Near-future quarterly financial projections

[JohnnyEnglish]

I am not a tax accountant but have worked with Deferred Taxes quite a bit in my line of work in the past (now retired).
This is a difficult topic that many of my CPA colleagues did not understand.

When you have a tax loss, you can go back to your tax returns of the past 5 years and get refunds for those payments (Carryback). If after doing this, the company still has unused losses, they can use it to offset losses in future years (caryfoward). Sometimes the tax rates are higher in future years, so a company will elect not to carryback and carryforward instead.
Since Tesla had no gains in the past, they have no carryback option and must use the losses as carryforwards.
They will use the losss from 2004 first and then 2005 because they expire first.

So what assumption have you made in your earlier Q3 results prediction regarding deferred taxes? I did not see any deferred tax allowance recognition in your earlier posts but it would be good if you could confirm that your predictions do not include any impact from deferred taxes.

Thanks for all the informative posts.

 

[The Accountant]

So what assumption have you made in your earlier Q3 results prediction regarding deferred taxes? I did not see any deferred tax allowance recognition in your earlier posts but it would be good if you could confirm that your predictions do not include any impact from deferred taxes.

Thanks for all the informative posts.

Of the $1.95 biilion valuation allowance, i assumed only a tiny amount: $50 million to offset US taxable income in Q3 2020 meaning they would still have $1.90B for Q4.

 

[X Fan]

How much additional cash will Tesla add to their balance sheet this quarter?

 

[SOULPEDL]

Not only past losses, but they have tons of real-estate and equipment that would fall under depreciable assets.

I would not be surprised if Tesla didn't pay taxes for the next 10+ years.

You're assuming they don't make $$$$ GAZILLIONS $$$, (in like 5 years).

 

[bkp_duke]

You're assuming they don't make $$$$ GAZILLIONS $$$, (in like 5 years).

Always possible.

 

[The Accountant]

How much additional cash will Tesla add to their balance sheet this quarter?

I am expecting cash at $14.8B driven by:

• $501m Free Cash Flow
• $175m Increase in Debt (China Loan)
• $5,000m Proceeds from Stock Offering

 

[dc_h]

You're assuming they don't make $$$$ GAZILLIONS $$$, (in like 5 years).

Yeah, I hope they’ll be paying taxes in 2022, maybe even 2021. 1.9 billion seems reasonable for the first half of 2021.

 

[FrankSG]

Energy

Automotive

Income

Summary

​

In summary, I am forecasting Q2 => Q3:

• Automotive Revenue: $5.18B => $7.65B
• Automotive Sales Gross Margin Excluding Credits: 20.7% => 21.3%
• Total Revenue: $6.04B => $8.82B
• Gross Profit: $1.27B => $1.99B
• Total Gross Margin: 21% => 22.5%
• EBIT: $327M => $750M
• GAAP Profit: $104M => $468M
• Non-GAAP EPS: $0.44 => $0.87
• Free Cash Flow: $418M => $693M

Looks like me and @The Accountant are pretty close on non-GAAP EPS, but my revenue prediction is a fair bit higher, $300M of which is due to credits, energy, and service & other.

 

[The Accountant]

Energy
View attachment 599384

Automotive
View attachment 599381
View attachment 599382
View attachment 599383

Income
View attachment 599385

Summary
View attachment 599386
​

In summary, I am forecasting Q2 => Q3:

• Automotive Revenue: $5.18B => $7.65B
• Automotive Sales Gross Margin Excluding Credits: 20.7% => 21.3%
• Total Revenue: $6.04B => $8.82B
• Gross Profit: $1.27B => $1.99B
• Total Gross Margin: 21% => 22.5%
• EBIT: $327M => $750M
• GAAP Profit: $104M => $468M
• Non-GAAP EPS: $0.44 => $0.87
• Free Cash Flow: $418M => $693M

Looks like me and @The Accountant are pretty close on non-GAAP EPS, but my revenue prediction is a fair bit higher, $300M of which is due to credits, energy, and service & other.

This looks really good. I don't see any flaws in your assumptions.
I like the way you break down the energy revenue components into Storage, Solar Roof, etc. If Chamath Palihapitiya is correct, Tesla's Energy segment will become much more important and as such, we need to better understand the Energy financial metrics to properly forecast this area in the future.

 

[AudubonB]

@FrankSG - that is quite an elegant presentation, and I certainly concur with @The Accountant in lauding your attempts at understanding Tesla's Energy division.

Have you considered altering the 2Q20 data to reflect the 5:1 split? Henceforth, current shares outstanding and current stock price are the only reference points anyone would care about, and back-correcting the earlier numbers is the only feasible way to understand changes and trends.

 

[Doggydogworld]

Energy
View attachment 599384

Automotive
View attachment 599381
View attachment 599382
View attachment 599383

Income
View attachment 599385

Summary
View attachment 599386
​

In summary, I am forecasting Q2 => Q3:

• Automotive Revenue: $5.18B => $7.65B
• Automotive Sales Gross Margin Excluding Credits: 20.7% => 21.3%
• Total Revenue: $6.04B => $8.82B
• Gross Profit: $1.27B => $1.99B
• Total Gross Margin: 21% => 22.5%
• EBIT: $327M => $750M
• GAAP Profit: $104M => $468M
• Non-GAAP EPS: $0.44 => $0.87
• Free Cash Flow: $418M => $693M

Looks like me and @The Accountant are pretty close on non-GAAP EPS, but my revenue prediction is a fair bit higher, $300M of which is due to credits, energy, and service & other.

Auto Sales Revenue ex-Credit was 4483 in Q2 (4911-428). Unit sales (ex-lease) grew by a bit over 50% (86,175 to ~129,500). So at constant ASP I get :
6750 - Auto Sales Revenue ex-Credit
275 - Auto Lease Revenue
225 - Reg Credit (Zach guidance)
----------
7250 - Total Auto Revenue

That's 400m less than you. ASP might have risen slightly as mix improvements (lower percentage of Shanghai 3s and higher percentage of Ys) more than offset price cuts, but I don't think it's enough to move the needle. I'd also guess Energy was ~450m, with higher $/MWh for storage and dramatically fewer solar roofs.

Side notes - your Q2 S/X leased units look too high (I have 1484). Also Q2 should have zero leased Model Ys, though that 600 would just get added to Model 3 and not change the overall number.

 

[Mich]

Elon Musk said on Battery Day that he is optimisitc for future profits on an annual basis. The moment I heard this I thought we will have a negative Q3 because if not this Q3 whitch other Q can possibly be negative? Economy of scale and software revenues will hit hard next year.

Everyone is allinged for a 300-500M GAAP profit. What do you think about this quote?

Elon Musk: (01:11:13)
And we also got four consecutive quarters of gap profitability, which was very difficult. Yeah. And certainly a testament to the hard work of people at Tesla. I mean, to do this in extremely difficult times against a wide range of adverse circumstances was insanely hard, but we got it done, and I think the future is looking I think, very promising from a sort of an annual profitability standpoint. So in order to sort of do well financially, you really need economies of scale, and you need ideally the best technology, and I think we’ve had the best technology for a while, but now we are also achieving economies of scale, and we’re also rapidly improving autonomy, which is a massive value add to each car. So, I think the value of Tesla is going to be like total, just on the vehicle side, total vehicles produced times the value of autonomy. That’s a way to think about the future value of Tesla.

(Tesla 2020 Battery Day Transcript September 22 - Rev)

 

[mongo]

Elon Musk said on Battery Day that he is optimisitc for future profits on an annual basis. The moment I heard this I thought we will have a negative Q3 because if not this Q3 whitch other Q can possibly be negative? Economy of scale and software revenues will hit hard next year.

Everyone is allinged for a 300-500M GAAP profit. What do you think about this quote?

(Tesla 2020 Battery Day Transcript September 22 - Rev)

Elon has previously mentioned that first quarters are classically worse for profit and ramp periods are less profitable.
So there is the possibility of a non profitable quarter going forward.
2021 with Berlin and Austin ramps plus a Q1 may be bumpy.

However, Q3 has neither of these main issues.

 

[Mich]

Elon has previously mentioned that first quarters are classically worse for profit and ramp periods are less profitable.
So there is the possibility of a non profitable quarter going forward.
2021 with Berlin and Austin ramps plus a Q1 may be bumpy.

However, Q3 has neither of these main issues.

Thanks, that helped me.

 

[FrankSG]

@FrankSG - that is quite an elegant presentation, and I certainly concur with @The Accountant in lauding your attempts at understanding Tesla's Energy division.

Have you considered altering the 2Q20 data to reflect the 5:1 split? Henceforth, current shares outstanding and current stock price are the only reference points anyone would care about, and back-correcting the earlier numbers is the only feasible way to understand changes and trends.

You're right, this is why I changed the Q2 non-GAAP EPS in my summary to reflect post-split number, but I rather not change them in my spreadsheet. I feel like keeping the actual numbers will be more accurate and less confusing to me over time.

Auto Sales Revenue ex-Credit was 4483 in Q2 (4911-428). Unit sales (ex-lease) grew by a bit over 50% (86,175 to ~129,500). So at constant ASP I get :
6750 - Auto Sales Revenue ex-Credit
275 - Auto Lease Revenue
225 - Reg Credit (Zach guidance)
----------
7250 - Total Auto Revenue

That's 400m less than you. ASP might have risen slightly as mix improvements (lower percentage of Shanghai 3s and higher percentage of Ys) more than offset price cuts, but I don't think it's enough to move the needle. I'd also guess Energy was ~450m, with higher $/MWh for storage and dramatically fewer solar roofs.

Side notes - your Q2 S/X leased units look too high (I have 1484). Also Q2 should have zero leased Model Ys, though that 600 would just get added to Model 3 and not change the overall number.

It does look like my overall Q2 leased number is ~400 too high compared to Q2 ER, but Tesla no longer breaks down leased units for each model. The 14% S/X leases is taken from the Q2 P&D.

I know that MY Q2 leasing is an inaccuracy, but it's impact is very very minor, and something's to be said for simplicity over calculating the lease numbers differently in that single column, so I decided last Q to just keep it like this.

Q2's Automotive revenue was impacted by some amount of idle factory charges according to @The Accountant . I've went with $200M in idle factory charges in Q2. Without these, Q2 Auto Sales Rev ex-creds was 4683. A 50% increase to that is right around the $7030 I have for Q3.

Did Zach guide for $225M in reg credits for Q3? If so, where? I didn't see this. I have $350M in reg credits.

 

[damocles11]

I believe Zach said during Q2 conf call that reg credits in 2020 would be approximately double that of 2019. 2019 reg credits were $594M. Therefore 2X that is $1,188M, less Q1 and Q2 of $782M, gets you only $406M reg credits left for Q3 and Q4. I am expecting $210M reg credits for Q3, but I am hoping Zach was just being conservative or that he is just flat out wrong.

From my calculations, my estimates are very similar to the accountant's. I am expecting $0.33 GAAP EPS, and $0.78 Non-GAAP EPS. Hoping for upside from the reg credits, and hoping that they release part of, or all of the deferred tax credit.

 

[Doggydogworld]

The 14% S/X leases is taken from the Q2 P&D.

Yes, but 10,614 * 14% = 1486, not 1940.

Q2's Automotive revenue was impacted by some amount of idle factory charges according to @The Accountant .

They add the idle factory charge to COGS (189m in Q2, see 10-Q p43). It doesn't affect revenue.

The Q2 10-Q also contains this interesting quote (p40): "The impact of the idle capacity charges incurred in the current period were almost entirely offset by our cost savings initiatives and payroll related benefits." The latter is gov't relief cash, which they netted against the idle factory charge when calculating COGS. This says to me the COGS hit was substantially less than the 189m idle factory charge, but I don't see any way to estimate the actual amount.

Did Zach guide for $225M in reg credits for Q3?

Q2 call: "While difficult to forecast precisely, our best estimate of 2020 credit revenue is roughly double that of 2019."

2 * 594m = 1188m full year 2020
1188m - 782m H1 2020 = 406m H2 2020

That's 203m/quarter, I figure he's being conservative so I rounded up to 225m.

 

[FrankSG]

Yes, but 10,614 * 14% = 1486, not 1940.

Woow, you have a good eye. Somehow that cell in my spreadsheet was malfunctioning, and not actually taking 14% of 10,614

They add the idle factory charge to COGS (189m in Q2, see 10-Q p43). It doesn't affect revenue.

Yeah, reading back that post, I'm not sure what I was thinking. That post was poor logic.

I also see now that the way I accounted for the one-time idle factory charges in Q2 was less than ideal.

Q2 call: "While difficult to forecast precisely, our best estimate of 2020 credit revenue is roughly double that of 2019."

2 * 594m = 1188m full year 2020
1188m - 782m H1 2020 = 406m H2 2020

That's 203m/quarter, I figure he's being conservative so I rounded up to 225m.

Thanks, I missed this, or had simply forgotten about it. Looks like my revenue estimate could end up being a few hundred mill too high between this and the idle factory charges thing.

 

[Yuha]

Q2 call: "While difficult to forecast precisely, our best estimate of 2020 credit revenue is roughly double that of 2019."

2 * 594m = 1188m full year 2020
1188m - 782m H1 2020 = 406m H2 2020

That's 203m/quarter, I figure he's being conservative so I rounded up to 225m.

Don't forget this from 10-K 2019:

"Deferred revenue related to sales of automotive regulatory credits was $140 million and $0 as of December 31, 2019 and 2018, respectively. We expect to recognize the deferred revenue as of December 31, 2019 in the next 12 months."

That $140m of deferred revenue was recognized in Q2. If that is counted as 2019 credit revenue since it was generated in 2019, we get very different numbers.

2 * (594m + 140m) = 1468m full year 2020
1468m - (782m -140m) H1 2020 = 826m H2 2020

 

[The Accountant]

My final estimate for Q3 2020 below:

• Record Revenue of $8.2B
• Record Gross Profit of $1.8B
• Record Operating Income of $642m
• Record GAAP earnings of $371m
• Record non-GAAP earnings of $820m
• Positive GAAP earnings excluding Reg Credits
• Record results achieved despite Stock Based Compensation expense of $450m
• Great Operating Leverage as Revenues grow by 29.6% while Operating Income by 146%