q1 2018 earnings estimates

[wnorris]

Too much negativity and backward focus here. It is very well known that the numbers will look horrible. This is expected and with the recent drop and increase in short interest this is at least partially baked in. A lot of what I hear is a look into the rear view mirror. Tesla will add color to their expectations for Q3 and Q4 which will solidify the plan to a more stable financial footing.

I will be the contrarian on this board and say that we will see a rise next week. The Q&A will give a good opportunity for Tesla to talk through concerns and address their plan for going forward. I do not see any new negative information being presented that is not already known now to trigger a sell off. The drop to 250 was precipitated by short selling which has resulted in a very crowded trade that at some point will have to unwind. To see another such drop longs would have to sell and, again, there should be little new negative information to trigger a mass selloff from the long side of the trade.

All speculation on my part...not an advice.

 

[Jonathan Hewitt]

Too much negativity and backward focus here. It is very well known that the numbers will look horrible. This is expected and with the recent drop and increase in short interest this is at least partially baked in. A lot of what I hear is a look into the rear view mirror. Tesla will add color to their expectations for Q3 and Q4 which will solidify the plan to a more stable financial footing.

I will be the contrarian on this board and say that we will see a rise next week. The Q&A will give a good opportunity for Tesla to talk through concerns and address their plan for going forward. I do not see any new negative information being presented that is not already known now to trigger a sell off. The drop to 250 was precipitated by short selling which has resulted in a very crowded trade that at some point will have to unwind. To see another such drop longs would have to sell and, again, there should be little new negative information to trigger a mass selloff from the long side of the trade.

All speculation on my part...not an advice.

No one knows the future but I have to agree in that I would not at all be surprised to see a green week next week. I am reserving some cash to buy a dip if we get one but I'm not assuming there will be one. There isn't a ton more for shorts to short; for the share price to drop longs will need to sell. Any longer term long isn't going to sell based on one horrible quarter right in the middle of a ramp up. For that to happen there needs to be news the ramp is going a lot worse than expected or some sort of other bad news we aren't expecting. On the other hand, once the uncertainty of the results are out of the way (aka "wow that was really bad but the company didn't go BK and it's going to get better from here") then longs on the sidelines will hop in/add more. The media is for sure going to trumpet the horrible results and talk about the impending doom TSLA is facing but I would be surprised to see a lot of longs sell based on this if they have held on for this long. I expect the bad media news to cause a short term dip and longs to hop in once it's clear the bottom hasn't fallen out.

Also, keep in mind a lot of shorts who added sub $300 are short term shorts. There's a lot of them...If they don't get the movement they expected (big down) and they have any skill at trading they will likely bail. They will tell themselves to take a small loss now and "make it back" shorting at a higher price.

 

[MattEnth]

Too much negativity and backward focus here. It is very well known that the numbers will look horrible. This is expected and with the recent drop and increase in short interest this is at least partially baked in.

Some other data I'm expecting on the call:

• Tesla has still not hit a sustained 2.5k/week Model 3 rate, missing their Q1 target by over a month.
• Tesla will not firmly commit to 5k/week Model 3s by the end of Q2.
• Tesla will back down from their 10k/week year-end target. Musk's "zero worry" quote might be specifically mentioned.
• Tesla will push out the Semi target.
• Tesla will be pressed hard by investors for Model 3 conversion rate, take rate, and repair rates.
• Tesla will be down to under 2.4B in cash.
• Musk will back off his Q3/Q4 profitable tweet.

The big question will be "so, how do you plan to avoid bankruptcy?" If Tesla can't give a satisfactory answer, the stock will tank.

 

[Waiting4M3]

Some other data I'm expecting on the call:

• Tesla has still not hit a sustained 2.5k/week Model 3 rate, missing their Q1 target by over a month.
• Tesla will not firmly commit to 5k/week Model 3s by the end of Q2.
• Tesla will back down from their 10k/week year-end target. Musk's "zero worry" quote might be specifically mentioned.
• Tesla will push out the Semi target.
• Tesla will be pressed hard by investors for Model 3 conversion rate, take rate, and repair rates.
• Tesla will be down to under 2.4B in cash.
• Musk will back off his Q3/Q4 profitable tweet.

The big question will be "so, how do you plan to avoid bankruptcy?" If Tesla can't give a satisfactory answer, the stock will tank.

Fact check:
The 10k by end of 2018 target was already moved, in Q4 ER they say they're moving part of the 10k/wk CapEx into 2019.

 

[trentbridge]

in q4 they started manual processes to do what the new grohmann lines should be doing. the cost of those manual processes was only for part of the quarter. this quarter will be a full quarter of cost for the manual processes and that alone should boost the fixed cost of the line, i think.

Thanks for your feedback. My opinion is that Tesla went from thirty a day production in Q4 to about 100 a day production in Q1 2018. If we calculate the battery cost of the LR (75 kWh version) at $160/kWh (theoretical) that becomes a cost of $12,000 each. Assuming Nevada overtime labor at $30/hr and adding on 50% overhead, that becomes $45/hr. So if the additional labor (manual assembly) is ten hours per battery pack - that's an extra $450.
As for Fremont, I just don't see a three hundred percent productivity gain in output from 30/day to 100/day from Q4 to Q1 increases that labor cost per vehicle. The real unknown is the engineering teams at GF1 and Fremont that generated substantial overhead that overshadows this direct labor cost.

To be honest, using my own calculations, I get the overhead for the Model 3 at around $114 million. Here's how:

GROSS Revenues Auto Q4 2017 = $2,702,195,000
DEDUCT $53,000 x 1550 Model 3 deliveries = $82,150,000
GROSS Revenues Model S and X = $2,620,045,000.
TheShareholder Letter states: "Model S and Model X gross margin in Q4 declined very slightly compared to Q3."
So let's guesstimate that margin at 17% for these two vehicles..
Then
GROSS PROFIT from Model S and X was $445,407,650.
REPORTED GROSS PROFIT: $348,063,000 deducting SBC of $16,182,000 = $331,181,000.

This generates a Model 3 OVERHEAD of $114 million.

Which I would round up to $120 million. Carrying that forward to Q1 2018 with 8180 deliveries that's an additional cost per vehicle of $14,670. So with an ASP of $53,000 and a cost of $42,000/vehicle plus $14,670 overhead = $56,670. Loss per vehicle is $3,670.
Total loss is 8180 x $3670 = $30 million from Model 3 production.

This may be way too optimistic: "luvb2b" has a loss of $120 million.

My loss for Q1 is $677 million. (Loss per share of $4.02)

 

[brian45011]

the combination of these items mean we could very easily be gaap profitable in q3. i could see this in the financials before elon said he believed the same.

i expect tesla to be running at max capacity as the 7.5k us tax credit starts to sunset. that's why also for q4 i have been expecting the company to be gaap profitable. even the shorts know a demand spike is coming very soon from the tax credit expiration, they just don't believe the company will ever make a profit. if we can turn 2 quarters of gaap profit on the back of the tax credit spike and expansion of the 3, i think the company could stay profitable because the cost to increase production from 5k to 10k per week is going to be much lower (all the problems basically solved and it's simple replication). the speed of doubling production will be much faster too - no 3 quarter of delay as we are experiencing now.

the shorts also know that 2 quarters of gaap profitability will bring talk of s&p 500 index addition on the table.

Is your expectation that the sum of GAAP profitability in Q3 and Q4 will be more than sufficient to exceed the combined GAAP losses in Q1 and Q2 so the likely entry in the S&P 500 will be shortly after the 10k is published in mid-February 2019? (I am concerned that Q2 losses will be exacerbated if Tesla delays the 200,000th delivery in the US to early July.

 

[bhzmark]

I think the aggressive targets to drive the team to deliver fast growth also serves as a bear trap. Look at them lick it up.

missing their Q1 target

not firmly commit to 5k/week Model 3s by the end of Q2.

back down from their 10k/week year-end target.

push out the Semi target.

back off his Q3/Q4 profitable tweet.

 

[mongo]

Is your expectation that the sum of GAAP profitability in Q3 and Q4 will be more than sufficient to exceed the combined GAAP losses in Q1 and Q2 so the likely entry in the S&P 500 will be shortly after the 10k is published in mid-February 2019? (I am concerned that Q2 losses will be exacerbated if Tesla delays the 200,000th delivery in the US to early July.

I like that concept (especially they 4 quarter net profitability, though that may not occur till Q1 '19). Any reduction in sales in Q2 due to delaying 200kth will become sales in Q3, so it will make Q2 worse, but the sum of the quarters should stay the same.

 

[Waiting4M3]

I like that concept (especially they 4 quarter net profitability, though that may not occur till Q1 '19). Any reduction in sales in Q2 due to delaying 200kth will become sales in Q3, so it will make Q2 worse, but the sum of the quarters should stay the same.

I don't understand, if the total profit of Q2+Q3 is a constant, regardless of how you shift the cars to play around the 200k threshold between Q2 and Q3, how would that impact SP500 inclusion in Feb '19 (after Q4'18 ER)? My understanding is that the total of last 4 qtrs has to be GAPP positive, and the last qtr (Q4 '18 in this case) has to be GAPP positive. It would makes more sense if the SP500 inclusion target is after Q2'19, so by stashing some losses into Q2'18, the 4 qtrs starting from Q3'18 will look better.

 

[mongo]

I don't understand, if the total profit of Q2+Q3 is a constant, regardless of how you shift the cars to play around the 200k threshold between Q2 and Q3, how would that impact SP500 inclusion in Feb '19 (after Q4'18 ER)? My understanding is that the total of last 4 qtrs has to be GAPP positive, and the last qtr (Q4 '18 in this case) has to be GAPP positive. It would makes more sense if the SP500 inclusion target is after Q2'19, so by stashing some losses into Q2'18, the 4 qtrs starting from Q3'18 will look better.

I don't think it would (much), I was mostly addressing

(I am concerned that Q2 losses will be exacerbated if Tesla delays the 200,000th delivery in the US to early July.

and allowing for S&P to consider delaying inclusion if one of the 4 quarters was reeeaaaalllly bad. On the other hand, if the trend is clearly upwards and there are no fiscal weirdness, then it may not matter.

(So I think we agree)

 

[luvb2b]

not my expectation. s&p500 add would be mid-late next year i think.

i don't model in detail too far out, as it is hard enough to even get close on a nearby quarter with full delivery data.

Is your expectation that the sum of GAAP profitability in Q3 and Q4 will be more than sufficient to exceed the combined GAAP losses in Q1 and Q2 so the likely entry in the S&P 500 will be shortly after the 10k is published in mid-February 2019? (I am concerned that Q2 losses will be exacerbated if Tesla delays the 200,000th delivery in the US to early July.

 

[luvb2b]

i can't argue with anything because there isn't detailed information to work with. i do hope your work turns out to be more correct than mine. thanks for the details.

Thanks for your feedback. My opinion is that Tesla went from thirty a day production in Q4 to about 100 a day production in Q1 2018. If we calculate the battery cost of the LR (75 kWh version) at $160/kWh (theoretical) that becomes a cost of $12,000 each. Assuming Nevada overtime labor at $30/hr and adding on 50% overhead, that becomes $45/hr. So if the additional labor (manual assembly) is ten hours per battery pack - that's an extra $450.
As for Fremont, I just don't see a three hundred percent productivity gain in output from 30/day to 100/day from Q4 to Q1 increases that labor cost per vehicle. The real unknown is the engineering teams at GF1 and Fremont that generated substantial overhead that overshadows this direct labor cost.

To be honest, using my own calculations, I get the overhead for the Model 3 at around $114 million. Here's how:

GROSS Revenues Auto Q4 2017 = $2,702,195,000
DEDUCT $53,000 x 1550 Model 3 deliveries = $82,150,000
GROSS Revenues Model S and X = $2,620,045,000.
TheShareholder Letter states: "Model S and Model X gross margin in Q4 declined very slightly compared to Q3."
So let's guesstimate that margin at 17% for these two vehicles..
Then
GROSS PROFIT from Model S and X was $445,407,650.
REPORTED GROSS PROFIT: $348,063,000 deducting SBC of $16,182,000 = $331,181,000.

This generates a Model 3 OVERHEAD of $114 million.

Which I would round up to $120 million. Carrying that forward to Q1 2018 with 8180 deliveries that's an additional cost per vehicle of $14,670. So with an ASP of $53,000 and a cost of $42,000/vehicle plus $14,670 overhead = $56,670. Loss per vehicle is $3,670.
Total loss is 8180 x $3670 = $30 million from Model 3 production.

This may be way too optimistic: "luvb2b" has a loss of $120 million.

My loss for Q1 is $677 million. (Loss per share of $4.02)

 

[brian45011]

i don't model in detail too far out, as it is hard enough to even get close on a nearby quarter with full delivery data.

Thanks. I concur. It would be helpful if Tesla's filings provided more "granular" data by business segments.

 

[bhzmark]

the likely entry in the S&P 500

I hadn't thought of that. Is that likely? Wow that will hurt the shorts.

 

[trentbridge]

Here are my earnings estimates for Q1 2018:

I have used the actual delivery numbers for Q1 and have come to the following estimate:

Gross Revenues: Auto $ 2,473,765,000
: Energy Storage $ 350,000,000
: Services $ 380,000,000

Gross Profit : Auto $452,277,950
Energy $ 78,750,000
Services ($ 19,000,000)

Expenses: SG&A ( $672,790,650)
R&D ( $365,000,000)
Interest: ( $150,000,000)

Loss : $675,762,700 ( $4.00/share)
Non-GAAP Loss : $530,762,700 ($3.14/share)

 

[omgwtfbyobbq]

Some other data I'm expecting on the call:

• Tesla has still not hit a sustained 2.5k/week Model 3 rate, missing their Q1 target by over a month.
• Tesla will not firmly commit to 5k/week Model 3s by the end of Q2.
• Tesla will back down from their 10k/week year-end target. Musk's "zero worry" quote might be specifically mentioned.
• Tesla will push out the Semi target.
• Tesla will be pressed hard by investors for Model 3 conversion rate, take rate, and repair rates.
• Tesla will be down to under 2.4B in cash.
• Musk will back off his Q3/Q4 profitable tweet.

The big question will be "so, how do you plan to avoid bankruptcy?" If Tesla can't give a satisfactory answer, the stock will tank.

I don't remember 2.5k/week being referenced as a sustained rate. Do you have a link to that?

 

[Reality]

I feel like @ShortSeller not participating in this thread is giving us short sellers a bad name in TMC, this model is solid imo, although still a huge question mark around the new revenue recognition rules

 

[EVMeister]

^^ It isn't lack of participation that gives short sellers a bad name...

 

[Reality]

^^ It isn't lack of participation that gives short sellers a bad name...

What is it? I would think any investor would appreciate meaningful debate against his or her thesis. Typically when that happens you narrow down to the crux of the differences in your beliefs, which then narrows your focus on what others see that you may not.


I agree with @luvb2b on a lot of his assumptions but I think the biggest part of what we disagree on is the change in SGA as a % of revenue as Tesla tries to scale, along with some less but still significant items. I find that type of discussion to be fruitful and interesting.

 

[mongo]

What is it? I would think any investor would appreciate meaningful debate against his or her thesis. Typically when that happens you narrow down to the crux of the differences in your beliefs, which then narrows your focus on what others see that you may not.


I agree with @luvb2b on a lot of his assumptions but I think the biggest part of what we disagree on is the change in SGA as a % of revenue as Tesla tries to scale, along with some less but still significant items. I find that type of discussion to be fruitful and interesting.

Total opinion piece:

I think there may be a couple (or more) categories of shorts that get blended.
Selling long or short would have been financially advantages when TSLA hit $380. That is not debatable (in hindsight).
The animosity occurs depending on what people do after it goes back down to $250. If you are long, that looks a great place to buy in, if you are short and cover, that is also a wise move (just swapping buy and sell to sell and buy).
However, if a short trader holds their position at $250, or sells at $250 (or sold short way below $250), then starts manipulating the narrative to justify their position, that is not good information sharing (or a logical approach, modify the hypothesis, not that data)

Pushing back on over-exuberance is a good thing and can be helpful, but warping data to support a dive to zero is not. Example regarding cash 'burn': Cash balance is important for paying the bills, but investing in a new manufacturing line is not the same as dropping that money on a company wide trip to Hawaii.