Near-future quarterly financial projections

[Reality]

yes correct. i've updated my model incorporating the latest sales estimates and adding in some units for canada. it may be a bit surprising that i'm taking down earnings slightly, but it's mostly because i think 27k units of s/x reaches a bit high due to china tariffs impacting demand in china by 20-30%. an extra ~2k units of model 3 at lower prices help offset. lower asp was taken on model 3 as we've now got 32-33k units that are running 56-57k asp (including non-zev credits). accounting for higher asp's on the september deliveries will still make it hard to lift the quarterly asp by more than 2k.

just a couple key details: cash from operations coming in at 1.08b is probably going to be a bit low. they beat my view on cash generation from ops last time and there is potential upside this quarter as well. i've taken a conservative view to zev credits inserting only 100m but a number like 200m is well within reason. they're selling so many cars now they should just blast out the credits as they have them vs. holding and holding. model 3 gm has upside as well b/c i feel they'll be delivering p's and awd's for more of the later units. there's further upside depending on take rates for autopilot trials and possible revenue recognition of additional eap or fsd features. s/x units may have upside too as i see tesla pulling some demand levers in the usa and because we are on a record pace for the us and eu through the first 2 quarters. there may be negative surprises in opex and services again as i'm quite suspicious some expense shifting is boosting model 3 gross margin while raising loss in services and opex.

two additional lines for @Fact Checking on inventory and payables.

…

s deliveries

x deliveries

s+x deliveries

3 deliveries

avg price s+x

avg price model 3

revenue

auto sales ex 3

auto sales mod 3

auto leasing

1 time autopilot

zev credits

total auto

energy storage

solarcity

grohmann

services/other

total revenue

cost of revenue

auto sales ex 3

auto sales mod 3

auto leasing

total auto

energy storage

solarcity

grohmann

services & other

total cost of rev

gross profit

auto gaap ex 3 gm

auto-zev ex 3 gm

model 3 gm

auto-zev incl 3 gm

storage gm

scty gm

grohmann gm

services gm

opex

tesla r&d

tesla sg&a

1 time costs

solarcity r&d

solarcity sg&a

total opex

op income

interest inc

interest exp

scty interest

other income exp

1time scty gain

pretax income

income tax

net income

non-cont int.

net inc to common

basic shares

diluted shares

diluted gaap eps

gaap net income

+ stock based comp

+ one time scty

non-gaap net income

non-gaap diluted eps

dio

dpo

balance sheet

current assets

cash & eq.

restricted cash

accts rcvbl

inventory

prepaids+other

total current assets

op lease vehicles

solar energy sys

pp&e

intangible assets

goodwill

mypower rcvbls

restricted cash

other assets

total assets

current liabiliites

accts payable

accrued liabs+other

deferred revenue

resale value guar

cust deposits

curr debt+leases

curr solar bonds

total current liabs

lt debt+leases

solar bonds

rel party conv debt

deferred revenue

resale value guar

other lt liabilities

comm stk warrants

capital lease oblg

total liabilities

commits/contings

rdmbl ncis in subs

conv senior notes

nci in subsidiaries

common equity

cash flow statement

cash flows from ops

net loss

dep/amortization

stock-based comp

am of debt discount

inv write-down

loss on disposals

forex loss (gain)

loss on acq scty

non-cash int/other

chgs in op as/lb

accts rcbl

inv / op leases

prepaids/other ca

mypower rcvbls + other

accts pybl/accr liabs

deferred revenue

customer deposits

other lt liabs

net cash from ops

cash flows from inv

pp&e purchases

purchase solar sys

net cash from inv

cash flows from fin

stock issued

debt issued

debt repayments

rel pty solar repaids

coll lease borrowing

stock option excrs

capital lease paids

stock+debt issue cost

investment by nci in subs

dist to nci in subs

buyouts of nci in subs

net cash from fin

forex effect

net change in cash

cash & eq start

cash & eq end

[TD2] luv q4-18e [/TD2][TD2] luv q3-18e [/TD2][TD2] Jun-18 [/TD2][TD2] Mar-18 [/TD2] [TD2]15,000[/TD2][TD2]13,400[/TD2][TD2]10,939[/TD2][TD2]11,738[/TD2] [TD2]13,000[/TD2][TD2]13,000[/TD2][TD2]11,380[/TD2][TD2]10,077[/TD2] [TD2] 28,000 [/TD2][TD2] 26,400 [/TD2][TD2] 22,319 [/TD2][TD2] 21,815 [/TD2] [TD2] 60,000 [/TD2][TD2] 51,800 [/TD2][TD2] 18,449 [/TD2][TD2] 8,182 [/TD2] [TD2] 103.00 [/TD2][TD2] 104.00 [/TD2][TD2] 105.14 [/TD2][TD2] 105.42 [/TD2] [TD2] 58.00 [/TD2][TD2] 59.00 [/TD2][TD2] 55.80 [/TD2][TD2] 56.80 [/TD2] [TD2]2,682,120[/TD2][TD2]2,553,408[/TD2][TD2]2,088,411[/TD2][TD2]2,046,829[/TD2] [TD2]3,480,000[/TD2][TD2]3,056,200[/TD2][TD2]1,029,454[/TD2][TD2]464,738[/TD2] [TD2]197,206[/TD2][TD2]200,737[/TD2][TD2]239,816[/TD2][TD2]173,436[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]100,000[/TD2][TD2]100,000[/TD2][TD2]0[/TD2][TD2]50,314[/TD2] [TD2] 6,459,326 [/TD2][TD2] 5,910,345 [/TD2][TD2] 3,357,681 [/TD2][TD2] 2,735,317 [/TD2] [TD2]185,500[/TD2][TD2]140,450[/TD2][TD2]111,651[/TD2][TD2]185,022[/TD2] [TD2]237,600[/TD2][TD2]231,000[/TD2][TD2]262,757[/TD2][TD2]225,000[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]300,000[/TD2][TD2]300,000[/TD2][TD2]270,142[/TD2][TD2]263,412[/TD2] [TD2] 7,182,426 [/TD2][TD2] 6,581,795 [/TD2][TD2] 4,002,231 [/TD2][TD2] 3,408,751 [/TD2] [TD2]1,979,640[/TD2][TD2]1,886,069[/TD2][TD2]1,546,610[/TD2][TD2]1,517,446[/TD2] [TD2]2,714,400[/TD2][TD2]2,567,208[/TD2][TD2]983,129[/TD2][TD2]573,951[/TD2] [TD2]122,268[/TD2][TD2]124,457[/TD2][TD2]136,915[/TD2][TD2]104,496[/TD2] [TD2] 4,816,308 [/TD2][TD2] 4,577,734 [/TD2][TD2] 2,666,654 [/TD2][TD2] 2,195,893 [/TD2] [TD2]185,500[/TD2][TD2]147,473[/TD2][TD2]146,343[/TD2][TD2]217,863[/TD2] [TD2]166,320[/TD2][TD2]161,700[/TD2][TD2]183,930[/TD2][TD2]157,500[/TD2] [TD2]10,999[/TD2][TD2]10,999[/TD2][TD2]11,000[/TD2][TD2]11,000[/TD2] [TD2]375,000[/TD2][TD2]384,000[/TD2][TD2]375,374[/TD2][TD2]369,969[/TD2] [TD2] 5,554,127 [/TD2][TD2] 5,281,906 [/TD2][TD2] 3,383,301 [/TD2][TD2] 2,952,225 [/TD2] [TD2] 1,628,299 [/TD2][TD2] 1,299,890 [/TD2][TD2] 618,930 [/TD2][TD2] 456,526 [/TD2] [TD2]29.5%[/TD2][TD2]29.6%[/TD2][TD2]27.7%[/TD2][TD2]28.6%[/TD2] [TD2]27.0%[/TD2][TD2]27.0%[/TD2][TD2]27.7%[/TD2][TD2]26.9%[/TD2] [TD2]22.0%[/TD2][TD2]16.0%[/TD2][TD2]4.5%[/TD2][TD2]-23.5%[/TD2] [TD2]24.3%[/TD2][TD2]21.2%[/TD2][TD2]20.6%[/TD2][TD2]18.2%[/TD2] [TD2]0.0%[/TD2][TD2]-5.0%[/TD2][TD2]-31.1%[/TD2][TD2]-17.7%[/TD2] [TD2]30.0%[/TD2][TD2]30.0%[/TD2][TD2]30.0%[/TD2][TD2]30.0%[/TD2] [TD2]-100.0%[/TD2][TD2]-100.0%[/TD2][TD2]-100.0%[/TD2][TD2]-100.0%[/TD2] [TD2]-25.0%[/TD2][TD2]-28.0%[/TD2][TD2]-39.0%[/TD2][TD2]-40.5%[/TD2] [TD2]360,000[/TD2][TD2]350,000[/TD2][TD2]341,129[/TD2][TD2]322,096[/TD2] [TD2]630,000[/TD2][TD2]620,000[/TD2][TD2]610,759[/TD2][TD2]551,404[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]103,434[/TD2][TD2]0[/TD2] [TD2]50,000[/TD2][TD2]45,000[/TD2][TD2]45,000[/TD2][TD2]45,000[/TD2] [TD2]145,000[/TD2][TD2]140,000[/TD2][TD2]140,000[/TD2][TD2]135,000[/TD2] [TD2] 1,185,000 [/TD2][TD2] 1,155,000 [/TD2][TD2] 1,240,322 [/TD2][TD2] 1,053,500 [/TD2] [TD2] 443,299 [/TD2][TD2] 144,890 [/TD2][TD2] -621,392 [/TD2][TD2] -596,974 [/TD2] [TD2]6,000[/TD2][TD2]6,000[/TD2][TD2]5,064[/TD2][TD2]5,214[/TD2] [TD2]-107,000[/TD2][TD2]-107,000[/TD2][TD2]-110,582[/TD2][TD2]-102,546[/TD2] [TD2]-53,000[/TD2][TD2]-53,000[/TD2][TD2]-53,000[/TD2][TD2]-47,000[/TD2] [TD2]-12,000[/TD2][TD2]-12,000[/TD2][TD2]50,911[/TD2][TD2]-37,716[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2] 277,299 [/TD2][TD2] -21,110 [/TD2][TD2] -728,999 [/TD2][TD2] -779,022 [/TD2] [TD2]19,999[/TD2][TD2]19,999[/TD2][TD2]13,707[/TD2][TD2]5,605[/TD2] [TD2] 257,300 [/TD2][TD2] -41,109 [/TD2][TD2] -742,706 [/TD2][TD2] -784,627 [/TD2] [TD2]-50,001[/TD2][TD2]-50,001[/TD2][TD2]-25,167[/TD2][TD2]-75,076[/TD2] [TD2] 307,301 [/TD2][TD2] 8,892 [/TD2][TD2] -717,539 [/TD2][TD2] -709,551 [/TD2] [TD2]172,000[/TD2][TD2]170,900[/TD2][TD2]169,997[/TD2][TD2]169,146[/TD2] [TD2]183,000[/TD2][TD2]181,900[/TD2][TD2]169,997[/TD2][TD2]169,146[/TD2] [TD2] 1.68 [/TD2][TD2] 0.05 [/TD2][TD2] -4.22 [/TD2][TD2] -4.19 [/TD2] [TD2]307,301[/TD2][TD2]8,892[/TD2][TD2]-717,539[/TD2][TD2]-709,551[/TD2] [TD2]208,000[/TD2][TD2]200,000[/TD2][TD2]197,344[/TD2][TD2]141,639[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]515,301[/TD2][TD2]208,892[/TD2][TD2]-520,195[/TD2][TD2]-567,912[/TD2] [TD2] 2.82 [/TD2][TD2] 1.15 [/TD2][TD2] -3.06 [/TD2][TD2] -3.36 [/TD2] [TD2] 72.00 [/TD2][TD2] 80.00 [/TD2][TD2] 89.67 [/TD2][TD2] 79.31 [/TD2] [TD2] 77.00 [/TD2][TD2] 81.00 [/TD2][TD2] 81.73 [/TD2][TD2] 80.47 [/TD2] [TD2]3,472,984[/TD2][TD2]2,931,922[/TD2][TD2]2,236,424[/TD2][TD2]2,665,673[/TD2] [TD2]150,000[/TD2][TD2]130,000[/TD2][TD2]146,822[/TD2][TD2]120,194[/TD2] [TD2]1,180,673[/TD2][TD2]1,081,939[/TD2][TD2]569,874[/TD2][TD2]652,848[/TD2] [TD2]4,382,435[/TD2][TD2]4,630,712[/TD2][TD2]3,324,643[/TD2][TD2]2,565,826[/TD2] [TD2]374,443[/TD2][TD2]364,418[/TD2][TD2]422,034[/TD2][TD2]379,379[/TD2] [TD2] 9,560,534 [/TD2][TD2] 9,138,992 [/TD2][TD2] 6,699,797 [/TD2][TD2] 6,383,920 [/TD2] [TD2]2,206,183[/TD2][TD2]2,243,816[/TD2][TD2]2,282,047[/TD2][TD2]2,315,124[/TD2] [TD2]6,333,264[/TD2][TD2]6,336,631[/TD2][TD2]6,340,031[/TD2][TD2]6,346,374[/TD2] [TD2]11,933,736[/TD2][TD2]11,404,808[/TD2][TD2]10,969,348[/TD2][TD2]10,519,226[/TD2] [TD2]361,502[/TD2][TD2]361,502[/TD2][TD2]300,406[/TD2][TD2]346,428[/TD2] [TD2]60,237[/TD2][TD2]60,237[/TD2][TD2]64,284[/TD2][TD2]61,284[/TD2] [TD2]420,841[/TD2][TD2]427,841[/TD2][TD2]434,841[/TD2][TD2]449,754[/TD2] [TD2]440,000[/TD2][TD2]440,000[/TD2][TD2]399,992[/TD2][TD2]433,841[/TD2] [TD2]273,123[/TD2][TD2]273,123[/TD2][TD2]419,254[/TD2][TD2]415,478[/TD2] [TD2] 31,589,420 [/TD2][TD2] 30,686,949 [/TD2][TD2] 27,910,000 [/TD2][TD2] 27,271,429 [/TD2] [TD2]4,686,770[/TD2][TD2]4,688,596[/TD2][TD2]3,030,493[/TD2][TD2]2,603,498[/TD2] [TD2]2,370,000[/TD2][TD2]2,252,250[/TD2][TD2]1,814,979[/TD2][TD2]1,898,431[/TD2] [TD2]529,484[/TD2][TD2]538,516[/TD2][TD2]576,321[/TD2][TD2]536,465[/TD2] [TD2]600,000[/TD2][TD2]600,000[/TD2][TD2]674,255[/TD2][TD2]629,112[/TD2] [TD2]965,000[/TD2][TD2]965,000[/TD2][TD2]942,129[/TD2][TD2]984,823[/TD2] [TD2]1,500,000[/TD2][TD2]1,500,000[/TD2][TD2]2,020,685[/TD2][TD2]1,915,530[/TD2] [TD2]100,000[/TD2][TD2]100,000[/TD2][TD2]82,500[/TD2][TD2]82,500[/TD2] [TD2] 10,751,254 [/TD2][TD2] 10,644,362 [/TD2][TD2] 9,141,362 [/TD2][TD2] 8,650,359 [/TD2] [TD2]9,000,000[/TD2][TD2]9,200,000[/TD2][TD2]9,510,696[/TD2][TD2]8,761,070[/TD2] [TD2]100[/TD2][TD2]100[/TD2][TD2]100[/TD2][TD2]100[/TD2] [TD2]2,519[/TD2][TD2]2,519[/TD2][TD2]2,594[/TD2][TD2]2,556[/TD2] [TD2]772,164[/TD2][TD2]785,336[/TD2][TD2]795,820[/TD2][TD2]818,250[/TD2] [TD2]650,000[/TD2][TD2]670,000[/TD2][TD2]584,857[/TD2][TD2]756,800[/TD2] [TD2]3,258,750[/TD2][TD2]3,118,500[/TD2][TD2]2,607,458[/TD2][TD2]2,561,886[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2] 24,434,787 [/TD2][TD2] 24,420,816 [/TD2][TD2] 22,642,887 [/TD2][TD2] 21,551,021 [/TD2] [TD2]402,943[/TD2][TD2]402,943[/TD2][TD2]539,536[/TD2][TD2]405,835[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]2[/TD2] [TD2]900,000[/TD2][TD2]900,000[/TD2][TD2]821,156[/TD2][TD2]863,876[/TD2] [TD2] 5,851,689 [/TD2][TD2] 4,963,190 [/TD2][TD2] 3,906,421 [/TD2][TD2] 4,450,695 [/TD2] [TD2]257,300[/TD2][TD2]-41,109[/TD2][TD2]-742,706[/TD2][TD2]-784,627[/TD2] [TD2]465,416[/TD2][TD2]444,788[/TD2][TD2]485,255[/TD2][TD2]416,233[/TD2] [TD2]208,000[/TD2][TD2]200,000[/TD2][TD2]197,344[/TD2][TD2]141,639[/TD2] [TD2]35,000[/TD2][TD2]35,000[/TD2][TD2]35,074[/TD2][TD2]39,345[/TD2] [TD2]46,307[/TD2][TD2]33,246[/TD2][TD2]27,552[/TD2][TD2]18,546[/TD2] [TD2]45,000[/TD2][TD2]45,000[/TD2][TD2]66,613[/TD2][TD2]52,237[/TD2] [TD2]25,000[/TD2][TD2]25,000[/TD2][TD2]-41,476[/TD2][TD2]47,661[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]9,669[/TD2][TD2]-3,984[/TD2] [TD2]-98,734[/TD2][TD2]-512,065[/TD2][TD2]70,633[/TD2][TD2]-169,142[/TD2] [TD2]285,911[/TD2][TD2]-1,267,838[/TD2][TD2]-822,487[/TD2][TD2]-419,277[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]-45,193[/TD2][TD2]-50,001[/TD2] [TD2]-15,000[/TD2][TD2]-15,000[/TD2][TD2]-1,863[/TD2][TD2]-57,583[/TD2] [TD2]65,925[/TD2][TD2]2,045,374[/TD2][TD2]591,737[/TD2][TD2]317,983[/TD2] [TD2]75,000[/TD2][TD2]65,000[/TD2][TD2]61,702[/TD2][TD2]45,795[/TD2] [TD2]0[/TD2][TD2]22,871[/TD2][TD2]-24,439[/TD2][TD2]67,359[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]42,484[/TD2][TD2]-60,560[/TD2] [TD2] 1,395,124 [/TD2][TD2] 1,080,266 [/TD2][TD2] -129,664 [/TD2][TD2] -398,376 [/TD2] [TD2]-700,000[/TD2][TD2]-600,000[/TD2][TD2]-609,813[/TD2][TD2]-655,662[/TD2] [TD2]-60,000[/TD2][TD2]-60,000[/TD2][TD2]-67,400[/TD2][TD2]-72,975[/TD2] [TD2] -760,000 [/TD2][TD2] -660,000 [/TD2][TD2] -682,817 [/TD2][TD2] -728,637 [/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2] [TD2]100,000[/TD2][TD2]100,000[/TD2][TD2]1,267,746[/TD2][TD2]1,775,481[/TD2] [TD2]-400,000[/TD2][TD2]0[/TD2][TD2]-879,328[/TD2][TD2]-1,389,388[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]-17,500[/TD2] [TD2]100,000[/TD2][TD2]100,000[/TD2][TD2]-113,426[/TD2][TD2]-87,092[/TD2] [TD2]75,000[/TD2][TD2]75,000[/TD2][TD2]31,053[/TD2][TD2]94,018[/TD2] [TD2]-30,000[/TD2][TD2]-30,000[/TD2][TD2]-29,395[/TD2][TD2]-18,787[/TD2] [TD2]-12,000[/TD2][TD2]-12,000[/TD2][TD2]-758[/TD2][TD2]-2,913[/TD2] [TD2]75,000[/TD2][TD2]75,000[/TD2][TD2]179,333[/TD2][TD2]73,704[/TD2] [TD2]-50,000[/TD2][TD2]-50,000[/TD2][TD2]-56,603[/TD2][TD2]-52,942[/TD2] [TD2]0[/TD2][TD2]0[/TD2][TD2]0[/TD2][TD2]-2,921[/TD2] [TD2] -142,000 [/TD2][TD2] 258,000 [/TD2][TD2] 398,622 [/TD2][TD2] 371,660 [/TD2] [TD2]47,937[/TD2][TD2]17,232[/TD2][TD2]-22,611[/TD2][TD2]10,102[/TD2] [TD2] 541,061 [/TD2][TD2] 695,498 [/TD2][TD2] -436,470 [/TD2][TD2] -745,251 [/TD2] [TD2] 2,931,922 [/TD2][TD2] 2,236,424 [/TD2][TD2] 2,665,673 [/TD2][TD2] 3,367,914 [/TD2] [TD2] 3,472,984 [/TD2][TD2] 2,931,922 [/TD2][TD2] 2,236,424 [/TD2][TD2] 2,665,673 [/TD2]

NOw that I am unbanned, I can respond.

Overall I think you have a great model. I am only going to comment on what i disagree with, but dont take that as an insult just the items I think arent really feasible.


am not going to argue revenue and GM because I dont think you are being super unreasonable there.


1) You have twice as many vehicles being delivered during the period, and last period was the largest vehicle delivery ever for Tesla, yet you assume the following:

a) Service expenses is flat, i just dont see how you cannot assume some correlation with sales here. If you believe the entire amount of service expense is hitting in Warranty/COGS and Accruals, well then I think we just agree to disagree on GM. I think you either need to assume a sales correlated increase in service expense (all that goodwill baby!) or you are too optimistic on margin. Personally, i think its service expenses. It continues to get worse and worse and in the largest delivery of arguably the most questionable quality batch of cars ever produced by Tesla, you are flat. Very much disagree here. I would say you are 50-100m light on this.

b) You delivered twice as many cars and you are flat on SGA. I know the counter here is that they trimmed 9% and that is fair. However a lot of the SGA expenses in variable, so I think it is very optimistic to assume the 9% is going to offset enough of the delivery costs associated with delivering nearly 80k vehicles. I just don't think its possible, but i know we have discussed this before. I think you are probably 150-200m light here



2) Balance Sheet/CF, there is no way AP is going to be 4.6B, with that said I think you are way overstated on inventory, I believe both are over a billion too high. Tesla is way too high visibility right now as a cash flow risk that AP vendors are going to let Tesla continue to layoff on them, with that said your inventory assumption kind of accounts for it. So it might be a wash at best.

The idea they will be FCF+ by 400m just isnt going to happen. Given 1 above I think you are likely 200-300m light on expenses and given 2 above I think you are likely 300-400 favorable on CF effects.


***

SO overall, great model, if I piggy back on all your work, i come to around a (300m) Net Loss for the period and FCF of (200m). With some accounting trickery maybe they push that FCF to 0, but I do think that is a best case scenario.


Anyways, thanks for posting. Really good stuff

 

[jpterpsfan]

b) You delivered twice as many cars and you are flat on SGA. I know the counter here is that they trimmed 9% and that is fair. However a lot of the SGA expenses in variable, so I think it is very optimistic to assume the 9% is going to offset enough of the delivery costs associated with delivering nearly 80k vehicles. I just don't think its possible, but i know we have discussed this before. I think you are probably 150-200m light here

Per the shareholder letter [Page 4, "Other Highlights", Bullet 3]:

Non-GAAP operating expenses in Q2 increased by roughly 3% compared to Q1 excluding the restructuring costs and stock based compensation.

Based on this quote, I believe the primary factors for SG&A growth each quarter are increased headcount and new stores/service centers, not variable expenses from increased deliveries. Also, the shareholder letter contained this guidance regarding OpEx:

For the rest of this year, total non-GAAP operating expenses should remain relatively stable at Q2 levels excluding restructuring costs, as a result of our overall drive towards operating efficiencies.

It's possible that they might have a liberal definition of "relatively stable", but I would say it's fair to assume it would not grow significantly through the end of the year.

 

[generalenthu]

The latest letter from Tesla is guiding for more than 2X deliveries in Q3 compared to Q2. So ~81,500 deliveries is their lower limit. Assuming they miss guidance somewhat, that is still at least 80K in deliveries. That should impact both revenues and gross margin positively.

This should be a blowout quarter. November can't come soon enough.

Company Update

 

[Fact Checking]

Whoa:

Tesla announces management changes, Elon Musk says record quarter, ‘ignore media’

"We are about to have the most amazing quarter in our history, building and delivering more than twice as many cars as we did last quarter. For a while, there will be a lot of fuss and noise in the media. Just ignore them. Results are what matter and we are creating the most mind-blowing growth in the history of the automotive industry. Even the Ford Model T, which held the world record for the fastest growing car in history, didn’t grow as fast in sales or production as the Model 3."​

Q2 deliveries, Q3 guidance, @luvb2b's projections and Elon's "more than twice as many" numbers side by side:

…

Model S+X+3 delivered:

Model S+X+3 produced:

[TD2] Q2 [/TD2][TD2] Q3-guidance [/TD2][TD2] Q3-luvb2b [/TD2][TD2] Q3-Elon : >2*Q2 [/TD2] [TD2] 40,740 [/TD2][TD2] >75-80k [/TD2][TD2] ~78,200 [/TD2][TD2] >81,480 [/TD2] [TD2] 53,339 [/TD2][TD2] >75-80k [/TD2][TD2] ~99,000(?) [/TD2][TD2] >106,678 [/TD2]

The 'twice as many cars made' doesn't make sense - how are 106k cars possible in Q3? It would imply over 6k/week sustained Model 3 production ... and 25,198 vehicles 'in transit' at the end of Q3 - implying an even higher manufacturing rate at the end of the quarter.

Am I mis-reading what Elon wrote? Or did he make a mistake in that sentence and only wanted to write twice the deliveries? Or is the leak wrong?

Even that (81k versus 78k expected) would be a nice surprise.

 

[DaveT]

Am I mis-reading what Elon wrote? Or did he make a mistake in that sentence and only wanted to write twice the deliveries? Or is the leak wrong?

Yeah, Elon can be careless with words at times. He most likely meant twice as many deliveries in Q3 vs Q2.

 

[Fact Checking]

Yeah, Elon can be careless with words at times. He most likely meant twice as many deliveries in Q3 vs Q2.

Or maybe he meant twice as many Model 3's made? That would be ~57k made - still higher than the 50-55k guidance.

Very curious.

 

[Predator]

2x many cars built is not possible? That would imply over 107000 cars built in 1 quarter, if S+X is at optimistic 28'000, that implies 80'000 model 3 or 6500 weekly.

What a lie again, Elon please. Deliveries yes, you are right, but do not mix produced and deliveries together.

 

[Fact Checking]

What a lie again, Elon

Calm down with the accusations, he most likely meant making and then delivering twice as many cars in Q3. Every car delivered has to be made first.

81k delivered is about 6k cars beyond the lowest end of their guidance - which is nice and makes it virtually certain that they are going to meet guidance comfortably.

 

[Predator]

Calm down with the accusations, he most likely meant making and then delivering twice as many cars in Q3. Every car delivered has to be made first.

81k delivered is about 6k cars beyond the lowest end of their guidance - which is nice and makes it virtually certain that they are going to meet guidance comfortably.

'We are about to have the most amazing quarter in our history, building and delivering more than twice as many cars as we did last quarter.'

I do not think we need to argue about the sense of this sentence, do we? He clearly wrote ..., building and delivering twice as many than,

What does this mean? Clearly, theyve also built twice as many. Problem : it is not possible. Therefore a lie and a misleading sentence in my view

 

[anon]

I imagine he meant "both building and delivering twice as many cars as were delivered in Q2". In other words, the delivery increase is aligned with a production increase, without fudging numbers with deliveries carried over from Q2 inventory.

 

[omgwtfbyobbq]

Whoa:

Tesla announces management changes, Elon Musk says record quarter, ‘ignore media’

"We are about to have the most amazing quarter in our history, building and delivering more than twice as many cars as we did last quarter. For a while, there will be a lot of fuss and noise in the media. Just ignore them. Results are what matter and we are creating the most mind-blowing growth in the history of the automotive industry. Even the Ford Model T, which held the world record for the fastest growing car in history, didn’t grow as fast in sales or production as the Model 3."​

Q2 deliveries, Q3 guidance, @luvb2b's projections and Elon's "more than twice as many" numbers side by side:

…

Model S+X+3 delivered:

Model S+X+3 produced:

[TD2] Q2 [/TD2][TD2] Q3-guidance [/TD2][TD2] Q3-luvb2b [/TD2][TD2] Q3-Elon : >2*Q2 [/TD2] [TD2] 40,740 [/TD2][TD2] >75-80k [/TD2][TD2] ~78,200 [/TD2][TD2] >81,480 [/TD2] [TD2] 53,339 [/TD2][TD2] >75-80k [/TD2][TD2] ~99,000(?) [/TD2][TD2] >106,678 [/TD2]

The 'twice as many cars made' doesn't make sense - how are 106k cars possible in Q3? It would imply over 6k/week sustained Model 3 production ... and 25,198 vehicles 'in transit' at the end of Q3 - implying an even higher manufacturing rate at the end of the quarter.

Am I mis-reading what Elon wrote? Or did he make a mistake in that sentence and only wanted to write twice the deliveries? Or is the leak wrong?

Even that (81k versus 78k expected) would be a nice surprise.

I don't think it's a leak. Lets say their guidance on the 3 is accurate and they build +5k more 3s and +5k more S/Xs than their average.guidance. That would translate into ~60k 3s and ~40k S/Xs, so ~100k+ built. If they're using build and deliver as a euphemism for sales, they might be able to get another 5k+ sales from inventory sales.

 

[omgwtfbyobbq]

Just to follow up on the S/X figure, in 2017 they sold roughly 35% of their annual US Model X/S sales in Q3. If that pattern is the same for global sales, that would be about 37k S/X sales in Q3 based on last year's production. If inside evs estimates are accurate, they're at 1.5k more US Model S/X sales than the same time last year, and I wouldn't be surprised to see global S/X sales at 40k+in Q3. That also bodes well for them moving into the black in Q3, since the S/X gross margin was nearly 30% IIRC.

 

[luvb2b]

thanks. i think the items you highlight are legitimate risk points. were they really building out service capacity as they said? or are they shifting items that maybe should be in cogs to service? only the next report can answer that question. i have seen them take up warranty accrual meaningfully, i estimate to about 6% of the asp of a model 3. so it is possible they are taking post-delivery repairs against warranty reserves.

on sg&a i think i went with their guidance. it has occasionally been off. the last quarter was mysterious in terms of why opex increased despite all the cost cuts. the question of whether sg&a continues to grow with deliveries will also be answered on the next call.

when they're doing 6b in auto revenues on 4.8b of cogs, then their historical ap levels would imply right around 4.x b of payables. the level of payables you're hoping for is something that hasn't been seen in years (in terms of dpo).

inventory i think remains high because production rates are high, and if they build 10-12k model 3's and 5k s/x in 2 weeks there's just no way to get them all delivered.

one thing i've realized over this last stretch is i've been spending way too much time thinking about this one company. i had hinted and feeling burned (out) a bit, but i think today i feel it even more. i'm going to take a bit of a break, but before i do i want to encourage you to contribute to these forums in a civil manner. your views (though bearishly biased) do force some useful introspection.

i think i did mention this before, but a model is just that... a model. models are not reality, and reality is that there are unknowns that are unknowable, both good and bad. shorts and longs would be well advised to exercise smart risk management above all else.

NOw that I am unbanned, I can respond.

Overall I think you have a great model. I am only going to comment on what i disagree with, but dont take that as an insult just the items I think arent really feasible.


am not going to argue revenue and GM because I dont think you are being super unreasonable there.


1) You have twice as many vehicles being delivered during the period, and last period was the largest vehicle delivery ever for Tesla, yet you assume the following:

a) Service expenses is flat, i just dont see how you cannot assume some correlation with sales here. If you believe the entire amount of service expense is hitting in Warranty/COGS and Accruals, well then I think we just agree to disagree on GM. I think you either need to assume a sales correlated increase in service expense (all that goodwill baby!) or you are too optimistic on margin. Personally, i think its service expenses. It continues to get worse and worse and in the largest delivery of arguably the most questionable quality batch of cars ever produced by Tesla, you are flat. Very much disagree here. I would say you are 50-100m light on this.

b) You delivered twice as many cars and you are flat on SGA. I know the counter here is that they trimmed 9% and that is fair. However a lot of the SGA expenses in variable, so I think it is very optimistic to assume the 9% is going to offset enough of the delivery costs associated with delivering nearly 80k vehicles. I just don't think its possible, but i know we have discussed this before. I think you are probably 150-200m light here



2) Balance Sheet/CF, there is no way AP is going to be 4.6B, with that said I think you are way overstated on inventory, I believe both are over a billion too high. Tesla is way too high visibility right now as a cash flow risk that AP vendors are going to let Tesla continue to layoff on them, with that said your inventory assumption kind of accounts for it. So it might be a wash at best.

The idea they will be FCF+ by 400m just isnt going to happen. Given 1 above I think you are likely 200-300m light on expenses and given 2 above I think you are likely 300-400 favorable on CF effects.


***

SO overall, great model, if I piggy back on all your work, i come to around a (300m) Net Loss for the period and FCF of (200m). With some accounting trickery maybe they push that FCF to 0, but I do think that is a best case scenario.


Anyways, thanks for posting. Really good stuff

 

[AlMc]

I don't 'like' the fact that 'luv' is taking a break (well deserved) but am using it as a way to say thanks and encourage his thought of civil discussion.

Thanks @luvb2b

 

[SPadival]

As someone said on Twitter

Read the numbers like a lawyer. They built 53k cars last Q, but they only built and delivered 40k (or, precisely 40740). So this means they should build & deliver more than 80k vehicles this Q. More than 81,480 if he’s being precise.

 

[SPadival]

A Fremont employee on Twitter who shall remain unnamed

Two months ago they said we couldn’t do 5000 cars in a week and we did 7000. This week we’re smashing records.

 

[Fact Checking]

i have seen them take up warranty accrual meaningfully, i estimate to about 6% of the asp of a model 3. so it is possible they are taking post-delivery repairs against warranty reserves.

Here's what Tesla said about their warranty expenses in the Q2 financial report:

"Warranty expense is recorded as a component of cost of revenues. Accrued warranty activity consisted of the following (in thousands):

…

Accrued warranty—beginning of period

Warranty costs incurred

Net changes in liability for pre-existing

warranties, including expirations and

foreign exchange impact

Additional warranty accrued from adoption

of the new revenue standard

Provision for warranty

Accrued warranty—end of period

[TD2] 2018/Q2 [/TD2][TD2] 2017/Q2 [/TD2][TD2] 2018/H1 [/TD2][TD2] 2017/H1 [/TD2] [TD2] $465,866 [/TD2][TD2] $306,951 [/TD2][TD2] $401,790 [/TD2][TD2] $266,655[/TD2] [TD2] -$49,604 [/TD2][TD2] -$25,384 [/TD2][TD2] -$94,285 [/TD2][TD2] -$48,400[/TD2] [TD2] -$10,917 [/TD2][TD2] +$8,915 [/TD2][TD2] -$10,416 [/TD2][TD2] +$2,653[/TD2] [TD2] — [/TD2][TD2] — [/TD2][TD2] $37,139 [/TD2][TD2] —[/TD2] [TD2] $118,664 [/TD2][TD2] $52,797 [/TD2][TD2] $189,781 [/TD2][TD2] $122,371[/TD2] [TD2] $524,009 [/TD2][TD2] $343,279 [/TD2][TD2] $524,009 [/TD2][TD2] $343,279 [/TD2]

For the three and six months ended June 30, 2018, warranty costs incurred for vehicles accounted for as operating leases or collateralized debt arrangements were $7.0 million and $12.8 million, respectively, and for the three and six months ended June 30, 2017, such costs were $7.4 million and $13.5 million, respectively."​

I believe the most important disclosure for our purposes here is the "Warranty costs incurred" line, which must include all warranty expenses, including labor, material and any directly billed services utilized, regardless of where they end up being assigned to in the end: automotive, services or SG&A.

Here's the history of "warranty costs incurred" for the last six quarters and the last 3 years looks like this, with a column for Model 3 deliveries:

Quarter

2015/all

2016/all

2017/all

—

2017/Q1

2017/Q2

2017/Q3

2017/Q4

2018/Q1

2018/Q2

[TD2] Warranty costs incurred [/TD2][TD2] Model S+X delivered [/TD2][TD2] Model 3 delivered [/TD2] [TD2] -$52,760 [/TD2][TD2] — [/TD2][TD2] — [/TD2] [TD2] -$79,147 [/TD2][TD2] — [/TD2][TD2] — [/TD2] [TD2] -$122,510 [/TD2][TD2] — [/TD2][TD2] — [/TD2] [TD2] — [/TD2][TD2] — [/TD2][TD2] — [/TD2] [TD2] -$23,016 [/TD2][TD2] 25,000 [/TD2][TD2] — [/TD2] [TD2] -$25,384 [/TD2][TD2] 22,000 [/TD2][TD2] — [/TD2] [TD2] -$39,481 [/TD2][TD2] 25,930 [/TD2][TD2] 220 [/TD2] [TD2] -$34,629 [/TD2][TD2] 28,320 [/TD2][TD2] 1,550 [/TD2] [TD2] -$44,681 [/TD2][TD2] 21,800 [/TD2][TD2] 8,180 [/TD2] [TD2] -$49,604 [/TD2][TD2] 22,300 [/TD2][TD2] 18,440 [/TD2]

So firstly, while Model S/X deliveries were pretty flat over 2017 (except a bit of a glut early summer and then an end of year burst), there was a spike of warranty costs at Q3 - a big recall perhaps?

Secondly, beyond recalls, most warranty repairs happen in the first couple of months of a vehicle - a typical front-loaded distribution of component faults and assembly quality faults.

Based on that I think we can say that the Model S+X "baseline" warranty costs for 25k deliveries are around $1,000-$1,500/vehicle, or about 1.0-1.5% of ASP - with the real number probably closer to 1%.

We can also say that the about 9,950 early Model 3's, all delivered by March 31, probably already had most of their warranty work done by end of Q2 (June 30).

So if we conservatively estimate early Model 3 warranty overhead by including the Q2 increases in warranty costs but not include any Model 3 delivered in Q2 in the unit count, and take the very lowest of the Model S+X warranty baseline cost ($25m), then we get a per early Model 3 absolute maximum warranty cost of:

((39m+34m+44m+49m)-4*25m)/9,950 = $6,600 (11% of ASP)
​

Note that this is close to the most pessimistic way to read these numbers and includes very early production batches that are not representative of Q3 production at all - and still it's not that bad for early production batches.

If we use the higher $35m estimate for the S+X warranty baseline (1.5% of ASP), then we get:

((39m+34m+44m+49m)-4*35m)/9,950 = $2,600 (4.3% of ASP)​

Also, if we assume that half of the 18,440 Model 3's delivered in Q2 already had much of their warranty work done and expensed by end of Q2 (there was an end of Q1 peak that was delivered in early Q2), then the unit count increases from 9,950 to 19,170 and per unit warranty costs decrease further:

((39m+34m+44m+49m)-4*35m)/19,170 = $1,350 (2.2% of ASP)​

Furthermore, if we consider that the first two quarters of Model 3 production went to employees, who wouldn't request 'paint speck' and other light defect warranty repairs, then we get the following for the about 19,170 Model 3's delivered in Q1 and the first half of Q2:

((44m+49m)-2*35m)/19,170 = $1,200 (2.0% of ASP)
​

Note that the $1,200 estimate still includes Q1 vehicles with ~40% higher panel gap defects, which are pretty expensive to repair.

So if we only look at the Q2 increase in warranty costs of +$5m (note that Model S+X deliveries were flat at 22k in Q1 and Q2, there was no big recall, so their warranty costt baseline should be similar), and attribute that $5m cost increase to the about 9,950 Model 3's delivered in the second half of Q1 and first half of Q2 (about 10,000 vehicles), then we get this cost estimate for the 'newest' Model 3's:

5m/10,000 = $500
​

Conclusion: the newer Model 3's we consider, the lower the warranty costs are expected to be, and the estimates seem to support this. I believe the current per unit incremental warranty costs for newly produced Model 3's, barring an expensive fleet-wide recalls, should be below $1,000 already in Q3 - maybe even lower than that. I.e. below 2% of ASP, closing in on the Model S/X levels.

This might sound surprising for a ramp-up that is only 12 months old and skipped the 'soft tooling' step, but it's not necessarily unexpected:

• The Model 3 was designed for mass manufacturing, the component count is much lower and the technologies are more automated, which reduces production quality noise once the lines are fine-tuned.
• The components are also much cheaper due to higher unit count sourcing, which reduces warranty material costs.
• Warranty labor costs might also be lower due to serviceability related re-design of certain aspects of the Model 3 that I assume they performed based on experience with the Model S/X.
• There's an incredible amount of scrutiny on early deliveries, due to the 'panel gap' and other Model 3 quality complaints publicity, there's a very detailed, very rigorous "Model 3 delivery check list" that other carmakers generally don't have to deal with. This too will fade out: later buyers won't complain as much about every paint speck or slight panel misalignment, plus the earlier scrutiny has put pressure on Tesla to improve quality to or beyond the quality levels of the competition. I.e. those who used early production quality complaints (which complaints were justified) as a FUD vehicle against Tesla (which is not justified) kind of did them a favor, by forcing improvements that improved Tesla's competitive position. The law of unintended consequences.

In any case your 6% estimate of Model 3 ASP looks conservative, so I wouldn't expect a negative surprise from that.

 

[StockCynic]

Just to follow up on the S/X figure, in 2017 they sold roughly 35% of their annual US Model X/S sales in Q3. If that pattern is the same for global sales, that would be about 37k S/X sales in Q3 based on last year's production. If inside evs estimates are accurate, they're at 1.5k more US Model S/X sales than the same time last year, and I wouldn't be surprised to see global S/X sales at 40k+in Q3. That also bodes well for them moving into the black in Q3, since the S/X gross margin was nearly 30% IIRC.

My friend, you must be smoking the Joe Rogan, there is no way in hell that Tesla is selling 40,000 S/X in Q3.

 

[omgwtfbyobbq]

My friend, you must be smoking the Joe Rogan, there is no way in hell that Tesla is selling 40,000 S/X in Q3.

I doubt it too, but if it happened I wouldn't be surprised. They had 12k+ vehicles in transit at the end of last quarter, which are likely mostly Model 3s. At the same time, if they have 6k+ Model S/Xs, that could change things. The S/X in 17Q4 were at 28.5k, so if they could increase production by another 4k, had 6k in transit, and cleared out everything from CPO/inventory, 40k might be possible. But I agree that they'll likely be at 30k-35k.

 

[heltok]

A battery today uses about 15kg Lithium for a 100kWh or 10kg for a 70kWh battery. Prices have dropped $10/kg. So expect to see a $100-150 lower cost to produce batteries for companies making their own batteries.