weeks to get the money, and then they'll have it before the mid-quarter cash crunch.

Why raise cash now when SP is so depressed. Makes sense to announce cap raise but at a yet to be determined date & price. As some have suggested if they do a rights issue, shorts can be squeezed a bit, raising SP.

 

[Navin]

I think it happens sooner rather than later. I think Elon knows his stock is under attack. Also - the next decision on the sec vs Elon case was supposed to be Tuesday. That was pushed to Friday. Probably wanted that out of the way to aid in cap raise. It’s tough to raise money if u have that in the air.

The big question I haven’t been able to answer is why was tesla in such a rush to report earnings so early.

 

[AcesDealt]

Why raise cash now when SP is so depressed. Makes sense to announce cap raise but at a yet to be determined date & price. As some have suggested if they do a rights issue, shorts can be squeezed a bit, raising SP.

So if the SP continues down they never raise because the SP is depressed? Your logic while incredibly common is simply not correct. The CFO must not be a gambler. The current SP is the accurate value for the company.

Tesla has gone so long denying the right move here that I think an equity raise would result in the SP going up.

 

[EVNow]

The current SP is the accurate value for the company.

Not when it is the highest shorted large cap stock.

CFO shouldn't gamble, nor should he panic.

ps : We don't know when they will start getting FCA money.

 

[anthonyj]

The big question I haven’t been able to answer is why was tesla in such a rush to report earnings so early.

This is a really good question. Anyone have ideas?