Why? Doesn't depreciation based on useful life begin when the capital asset (and its capitalized interest) is placed in service?
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Near-future quarterly financial projections
- Thread starter luvb2b
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- elon is an ass
Doggydogworld
Active Member
Mostly little things. They all moved in the same direction, which doesn't happen by accident, but there's no 'one big thing'.
Other income, mostly exchange rates, at +85m and a +126m swing from Q2 is the largest and most opaque. A stronger dollar reduces the balance sheet value of foreign-denominated assets and liabilities. Apparently they have a LOT more foreign denominated liabilities, though I'm not sure what they are. China loans are only 219m. Warranty reserve might be 400m. Deferred revenue probably shouldn't count, but maybe there's something I'm missing. It's similar with RVG, which should mostly be offset by matched assets but maybe the assets are in USD while the liabilities are in Euro and Yuan?
They reduced S/X inventory by 1k+ cars yet Finished Goods Inventory held steady. Perhaps they held back a few thousand trade-ins to push the loss into Q4? Can't be more than 10-15m, though.
Storage margin improvement came out of the blue. +45m impact. Maybe that will sustain, maybe not.
Vehicle COGS improved an impressive ~1800/car from Q2:
- 500 from scale (production +10% with the same PP&E and labor force)
- 160 from warranty provision (1566/car vs. 1720 in Q2)
- 500?? price breaks from Panasonic and maybe other suppliers
- 200?? reduced scrappage (though they already claimed low scrappage in Q2 call)
- 400+ unknown
- 160 from warranty provision (1566/car vs. 1720 in Q2)
- 500?? price breaks from Panasonic and maybe other suppliers
- 200?? reduced scrappage (though they already claimed low scrappage in Q2 call)
- 400+ unknown
Raven drivetrain mods probably kept S/X COGS from rising dramatically after elimination of 75D/SR, but they apparently still rose some. I don't expect anywhere near 1800/car improvement in Q4, but I guess we'll see.
The 51m cut in SG&A is another mystery. I figure they finished laying off SCTY people a quarter or two ago. Who else did they find to cut? Did they start capitalizing costs for people assigned to GF3/Y or something?
They basically stopped giving numerical guidance altogether. I don't attach any meaning to that, but it's unusual.
Doggydogworld
Active Member
I'm guessing here. I pretty firmly believe GF3 building and equipment are similar to GF2 - gov't owned and leased to Tesla for a nominal fee. Tesla will show the assets on their balance sheet with an offsetting liability, but they won't show as capex. Tesla may depreciate the assets, but that should be matched by amortization of the offsetting liability with only the tiny net difference feeding into Auto COGS.
This is all from reading the tea leaves and Nio's disclosures of terms for the factory Shanghai was going to build for them. Tesla has disclosed almost nothing.
EVNow
Well-Known Member
XHabjab
TSLA Bull
There is a lot of yada yada about Panasonic and their current and future battery agreements. The presence of something on the subject suggests to me that Panasonic is still in Tesla's future but we all know that Tesla is planning to build their own at some level.
I'm not sure that is going to work itself into a future quarterly surprise but anything is possible.
Doggydogworld
Active Member
51m? If they have 5k salespeople, which sounds way too high, that's 10k each. 40k/year annualized. I bet a lot of them don't even make 40k.
This is consistent with laying off ~3k people. I haven't heard of anything like that since early Q1.
Fact Checking
Well-Known Member
Since storage CoGs is dominated by cell costs, I bet this was due to the new cell pricing agreement with Panasonic. There's ~4× cell cost sensitivity in storage products than in cars.
If true then this would sustain into Q4.
Fact Checking
Well-Known Member
This is easy to answer I believe, and they telegraphed this: there's very little upside to providing extensive numerical guidance, and a lot of downsides:
- The SEC was ready to ask for insane sanctions against Elon, and Tesla too I believe - over long term guidance that was only 20% accurate to begin with in the best of cases, and whose execution depended not on Tesla but external factors ...
- Tesla was sued over Model 3 guidance.
- Wall Street is hostile to Tesla and guidance was used to engineer a "miss" with very little SP upside.
- TSLAQ was using various missed guidance figures for various fwaud narratives.
- Other carmakers don't disclose as much data as Tesla: no in-transit figures, no per model margins.
Also, this is probably marking the end of an era: the investor oriented Tesla which used equity financing.
The new Tesla is self-sustaining and the results can be seen in the quarterlies, no guidance required.
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EVNow
Well-Known Member
The change was to remove sales incentive per car. I guess it's only part of the savings. May be quite a few left because of that - so, they didn't have to lay off anyone.
"Construction in progress is primarily comprised of tooling and equipment related to the manufacturing of our vehicles and Gigafactory Shanghai construction. Completed assets are transferred to their respective asset classes, and depreciation begins when an asset is ready for its intended use. Interest on outstanding debt is capitalized during periods of significant capital asset construction and amortized over the useful lives of the related assets"
CIP increased by $157 million in Q3. (not all that much, but still nothing like GF2)
Doggydogworld
Active Member
20 percentage points improvement in storage gross margin is $100+/kWh. That's some price cut!
157 is the net change, presumably they moved a bunch of stuff out of CIP and added a lot more than 157 to it during Q3. But what stuff that might be I can only speculate.
Care to speculate on the September 2019 5,0 RMB credit line to finance vehicles in transit to China? Seems like that's about 8,000 vehicles at a conventional loan to value of security ratio. Transit time two Months max?
1 warranty issue is sort of a non-issue. warranty reserving levels are lower than they have been, but it also seems appropriate due to better reliability.
2 china revenue was surprisingly low, netherlands + norway > china. most estimates i've seen for units to china are about 10% too high given the 10q's china revenues.
3 netherlands making up such a big amount of quarterly revenue is a concern as there is a meaningful tax credit stepdown in 20q1.
4 forex gains were like 90m, which is a huge portion of the gaap profit. amazing people are busy focusing on warranty when forex is having such a big impact. have to assume that heads back towards zero next quarter.
5 deferred revenue recognition was not crazy, however you can see less and less revenue deferred per vehicle sold. by my estimate it's about $600 less per vehicle getting deferred - which automatically boosts current period gross margins vs prior quarters.
6 assuming i got #5 right above, the ~3% gross margin improvement seen in model 3 is coming from: ~1% non-deferral of sale price previously deferred, ~0.2% warranty reserve change, ~0.4% fixed costs spread over more units, with the rest from efficiency and pricing.
2 china revenue was surprisingly low, netherlands + norway > china. most estimates i've seen for units to china are about 10% too high given the 10q's china revenues.
3 netherlands making up such a big amount of quarterly revenue is a concern as there is a meaningful tax credit stepdown in 20q1.
4 forex gains were like 90m, which is a huge portion of the gaap profit. amazing people are busy focusing on warranty when forex is having such a big impact. have to assume that heads back towards zero next quarter.
5 deferred revenue recognition was not crazy, however you can see less and less revenue deferred per vehicle sold. by my estimate it's about $600 less per vehicle getting deferred - which automatically boosts current period gross margins vs prior quarters.
6 assuming i got #5 right above, the ~3% gross margin improvement seen in model 3 is coming from: ~1% non-deferral of sale price previously deferred, ~0.2% warranty reserve change, ~0.4% fixed costs spread over more units, with the rest from efficiency and pricing.
I would note that I think the higher deferred revenue in Q2 was due to much more free supercharging offers (including the 5,000 miles offer). In Q3 instead they just lowered the cash price of the cars.
Doggydogworld
Active Member
This one has me flummoxed. Both the timing -- just as they drastically reduce shipments to China -- and the excessive size.
Maybe they have some backup plan to pre-ship a ton of S/X and 3-AWD there before a tariff hike? Or it covers more than they're saying? I really can't come up with anything that makes sense.
Reduced deferred revenue per sale is really interesting. The new Panasonic cell pricing deal could be another 1% - it's big enough that they specifically mentioned "commercial negotiations with suppliers" in the 10-Q.
EVNow
Well-Known Member
May be fewer % are buying FSD ? As share of 3 increases we should expect lesser uptake.
I think generally the commercial negotiations were likely related to increased purchasing scale with GF3 orders - many of Tesla's suppliers production lines are 100% dedicated to Tesla (and often to Tesla's own design), so fixed cost/labour leverage savings should be quite direct even when component manufacturing is outsourced. Panasonic may have also reduced prices but i'm not so sure, they have been suggesting they have been aiming to increase pricing and Nickel prices should also be up.
I think Tesla likely also had its own fixed cost/labour leverage from ramping up part production to supply to and stockpile at GF3 - I guess this is why there was such a sharp increase in inventory during Q3. Many of Tesla's production lines may have ramped much further during Q3 than the simple finished vehicle production QoQ growth would suggest.
I'm also confused by the timing of the new China inventory line. However now they have good relationships with Chinese banks and very attractive interest rates, it makes sense to move China inventory financing from USD to Yuan and reduce FX risk during the shipping period.
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Government owned? In response to a direct question on the call, Zach or Elon said Tesla owns GF3.
Dr. J
Active Member
That's also what Tesla Chair Robyn Denholm said in this CNBC interview at 9:25: Watch CNBC's full interview with Tesla Chairwoman Robyn Denholm.
