Near-future quarterly financial projections

[adiggs]

I don't know what it will take for them to change their minds. I assume that after a large Q3 profit they will say it was a one time fluke. After even larger Q4 profits they will say that Tesla still has lost more money than they have made the last year. After huge Q1 profits they will say that Tesla still have lost more money than they have done since IPO even though they have had a monopoly and soon the real car manufacturers will come ear their pie. After another big Q2 profit they will say that Tesla is still overvalued.

I have seen so many moving of goal posts. I now expect to have to hold my shares for a very long time and be told how wrong I was, but I still think it is a good and correct investment that eventually will make me rich. I can stay rational longer than the shorts can stay solvent!

And you could well be right. I've held my core position since Fall '12, from $27 to $380 (with lots of ups and downs along the way), and now back into the high 200's or low 300's. I've been so wrong, so many times, I lose count . Elon was going to destroy the company, the company was going bankrupt, demand was dying, ... it's really amazing how wrong I've been, and how foolish I've been.

(that last bit was sarcasm)

 

[neroden]

Thanks to all especially luvb2b for this. Based on the EPS figures, am I right in saying that finance sites will state a positive PE ratio in mid April 19 following Q1 earnings release? Q1 needs to be at least -0.88 to balance out 2.56, 1.38 and -3.06. Would this be the same date for S&P 500 inclusion?

View attachment 340710

This is indeed my assessement, though I'd caution that the S&P may take their sweet time after earnings release before adding TSLA, since S&P changes are actually done by a committee which meets occasionally.

 

[generalenthu]

Thanks to all especially luvb2b for this. Based on the EPS figures, am I right in saying that finance sites will state a positive PE ratio in mid April 19 following Q1 earnings release? Q1 needs to be at least -0.88 to balance out 2.56, 1.38 and -3.06. Would this be the same date for S&P 500 inclusion?

View attachment 340710

Don't be surprised if the sites have a different standard for Tesla and decide to use gaap Eps

 

[bdohmeyer]

Current Yahoo Finance consensus 3Q revenue is $6.29, 7 days ago it was $6.1. 6 of 21 analysts have increased EPS in last 7 days (pre production report)

So interesting to watch revisions of revenue to get up to a reasonable level of say $6.9 and correlate that with revisions in EPS to see operating leverage and predict where EPS will be when revisions are complete. Current EPS estimate -.27 cents, 7 days ago -.38 cents

 

[bdy0627]

Current Yahoo Finance consensus 3Q revenue is $6.29, 7 days ago it was $6.1. 6 of 21 analysts have increased EPS in last 7 days (pre production report)

So interesting to watch revisions of revenue to get up to a reasonable level of say $6.9 and correlate that with revisions in EPS to see operating leverage and predict where EPS will be when revisions are complete. Current EPS estimate -.27 cents, 7 days ago -.38 cents

Interesting that these positive adjustments happen quietly with no positive effect on the stock. Essentially, they end up raising Q3 expectations despite the stock actually dropping. The narrative surrounding the ER seems rather predictable. Tesla achieves a slightly profitable quarter perhaps, along with solid FCF. Analysts and media yawn and say this is what was expected for Q3. No one is ready to applaud yet. Their stated concern will be sustainability. They will take the stance that Tesla may even be able to keep it going for another quarter before the parade comes to an end.

 

[Fact Checking]

the investment banks don’t really have much skin in the game (at least reported by end of each filing period)

I believe that's only based on stock holdings.

If we also look at derivatives such as options it's an entirely different picture:

TSLA 13F Hedge Fund and Asset Management Owners

ROYAL BANK OF CANADA       (PUT)  1,856,000 $636,515,000
GOLDMAN SACHS GROUP INC    (PUT)  1,790,600 $614,086,000
BANK OF AMERICA CORP       (PUT)  1,538,100 $527,491,000
BARCLAYS PLC               (PUT)  1,514,444 $519,378,000
UBS AG                     (PUT)  1,302,400 $446,658,000
CITIGROUP INC              (PUT)  1,175,100 $403,000,000
MORGAN STANLEY             (long) 1,030,353 $353,358,000
GOLDMAN SACHS GROUP INC    (long)   974,313 $334,141,000

Most of the major investment banks appears to be primarily short Tesla. Some have call options exposure as well, but it's much lower.

BTW., this heavy PUT option short exposure is surprising and is very likely not market maker exposure which would be delta hedged, because the PUT/CALL ratio is still above 2:1, so market maker exposure should be on the PUT written side, i.e. long exposure.

I.e. I think this is genuine prop trading short exposure of these major investment banks, which isn't hedged.

BTW.:

SUSQUEHANNA INTERNATIONAL GROUP, LLP (PUT)  13,235,400 $4,539,081,000

Does anyone know who these guys are?

They own by far the biggest Tesla short PUT options position listed.

 

[Boomer19]

I believe that's only based on stock holdings.

If we also look at derivatives such as options it's an entirely different picture:

TSLA 13F Hedge Fund and Asset Management Owners

ROYAL BANK OF CANADA       (PUT)  1,856,000 $636,515,000
GOLDMAN SACHS GROUP INC    (PUT)  1,790,600 $614,086,000
BANK OF AMERICA CORP       (PUT)  1,538,100 $527,491,000
BARCLAYS PLC               (PUT)  1,514,444 $519,378,000
UBS AG                     (PUT)  1,302,400 $446,658,000
CITIGROUP INC              (PUT)  1,175,100 $403,000,000
MORGAN STANLEY             (long) 1,030,353 $353,358,000
GOLDMAN SACHS GROUP INC    (long)   974,313 $334,141,000

All the major investment banks appears to be primarily short Tesla. Some have call options exposure as well, but it's much lower.

BTW., this heavy PUT option short exposure is surprising and is very likely not market maker exposure which would be delta hedged, because the PUT/CALL ratio is still above 2:1, so market maker exposure should be on the PUT written side, i.e. long exposure.

I.e. I think this is genuine prop trading short exposure of these major investment banks, which isn't hedged.

BTW.:

SUSQUEHANNA INTERNATIONAL GROUP, LLP (PUT)  13,235,400 $4,539,081,000

Does anyone know who these guys are?

They own by far the biggest Tesla short PUT options position listed.

thanks for this...i didn’t take the time to look up those filings on bloom. paints a better picture of whats really going on

yeah i’ve heard of SIG, had a friend or two working there (maybe they still do)
they’re HQ’d outside of philadelphia

 

[DavidRM]

I am a very shy long term lurker and will stay that way, but the huge fraction of PUTS coming from SIG is interesting so I looked it up. Apologies if the links are not presented correctly. I am new at that.


Susquehanna International Group has a group of founders Jeff Yass, Arthur Dantchik, Steve Bloom, Eric Brooks, Andrew Frost, Joel Greenberg and Drew Milstein listed on Wikipedia at Susquehanna International Group - Wikipedia. This appears to be largely libertarian, with all that that entails, but presents as philanthropic. Jeff Yass is an options trader who in 2001 joined the Board of Directors of the Cato group (Jeff Yass - Wikipedia) and Arthur Dantchik “has given to the Cato Institute, as well as the Atlas Economic Research Foundation” (Meet an Investor who Champions Libertarian Think Tanks).


According to Wkipedia (Cato Institute - Wikipedia), the Cato Institute was founded as the Charles Koch Foundation in 1974 by Ed Crane, Murray Rothbard, and Charles Koch. Koch Industries probably needs no introduction here, but has a refinery terminal in Alaska. Wiki states (Koch Industries - Wikipedia) that Koch’s Minnesota refinery can process 392,000 barrels (62,300 m3) of crude a day, most of which comes from Alberta, Canada, and handles one quarter of all Canadian oil sands crude entering the U.S. It also operates fuel terminals in Wisconsin (4 locations), Texas (6), and one each in Iowa and Minnesota. The whole wiki page is interesting in a horrifying way.


According to Wkipedia (Atlas Network - Wikipedia), as of 2005, the Atlas Economic Research Foundation had received $440,000 from ExxonMobil, and has received at least $825,000 USD from the tobacco company Philip Morris. Of Atlas Network partners, 57% in the United States had received funding from the tobacco industry. Atlas has also received funding from Koch family foundations.


Great work, Fact Checker, Boomer, Neroden, Papafox, KarenRei and so many others.

 

[ThereAre4Cars]

Tesla is forecasting 15% GM this quarter for the 3 on what will likely be ~60k$ ASP. Until they can provide rather compelling evidence that they can get 20+% GM on a 50k$ model mix, I am not gonna call the shorts crazy. There's plenty of headwinds that Tesla can hit next year between competition against S/X, china tariffs, loss of tax subsidy, higher interest rates, and potential automotive or economic cycle.

The forecast for Q4 is 20% but again on 60k$ ASP. I don't think Tesla can support 4k\week with only LR models in the long-run, or if so, just barely. Almost everything should be about GM but it gets less talk because no one has the information to analyze it deeper.

 

[Heimdallr]

Tesla is forecasting 15% GM this quarter for the 3 on what will likely be ~60k$ ASP. Until they can provide rather compelling evidence that they can get 20+% GM on a 50k$ model mix, I am not gonna call the shorts crazy. There's plenty of headwinds that Tesla can hit next year between competition against S/X, china tariffs, loss of tax subsidy, higher interest rates, and potential automotive or economic cycle.

The forecast for Q4 is 20% but again on 60k$ ASP. I don't think Tesla can support 4k\week with only LR models in the long-run, or if so, just barely. Almost everything should be about GM but it gets less talk because no one has the information to analyze it deeper.

What would constitute compelling evidence for you? Gross margin isn't uniquely determined by cost of parts, that's why Tesla is guiding for higher margins near the end of the ramp even with falling ASPs. I think in addition to cost of parts, this is mainly a function of depreciation, labor and warranty per unit, with the first two becoming significantly lower the more units they produce. If they make 10,000 cars per week with the same lines they did 5,000 per week, and design out the additional labor used because some of their first attempts at automation failed, there is huge potential for reduced labor costs. It's just a question of how much costs will be reduced, not if. But please keep in mind that their 25% overall margin target is based on a mix of everything including standard-range models, international sales, and an assumed $42,000 average selling price.

 

[Matias]

Thanks to all especially luvb2b for this. Based on the EPS figures, am I right in saying that finance sites will state a positive PE ratio in mid April 19 following Q1 earnings release? Q1 needs to be at least -0.88 to balance out 2.56, 1.38 and -3.06. Would this be the same date for S&P 500 inclusion?

View attachment 340710

I think you need to use gaap numbers?

 

[ThereAre4Cars]

25% margins on 42k$ ASP is ~30.5k$ cost to produce a car. 15% GM on 60k$ ASP is 45k$ cost to produce a car. What I would find to be compelling evidence is an explanation of that 14.5k$ difference in terms of the various inputs, and a decent argument of how that input cost will be bridged. Since these upgrade packages look to be very high margin it makes it even more difficult to explain.

For how important this is, it remains an article of faith more or less and ignored by online pundits because there's basically so little information to go on. I hope Tesla solves this by smashing that 15% GM Q3 target, but if they don't I think people should be wondering how exactly they expect to get from here to there (they have 15 months of production and reached nearly half maximum production already).

Here's a quick unformatted (I don't have time to fiddle) copy of what might be the Q3 price points, volume, ASP, GM, etc.
Q3
Price | Volume | Gross Profit | Inc. Margin | Gross Margin
$35,000 0 -$5,000.00 -14.29%
$40,000 0 -$2,250.00 55.00% -5.00%
$45,000 0 $600.00 57.00% 1.33%
$50,000 8,000 $3,550.00 59.00% 7.10%
$55,000 16,000 $6,600.00 61.00% 12.00%
$60,000 16,000 $9,750.00 63.00% 16.25%
$65,000 7,840 $13,000.00 65.00% 20.00%
$70,000 4,000 $16,350.00 67.00% 23.36%
$75,000 2,500 $19,800.00 69.00% 26.40%
$80,000 1500 $23,350.00 71.00% 29.19%
$59,761.82 55840 $9,703.53 16.24%
Total Gross Profit $541,845.00

The implication is that the 35k$ model would be -5k$ GM with Q3 margins.

 

[oneday]

The implication is that the 35k$ model would be -5k$ GM with Q3 margins.

That implication is probably correct. However, we won’t see Q3 margins again. Next we will see Q4 margins. Then Q1, then Q2 etc.

My point here Tesla has guided to double model 3 manufacturing above q3 levels. Economies of scale dictate q3 margins are in the past and will only continue as production scales. Model 3 ASP can come down while gross margin stays the same.

 

[Fact Checking]

My point here Tesla has guided to double model 3 manufacturing above q3 levels. Economies of scale dictate q3 margins are in the past and will only continue as production scales. Model 3 ASP can come down while gross margin stays the same.

Also note another effect in Q4 and later quarters, which is probably going to further increase margins:

• Enhanced AutoPilot (EAP) is a very popular option, with an over 80% take-rate currently. The popularity of EAP and AWD has increased ASP to over $60k, despite an entry price of $49k.
• Recent EAP advances, like the V9 update, made it even more popular: better UI, more apps, dashcam functionality, and on-ramp-off-ramp self-driving on highways available to early access owners.
• This means that once people have the choice, and have a max budget of say $50k, many will buy Standard Range instead of Long Range (-$9k), and buy EAP+AWD instead ($5k+$5k).
• I.e. the increasing utility of EAP makes this 100% margin software+service product a margin-enhancing substitute of Long Range.
• Customers buying SR has another advantage: it frees up 25 kWh of cell supply per unit - allowing +~45% more units to be sold.
• Since the current main constraint on manufacturing output is cell supply, offering SR allows Tesla to sell more cars while still keeping margins high.

This would be better than break-even even at Q3 output: EAP has 100% gross margin (+$5k), which makes the $35k version break-even per @ThereAre4Cars estimate above. Add AWD for +$5k and margin is around 10% even at a 4k/week rate with poor economies of scale.

Add in the +45% improvement in unit count, and the 6k/week output will generate over 15% gross margin even at much lower ASPs than $60k.

In fact the margin improvement process doesn't stop there:

• On-ramp-off-ramp already improves the quality of their AP AI neural nets significantly, Tesla is very close to unlocking full self-driving. That adds another $3k-$4k 100% margin substitute product option.
• The Tesla AI chip, offered with FSD, is another desirable upgrade, but it can only be purchased if EAP is purchased. This further increases EAP take-rate and margins.
• As Tesla introduces lower entry prices, they can further increase the price of popular options, in $500-$1,000 increments. The risk of pricing out customers entirely due to purchase budget constraints is much lower, and this further increases the software option take-rates as well, because their relative utility increases.
• The Q1/Q2 2019 introduction of SR is also the time frame when full self-driving and the Tesla AI chip hardware is most likely to become available.

I.e. Tesla is also a software company who sells 100% margin software products, and this improves margins and options mix significantly - and the margin improvement effect will only increase with time.

I believe Tesla is going to introduce Standard Range in 2019 with Premium Upgrades Package + AWD as a mandatory bundle initially, which lowers the entry price from $49k to $45k. By carefully introducing SR they can see the take-rate and the effects on ASP, and can readjust pricing, bundling and other incentives accordingly.

This might sound counterintuitive, but by doing this Tesla might not only increase demand and revenue, but might further improve margins as well with the introduction of Standard Range: it will serve as a "platform" for more software and services sales.

Impossible to model though.

 

[mrdoubleb]

25% margins on 42k$ ASP is ~30.5k$ cost to produce a car. 15% GM on 60k$ ASP is 45k$ cost to produce a car. What I would find to be compelling evidence is an explanation of that 14.5k$ difference in terms of the various inputs, and a decent argument of how that input cost will be bridged. Since these upgrade packages look to be very high margin it makes it even more difficult to explain.

For how important this is, it remains an article of faith more or less and ignored by online pundits because there's basically so little information to go on. I hope Tesla solves this by smashing that 15% GM Q3 target, but if they don't I think people should be wondering how exactly they expect to get from here to there (they have 15 months of production and reached nearly half maximum production already).

Here's a quick unformatted (I don't have time to fiddle) copy of what might be the Q3 price points, volume, ASP, GM, etc.
Q3
Price | Volume | Gross Profit | Inc. Margin | Gross Margin
$35,000 0 -$5,000.00 -14.29%
$40,000 0 -$2,250.00 55.00% -5.00%
$45,000 0 $600.00 57.00% 1.33%
$50,000 8,000 $3,550.00 59.00% 7.10%
$55,000 16,000 $6,600.00 61.00% 12.00%
$60,000 16,000 $9,750.00 63.00% 16.25%
$65,000 7,840 $13,000.00 65.00% 20.00%
$70,000 4,000 $16,350.00 67.00% 23.36%
$75,000 2,500 $19,800.00 69.00% 26.40%
$80,000 1500 $23,350.00 71.00% 29.19%
$59,761.82 55840 $9,703.53 16.24%
Total Gross Profit $541,845.00

The implication is that the 35k$ model would be -5k$ GM with Q3 margins.

Admittedly it's early for me and I haven't had my coffee yet, but I am not quite sure how you are deriving the GM of the SR model from LR. The 2 cars have different BOM as the base model has a lot fewer cells which is the most expensive part of the car anyway.

You may be right, I can't quite put my finger on it but I wonder where your model takes into account the significantly lower BOM of the SR model.

 

[Fact Checking]

The implication is that the 35k$ model would be -5k$ GM with Q3 margins.

Like @mrdoubleb I'd too like to see how you arrived at that gross margin number, because it's contradicted by several other sources of gross margin data. Can you list key inputs, assumptions and justification of how you arrived at those numbers?

One data set of professionally estimated gross margins on the $35k version of the Model 3 we can take a look at the Munro tear-down:

Munro calculated the $35k version with a 18% gross margin. (The independent German tear-down in 2018 came to a similar conclusion.)

Note that the Munro margin doesn't include per unit depreciation/amortization costs nor stock comp direct costs, which are around $2K at 8k-10k run-rates, so the real effective GAAP margin would be $6,300-$2,000 = $4,300, which is a margin of 12%.

But that's the base entry model with any color as long as it's black. Add in pretty much any option and margins improve significantly:

• Add in AWD as an initial mandatory bundle and the base price increases to $40k and margin improves to $6,300+$2,600-$2,000 = $6,900 = 17.2%.
• Or add in Premium as an initial mandatory bundle and the base price increases to $40k and margin improves to $6,300+$4,500-$2,000 = $8,800 = 22.2%.
• Or add in EAP (80% take rate currently) and the ASP improves to $40k and the margin improves to $6,300+$5,000-$2,000 = $9,300 = 23.2%.

Add any two of these very popular options, plus a color, and ASP increases to $45k and margin increases into the 25%-30% range.

Cash margin would be significantly higher, by another 5% or so.

I.e. even at 5k-8k run-rate with ~$1,000 more in depreciation costs Tesla is in a very good place even after introducing the Standard Range. Tesla will probably have to raise options prices again after they introduce SR, due to the spike in demand.

 

[mrdoubleb]

Admittedly it's early for me and I haven't had my coffee yet, but I am not quite sure how you are deriving the GM of the SR model from LR. The 2 cars have different BOM as the base model has a lot fewer cells which is the most expensive part of the car anyway.

You may be right, I can't quite put my finger on it but I wonder where your model takes into account the significantly lower BOM of the SR model.

@ThereAre4Cars a few hours and 2 coffees later...

In addition, I don't expect Tesla to make SR instead of LR. I think they will increase production and make SR in addition to the 5k per week LR.

With that overall volumes increase and I expect their supplier agreements will hit thresholds for lower costs per part.

Just my 2 cents.

 

[GeorgeSymonds]

I must be reading an out of down assessment of the Munro teardown as..

https://www.motortrend.com/news/tesla-model-3-teardown-deconstructed-3/

..includes the quote... Munro says. "I think $36,000 Model 3s will be rare as hen's teeth. I don't see how they could make money at $36,000."
Do these costs also include warranty provision of just factory gate prices? I'd agree a few options will help massively but its damn close and this is excluding any contribution to R&D, paying down debt, expanding the service centre network. I think its uncomfortably close.

 

[mongo]

I must be reading an out of down assessment of the Munro teardown as..

Tesla Model 3 Teardown: Deconstructed 3 - Motor Trend

..includes the quote... Munro says. "I think $36,000 Model 3s will be rare as hen's teeth. I don't see how they could make money at $36,000."
Do these costs also include warranty provision of just factory gate prices? I'd agree a few options will help massively but its damn close and this is excluding any contribution to R&D, paying down debt, expanding the service centre network. I think its uncomfortably close.

That's (April article) from the early tear down before doing the full costing. Munro back tracked later and said it was profitable.

Follow up in July:
Tesla Model 3 teardown shows over 30% profitability as Munro research firm ‘eats crow’

Munro & Associates finished its teardown and analysis of the Tesla Model 3, and the results are startling. Sandy Munro, the president of the company, says his first impressions of the car kind of misled him, and that now he has to eat crow. It’s all got to do with the potential profitability of the car.

 

[Fact Checking]

I think its uncomfortably close.

So there's this:

Tesla’s $35,000 Model 3 is still coming and with a new battery module design​

With these quotes from Elon about the new Standard Range battery pack design:

"We came up with a new design that achieves the same outcome, that’s actually lighter, better, cheaper and we will be introducing that around the end of this year – probably reach volume production on that in Q1 or something. That will make the car lighter, better, and cheaper and achieve a higher range.”

Musk said that the production line is under construction and it should start production “in about 6 months.”

The timing matches the expected launch of the base version of the Model 3 with the “standard battery pack”, which is expected to enable 215-220 miles of range.​

Since that was published we already learned about the new "Grohmann Machine", which is probably the line under construction - which was guided to be installed by end of Q4 when Panasonic has their new cell production lines installed.

We also know the following:

Behind the Scenes at Tesla’s Gigafactory: Field Notes From Our Recent Visit

"Grohmann Engineering will help module production become three times faster, and three times cheaper, according to Viecha. Their new system will be sent to the Gigafactory by the end of Q3 or beginning of Q4. The Grohmann machine will be in Zones 1, 2, 3, and Tesla will be receiving three machines. The process was designed to alleviate the previous bottleneck in module production which delayed Model 3 production significantly. The machine is already built, and points to the advantage Tesla will have in building future Gigafactories. They have learned many painful lessons, but have a solid blueprint for porting the factory across the world."​

So we can plug all these tidbits of information into a $35k version marginal manufacturing cost:

• Munro calculated $150 per kWh module cost, which I believe is conservative: Elon mentioned that they are at the $100 boundary for the cell level, and pack overhead is at most 30% - i.e. the true kWh cost is probably closer to $130 than $150.
  
• Munro's tear-down is early 2018, at which point he didn't know the cobalt content reduction break-through that Panasonic and Tesla made with the 2170 cells I believe, which further reduced cell costs.
• The "three times cheaper" pack manufacturing cost is consistent with other disclosures as well, and lines up with the lighter (less material cost) and cheaper (lower assembly cost, better automation) claim of Elon as well.
• Tesla recently secured two big lithium supply contracts, one of which starts delivering in 2018 already - which could further decrease material costs due to economies of scale. Lithium prices went down sharply in the last year, which should further improve material costs.

I.e. I believe for the Standard Range version we can calculate with a $110-$120/kWh pack level costs, instead of Munro's $150/kWh. This has the following improvements on marginal costs:

• SR at 50 kWh gains $1,500-$2,000 of gross margin
• LR at 80 kWh gains $2,400-$3,200 of gross margin

Which would be an additional 4-9% of margin improvement.

But again, I don't think they'll start with a base $35k version, they'll probably walk down the demand ladder step by step, in $5k increments - next step would be a $45k-ish base price.