The Accountant
Active Member
It's good to see that our numbers are not far off from each other. Let's hope that Tesla exceeds both of our estimates !!
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Near-future quarterly financial projections
- Thread starter luvb2b
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- elon is an ass
It's good to see that our numbers are not far off from each other. Let's hope that Tesla exceeds both of our estimates !!
You are absolutely correct in so far as accounting vs tax treatment of SBC. Tax deductibility of SBC is generally much higher than accounting in an environment where stock price keeps appreciating (AMZN is a great example of this).
However, I would still weigh the probability of releasing all or part of the valuation allowance against prior accrued deferred tax assets as quite high. The incremental tax losses generated by SBC you are referring to only become available as they are expensed for tax (as the underlying options or RSUs are exercised or vest respectively). So, they would become future deductions and we instead get in to a debate of timing of which attributes would be consumed first and when. So long as Tesla generates sufficient EBIT to begin consuming old attributes, unwinding of that valuation allowance becomes reasonable.
All that to say, I do think it feasible to see a 0% or negative effective tax rate in the near and mid term quarters (maybe even longer based on when Elon’s SBC actually vests for tax purposes).
What are the biggest cost cutting options in 2021 for Tesla to increase car margins.
Higher production with existing factories
Model Y front end casting.
Model Y structural battery pack
Do we think/know any of the other cars in 2021 will use giga casting?
With the new Panasonic Japan cell production information does that imply that S and X will remain on existing cells?
Higher production with existing factories
Model Y front end casting.
Model Y structural battery pack
Do we think/know any of the other cars in 2021 will use giga casting?
With the new Panasonic Japan cell production information does that imply that S and X will remain on existing cells?
lafrisbee
Active Member
We have a name for the financially fortunate TSLA stockholders.
You Sir made a new label pop into my head.
You Sir are a Teslanius. While the word does not encompass the massive amount of work necessary it does identify the knowledge, skill, and drive needed to accomplish such a document.
BTW, I can't understand what you really have given us except that, "It is good" for TSLA Stockholders.
And Wow.
And Thank You.
You Sir made a new label pop into my head.
You Sir are a Teslanius. While the word does not encompass the massive amount of work necessary it does identify the knowledge, skill, and drive needed to accomplish such a document.
BTW, I can't understand what you really have given us except that, "It is good" for TSLA Stockholders.
And Wow.
And Thank You.
We know Plaid Model S will use a structural battery pack, castings are required for a structural pack.
We have previously seen unsubstantiated Reddit posts suggesting Model S/X might use a structural pack made with 18650s.
Most vehicles except perhaps the Semi and Cybertruck are likely to use castings and a structural pack.
Most vehicles will migrated to 4680s, migration can't be instant.
The Berlin and Austin factories will include a lot of casting machines 8 casting machines in Berlin is a number I remember.
I terms of improving margins in 2021 Shanghai Model Y will progess. Berlin will be ramping in 2021 and probably will not be a short term positive.
Edit: if you are speculating that the Refreshed Model S/X will have better margins than the 2020 version, I agree.
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I was trying to be specific to 2021 and mostly stuff that will make a significant impact because of introduction with time to make a difference in 2021.
I dont see Model S Plaid making that big of a difference because of expected volume and when it will be introduced in 2021. So if a refresh is indeed coming in the next few weeks will it be with castings and structural battery pack even though it will use 18650s. Or will refresh only be visual modifications of exterior and interior of vehicle. Will casting and structural battery pack come in 2022 with 4680s, but visually car remain nearly 100% same.
It is at least 50% probability that MIC Model 3 might have both castings, not higher because of the long lead time for the presses(delivery, installation, training and alloy production). For sure future production in Germany and Texas will have both castings and we might expect at least one on Model S and X refresh. We really cannot judge, despite the enormous impact on production cost reduction, service and warranty costs too. To be conservative I'd assume MIC Model 3 will have two for Q4 2021 production and forward. That will apply to all variants when it happens. The trick is correct estimation of value. Munro does not do it, so I certainly would not. Munro does give overall numbers in his full price Model Y package. Those cannot be disclosed even here. Just count on a very virtuous cycle. My assertion: After price drops MIC margins are not declining.
Tesla said last year when Texas GF was announced that they planned to have "first completion" there by May/June.
More recently they said Model Y would be the first vehicle produced at Texas GF. My hope is they plan to produce the same Model Y in Texas as they've said they'll produce in Germany when it begins productio860 I.e. both castings and structural battery using 4680.
Clearly Musk was right in believing MY demand would soon be higher than M3. If the MY line starts production in June/July and ramps as quickly as Shanghai, I'd think the cost savings could start becoming significant by Q4. Does this strike you as plausible?
What I don't have any idea about is how they get Fremont MY lines converted to "new" MY at the same time as Texas is ready to begin producing them for East coast. Lower shipping cost to East coast and getting last few weeks of quarterly production delivered to East coast more readily are additional benefits of getting Texas MY production started as soon as possible.
Please correct me if I'm wrong, but I believe we know that Tesla will pay essentially zero corporate taxes for the full year 2020 in the United States, as any profit would be offset with Net Operating Loss Carryforwards? Should not the tax expense therefore be minimal, essentially just taxes in foreign jurisdictions? As I am coming up with my own Q4 estimates, I have an extremely low number for tax expense in Q4, even excluding the potential release of the full $2B valuation allowance on the deferred tax asset. Not sure if I am missing something.
On the topic of not recognizing the deferred tax asset due to other potential deductions like Elon's stock based compensation, because he does not plan on exercising his options for many years (I believe he has until 2028), Tesla would therefore not be able to take that deduction until potentially far in the future. Because of this, I do not think that the auditors would be able to use his grants as an excuse to not release the valuation allowance, as I would hope it's clear to everyone that Tesla will be highly profitable in the next few years. I haven't done the math, but I feel it unlikely that people other than Elon exercising stock options would add up to so much deductions that Tesla utilizing their NOL's in the future becomes in doubt.
The Accountant
Active Member
Good questions - I go back and forth on these 2 questions all the time:
On your first question, I believe that Tesla is very profitable outside the US (especially Canada and Europe). Also keep in mind that European Regulatory credits are taxed in Europe. Tesla has much of it's R&D and Corporate functions in the US incurring large expenses on its US tax return. It is possible that Tesla was making very little profit in the US prior to 2021.
Q3 may have looked like this (only an example not actual numbers):
I believe US profitability will grow for Tesla in the US once Austin is up and running.
On your second question, your reasoning is valid. If Elon does not exercise any time soon, then Tesla would not have his stock option deductions on the US tax return thereby showing Taxable Income where they could use the Net Operating Loss (releasing the Tax Benefit). I felt that even without Elon exercising soon, there are many employees that are exercising their options and with the stock price in the $800s, it may providing large tax deductions in 2020. It is hard to estimate what Tesla will do with the tax benefit so I decided to not include the tax benefit for Q4. I think there is a 50% chance they recognize the tax benefit.
Likely getting a little too deep on this, but keep in mind that there are a number of ways to be able to shift losses from US to other jurisdictions (or strip profit out of other jurisdictions).
Simple ways would be paying royalties, license, or management fees back to US. Others would be inter-company financing structures that shift interest income and expenses around the group. This is just scratching the surface.
All that to say, the main catalyst to accuracy in Tesla’s effective tax rate is centered on a “more likely than not” global profitability. Once you have a sufficient global tax base, all it takes is some restructuring, transfer pricing, or other common techniques (and I’m not getting in to double dutch or double Irish structures made famous by tech giants) to be able to unlock those deferred tax assets.
This is one reason that I don’t buy the angle that releasing the valuation allowance isn’t a “permanent” benefit to the business. Nor do I agree that it can’t release it if future profits aren’t in the US (they can always be repatriated). Releasing the VA unlocks their real effective tax rate and is a major driver to current and future EPS.
The Accountant
Active Member
Thanks for your insights and expertise. I'd like to see the Deferred Tax Benefit Allowance get released in Q4 so that we can get it behind us and focus on a clean P&L going forward.
Is Elon’s stock comp restricted stock units (RSUs) or options? If RSUs there is no “exercise”. Once the shares are vested the tax deduction is available to the entity (and taxed in hands if the employee). Whether the employee holds or sells the shares doesn’t matter. This differs from options, where they need to be exercised (ie employee has to pay to exercise them) before a tax event may occur.
RSU= shares are held in your name until certain time or performance conditions are met, at which point they vest and become available for trading/collateralizing; company receives no cash for the shares; employee generally taxed on full market value of shares on vest, no long term treatment on vesting; company gets deduction for market value of shares on vest date
Options= Individual has right to buy shares at a set price; individual pays tax on any benefit conferred (market value less strike price)- though timing and amount of tax to employee may differ if the option qualifies for incentive stock treatment as well as whether subject to short term or long term rates (depends on vesting and holding periods); company receives cash; and realizes a tax expense equal to market value less strike price at exercise date;
Most current employee stock plans are RSU based (simpler to manage, much less dilutive, always have a value compared to underwater options), with options still being popular for directors and c-suite (mainly due to the personal tax advantage that options offer if they qualify as incentive options and can be subject to long term rates; and also arguably better aligned on incentivizing increasing stock prices).
Long winded way to say that I believe most, if not all, stock plans at Tesla are RSUs. So, timing of tax benefits will not depend on exercising of shares, but rather on all vesting conditions having been met.
Ahh that explanation on the tax expense makes a lot of sense, thank you - I had not considered that the profit might be unequally distributed between the foreign entities and the US entity. If most of the tax profit were in the foreign entities this would also be a factor in considering whether or not the NOL's (deferred tax asset) can be utilized going forward against the US entity.
With that said, my opinion is >90% chance the deferred tax asset will be recognized this quarter. End of the day, do we think Tesla will be profitable in the future? If so then we should recognize the asset. The NOL's do not begin to expire until 2024 and I find it hard for anyone to argue that Tesla will more likely than not have 0 taxable US income (even after SBC tax deductions) through at least 2024.
Doggydogworld
Active Member
Elon's packages are options. The most recent giant package has a 350.02 strike price. I've read they give other employees a choice, not sure I believe that. Outside of the top execs and board members Tesla's stock comp seems to be mostly RSUs.
The Accountant
Active Member
Yes - pre-split. Now at $70/share.
Sorry, I'm confused, I'm an engineer and am thinking that this means he can turn them into shares by some expiry date, pay the fees and acquire the shares; correct?
How many shares would this be again? $70 x shares + Fees I know nothing about = Total cost to exercise ?
Correct, once the options have vested (in this case once performance conditions are met), Elon would have the right to exercise them. At that point, he would pay $70 per share x whatever number of shares he would have access to through the vested options. He would therefore have been conferred a benefit equal to the market value of the shares on exercise date less the $70 per share that he has to pay.
This does mean he would have to come up with capital to do this. He would also likely have taxes to pay on exercise. There are ways to cashless exercise (ie, company would instead exercise and sell a portion of the shares to cover the cost of tax and the capital needed to exercise the options). This results in him having fewer shares post exercise compared to him funding the capital and tax hit himself. So, he may decide to fund the exercise and cash hit through other means (asset backed loans).
