Near-future quarterly financial projections

[brian45011]

Is this a table from munro or one he made? Seems from comment it is self made?

Dunno (only glanced at it).

 

[Zhelko Dimic]

Can somebody explain to me, where the idea they had to throw away GA2 is coming from?

I may have started that. I knew there were 2 GA lines for M3, and then suddenly, it's only GA3 in statements. Now you and someone else explained that it seems GA3 has two lines and GA2 never existed. That's plausible, though confusing naming strategy...

 

[bdy0627]

If the other manufacturers REALLY wanted to hurt Tesla they would buy 0 credits from Tesla over the next 6 months. There are plenty of credits to go around in the market for the next couple of years, so no penalty costs would even be incurred. That would really hurt Tesla as the 100% margins and instant cash flow from the credits are going to be needed for this Q3/Q4 profitability push. Do I think that will happen? No. The manufacturers WILL still purchase credits, but Tesla will not be getting a very good deal compared to what they were getting in the past.

The Q3 financial projections here from Luvb2b suggest GAAP net income of about $225M with inclusion of $100M in zev credits. Even with $0 in credits, this model suggests profitability. Q4 results are even better.

 

[Zhelko Dimic]

What is Munro assuming for the battery cost?

I saw an excerpt from the report, his assumption is $150 per KWh battery (pack level)

 

[bdy0627]

I saw an excerpt from the report, his assumption is $150 per KWh battery (pack level)

Ok, that's helpful if true, since it is conservative.

 

[Boomer19]

what do you mean <100kw on the pack level? I am not denying the pack has significant cost associated with it and biggest costs for bigger packs, but im just curious where you are pulling the 100kwh on pack level from (not questioning, genuinely curious)?

Shareholder Meeting | Tesla

33:00 mark to about 35

meaning kwh cost per cell level vs cost per assembled pack level

i tried to screen record just the 2.5 min segment but my phone won’t record the audio as well as the video for some reason - and what’s apples margins on my $800 garbage (actually engineering marvel - 1st world problems) iphone?

 

[Boomer19]

I may have started that. I knew there were 2 GA lines for M3, and then suddenly, it's only GA3 in statements. Now you and someone else explained that it seems GA3 has two lines and GA2 never existed. That's plausible, though confusing naming strategy...

mentioned here as well
@YasB
Future of Automation and Alien Dreadnought

 

[EinSV]

Sorry, this is blatantly wrong. The following is from the most recent earnings call.

Elon Reeve Musk: "Yeah, exactly. That's why I was looking forward to clarify what these things mean. Q4 is when we expect to be on or about 20%. Then – but by the middle of next year, 25% gross margin should be where we are. And then, we'll also try to get to the high-20s by the next year."
----------

Given the two independent, third-party cost estimates, I have high confidence in Model 3's excellent profitability in 2H18 and 2019.

VA, Just wanted to quickly point out that the Seeking Alpha transcript is inaccurate and could be misread by someone not familiar with it.

It should read:

"And then, we [will] also try to get to the high-20s by the [end of] next year." ---
​

In other words the goal is high 20s gross margin by end of 2019. (I didn't understand you to say otherwise just correcting the SA transcript -- Thomson Reuters' transcript is better on this quote.) Audio is at about 31:30 here: https://edge.media-server.com/m6/p/nwvzygvo

 

[generalenthu]

I have zero fear about FSD take rate, Tesla cant master hwy driving, they are many many many years away from FSD and by that time i dont see them with the current ownership structure that exists today (ie BK or some sort of asset purchase to satisfy creditors leaving equity holders with no negotiating power)

Personally, I am looking to buy the FSD option, if traffic light and stop sign detection are implemented. This is rumored to be rolling out in September, but take it with a helping of Elon Time.

While these do not make a car FSD, in my admittedly small sample of Tesla owners, who got EAP, but not FSD, about half of them think this is worth it. Couple of people actually got FSD at purchase, as it is cheaper.


PS: As an owner super happy with EAP. It does Hwy driving very well, and it is a no-brainer to get the option if you are getting the car.

 

[mershaw2001]

But that does not mean they would need to buy them from Tesla, they can still buy from other manufacturers. You have to look at the entire ZEV market and when supply explodes while demand remains fixed (regulations aren't changing, unless Trump and the new EPA scrap the whole program) well you know what that will do the price.

Reading over the material from the following site, and my recollection from looking over this several years ago, is that demand does not remain fixed. My recollection was that california car manufacturers must have ZEV credits for 2% of their cars now, but this rises up to 8% of their cars in the next 10 years. This document below implies that level to be 15.5%.

https://www.arb.ca.gov/msprog/zevprog/factsheets/general_zev_2_2012.pdf

This document refers to the increase in rate as a 2012 amendment, and I am not sure that the amendment was added based on their language as opposed to "proposed".

However, my point is that demand would be growing at a pretty rapid rate, such that ZEV credits could conceivably be worth much more in the future.

 

[StockCynic]

Reading over the material from the following site, and my recollection from looking over this several years ago, is that demand does not remain fixed. My recollection was that california car manufacturers must have ZEV credits for 2% of their cars now, but this rises up to 8% of their cars in the next 10 years. This document below implies that level to be 15.5%.

https://www.arb.ca.gov/msprog/zevprog/factsheets/general_zev_2_2012.pdf

This document refers to the increase in rate as a 2012 amendment, and I am not sure that the amendment was added based on their language as opposed to "proposed".

However, my point is that demand would be growing at a pretty rapid rate, such that ZEV credits could conceivably be worth much more in the future.

What I mean by fixed demand is that the regulations have been set and haven't changed recently. All the automakers know about the escalating compliance mandates. Even with the ZEV fleet compliance rising over time to 22% (I believe this to be the terminal value) around mid 2020s the OEMS have the credits already banked to get by until 2021 or so. I believe the compliance mandate is already 8% as of this year, and it is still rising.

Here is the thing, demand is not going to increase materially in my estimation, in fact with all the supply from model 3 and the other manufacturers starting roll out electric vehicles the demand for the credits will come down even further. Take Jaguar for example: Jaguar will do everything in its power to sell I-Pace in ZEV market instead of their Jaguar ICE or Land/Range Rover (same company). What they will do is be very aggressive with pricing and incentives for the I-Pace in the ZEV markets (recall ZEV markets cover about 40-45% of U.S. population), if they sell an IPACE instead of a Range Rover they not only earn the 3.5-4 credits whatever the # is from the I-Pace sale, but it is also 1 credit they no longer need for that Range Rover. Now to make up for that lost Range Rover they will discount the prices more heavily of their ICE fleet in non-ZEV states and increase their sales that way.

Every auto manufacturer will run that playbook.

 

[Singer3000]

Hopefully this isn't seen as too off topic, very few other threads are interested in accounting detail if you'd humour me.

Running the produced/delivered/transit numbers, am I missing something or have about 1,500 M3 have been held to Tesla's long term inventory? Presumably test drives and service? Currently sitting in the 3-4% of total produced vehicles range. Where is this figure likely to settle at?

Not a big deal given minimal cumulative production so far but when we're up to a +1mln cumulative deliveries by around end of 2020, it would be interesting to get a sense of how much of a cash consumer this item will be. Trouble is, Tesla only recently started consistently reporting Transit and Production numbers so I don't have a similar figure for S or X.

Assuming $45k ASP and gross margin of 25%, it's easy to see how the Service model for Model 3 uses upwards of a billion of cumulative cashflow by then (more when considering parts). Unless of course, this 3-4% figure comes down quite aggressively. Which intuitively feels like it must. 1 demo/loaner for every 30 sales seems super high but I don't have any other reference point to confirm this. Another factor of operating leverage to watch in the next couple of quarters...

 

[neroden]

i won't claim to be an expert on fairfax, and i'm fairly certain you're not either. rather than referring to this or that biased info, let's just go to the horse's mouth.

i will highlight a few passages out of their 2008 annual report, which tells you the difference between how their "business" of insurance fared vs. how their investments (ahem, short positions via credit default swaps) fared.

first, let's look at earnings by year:
year presented 2008 2007 2006 2005 2004
Net earnings (loss) 1,473.8 1,095.8 227.5 (446.6) 53.1

you can see that they from 2004-2006 they lost money on balance, and then followed with whopping gains in 2007 and 2008.

now the description of their investment gains. boldface was added by me.

Fortunately, after many years of caution, we were perfectly positioned with a cash and government bond position of approximately 75% of our investment portfolio, our stock positions fully hedged, and our large holdings of credit default swaps.

The total return (including unrealized gains) in our investment portfolios, including our CDS position and hedges, was 16.4%. Total interest and dividend income and net investment gains in 2008 (including at the holding company) were $3.3 billion after recording almost $1 billion in other than temporary impairments and over $500 million of mark-to-market losses (primarily on convertible bonds). Interest and dividend income dropped in 2008 from $761 million to $626 million because of the collapse in short term interest rates, but total net investment gains increased to $2.7 billion – again, after the $1.5 billion of impairment and mark-to-market charges mentioned above – from $1.6 billion in 2007. These are exceptional results and no other company in the industry has even come close to matching them! A standing ovation for our investment team, led by Roger Lace, Brian Bradstreet, Chandran Ratnaswami, Sam Mitchell, Paul Rivett, Frances Burke and Enza La Selva.​

so 1.6 billion of net investment gains in 2007 and 2.7 billion in 2008. you could subtract and see that without the net investment gains 2008 would have been -1.2 billion in net income and 2007 would have been -0.5 billion in net income. that's not entirely fair because they would have certainly earned some income on investments. but giving them an "average" 2006 year type of investment income of 700m still leaves the company far underwater over the aggregate 5 year period 2004-2008.

so were some shorts manipulating and trafficking in lies around fairfax? probably.

but there were probably some shorts who also saw a company that really wasn't making any money and were short for legitimate reasons.

and would fairfax had survived if not for its sizeable short position in 2007-2008? i don't know.

fairfax, the shortseller, hounded by shorts. only on wall street.

Fairfax were making pretty risky investment choices. That said, having followed insurance companies for a while, that's not surprising. Most of them lose money on underwriting and make it up in investments, and most of them have much riskier investments than you might think. The use of CDS is an *unconventional* investment, I will say.

 

[neroden]

Hopefully this isn't seen as too off topic, very few other threads are interested in accounting detail if you'd humour me.

Running the produced/delivered/transit numbers, am I missing something or have about 1,500 M3 have been held to Tesla's long term inventory? Presumably test drives and service? Currently sitting in the 3-4% of total produced vehicles range. Where is this figure likely to settle at?

Yeah, I think Tesla said they were making 1000 or so for showrooms, so this sounds about right. I think the number will be proportional to number of showrooms, not to number of cars on the road.

 

[neroden]

GA 1: Combined mostly automated line for S+X production (~2.5k per week)
GA 3a: Automated Model 3 line (? per week)
GA 3b: Automated Model 3 line (? per week)
GA 4: Mostly manual Model 3 tent line (~1k per week)

In my imagination the current setup looks something like above. If that is correct, line 3a+b should be at a combined 4k per week and the tent line is adding some additional capacity. As an example, what we may be talking about, here is what an assembly line may look like: Evolution of Toyota Assembly Line Layout – A Visit to the Motomachi Plant | AllAboutLean.com

Looking at such a monster, i do not share your concerns regarding a potential big write-off. You need every segment and station to make that Model 3 and it's rumored they have been building some last quarter. Afaik, the only thing we know they have thrown out, is a conveyor system and the poor old flufferbot in the Gigafactory. I believe that conveyor was supposed to deliver materials and parts to the stations and was simply replaced by another mode of transportation. I can't imagine they have had so much trouble, that complete stations or segments are running in manual mode. So they probably installed all the machines quite some time ago and brought them online, but have trouble to achieve consistent results at higher speeds. If so, there is no need to write anything off, since they are actually using it. We also have another clue: There's so much gossip and internal information leaking out of that factory, that we would probably have heard by now, if they had thrown out hundreds of robots or replaced stations and segments with a completely manual operation.

Regarding the future of GA4 i think, it will simply be abandoned sooner or later, when they get the 3a+b lines up to the takt rate they were initially aiming for. Or they keep it around to assemble a limited amount of other cars ... like ... uh ... a Roadster or so? I still think Q2 numbers are pretty bad, just not because of a big write-off.

We have confirmation from vgrinshpun's sources that there is no GA2 and that two lines are called GA3, which is totes weird.

The weirdest part is, why is there no GA2?

My current theory is that GA2 is the line which was too tightly packed and that they disassembled it and reassembled most of the same pieces to create GA3a. This would explain why there is no GA2, if the equipment was reused or rearranged into GA3. Or maybe they just used stupid numbering.

 

[neroden]

Can somebody explain to me, where the idea they had to throw away GA2 is coming from?

Nobody can figure out where GA 2 is ... or if there ever was one. But it's mighty weird to have a GA1 and a GA3 and a GA4 and no GA2.

 

[neroden]

Where does Mazda get credits?

(FWIW I concur with the substance of your post--and I think Elon also recognizes the credits will not scale, hence his criticisms of CARB on conference calls.)

Musk has basically said that the ZEV credits are next to worthless. Repeatedly. They'll sell 'em off as fast as they can before they get even more worthless.

 

[schonelucht]

They sell several hunderds of millions dollars in ZEV credits yearly. Next to worthless doesn’t seem to be quite the right word. They are not worth the penalty but when supply exceeds demand, prices tumble. Also they were never worth the penalty. Why would you pay a direct competitor if you can pay the government the same amount?

 

[bdy0627]

They sell several hunderds of millions dollars in ZEV credits yearly. Next to worthless doesn’t seem to be quite the right word. They are not worth the penalty but when supply exceeds demand, prices tumble. Also they were never worth the penalty. Why would you pay a direct competitor if you can pay the government the same amount?

Maybe they preferred paying an extremely small startup car company rather than paying even more money to the government. These days...I would think they probably would prefer the government to Tesla.

 

[Zhelko Dimic]

Maybe they preferred paying an extremely small startup car company rather than paying even more money to the government. These days...I would think they probably would prefer the government to Tesla.

I think that's true to a point, but it would be hard to explain to shareholders if they pay $50M more than they had to. At 50% discount, or more, I think it becomes impossible to pay fine just to hurt Tesla.
However, can they buy from someone else? Sure, if anyone else has surplus. Delay purchase? Sure. Drive hard bargain, almost blackmail? Sure, etc...