Near-future quarterly financial projections

[electracity]

I don’t know about you but saying “it was physically impossible to make more Model 3’s due to cell constraints” is the same as “they would’ve made more cars if they had the cells”.

Good production planning does not create a lot a lot of excess parts inventory.

The trouble with believing that Panasonic is the primary constraint is that it seems to eliminate Tesla building 120K plus cars in Q3 and Q4 to get near 400k model 3 for the year.

 

[electracity]

Was it just laziness that prevented you from providing that link in your original posting? This is why people treat you like a troll.

Note: I'm not sure I believe the article either. But at least you'd have the benefit of the doubt.

I have a good track record here over a number of years of seeing what is actually happening. What about you?

 

[Doggydogworld]

I don’t know about you but saying “it was physically impossible to make more Model 3’s due to cell constraints” is the same as “they would’ve made more cars if they had the cells”.

Technically it's not the same. You can't take Musk so literally, anyway. Tesla said they re-directed cell capacity toward Energy Storage last quarter. Had they not done so they would have had more cells for cars.

Truth is, they had no use for more cells. Even if Fremont was able to build 10k more cars, they would have just sat. Tesla overloaded their overseas logistics as it was. They pushed as many cars into US households as possible with three price cuts and early SR+ introduction. Unsold Model 3 inventory grew from 7k to 11-12k, ending the quarter at 21k would have hurt the narrative.

Tesla filled pent-up US LR demand by July/August and AWD by November last year. Follow-on order rates suggest sustained US demand for those variants of roughly 1200/week. They recently said AWD/P and SR+ are running close to 50/50 once the initial SR+ burst subsided. That implies US demand of 2400/week for all variants. That's 31k/quarter. Q2 should be a bit higher thanks to pent-up SR+ demand and another tax credit step-down.

US was typically half of global demand for S/X, with Europe 20-25%, China ~20% and ROW 5-10%. If that holds for Model 3 we're looking at 5000/week global. European trends so far support those ratios, China is still hard to read. Until I see evidence to the contrary, 5000/week is my global demand baseline.

You don't seem to realize that other car manufacturers don't own or finance cars in inventory. It's called floor planning. Look it up.

It's a distinction without a difference. When inventory piles up all manufacturers have to cut prices and/or cut factory shifts. The banks effectively "own" the inventory for both Tesla and legacy carmakers, anyway. That finance cost get folded into the price of the car, no matter who technically holds title. Tesla attempts to reduce these costs by keeping inventory low, but that's partly an illusion due to their "wave" production cadence. They had ~55k cars in inventory on 3/21/19, about 80 days worth. The industry target is 60 days, but it's high all over right now.

 

[EVNow]

Are you suffering from some disease that precludes a simple search?

I have reported your abusive comments.

 

[electracity]

It's a distinction without a difference. When inventory piles up all manufacturers have to cut prices and/or cut factory shifts. The banks effectively "own" the inventory for both Tesla and legacy carmakers, anyway. That finance cost get folded into the price of the car, no matter who technically holds title. Tesla attempts to reduce these costs by keeping inventory low, but that's partly an illusion due to their "wave" production cadence. They had ~55k cars in inventory on 3/21/19, about 80 days worth. The industry target is 60 days, but it's high all over right now.

The point the OP was probably making was that Tesla could sell more cars if they had more cars in local inventory. This is undoubtedly true because it is the environment urban car shoppers expect. Over time as they grow the business they probably will have more local inventory. Musk's dream of direct factory to home is probably a dream.

Of course there are pluses and minuses to every strategic choice Tesla makes. The dealer model has some major benefits in spite of the aspects most of us hate. At times I'm sure Musk would have preferred a fixed cost dealership approach to selling cars.

 

[electracity]

I have reported your abusive comments.

And I'm reporting you abuse of the disabled. If someone can't type "Tesla employee loan" into google they should not be mocked, but helped!

 

[bdy0627]

Tesla filled pent-up US LR demand by July/August and AWD by November last year. Follow-on order rates suggest sustained US demand for those variants of roughly 1200/week. They recently said AWD/P and SR+ are running close to 50/50 once the initial SR+ burst subsided. That implies US demand of 2400/week for all variants. That's 31k/quarter. Q2 should be a bit higher thanks to pent-up SR+ demand and another tax credit step-down.

Good points but I have a couple of counter points. What are you using to conclude that follow on order rates suggest U.S. demand for those variants (LR AWD & P) are roughly 1200/week? Projecting sustained demand immediately following the tax credit cliff may underestimate demand substantially. Also, using a quarter with seasonally low sales to project sustained demand may also underestimate demand. I don't think there are any compelling reasons to argue the reverse, that you may be overestimating demand by using quarter 1 orders. My guess is that you are low with your estimate but I have no idea how low.

 

[Spacemanspliff]

Tesla filled pent-up US LR demand by July/August and AWD by November last year. Follow-on order rates suggest sustained US demand for those variants of roughly 1200/week. They recently said AWD/P and SR+ are running close to 50/50 once the initial SR+ burst subsided. That implies US demand of 2400/week for all variants. That's 31k/quarter. Q2 should be a bit higher thanks to pent-up SR+ demand and another tax credit step-down.

US was typically half of global demand for S/X, with Europe 20-25%, China ~20% and ROW 5-10%. If that holds for Model 3 we're looking at 5000/week global. European trends so far support those ratios, China is still hard to read. Until I see evidence to the contrary, 5000/week is my global demand baseline.

They had ~55k cars in inventory on 3/21/19, about 80 days worth. The industry target is 60 days, but it's high all over right now.

Interesting to see the methodology behind your numbers from your other post.

What do you view as the long term demand for the M3? Do you assume it grows organically similar to S&X or stays close to your current 288k annual projection?

Or do they need to get to a point financially where they can offer a 35k M3 in the US to stimulate demand higher(say 360k annual)? ( I saw your post regarding shanghai/china parts, which seems like one possible step amongst many to get to the 35k M3)

1. For discussions sake I'm a believer that demand will grow organically its too good of a product with ancillary side benefits
2. I think the 35k NA model will eventually make its way back, its just not there yet financially and the SR was only introduced when it was cause of battery supply.
3. I feel better about 1 than 2.

 

[tmoz]

Good points but I have a couple of counter points. What are you using to conclude that follow on order rates suggest U.S. demand for those variants (LR AWD & P) are roughly 1200/week? Projecting sustained demand immediately following the tax credit cliff may underestimate demand substantially. Also, using a quarter with seasonally low sales to project sustained demand may also underestimate demand. I don't think there are any compelling reasons to argue the reverse, that you may be overestimating demand by using quarter 1 orders. My guess is that you are low with your estimate but I have no idea how low.

And in 8 weeks, the answer to this exercise will be posted.

 

[electracity]

1. For discussions sake I'm a believer that demand will grow organically its too good of a product with ancillary side benefits

I don't think anyone believes that Q1 wasn't the low point. Rate of growth as pent up demand is satisfied is the question. May U.S. sales estimate will be interesting. April weather was not great in the colder parts of the U.S., so there is a good chance that the next several months will see steadily increasing sales.

Assuming of course that evil and incompetent Panasonic doesn't ruin the plan.......

 

[Spacemanspliff]

I don't think anyone believes that Q1 wasn't the low point. Rate of growth as pent up demand is satisfied is the question. May U.S. sales estimate will be interesting. April weather was not great in the colder parts of the U.S., so there is a good chance that the next several months will see steadily increasing sales.

Assuming of course that evil and incompetent Panasonic doesn't ruin the plan.......

I wasn't referring to Q1 but the rate of growth as pent up demand is satisfied side of the question. I believe we will see growing demand as more people come in contact with the car, service improves, and deliveries are smoothed out with the wave effect being done away with.
This wont be answered until 2021 in order to differentiate seasonality vs actual rising demand (assuming demand does not do the opposite and crater obviously).

Panasonics not evil, they do seem to be having their own issues just like Teslas been having theirs. Panasonics were just out of the limelight till now.

 

[tmoz]

Model 3 sedan should have been a hatchback like Model Y as hatchback seems to be the preferred style by consumers. Now that Model 3 is under the belt, hopefully Model Y will be even more awesome, as they can apply Model 3 experience to the manufacturing equation. Perhaps they were trying to hit the 35K price point too early?

 

[Doggydogworld]

What do you view as the long term demand for the M3?

Long term I think it only makes sense to talk about 3+Y demand, as they are very similar. I see 600k/year with 200k from Shanghai if they can hit lower price points. Just a guess, though.

Or do they need to get to a point financially where they can offer a 35k M3 in the US

I don't see 35k US. Even with realistic cost cuts it makes financial sense to hold prices and recapture some gross margin.​

Good points but I have a couple of counter points. What are you using to conclude that follow on order rates suggest U.S. demand for those variants (LR AWD & P) are roughly 1200/week?

This came from watching Troy's spreadsheets last year and watching forums and such for anecdotal backup. Q1's 23k in the US was below my 31k steady-state estimate due to seasonality, tax credit stepdown, etc. as you mention.

 

[electracity]

I don't see 35k US. Even with realistic cost cuts it makes financial sense to hold prices and recapture some gross margin.

Or import the $35K car from China, where a $25K cost at the factory gate is probably realistic.

I doubt Tesla has a specific plan at this point. Or rather what they are planning is to have a much flexibility as possible when running the 3 and Y lines. And of course they don't know what pains they face getting China online. Musk will need to fire the first few plant managers of course.

 

[Drax7]

My math, assuming fixed costs of about $6B/year, says 100K Model S/X + 400K Model 3/Y gets to breakeven with a 20% GM, ASP of $50K on the Model 3/Y, and ASP of $100K on the Model S/X.

This is very rough, but there's no point in more precision than that. 100K Model S/X is pretty reliable and the ASP going to be about right (worldwide) for a long time.

The important point is that they need to get to that 10K/week production level, which they won't hit until Shanghai is in full production and the Fremont/Sparks bottlenecks are resolved. That gives them 500K Model 3/year, then they're set.

These numbers are very sobering, they do not inspire near term profitability.

What’s the point of buying the stock of a breakeven business,
Unless you can anticipate that they will grow beyond breakeven.

How do you grow if Panasonic does not provide the batteries.

These are serious challenges, now I have to resort to hope.

Hope is my new investment strategy,

 

[EVNow]

These numbers are very sobering, they do not inspire near term profitability.

What’s the point of buying the stock of a breakeven business,
Unless you can anticipate that they will grow beyond breakeven.

So, you can't anticipate them selling more than 400k 3 & Y per year ?

 

[Drax7]

So, you can't anticipate them selling more than 400k 3 & Y per year ?

Long term yes, next few quarters unlikely, which implies stock price may not have
Meaningful recovery.

 

[Spacemanspliff]

Long term I think it only makes sense to talk about 3+Y demand, as they are very similar. I see 600k/year with 200k from Shanghai if they can hit lower price points. Just a guess, though.

Significantly lower than Musks high end 1.75 million, comparing to Nerodens what do you view Teslas break even point? Also if you don't mind me asking whats your investing thesis?

I don't see 35k US. Even with realistic cost cuts it makes financial sense to hold prices and recapture some gross margin.

​

Interesting, I always felt like the pricing structure of the M3 was going to be important in preventing significant cannibalization.

 

[bdy0627]

These numbers are very sobering, they do not inspire near term profitability.

What’s the point of buying the stock of a breakeven business,
Unless you can anticipate that they will grow beyond breakeven.

How do you grow if Panasonic does not provide the batteries.

These are serious challenges, now I have to resort to hope.

Hope is my new investment strategy,

Elon already told us in Q1 ER to expect no profits and roughly neutral cash flow as they develop the robotaxis fleet. It seems like that could change once Shanghai is producing 3k per week, probably by Q2 2020. Until then, I wouldn't expect a surprise on that front. If they hit deliveries guidance each quarter this year, I will be amazed. The market clearly isn't expecting them to either, though the financials still won't look like Q3 2018. However, the focus would shift back from demand to profitability questions.

 

[Doggydogworld]

Significantly lower than Musks high end 1.75 million, comparing to Nerodens what do you view Teslas break even point? Also if you don't mind me asking whats your investing thesis?.

If I believed half of Musk's blue sky numbers I'd be a shareholder. As it is I watch Tesla because I'm interested in EVs and renewables, it's a fascinating company and there's always the chance I'll figure out an investing angle.

I'm basically in line with Neroden that automotive gross profit today needs to clear a ~6b/year fixed cost hurdle. I differ with him on demand (a lot) and on the "fixed-ness" of that 6b. TSLA's costs, especially opex, took a huge leap when they bought SCTY. A lot of bears wrongly extrapolated this and assumed opex would always be 20k/car, making Tesla "structurally unprofitable" since Model 3 would only produce ~10k/car of gross profit. IMHO we have seen the opposite effect the past year or so. Tesla has hidden automotive opex growth by slashing solar opex. This creates the illusion that total opex is fixed at 1b+/quarter and will remain so even as Tesla keeps ramping Model 3, launches Model Y, etc. In reality, solar opex has finally reached rock bottom and the continuing auto opex growth will now become visible.