q1 2018 earnings estimates

[schonelucht]

Growing liabilities are not necessarily a sign of trouble; and no, Tesla is not systematically "holding payment," they just had a dispute with a supplier, which all companies go through. Tesla's negative cash cycle will allow the company to generate cash while it grows.

Unfortunately, due to the slower ramp of the Model 3 this will stay much more subdued than imagined at first where they'd ramp for a few hunderds to thousands in a matter of weeks. Here is how they described it in the latest conference call

Deepak Ahuja - Tesla, Inc.

We got to look at it from a full quarter perspective. The negative working cycle is amplified by the rate at which we ramp our production, given our present plans of getting to 5,000 by end of Q2. It's a fairly gradual – it's exponential from where we started, but it's not going to create a situation where our cash flow from operations will exceed CapEx.

He's a bit diffuse here since he was asked to compare it with capex, but I take the overall message as being that this will not count for much.

I am trying to make a 'cash events' timeline for the next 12 months and at this point I am just rolling it into the regular increase in accounts payable that we've now had many quarters in a row.

 

[ValueAnalyst]

Unfortunately, due to the slower ramp of the Model 3 this will stay much more subdued than imagined at first where they'd ramp for a few hunderds to thousands in a matter of weeks. Here is how they described it in the latest conference call



He's a bit diffuse here since he was asked to compare it with capex, but I take the overall message as being that this will not count for much.

I am trying to make a 'cash events' timeline for the next 12 months and at this point I am just rolling it into the regular increase in accounts payable that we've now had many quarters in a row.

Obviously the negative cash cycle will reflect as higher A/P, which is why I pointed out increasing A/P and overall liabilities aren’t necessarily signs of trouble.

2Q18, instead of 4Q17, will see the crux of the effect, and I would expect 3Q18 and 4Q18 cash flow to be boosted by positive net income.

 

[Todd Burch]

Luv, so now that Elon has tweeted that Tesla will be profitable and cash flow positive in Q3 and Q4, how does that affect your models?

Offhand, your M3 gross margins seem quite a bit more pessimistic than I remember Tesla predicting back in that quarterly call from 2016.

 

[schonelucht]

Those pessimistic gross margins are due to a $200M (or so) fixed cost. When we get to (for example) 80 000 model 3 delivered each with a margin contribution of 20% on ASP of 60k (12k per car), the total margin contribution is $960M. Subtract the $200M (or so) fixed cost and we have an additional gross margin of $760M. That's enough to get us profitable with a final gross margin on Model 3 of 16%. Elon's additional information actually strengthens luv's (and mine, because I use a similar) model.

In 2019, when standard range battery comes online and the ASP is likely somewhat lower, we need a higher profit contribution per car. These should come from increased efficiencies of scale (less man hours on each car and better prices from suppliers mainly).

Cash concern risk in Q3 and Q4 mainly comes from 1) not enough production 2) too low profit contribution per car. For example, doing the same calculation on Q2 with an average production of 30k gives us $160M profit contribution of the Model 3 (9% GM). So should Q3 only end up being what we hope Q2 is going to be, then there is a problem in the cash department.

 

[Reality]

Ok. Your intentions are clear, but I'll engage for a brief second.

The following is a graph of Mega Tech companies' both current assets and current liabilities growing as the company grows:

View attachment 293773

Growing liabilities are not necessarily a sign of trouble; and no, Tesla is not systematically "holding payment," they just had a dispute with a supplier, which all companies go through. Tesla's negative cash cycle will allow the company to generate cash while it grows.

My intentions are to understand both sides of the investment around Tesla, I guess i should disclose i do have a short position, but i really wanted more takes from Bulls because clearly there are many intelligent people that disagree with me.


I was very pleasantly surprised by @luvb2b model because i think it is a very reasonable approach, and where i see it as bearish he sees it as bullish, that leads to interesting conversation imo.


With regards to your claim about, the key part of what you stated is BOTH continue to grow. If only CL continues to grow (WC continues to go down), it means you are either

1) Not running a positive FCF, or
2) Paying down debt/long term obligations


Tesla is clearly the not running positive FCF, which is fine, but it means they need to raise money and service that debt, or issue equity. I don't see how they issue debt, and they claim to not being issuing equity. I can't reconcile that (like many others) and was hoping to find a bulls take on it.


fwiw, i dont buy the 25% margin on the 3 either, and whats worse, is even if they do get to 25% it still might not be profitable because they don't cap RD, and run their own dealership model (probably a combined 20% COGS hit by using non industry standard accounting for RD, and a different business model for SGA that pushes it from COGS to SGA). It's why you see SGA stay around 20% of revenue despite growth.

 

[luvb2b]

Note of caution : I did not try to estimate the impact of the new leasing rules at all. I know too little about those. So that's a big difference with your where you have a lot of more lease revenu recognized up front. That is more than likely correct. The other main differences are in the growth trajectory for SG&A and R&D. I think both will grow sequentially by 5%. For R&D it's clear that Tesla is non-stop hiring, see report on all time open job offers. SG&A I think is growing due to getting the early 3 sales organisation on rails and additional effort in Tesla energy sales.

I also see you have a relative sharp decline in Tesla related interest expense. Why? There are several factors working against Tesla in the debt market. Some of their loans are LIBOR related which is rising sharply and the build up in production should make draws on the asset backed lines growing again.

All in all loss per share of $4 easily.

actually i didn't estimate impact of new rules either. the higher lease revenue is coming from my base leasing model. i'll find out whether it's any good this quarter if it accurately predicts an uptick.

on opex, i would prefer to lean towards your side as they almost always increase opex. i am hopeful this time they kept it in check with the layoffs.

on interest expense there's a big non-cash component related to the convertibles. i'm not sure totally how it all works but i think i agree with you that it should probably be more similar to q4 than i have it. i'll incorporate that into the changes i make.

 

[Reality]

the new leasing revenue rules should pull lease revenue forward, but im not sure how it affects the current def rev waterfall

 

[luvb2b]

the q1 earnings look bad, there's no way around it.

now that we've uncovered a bear i am curious about his take. the same model that shows these lousy q1 earnings make a hard turn towards profitability in q2 as model 3 scales up to ~30-35k units.

on free cash flow, they have a hard time running a positive value, but isn't it because of high capex and direct vehicle leasing? capex can be flexible to some extent but is also needed for growth. direct vehicle leasing can be securitized and sold into cash as was done this quarter. i am particularly curious what @Reality thinks about how the cash from ops and free cash flow is biased lower by running a direct vehicle leasing program.

regarding 25% margin on the 3... most people i think don't understand how much margin is software and how much is hardware. just as an example, if you believe the actual gross margin on a $35k base 3 is 5-10% then it's fairly straightforward to get to a 20-25% gross margin figure. and think about the model 3, it's such a bare-bones sort of car at $35k compared to a similarly priced car... to contemplate single digit margins on the most base model doesn't seem to be a stretch.

autopilot take rate has been historically very high, and it's nearly 100% margin. even a 60% take rate on that 5k option gets you an additional 8-9%. the other options like awd and longer range battery also carry fairly high margins. heck just think about $9k for what maybe an extra 20kwh of battery capacity? that's gotta be $5k margin too and at a 50% take rate it's another 7-8% gross margin. i could go on about wheels and colors etc. the 35k car won't be 20-25% gross margin, but the "average" model 3 sold should be there.

q3 and q4 in particular will still have a higher mix of high-end configurations as has been noted here, so could easily surprise to the upside on gross margin.

expensing all the r&d up front makes the financial reporting more conservative - which is good - but doesn't alter the cash profile.

on the sg&a side, you're seeing current sg&a always oversized vs. the size of the company because they need capacity to handle growth. so using any estimate of current sg&a levels vs. revenue to back into a cogs equivalent will be biased high because you're using sg&a that is steady state for a future size of the company, and revenue that is at a lower size of the company. the denominator is too low and the numerator too high and so yes it looks really bad. that's just faulty estimation in my view.

My intentions are to understand both sides of the investment around Tesla, I guess i should disclose i do have a short position, but i really wanted more takes from Bulls because clearly there are many intelligent people that disagree with me.


I was very pleasantly surprised by @luvb2b model because i think it is a very reasonable approach, and where i see it as bearish he sees it as bullish, that leads to interesting conversation imo.


With regards to your claim about, the key part of what you stated is BOTH continue to grow. If only CL continues to grow (WC continues to go down), it means you are either

1) Not running a positive FCF, or
2) Paying down debt/long term obligations


Tesla is clearly the not running positive FCF, which is fine, but it means they need to raise money and service that debt, or issue equity. I don't see how they issue debt, and they claim to not being issuing equity. I can't reconcile that (like many others) and was hoping to find a bulls take on it.


fwiw, i dont buy the 25% margin on the 3 either, and whats worse, is even if they do get to 25% it still might not be profitable because they don't cap RD, and run their own dealership model (probably a combined 20% COGS hit by using non industry standard accounting for RD, and a different business model for SGA that pushes it from COGS to SGA). It's why you see SGA stay around 20% of revenue despite growth.

 

[luvb2b]

doesn't change anything for me. notice elon was not clear which cash flow metric and which earnings metric. the most conservative take is assume he means cash from operations and non-gaap eps.

my modeling had q3 as positive on cash flow from operations. i had gaap eps borderline positive in q3, which means non-gaap should be easily positive. i see free cash flow for q3 still being negative.

q4 should definitely be gaap eps positive in my view. cash flow from ops strongly positive. free cash flow just about positive.

Luv, so now that Elon has tweeted that Tesla will be profitable and cash flow positive in Q3 and Q4, how does that affect your models?

Offhand, your M3 gross margins seem quite a bit more pessimistic than I remember Tesla predicting back in that quarterly call from 2016.

 

[Reality]

on the sg&a side, you're seeing current sg&a always oversized vs. the size of the company because they need capacity to handle growth. so using any estimate of current sg&a levels vs. revenue to back into a cogs equivalent will be biased high because you're using sg&a that is steady state for a future size of the company, and revenue that is at a lower size of the company. the denominator is too low and the numerator too high and so yes it looks really bad. that's just faulty estimation in my view.

Not using a dealership network (im not trying to debate if its a better model or not, id probably agree it is in long run) means top line is sales price. Which is straight Margin.


Companies that sell MILLIONS of cars take around a 10% hit on the top line for dealership cut.


I will definitely agree that there will be SOME scaling benefits to SGA, but compare Tesla to competitors.

2016 2017
Tesla 18.3% 19.3%
GM 6.9% 6.6%
Ford 7.2% 7.3%



Some of that is scale, but 10% of it is the benefit of not using a dealership network.

I assume your model is assuming a steep drop in SGA as a % of revenue. I am saying I disagree. Anything modeling 25% margin (Which i still disagree with) and below 17-18% of revenues for SGA is not correct and I believe misunderstands why SGA stays continually high.

 

[Reality]

Not using a dealership network (im not trying to debate if its a better model or not, id probably agree it is in long run) means top line is sales price. Which is straight Margin.


Companies that sell MILLIONS of cars take around a 10% hit on the top line for dealership cut.


I will definitely agree that there will be SOME scaling benefits to SGA, but compare Tesla to competitors.

2016 2017
Tesla 18.3% 19.3%
GM 6.9% 6.6%
Ford 7.2% 7.3%



Some of that is scale, but 10% of it is the benefit of not using a dealership network.

I assume your model is assuming a steep drop in SGA as a % of revenue. I am saying I disagree. Anything modeling 25% margin (Which i still disagree with) and below 17-18% of revenues for SGA is not correct and I believe misunderstands why SGA stays continually high.

Misspoke here, I mean

Not using a dealership network (im not trying to debate if its a better model or not, id probably agree it is in long run) means top line is sales price. Which means the added $ to sales price is straight Margin.

 

[schonelucht]

now that we've uncovered a bear i am curious about his take. the same model that shows these lousy q1 earnings make a hard turn towards profitability in q2 as model 3 scales up to ~30-35k units.

30k is too little for profitability. Even at 20k profit contribution per vehicle (there is no way they are already there) that'd be only $600M. Not enough to overcome current losses. Elon confirmed that this morning : profitability earliest in Q3 even with the projected 30k-40k units this quarter.

on free cash flow, they have a hard time running a positive value, but isn't it because of high capex and direct vehicle leasing?

Leasing not that much anymore since the recurring revenue starts to compensate for the missed cash upfront. For example in Q1 sales revenue would be 30% higher if everything had been a straight sale ($550M or so) but recurring+one time revenue is already offsetting this for $300M+. The resulting cash drain is still there but less significant (less than $250M) than capex which is going to be at least $850M each quarter this year. With steady S/X production this year, the gap will decline rapidly.

Capex is really going to be the big one to tackle. One thing to remember : capex is not just for adding new lines, but also for maintaining old ones. Things break, software needs to be updated to new platforms, etc... With $10B on the balance sheet for property plants and equipment, even an anual 10% maintenance cost (a very rough benchmark and likely on the high side since everything is relatively new) implies $250M capex just to keep it all working. So yes, it is tweakable but we should prepare ourselfs for large capex bills going forward anyway. A growing part of that capex is not going to be towards bringing new products to the market but just to keep existing production going.

regarding 25% margin on the 3... most people i think don't understand how much margin is software and how much is hardware.

True, but the cautious investor needs to realise that Tesla is self-insuring the risks associated with that software. And it is not really setting aside any meaningfull amounts to cover claims. With just EAP on the market that risk seems quite small, but if FSD ever makes it, this may be substantial. While in theory it should be safer (and therefore cheaper) to insure than a manual driver, as accidents become rarer, the amount rewarded in case they do happen may go up. That's on top of the usual ickiness in the early adapter phase in which everyone will want to cover their asses and push off liability to the newest player (ie, the self driving car) rather than honestly reviewing if it is infrastructure that's inflating the bill, other drivers or regulators.

expensing all the r&d up front makes the financial reporting more conservative - which is good - but doesn't alter the cash profile.

I think it's impossible for Tesla to meaningfully scale down on R&D ever. The day they do substantial layoffs in their engineering is the day they are dead. If only because it would mean that Elon isn't running the show anymore. Luckily a lot of the compensation due is stock based.

on the sg&a side, you're seeing current sg&a always oversized vs. the size of the company because they need capacity to handle growth. so using any estimate of current sg&a levels vs. revenue to back into a cogs equivalent will be biased high because you're using sg&a that is steady state for a future size of the company, and revenue that is at a lower size of the company. the denominator is too low and the numerator too high and so yes it looks really bad. that's just faulty estimation in my view.

At what level of sales should we see SG&A per car significantly lower than what we have now in your opinion?

 

[luvb2b]

i agree you can't compare margin with traditional auto makers b/c tesla is absorbing the dealership costs. but you also can't compare to traditional auto because they are only selling cars.

i can't reliably model sg&a as a % of revenue for tesla until it gets to a steady state. i can't do it without incorporating the various diverse parts of the business either.

mathematically you will have large numerical errors due to having both high numerator (for sg&a) and/or low denominator (for revenue) if you use historical financials to try to estimate steady state revenue % of sg&a.

as an example, here's sga as a % of total revenue, for the last 7 quarters (calc'd from sec filings):
17q4 17q3 17q2 17q1 16q4 16q3 16q2
20.7% 21.9% 19.3% 21.3% 19.3% 14.7% 25.3%

looks trendless... but, there's a solarcity acquisition in there that clouds financials. i estimate separately tesla (auto) and solarcity (tesla energy) opex. these are only estimates of course, but taking out solarcity and looking at tesla sg&a as a % of auto revenue:

17q4 17q3 17q2 17q1 16q4 16q3 16q2
20.1% 21.7% 17.8% 19.5% 18.3% 15.7% 27.2%

now you can see the auto business was at or under 18% until they started scaling up sales/service capacity for model 3 buildout. we've seen this before too, sg&a grows first then revenues catch up later. in fact look at the trailing 12 months ending with the june 17 quarter - probably as close to a steady state look as we have in historical financials, tesla auto sg&a as a % of auto revenue for the ttm period is under 18%. the jun 17 quarter is also nice to use b/c the solarcity numbers are much easier to estimate based on more recent historical financials being available.

i think the facts show sg&a below 18% for the auto side of the business at steady state. not sure how deep you've gone into these financials but as knowledgeable as you are i am sure you would see it once you started disentangling the various parts.

I assume your model is assuming a steep drop in SGA as a % of revenue. I am saying I disagree. Anything modeling 25% margin (Which i still disagree with) and below 17-18% of revenues for SGA is not correct and I believe misunderstands why SGA stays continually high.

 

[Reality]

looks trendless... but, there's a solarcity acquisition in there that clouds financials. i estimate separately tesla (auto) and solarcity (tesla energy) opex. these are only estimates of course, but taking out solarcity and looking at tesla sg&a as a % of auto revenue:

17q4 17q3 17q2 17q1 16q4 16q3 16q2
22.2% 20.1% 21.7% 17.8% 19.5% 18.3% 15.7%

Admittedly you are folding estimates in here, but how do you explain no benefit on the % during the S or X ramp?

 

[luvb2b]

30k is too little for profitability.

agree, i said "hard turn towards profitability". at 30k i have them $1-1.50 non-gaap loss per share.

Leasing ...The resulting cash drain is still there but less significant (less than $250M)

the cash drain is what i was referring to - if they lease 500m of model s/x each quarter, that means they're paying for 375-400m of parts/labor to make them but not collecting 500m in cash right away. that i view as a near 400m/quarter drain on cash - and this can be offset by securitizing and selling the leases i think. that's why i think free cash flow is maybe not the best metric because those leases make the number look worse than it is (i thought lease securitizations flow through as cash from financing, but maybe am wrong).

even 500m of annual maintenance capex is only 125m per quarter. not such a big concern in the grand scheme of things.

I think it's impossible for Tesla to meaningfully scale down on R&D ever.

i think you will see r&d as a % of revenue drop as the revenue rises from the 3. we're going to be nearly doubling revenue here over a few quarters and no way i see that happening with r&d. sg&a same thing... sg&a as a % of revenue will drop a couple percent just form the denominator rising.

 

[schonelucht]

the cash drain is what i was referring to - if they lease 500m of model s/x each quarter, that means they're paying for 375-400m of parts/labor to make them but not collecting 500m in cash right away. that i view as a near 400m/quarter drain on cash - and this can be offset by securitizing and selling the leases i think. that's why i think free cash flow is maybe not the best metric because those leases make the number look worse than it is (i thought lease securitizations flow through as cash from financing, but maybe am wrong).

If you are purely looking at cash drain. That $400M in parts/labor spent this quarter is offset by $300-$350M of lease payments coming in. So the real cash drain from this point forward is at most $100-$150M per quarter. And with S/X sales flat, going forward we will see a flat $400M in parts/labor but a growing income on lease payments. It's not impossible that somewhere in early 2019 lease is a net contributor to cash (unless they start direct leasing the model 3).

On top of the above they have a $700M Warehouse agreement or so from a bank consortium to cover expenses for leases starting from halfway 2016 (need to look up the exact details). In terms of cash, I don't think the leasing had much of an effective negative impact so far.

i think you will see r&d as a % of revenue drop as the revenue rises from the 3. we're going to be nearly doubling revenue here over a few quarters and no way i see that happening with r&d. sg&a same thing... sg&a as a % of revenue will drop a couple percent just form the denominator rising.

In my longish term model (2-3 years) I am counting on a 5% SG&A increase for every 10% revenue increase. How do you feel about that?

 

[luvb2b]

Admittedly you are folding estimates in here, but how do you explain no benefit on the % during the S or X ramp?

thank you, you caught another error.

i was accidentally including my 18q1 estimate and had data shifted over 1 quarter. adding another quarter for 2 full years and also correcting my data prior to discussion:
tesla whole company sg&a % revenue
17q4 17q3 17q2 17q1 16q4 16q3 16q2 16q1
20.7% 21.9% 19.3% 21.3% 19.3% 14.7% 25.3% 27.7%

luv estimated tesla auto sg&a % revenue
17q4 17q3 17q2 17q1 16q4 16q3 16q2 16q1
20.1% 21.7% 17.8% 19.5% 18.3% 15.7% 27.2% 31.0%

one other comment, the q1-q4 16 numbers are different due to solarcity but also because i exclude energy storage & services revenue from automotive.

for the periods presented s&x deliveries are as follows:
17q4 17q3 17q2 17q1 16q4 16q3 16q2 16q1
21,800 28,425 25,915 22,026 25,011 22,200 24,821 14,402 14,820

and you can see the effect you are asking about more clearly now. s&x production jumps > 50%. sg&a % of revenue drops sharply. it starts to climb again in preparation for the 3 launch and as before when the 3 gets going the sg&a % of revenue will drop.

 

[luvb2b]

If you are purely looking at cash drain. That $400M in parts/labor spent this quarter is offset by $300-$350M of lease payments coming in. So the real cash drain from this point forward is at most $100-$150M per quarter. And with S/X sales flat, going forward we will see a flat $400M in parts/labor but a growing income on lease payments. It's not impossible that somewhere in early 2019 lease is a net contributor to cash (unless they start direct leasing the model 3).

On top of the above they have a $700M Warehouse agreement or so from a bank consortium to cover expenses for leases starting from halfway 2016 (need to look up the exact details). In terms of cash, I don't think the leasing had much of an effective negative impact so far.

In my longish term model (2-3 years) I am counting on a 5% SG&A increase for every 10% revenue increase. How do you feel about that?

on leasing, i understand you and i think you and i are talking about two different things. i believe you are showing where tesla financials would be across all of history with or without leasing, either now or in the near future the current periods would look about the same with or without. i agree.

what i am saying is that addressing this issue of running out of cash, there's 375-400m per quarter walking out the door in new leases, and that amount could be offset by securitizing those leases to bridge over any short term cash needs. my meaning is that you could "create" several hundred million of cash per quarter by securitizing leases. this can work for a few quarters until the lease runoffs start to take away enough of the incoming cash that the net effect becomes less significant. tesla leases are 4 years though, and with big unit increases the last 2 years it may be 2 years until runoffs start to bite.

i hope that made sense.

on your longish model, how i feel about it as not as important as how you feel about it.

mathematically your assumption creates a downward trajectory of sg&a % revenue. broadly speaking i agree with you here's a simple table which shows the effect of 1.05^n / 1.1^n (the factors you have given applied for n years).

sg&a revenue sg&a % rev
25.00 100.00 25.0%
26.25 110.00 23.9%
27.56 121.00 22.8%
28.94 133.10 21.7%
30.39 146.41 20.8%
31.91 161.05 19.8%
33.50 177.16 18.9%
35.18 194.87 18.1%
36.94 214.36 17.2%
38.78 235.79 16.4%
40.72 259.37 15.7%
42.76 285.31 15.0%
44.90 313.84 14.3%
47.14 345.23 13.7%
49.50 379.75 13.0%
51.97 417.72 12.4%
54.57 459.50 11.9%
57.30 505.45 11.3%
60.17 555.99 10.8%

 

[schonelucht]

what i am saying is that addressing this issue of running out of cash, there's 375-400m per quarter walking out the door in new leases,

Yes, but today there is also cash walking into the door each quarter from old leases. In the future more cash may be walking into the door each quarter from payments on old leases than cash leaving the door through parts purchases. At that point, every single quarter in isolation lease related income and expenses, is a cash contributor (as are regular sales)

my meaning is that you could "create" several hundred million of cash per quarter by securitizing leases. this can work for a few quarters until the lease runoffs start to take away enough of the incoming cash that the net effect becomes less significant. tesla leases are 4 years though, and with big unit increases the last 2 years it may be 2 years until runoffs start to bite.

Unless I continue to misunderstand you on this point. You are saying : Tesla can monetize existing leases by selling them off and thus create extra cash? Yes. In so far that those leases were not already monetized under the warehouse agreement by Tesla. I looked it up : it's 673M in outstanding balance by the end of 2017. Including downpayments, federal rebates and lease payments since the start of the agreement that's good for at least 20-30k cars. At a least rate of 20-25% this covers pretty much every lease since the start of the agreement. That leaves older leases (from before 2016) and I don't think there is much value left there (and thus potential for cash creation).

We will have to see the details but the $540M securization of leases this quarter was likely matched with an equal drop in outstanding warehouse debt. I don't think we will see much cash creation there. That operation was more about opening up regular lease financing by packaging them up for wholesale investors instead of through a bank agreement (and potentially interest optimization?)

n your longish model, how i feel about it as not as important as how you feel about it.

Thanks. Still, I always really like your take on things! I am happy with the trajectory from your table so I'll keep that assumption for now.

 

[trentbridge]

I am wondering what "overhead cost" Tesla is building into their financials for the Model 3 so I set out to determine what the quarterly amount would be...in Q4 2017...

First assumption was that the Model S and X had a gross margin of 18% in Q4 2017.

Lets start with Gross Revenues Auto Segment for Q4:
$2,702,195,000
then subtract the Model 3 revenues (1550 x $53,000) = $82,150,000.
Therefore:
Gross Revenue for Model S and X = $2,602,045,000

So gross profit on Model S / X at an 18% gross margin would be $471,608,100. Tesla reported a 13.8% gross margin on the entire auto segment which would be $372,903,000. So the approx. difference of $100 million is the Model 3 loss.

If we assume - worse case scenario that parts and direct labor for the Model 3 in Q4 was $53,000 then the $100,000,000 is the "overhead" or $64,500 per vehicle delivered ..a huge negative gross margin

Looking forward to Q1 - if we retain the same quarterly overhead of $100,000,000 for the Model 3 but lower the parts and direct labor cost to $45,000 as productivity did increase - divided by the 8180 Model 3s delivered, this overhead becomes $12,225 per vehicle.

So, adding in the parts and direct labor cost to the overhead cost, we derive a cost of $57,225 per vehicle.

This is close to break even.

If we assume 20,000 deliveries in Q2 and a quarterly overhead of $100,000,000 then the overhead per vehicle becomes $5,000.
Assuming a parts and direct labor cost of $42,000 from increased productivity - we get a total cost of $47,000 per Model 3 and a possible positive gross margin on the vehicle..