Near-future quarterly financial projections

[The Accountant]

Regarding cryptocurrencies gain, would it be possible to have that reflected in the non-GAAP earnings figures, or are even the non-GAAP figures one-sided?

We won't see any unrealized Bitcoin gains (paper gains) on GAAP or Non-GAAP income.
However, I believe that we will see the Bitcoin gain in the Statement of Comprehensive Income. This is one of the 10Q/10K statements rarely reviewed by investors and it often includes unrealized gains/losses. So we won't see the gain on the Income Statement (Statment of Operatons as listed below) but we will hopefully get an idea on how much of a gain Tesla is sitting on by reviewig the Statement of Comprehensive Income.

Here is the Statement of Comprehensive Income from Q1 2020:

 

[The Accountant]

Regarding the new S&X line: with the rear casting they will get rid of a little bit less than 100 robots. Maybe the new body will have a front casting and structural pack as well so even more robots will be unemployed.

How could this impact GAAP profit? Maybe they are still in the books.

If the robots are no longer of use, Tesla may need to write-off the asset; they do this on a regular basis as you can see the annual charges for Loss on Disposal of Fixed Assets for 2020, 2019 and 2018 below. If they do have unutilized robots hopefully they have been mostly depreciated so there won't be a large charge to the Income Statment.

 

[Todd Burch]

Perhaps robots that are no longer needed can be reemployed for other tasks, reducing expenditures at Giga Austin for example.

 

[dc_h]

@The Accountant It seems that MIC Y was part of about 10,000 more Q1 cars being built in China, versus Fremont. The Fremont numbers should rise in Q2 as SX gets moving, but the MIC 3Y margins could be 10% higher than MIF (made in fremont). That could be higher than SX margins in Q4. Curious on your thoughts for higher margins this Q and possibly much higher in Q2 as MIC 3Y rise again and SX should be higher margin.

 

[The Accountant]

@The Accountant It seems that MIC Y was part of about 10,000 more Q1 cars being built in China, versus Fremont. The Fremont numbers should rise in Q2 as SX gets moving, but the MIC 3Y margins could be 10% higher than MIF (made in fremont). That could be higher than SX margins in Q4. Curious on your thoughts for higher margins this Q and possibly much higher in Q2 as MIC 3Y rise again and SX should be higher margin.

That's a good point. I don't break out Model 3 from Model Y in my deliveries tracker, but when you look at Models 3&Y combined, Shaghai represented 40% of total deliveries in Q4 2020 and Q1 2021 but will likely jump to 49% of deliveries by Q2 2021. I am expecting a slight drop in Model 3&Y deliveries in Q2 for Fremont as I assume they replenish very low inventory levels in Q2. Margins on 3&Y should improve in Q2 2021 barring any huge price cuts on the vehicles.

 

[JohnnyEnglish]

That's a good point. I don't break out Model 3 from Model Y in my deliveries tracker, but when you look at Models 3&Y combined, Shaghai represented 40% of total deliveries in Q4 2020 and Q1 2021 but will likely jump to 49% of deliveries by Q2 2021. I am expecting a slight drop in Model 3&Y deliveries in Q2 for Fremont as I assume they replenish very low inventory levels in Q2. Margins on 3&Y should improve in Q2 2021 barring any huge price cuts on the vehicles.

View attachment 652841

It is fortunate that we get monthly P&D figures from China as it allows us to see the production ramp there with better granularity than was the case at Fremont. Still waiting for the MIC March production figures but if they are similar to the sales figures c. 35k that means a weekly production rate (3+Y) of 8k. That seems to be slightly ahead of the (leaked) planned ramp. 8k/week was my estimated MIC average production rate for Q2 and I will probably increase that if the April MIC production figures confirm the faster ramp.

Even my current production estimates exceed 204k total 3&Y for Q2 by 10-15k (my eternal optimism again ). Not sure how much you allowed for inventory replenishment as that would account for some of the difference.

 

[The Accountant]

It is fortunate that we get monthly P&D figures from China as it allows us to see the production ramp there with better granularity than was the case at Fremont. Still waiting for the MIC March production figures but if they are similar to the sales figures c. 35k that means a weekly production rate (3+Y) of 8k. That seems to be slightly ahead of the (leaked) planned ramp. 8k/week was my estimated MIC average production rate for Q2 and I will probably increase that if the April MIC production figures confirm the faster ramp.

Even my current production estimates exceed 204k total 3&Y for Q2 by 10-15k (my eternal optimism again ). Not sure how much you allowed for inventory replenishment as that would account for some of the difference.

My Q2 Shanghai estimate is very conservative at this point - really a placeholder until I dig into Q2 later next month. I expect the number to be closer to yours. For this analysis, I used a March exit rate of 33k per month and multiplied it by 3 to get Q2. This assumes no further ramp up which is of course a poor assumption. What you have highlighted is that GF3 will likely produce more 3&Ys than Fremont in Q2. Not bad for a mud field

 

[st_lopes]

We won't see any unrealized Bitcoin gains (paper gains) on GAAP or Non-GAAP income.
However, I believe that we will see the Bitcoin gain in the Statement of Comprehensive Income. This is one of the 10Q/10K statements rarely reviewed by investors and it often includes unrealized gains/losses. So we won't see the gain on the Income Statement (Statment of Operatons as listed below) but we will hopefully get an idea on how much of a gain Tesla is sitting on by reviewig the Statement of Comprehensive Income.
View attachment 652516

Here is the Statement of Comprehensive Income from Q1 2020:
View attachment 652519

I was poking around some other companies that will have similar issues going forward and my general conclusion is that you would not have the ability to include upward valuations, even under a non-GAAP presentation.

Non-GAAP presentation does not allow a reporter to introduce new information, it only allows someone to change the order of presentation or to add sub totals (eg, EBIT and EBITDA are non-gaap measures) or adjust sub totals to remove amounts (eg, removal of SBC).

One example would be Microstrategy, below are extracts from their recent 10-K. Not only do they not even report the FMV value of their BTC in notes disclosure (I would have at least expected that, but apparently the auditors didn’t agree), they took a loss on some of their BTC, given that impairment is an any point in time test ( if it drops below your purchase price for even one second you have an impairment loss to take).

So, while I personally think using OCI to show the gains would make sense, and actually be more consistent with IFRS presentation, I don’t think Tesla will have that option, even if trying to rely on non-GAAP reporting.

Edit: Formatting. Also to add that I reviewed RIOT Blockchain's reporting, and again, even though they would have heavy incentive to at the very least report the fair market value (FMV) of their crypto assets in the note disclosures, they did not do that. They do however show realized gains from crypto sales as well as record their revenues from mining operations based on the FMV of the crypto awarded to them for mining services.

 

[The Accountant]

I was poking around some other companies that will have similar issues going forward and my general conclusion is that you would not have the ability to include upward valuations, even under a non-GAAP presentation.

Non-GAAP presentation does not allow a reporter to introduce new information, it only allows someone to change the order of presentation or to add sub totals (eg, EBIT and EBITDA are non-gaap measures) or adjust sub totals to remove amounts (eg, removal of SBC).

One example would be Microstrategy, below are extracts from their recent 10-K. Not only do they not even report the FMV value of their BTC in notes disclosure (I would have at least expected that, but apparently the auditors didn’t agree), they took a loss on some of their BTC, given that impairment is an any point in time test ( if it drops below your purchase price for even one second you have an impairment loss to take).

View attachment 653162View attachment 653163

So, while I personally think using OCI to show the gains would make sense, and actually be more consistent with IFRS presentation, I don’t think Tesla will have that option, even if trying to rely on non-GAAP reporting.

Edit: Formatting. Also to add that I reviewed RIOT Blockchain's reporting, and again, even though they would have heavy incentive to at the very least report the fair market value (FMV) of their crypto assets in the note disclosures, they did not do that. They do however show realized gains from crypto sales as well as record their revenues from mining operations based on the FMV of the crypto awarded to them for mining services.

View attachment 653167

View attachment 653169

My comments on Other Comprehensive Income ("OCI") came from this PWC document:

https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-16/cryptographic-assets-related-transactions-accounting-considerations-ifrs-pwc-in-depth.pdf

The document is dated Dec 2019 - so it is possible their view has changed since then, but in this document they show a possiblity to disclose "movements above cost" in OCI. Let's see what we get when the 10Q prints.

 

[st_lopes]

My comments on Other Comprehensive Income ("OCI") came from this PWC document:

https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-16/cryptographic-assets-related-transactions-accounting-considerations-ifrs-pwc-in-depth.pdf

The document is dated Dec 2019 - so it is possible their view has changed since then, but in this document they show a possiblity to disclose "movements above cost" in OCI. Let's see what we get when the 10Q prints.
View attachment 653180

IAS would be the IFRS accounting standard. Unfortunately, US GAAP is the problem here. The rest of the world already has a logical framework for crypto revaluations.

edit: to add, I had made the “joke” (lame accounting joke) that had VW been the one buying BTC, they would get to post gains through OCI as they report under IFRS. Tesla on the other hand is left with US GAAP.

 

[The Accountant]

IAS would be the IFRS accounting standard. Unfortunately, US GAAP is the problem here. The rest of the world already has a logical framework for crypto revaluations.

edit: to add, I had made the “joke” (lame accounting joke) that had VW been the one buying BTC, they would get to post gains through OCI as they report under IFRS. Tesla on the other hand is left with US GAAP.

Thanks for clearing that up . . . I made the poor assumption that US GAAP would be similar to IFRS.

 

[bballshinobi]

@The Accountant

I remember reading one of your posts from a few quarters ago about Tesla's deferred tax credit. Can you give some insight about why that has't being claimed despite several profitable quarters in a row? Is this strictly the accounting firm's decision? Or is it up to Tesla?

I know it will just be an one-off but it would be nice to see this in an ER sometime soon.

 

[jbcarioca]

Thanks for clearing that up . . . I made the poor assumption that US GAAP would be similar to IFRS.

My personal favorite at the moment is PWC:

1.1 Importance of being financially bilingual—overview

Most of the world’s significant capital markets now require IFRS, or some form thereof, for financial statements of public-interest entities. For specific

www.pwc.com

( I must disclose that I worked with PWC for more than a decade, as a consultant to them, almost all on international financial issues.) For years the FASB and IASB have been virtually identical on most established issues. However, on anything new (e.g. Crypto-currency) one of them will be more nearly current than the other. Among the most frequent discrepancies I recall from years past are treatment of: incentive compensation, fringe benefits, multi-jurisductional tax harmonization (a never-resolved morass because each solution is promptly evaded/avoided. The single area that never seems to be soluble is income/expense/profit allocation.

From my personal experience nearly all such issues are actively worked between IASB and FASB to increase harmony, but national and international interest collide to preclude perfection.

Just to be clear. I am not an accountant. I have spent most of my career in international business so understanding of FASB/IASB have been necessary to cope with anything global in scope.

I hope that helps, but remember once again: I am not an accountant.
I did have the incredible luck to learn accounting for International business from Sandy Burton:
John-C-Sandy-Burton
Of course that was in 1972/1973 but he was the newly appointed Chief Accountant of the SEC. Much of the class and subsequent seminars dealt with tax treaties, and international harmonization.
The large results were creating fo the FASB in 1973 and the precursor of the IASB (International Accounting Standards Committee) in mid-1973.

That began my fascination with the subject and my subsequent regular involvement even though I never became an accountant.

I apologize for my nearly off-topic musings. Frankly, the US leaving the gold standard the previous year, last summer 1971 IIRC ended out fomenting total restructuring of global financial accounting and transactions.
It seems tome that cryptocurrency is turning into another epochal period. Just as in 1971 most people underestimated the consequences.

 

[The Accountant]

@The Accountant

I remember reading one of your posts from a few quarters ago about Tesla's deferred tax credit. Can you give some insight about why that has't being claimed despite several profitable quarters in a row? Is this strictly the accounting firm's decision? Or is it up to Tesla?

I know it will just be an one-off but it would be nice to see this in an ER sometime soon.

Tesla has to convince the auditors (PwC) that they will have US Taxable Income going forward. The issue is that Tesla may still have Taxable US Losses despite having US GAAP income. This is due to stock option expenses which get a larger deduction for Tax than for GAAP reporting.
I wrote about it here:

Near-future quarterly financial projections

Breaking: Tesla China Achieves Record Delivery of 21,604 China-Made Model 3 in November, 78% MoM increased Presumably a reasonable impact on Q4 models?

teslamotorsclub.com

A year ago I was certain that the benefit would have been recorded in Q4 2020 (last year) but with the rise in the Stock Price in 2020, the tax expense for stock options exercised is huge. There's much judgment involved in recognizing this benefit so its difficult to estimate when it arrives. Perhaps we get some insight in the 10Q write-up next week.

 

[bballshinobi]

Tesla has to convince the auditors (PwC) that they will have US Taxable Income going forward. The issue is that Tesla may still have Taxable US Losses despite having US GAAP income. This is due to stock option expenses which get a larger deduction for Tax than for GAAP reporting.
I wrote about it here:

Near-future quarterly financial projections

Breaking: Tesla China Achieves Record Delivery of 21,604 China-Made Model 3 in November, 78% MoM increased Presumably a reasonable impact on Q4 models?

teslamotorsclub.com

A year ago I was certain that the benefit would have been recorded in Q4 2020 (last year) but with the rise in the Stock Price in 2020, the tax expense for stock options exercised is huge. There's much judgment involved in recognizing this benefit so its difficult to estimate when it arrives. Perhaps we get some insight in the 10Q write-up next week.

Thank you for taking the time to answer this! It's fascinating how GAAP and tax rules treat the stock options. So it's theoretically possible for Tesla to have consistent GAAP profit in the future but still won't have to pay income tax because of these deductions then, especially if TSLA keeps running up since that increases the deduction? Is this how Amazon was able to not pay any income taxes for so long despite making huge amount of profits?

 

[st_lopes]

Thank you for taking the time to answer this! It's fascinating how GAAP and tax rules treat the stock options. So it's theoretically possible for Tesla to have consistent GAAP profit in the future but still won't have to pay income tax because of these deductions then, especially if TSLA keeps running up since that increases the deduction? Is this how Amazon was able to not pay any income taxes for so long despite making huge amount of profits?

Simply put. Yes. A few other reasons why Amazon may not pay taxes, but stock compensation is a huge one.

 

[jbcarioca]

Tesla has to convince the auditors (PwC) that they will have US Taxable Income going forward. The issue is that Tesla may still have Taxable US Losses despite having US GAAP income. This is due to stock option expenses which get a larger deduction for Tax than for GAAP reporting.
I wrote about it here:

Near-future quarterly financial projections

Breaking: Tesla China Achieves Record Delivery of 21,604 China-Made Model 3 in November, 78% MoM increased Presumably a reasonable impact on Q4 models?

teslamotorsclub.com

A year ago I was certain that the benefit would have been recorded in Q4 2020 (last year) but with the rise in the Stock Price in 2020, the tax expense for stock options exercised is huge. There's much judgment involved in recognizing this benefit so its difficult to estimate when it arrives. Perhaps we get some insight in the 10Q write-up next week.

To the extent that this is a judgement call I would wager they'll prefer to recognize as much incentive compensation is possible in quarters that also have substantial emissions credit revenue. That probably will peak within the next year or so in Europe but what about China? VW will probably pay quite a lot and others might well join as Tesla sales soar in China. Do you have any clear idea if the geographical origin of emissions credit revenue directly connects to the national source of incentive comp costs? Presumably as time progresses both of these categories will continue to be material even as the geography varies.

Somehow I suspect that both categories will plague our forecasts for years to come!

 

[Artful Dodger]

Items that could materially impact this forecast:

• Stock Based Compensation – I am assuming $433M

Elon has recently made $130M in charititable donations through his foundation:

• $100M Carbon-capture X-Prize
• $20M Montgomery County, TX school division
• $10M Brownsville, TX downtown revitalization

If we presume that these charitble amounts are offset by matching tax deductions, can we use these figures to model the gross taxable income which would fund these? This may be informative as a component of SBC. TIA.

Note that making these personal donations furthers the Mission with decadal investments which a publicly traded company couldn't do w/o affecting their quarterly returns. IMO, this is the best purpose for charitable giving. Elon again leads from the front, putting his vision into action. Kudos.

Cheers!

 

[mongo]

Elon has recently made $130M in charititable donations through his foundation:

• $100M Carbon-capture X-Prize
• $20M Montgomery County, TX school division
• $10M Brownsville, TX downtown revitalization

If we presume that these charitble amounts are offset by matching tax deductions, can we use these figures to model the gross taxable income which would fund these? This may be informative as a component of SBC. TIA.

Note that making these personal donations furthers the Mission with decadal investments which a publicly traded company couldn't do w/o affecting their quarterly returns. IMO, this is the best purpose for charitable giving. Elon again leads from the front, putting his vision into action. Kudos.

Cheers!

Charitable gifts can subtract up to 100% in 2020 depending on the situation, otherwise it's usually a 50% or 60% cap. Interesting thought on shifting the taxes from the SBC option exercise to something other than incone taxes.

https://www.irs.gov/pub/irs-pdf/p526.pdf

 

[Doggydogworld]

Elon has recently made $130M in charititable donations through his foundation:

• $100M Carbon-capture X-Prize
• $20M Montgomery County, TX school division
• $10M Brownsville, TX downtown revitalization

If we presume that these charitble amounts are offset by matching tax deductions, can we use these figures to model the gross taxable income which would fund these? This may be informative as a component of SBC. TIA.

Note that making these personal donations furthers the Mission with decadal investments which a publicly traded company couldn't do w/o affecting their quarterly returns. IMO, this is the best purpose for charitable giving. Elon again leads from the front, putting his vision into action. Kudos.

Cheers!

I don't understand. Elon has taxable income when he exercises shares. But exercising options does not affect Tesla's GAAP SBC.