Near-future quarterly financial projections

[ValueAnalyst]

@ValueAnalyst How can I put "Disagree" reaction to the "Funny" you marked my post with and "Funny" to your "Disagree" above? TMC needs to improve their platform.

I struggle sometimes to not think that @Fact Checking and I are not the same person, because we agree on everything and we think similarly, although they are certainly more diligent and eloquent than me.

Nevertheless, you now have two people disagreeing with your interpretation of the 10-K language, and @Fact Checking and I worded our specific reasoning just about the same - feel free to reference our previous conversation on this if you so wish; I can't look for it at the moment. Saying EAP revenue should be recognized over eight years is similar to saying the vehicle revenue should be recognized over eight years; neither makes much sense. In fact, I think Tesla should recognize all EAP revenue at the point of sale, since the 85% take rate shows the value is already worth its price, but that doesn't even matter. What matters is that the owner can't simply ask for their money back later, so it can be recognized, but Tesla management has been conservative on their accounting methods...

 

[vgrinshpun]

I struggle sometimes to not think that @Fact Checking and I are not the same person, because we agree on everything and we think similarly, although they are certainly more diligent and eloquent than me.

Nevertheless, you now have two people disagreeing with your interpretation of the 10-K language, and @Fact Checking and I worded our specific reasoning just about the same - feel free to reference our previous conversation on this if you so wish; I can't look for it at the moment. Saying EAP revenue should be recognized over eight years is similar to saying the vehicle revenue should be recognized over eight years; neither makes much sense. In fact, I think Tesla should recognize all EAP revenue at the point of sale, since the 85% take rate shows the value is already worth its price, but that doesn't even matter. What matters is that the owner can't simply ask for their money back later, so it can be recognized, but Tesla management has been conservative on their accounting methods...

I am not sure if you disagreeing with my interpretation or, rather Tesla way of recognizing the revenue.

Can you or your twin @Fact Checking then answer my question: WHAT do you think wording from 10-K I highlighted refers to if not EAP?

 

[ValueAnalyst]

I am not sure if you disagreeing with my interpretation or, rather Tesla way of recognizing the revenue.

Can you or your twin @Fact Checking then answer my question: WHAT do you think wording from 10-K I highlighted refers to if not EAP?

I think my better half explained it well, but I’d add maybe internet connectivity type of small items.

 

[mongo]

I am not sure if you disagreeing with my interpretation or, rather Tesla way of recognizing the revenue.

Can you or your twin @Fact Checking then answer my question: WHAT do you think wording from 10-K I highlighted refers to if not EAP?

Let's start by moving up a heading:

Revenue Recognition
We recognize revenue for products and services when: (i) a persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) pricing or fees are fixed or determinable and (iv) collection is reasonably assured.

This covers EAP.

Then there is the subcategory you quoted (verbatim, but formatted):
Automotive revenue includes

• revenues related to deliveries of new vehicles,
  
• sales of regulatory credits to other automotive manufacturers
  
• and specific other elements that meet the definition of a deliverable under multiple-element accounting guidance, including:
  1. free internet connectivity,
  2. free access to our Supercharger network and
     
  3. future free over-the-air software updates.

These other elements are valued on a stand-alone basis, and we recognize their revenue over our performance period, which is generally the eight-year life of the vehicle, except for internet connectivity, which is over the free four-year period.

The 8 year items are Numbers 2 and 3. Item 1 is on a four year schedule.

 

[TheTalkingMule]

Can I get a recap of key dates for upcoming announcements? Trying to time some options through the end of the year.

Deliveries will be announced around October 3rd?
3Q call is around November 7th?

 

[geneclean55]

Can I get a recap of key dates for upcoming announcements? Trying to time some options through the end of the year.

Deliveries will be announced around October 3rd?
3Q call is around November 7th?

I hope you didn't pull the trigger on those options yet.

 

[vgrinshpun]

Let's start by moving up a heading:


This covers EAP.

Absolutely not.
EAP falls under the Multiple-Element Accounting because EAP as a promised product is NOT delivered at the time of car sales, it relies of a series of future OTA. That is why EAP is covered as "specific other elements that meet the definition of a deliverable under multiple-element accounting guidance", as was shown in my original post.

 

[mongo]

Absolutely not.
EAP falls under the Multiple-Element Accounting because EAP as a promised product is NOT delivered at the time of car sales, it relies of a series of future OTA. That is why EAP is covered as "specific other elements that meet the definition of a deliverable under multiple-element accounting guidance", as was shown in my original post.

View attachment 339611

Using that logic, EAP pre v9.0 is recognized over 8 years whereas cars with v9 EAP stock would not be. EAP is not in the list of items, so I disagree, and stick with the claim that the items your highlighter section refers to are the ones enumerated. Further, EAP is not a free OTA feature update, it is a paid feature with delayed delivery.

 

[schonelucht]

EAP falls under the Multiple-Element Accounting because EAP as a promised product is NOT delivered at the time of car sales, it relies of a series of future OTA. That is why EAP is covered as "specific other elements that meet the definition of a deliverable under multiple-element accounting guidance", as was shown in my original post.

This was once true, but not anymore. Most of EAP functionality is now available when a customer buys the car and most/all EAP revenue is therefore recognized immediatly. Tesla already started to recognize earlier EAP revenue way back in 2017Q1 due to the delivery of the featureset in February 2017.

Enhanced Autopilot revenue recognized in Q1 on cars delivered in Q4 contributed $35 million to gross profits.

In the next quarter, Tesla made it explicit that these kind of events are one time and not recurring

In line with our guidance, Q2 non-GAAP automotive gross margin was 25.0%, representing a sequential decline of about 285 basis points primarily due to the absence of the one-time benefit of Autopilot software recognized in Q1 and fluctuations in product mix

 

[vgrinshpun]

This was once true, but not anymore. Most of EAP functionality is now available when a customer buys the car and most/all EAP revenue is therefore recognized immediatly. Tesla already started to recognize earlier EAP revenue way back in 2017Q1 due to the delivery of the featureset in February 2017.



In the next quarter, Tesla made it explicit that these kind of events are one time and not recurring

I do not think these quotes contradict my post, because one-time benefit for EAP does not mean that ALL of the EAP revenue was recognized at that one time. Could mean delayed 8-year scheduled revenue recognized as one shot.

 

[vgrinshpun]

Using that logic, EAP pre v9.0 is recognized over 8 years whereas cars with v9 EAP stock would not be. EAP is not in the list of items, so I disagree, and stick with the claim that the items your highlighter section refers to are the ones enumerated. Further, EAP is not a free OTA feature update, it is a paid feature with delayed delivery.

There is no such thing as EAP stock. It is Beta version of software with implied FREE OTAs in future.
We’ll have to agree to disagree on this.

 

[schonelucht]

I do not think these quotes contradict my post, because one-time benefit for EAP does not mean that ALL of the EAP revenue was recognized at that one time. Could mean delayed 8-year scheduled revenue recognized as one shot.

Do the math. $35M recognized in one quarter for cars sold previous quarter. That's $1500 per car, assuming _all_ cars sold in 2016Q4 came with EAP. There is no such thing as an 8 year schedule recognition for EAP.

 

[ValueAnalyst]

Does the fact that Version 9 still hasn't been rolled out for wide release change anyone's estimates?

 

[mongo]

Does the fact that Version 9 still hasn't been rolled out for wide release change anyone's estimates?

Well, it moves referred EAP into Q4 (although given the initial release so close to the end of Q3, it may have been a stretch to include it them anyway).
Will be interesting to see how the deferred line item changes in the Q3 report. If the ~$1k per car EAP computed deferment holds, then they likely have ~$60 million additional EAP in Q3. Q4 will possibly have all of EAP in the vehicle GM number (extra $60 million or so profit) plus the realization of deferred. Could be >$150 million realized + $60 more vehicle income for a total of >$200 million in net profit.

Unless I'm off somewhere...

 

[ValueAnalyst]

Well, it moves referred EAP into Q4 (although given the initial release so close to the end of Q3, it may have been a stretch to include it them anyway).
Will be interesting to see how the deferred line item changes in the Q3 report. If the ~$1k per car EAP computed deferment holds, then they likely have ~$60 million additional EAP in Q3. Q4 will possibly have all of EAP in the vehicle GM number (extra $60 million or so profit) plus the realization of deferred. Could be >$150 million realized + $60 more vehicle income for a total of >$200 million in net profit.

Unless I'm off somewhere...

If Tesla achieves GAAP+ in Q3 with < 85k SX3 deliveries, min ZEV/GHG credits, and min AP revenue, then Q4 with ~110k SX3 deliveries, $65k Model 3 ASP and 22% gross margin, and full EAP deferred revenue recognition would make a better show than fireworks right above your head.

 

[mongo]

If Tesla achieves GAAP+ in Q3 with < 85k SX3 deliveries, min ZEV/GHG credits, and min AP revenue, then Q4 with ~110k SX3 deliveries, $65k Model 3 ASP and 22% gross margin, and full EAP deferred revenue recognition would make a better show than fireworks right above your head.

Awe yeah!
Apparently, I was overly conservative in my numbers... 85k + 110k @ $1k additional EAP per car is ~$200 million on its own, ignoring all previously sold AP2.x vehicles. Possibly $2 EPS?

 

[ValueAnalyst]

Awe yeah!
Apparently, I was overly conservative in my numbers... 85k + 110k @ $1k additional EAP per car is ~$200 million on its own, ignoring all previously sold AP2.x vehicles. Possibly $2 EPS?

I have $1+ EPS for Q3 and $4+ for Q4... we'll see! too many variables to be too precise.

 

[NannerAirCraft]

You think there will be 85k Model 3 deliveries in Q4? That seems like a way too optimistic of a prediction. That would be an average of 7k per week when during Q3 they haven't gotten an average of 5k and nothing I've seen yet has said they've reached their 6k per week burst target. I would think the realistic number is like 70k at most for Q4 which would be a little below 6k average rate.

If Tesla achieves GAAP+ in Q3 with < 85k SX3 deliveries, min ZEV/GHG credits, and min AP revenue, then Q4 with ~110k SX3 deliveries, $65k Model 3 ASP and 22% gross margin, and full EAP deferred revenue recognition would make a better show than fireworks right above your head.

 

[jeewee3000]

You think there will be 85k Model 3 deliveries in Q4? That seems like a way too optimistic of a prediction. That would be an average of 7k per week when during Q3 they haven't gotten an average of 5k and nothing I've seen yet has said they've reached their 6k per week burst target. I would think the realistic number is like 70k at most for Q4 which would be a little below 6k average rate.

He means 85k deliveries total (S+X+3), which is the TMC consensus I believe (based on the latest Electrek article).

 

[heltok]

I think he means Q4 25k S/X and the rest(85k) Model 3

Q4 with ~110k SX3 deliveries