Near-future quarterly financial projections

[FrankSG]

I just finished a blog post with updated medium term financial models for Tesla/TSLA. There is a bear and a bull model.

You can download and view the full models here:

Tesla 2020-2022 Bear - PDF

Tesla 2020-2022 Bear - Excel

Tesla 2020-2022 Bear - Numbers

Tesla 2020-2022 Bull - PDF

Tesla 2020-2022 Bull - Excel

Tesla 2020-2022 Bull - Numbers

For reasoning behind the assumptions in this model, please refer to the 3rd section in this blog post:

My TSLA Investment Strategy

Before we know deliveries numbers, Q2 is kind of a crap shoot in my opinion. I'll revisit those numbers after the Q2 P&D.

Bear Automotive:

Bear Income:

Bear Summary:

Bull Automotive:

Bull Income:

Bull Summary:

 

[Doggydogworld]

That's good work @FrankSG, though as you say there's a lot of uncertainty this quarter. I'd guess Fremont builds fewer 3s and more Ys in Q2. I'd also reduce your Fremont COGS by 5-10%. Fixed costs like depreciation are not that high, and they use units-of-production method for tooling depreciation, so unless they are paying higher prices for parts or something the shutdown impact on COGS shouldn't be too bad.

 

[kengchang]

How do you know those are European? Don't other places like Hong Kong use the longer license plates as well?

That's fair assessment and I don't have answer to that especially with first ship going to Asia

 

[The Accountant]

@FrankSG
Thanks for sharing your Q2 Estimate.
Here is mine. It's still a work in progress; I'll be updating it until the end of Q2 as more data comes in.
At the moment, I am showing a GAAP loss of -129M.
I have highlighted in yellow 2 items that are very difficult to estimate at this time.
Regulatory Credits - These credits are recorded as sales when the control of the credits are transferred to the buyer, however, before Tesla can transfer credits, they have to earn them. With reduced sales in Europe in Q2, I am not sure how many credits they will be able to earn. Tesla does have $140m of deferred reg credits on the balance sheet ready to sell - as such, I have estimated reg credits of $150m for Q2.
Idle Capacity - When a factory is idle, all costs during the idle period need to be expensed to COGS and not capitalized to vehicles. While Fremont was idle for 40 days, Tesla did not incur material costs, direct labor, etc but there ar some fixed costs such as depreciation, insurance, security, etc that will need to be expensed. I have estimated the 40 day fixed cost charge of $127m.

The path to Q2 GAAP Profit: With my projected -$129k loss for Q2, the path to a Q2 profit would be the recognition of additional regulatory credits or the recognition of deferred income related to FSD.

I will continue to update my forecast as new data arrives.

To all: Any comments to help sharpen these estimates are welcomed.

 

[vwman111]

Thanks @FrankSG. Very helpful information. Regarding the options, i still can't wrap my head around looking at it from a share point of view. If one has $X to invest, it would seem that growing to $4X using options over $2X using shares is still better even though you calculate it as as low growth when looking at how many shares you could have made. Not sure what I am missing but I am completely lost on that analysis. Any further explanation would be greatly appreciated.

 

[Doggydogworld]

@FrankSG
Thanks for sharing your Q2 Estimate.
Here is mine. It's still a work in progress; I'll be updating it until the end of Q2 as more data comes in.
At the moment, I am showing a GAAP loss of -129M.
I have highlighted in yellow 2 items that are very difficult to estimate at this time.
Regulatory Credits - These credits are recorded as sales when the control of the credits are transferred to the buyer, however, before Tesla can transfer credits, they have to earn them. With reduced sales in Europe in Q2, I am not sure how many credits they will be able to earn. Tesla does have $140m of deferred reg credits on the balance sheet ready to sell - as such, I have estimated reg credits of $150m for Q2.
Idle Capacity - When a factory is idle, all costs during the idle period need to be expensed to COGS and not capitalized to vehicles. While Fremont was idle for 40 days, Tesla did not incur material costs, direct labor, etc but there ar some fixed costs such as depreciation, insurance, security, etc that will need to be expensed. I have estimated the 40 day fixed cost charge of $127m.

The path to Q2 GAAP Profit: With my projected -$129k loss for Q2, the path to a Q2 profit would be the recognition of additional regulatory credits or the recognition of deferred income related to FSD.

I will continue to update my forecast as new data arrives.

To all: Any comments to help sharpen these estimates are welcomed.

View attachment 544508

I've said 75k deliveries in Q2 based on no ships to Europe, but the Grand Venus will apparently head to there when it finishes loading. Some in Europe there with Feb/Mar orders report getting VINs this week. I doubt the 3rd ship will go to Europe.

Today's price cuts signal US demand is down and S/X continue to struggle globally. I don't see a huge effect on the Q2 income statement, less than 100m. I also see more S/X/Y than you. Something like:

S/X - 8k
3 - 62k (30k China, 20k US, 8k EU, 4k ROW)
Y - 10k
----------
Total 80k

 

[jeewee3000]

Thank you @FrankSG and @The Accountant for your models.

I guess I'm a bit more pessimistic regarding deliveries. I'd be happy if 70k is reached globally. But given the circumstances I find it harder than ever to make accurate predictions for Q2 2020.

 

[Nate the Great]

@The Accountant

Remove the stock compensation (equity grants).

In an internal email that referenced pay cuts. It also covers the merit review cycle. It states that equity grants will be on hold for Q2.

For the merit review cycle:

• Salary and hourly rate adjustments will be put on hold.
• Equity grants will be on hold as well.

Tesla will slash employee pay and furlough employees

 

[The Accountant]

Thank you @FrankSG and @The Accountant for your models.

I guess I'm a bit more pessimistic regarding deliveries. I'd be happy if 70k is reached globally. But given the circumstances I find it harder than ever to make accurate predictions for Q2 2020.

Under the current conditions globally, I too would be happy with 70k deliveries. I may take my number down as we get more info.
My bullish thinking is that Tesla entered Q2 with about 30k units in inventory. I sense they were active during the Fremont shutdown in making some deliveries from this inventory stash. I know deliveries during the global shutdowns were difficult but there was evidence that deliveries were continuing in some markets. I will reassess in a couple of weeks. 88k is my top end and perhaps I will adjust my number down closer the the high 70's range.

 

[The Accountant]

@The Accountant

Remove the stock compensation (equity grants).

In an internal email that referenced pay cuts. It also covers the merit review cycle. It states that equity grants will be on hold for Q2.

For the merit review cycle:

• Salary and hourly rate adjustments will be put on hold.
• Equity grants will be on hold as well.

Tesla will slash employee pay and furlough employees

Stock options granted in prior years will hit the Q2 P&L (there is no way to stop this - it's like depreciation). This is because stock option grants are expensed over the period they vest - usually 3 years.

As an example if an employee receives options valued at $90k (using Black-Scholes) and these options vest over 3 years, Tesla would expense $30k each year (or $7.5k each Qtr). So in Q2 there will be charges for Stock Options that were granted over the past few years.
The savings comes from no new grants in Q2 but I estimate this to be about a $17m savings. However, this is offset by Elon's CEO Award charge of $22m. So I expect stock compensation expense to go up about $5m.

Thus I am expecting compensation expense in Q2 as follows:
$194m - stock compensation from Q1 2020 grants and prior
$ 0m - stock compensation for Q2 grants
$ 22m - Elon's Award True-up
$216m - Total stock compensation Q2

I hope this helps.

 

[elasalle]

Under the current conditions globally, I too would be happy with 70k deliveries. I may take my number down as we get more info.
My bullish thinking is that Tesla entered Q2 with about 30k units in inventory. I sense they were active during the Fremont shutdown in making some deliveries from this inventory stash. I know deliveries during the global shutdowns were difficult but there was evidence that deliveries were continuing in some markets. I will reassess in a couple of weeks. 88k is my top end and perhaps I will adjust my number down closer the the high 70's range.

As soon as Tesla reopened, there were cars filling the parking lots. So at end of Q1 and when factory was shut down, I think there must have been a few batches of unfinished goods, that could not have been counted as inventory, but quickly got completed for Q2.

 

[hobbes]

Grand Venus left from SFO, going to Europe after all! So we may be in for some FCA credits.

Franco Mossotto on Twitter

@Troy

 

[EVNow]

$ 22m - Elon's Award True-up

Is that all needed for the recently announced ~ $800M CEO grant ? I thought they had provisioned only ~ $250M.

 

[The Accountant]

Is that all needed for the recently announced ~ $800M CEO grant ? I thought they had provisioned only ~ $250M.

The $22m is what was communicated in the Q1 2020 10Q. You can find this on page 24 of the report.
The working is as follows:

If the first tranche under the 2018 CEO Performance Award vests during the second quarter of 2020 as currently expected, the remaining unamortized expense of $22 million for that tranche, which was expected to be recognized in the third quarter of 2020 as determined on the grant date, would be accelerated into the second quarter of 2020.

Keep in mind that the only expense is the value of the options as valued at the grant date, which was $190m for Tranche 1.
The difference between the $190m and the eventual exercise value (can be higher than 800m when Elon finally exercises) goes to Equity on the balance sheet.

 

[The Accountant]

Elon's CEO Award
Elon's CEO award was valued at $2.2B at the date of grant. This is the amount that can eventually hit Tesla's P&L if the tranches are reached. Elon will certainly achieve a value higher than $2.2B when realized but the amounts over the $2.2B do not go to the P&L but rather to the equity section when exercises. This is my understanding of the accounting but I have not revisited it recently.
Here are the details for the $2.2B

 

[Doggydogworld]

Elon's CEO Award
Elon's CEO award was valued at $2.2B at the date of grant. This is the amount that can eventually hit Tesla's P&L if the tranches are reached. Elon will certainly achieve a value higher than $2.2B when realized but the amounts over the $2.2B do not go to the P&L but rather to the equity section when exercises. This is my understanding of the accounting but I have not revisited it recently.
Here are the details for the $2.2B
View attachment 546211

I thought each tranche had a slightly different value at time of grant. I keep getting it wrong, though. ReflexFunds is a much better source than me.

We all agree on the basic point, though. Tesla set the value of each tranche when the plan was approved and accrues expense each quarter. Most of the expense for this first tranche has already been accrued, so the earning event only has a minor impact on SG&A.

 

[EVNow]

We all agree on the basic point, though. Tesla set the value of each tranche when the plan was approved and accrues expense each quarter. Most of the expense for this first tranche has already been accrued, so the earning event only has a minor impact on SG&A.

They would have to start accruing for the second tranche, I guess. I've to check how likely that is - and when it might be granted. That will determine how fast they accrue that.

 

[MP3Mike]

They would have to start accruing for the second tranche, I guess. I've to check how likely that is - and when it might be granted. That will determine how fast they accrue that.

Isn't it really just matter of if the stock price stays about where it is now, or higher, for the next couple months? The yet portion had already been met. Stu they better start accruing.

 

[The Accountant]

They would have to start accruing for the second tranche, I guess. I've to check how likely that is - and when it might be granted. That will determine how fast they accrue that.

Here is where the 2018 CEO Performance Award stands as of Q1 2020:

The total value of the CEO award is 2,284m.
Of the remaining not yet expensed to date, $461m is probable and $1,286 is not probable.
The $461m probable is expensed over the next 2.6 years (this can change based on performace and mkt cap level).
The $1,286m that is "not probable" is not planned for expense but this can change.
If it does become probable, it would likely hit the 2022-2027 P&Ls

Note: I obtained the above information from the 10Ks and 10Qs

 

[MP3Mike]

Here is where the 2018 CEO Performance Award stands as of Q1 2020:

View attachment 546287

The total value of the CEO award is 2,284m.
Of the remaining not yet expensed to date, $461m is probable and $1,286 is not probable.
The $461m probable is expensed over the next 2.6 years (this can change based on performace and mkt cap level).
The $1,286m that is "not probable" is not planned for expense but this can change.
If it does become probable, it would likely hit the 2022-2027 P&Ls

Note: I obtained the above information from the 10Ks and 10Qs

I guess I'm confused; if they only have to expense $190M per tranche, and they have already expensed $537M why do they need to expense $22M more in Q2 for the first tranche?