Q2 2013 Results - Expectations and Projection

[Bgarret]

CO...thanks for the point-by-point summary on lease, ZEV/CAFE, 2nd quarter,etc. excuse my ignorance on the non-lease/lease accounting, but could you, ModelS8794 or anyone clarify the revenue treatment of the "down payment" or lease buy-down. If someone utilized the lease program for a $90k Model S and put $30,000 down to reduce their payment, would the $30k be immediately booked as revenue, or would that also be spread out over 36months? Might help soften the blow to short-term profitability.

 

[CapitalistOppressor]

CO...thanks for the point-by-point summary on lease, ZEV/CAFE, 2nd quarter,etc. excuse my ignorance on the non-lease/lease accounting, but could you, ModelS8794 or anyone clarify the revenue treatment of the "down payment" or lease buy-down. If someone utilized the lease program for a $90k Model S and put $30,000 down to reduce their payment, would the $30k be immediately booked as revenue, or would that also be spread out over 36months? Might help soften the blow to short-term profitability.

I've never seen how lessors account for it, but my recollection is that as the lessee we depreciate the down payment over the life of the lease. I'd assume it's the same from the lessor (Tesla in this case) standpoint.

 

[Acmykguy]

No, I've just been extraordinarily busy, plus the junk VIN data from June just makes it almost not worth the time and effort. Why go out on a limb with crap data?

As it stands I can probably make a smart sounding argument about any delivery value between ~4700 and ~5300. But it would still be based on junk data. Only thing I can exclude (probably) are fanciful predictions of 5600+ sales or absurdly low ones below 4500.

If I actually attempt to analyze that junk I come up with ~5,150 deliveries if I go off of the halfway decent data through the first week of June, then tack on production rates of ~500/week for the remainder. If I attempt some kind of numerical analysis solely on the VIN data, by excluding the apparent European VIN blocks and by making the "mistake" of assuming that the number and distribution of data points actually has meaning, I come up with some number between ~4800-5100. But that latter work relies on a junky methodology and junky data along with junky assumptions about the actual size of the European blocks.

My strongest data points to continued high ASP (~$94,300, excl 40kwh). Well under 30% of my data set is 60kWh, and all of those (along with everyone else) are loaded up with options. There were an unknown (~100-300) number of 40kWh cars delivered which will cause a temporary hit on ASP, but its obviously not much of a factor. Unfortunately, all of those projections are based on a relatively weak methodology compared to estimating production or measuring relative process flows (both of which are useless in June).

Margins exclusive of credits are probably in the 15-19% range, though I'm willing to accept any number from 10-20% as long as it doesn't include any credits. With credits, I see the clear possibility of some absurdly high number that will make the NASDAQ 100 sit up and giggle like a little girl does the first time she see's Mr. Snuffleupagus on Sesame Street.

View attachment 27012


Q2 VIN data
View attachment 27013


Note that all of the data points in the red boxes were delivered in the last three days, showing how production runs were skipping VIN's in bands.

In the first week of June you get a skip from ~11,000/11,400 to ~12100, then another immediate leap to ~12,600. It should be obvious that Tesla did not produce 1,600 cars in ten days. The vertical line shows that Tesla would have produced ~4,700 cars on the pre June trend line. However, it very much looks like Tesla upped their production rate to 500+, probably in the first week of June.

I've seen references to a VIN ~11,700, but it appears that those were likely hit during the first and second week in June while Tesla was skipping VIN's somewhere on the two horizontal red arrows. It hardly matters, because it seems obvious that on any given day by mid to late June, Tesla was producing VIN's with huge intraday skips, resulting in daily banding. An analysis of the data in late June indicates interleaved blocks of VIN's with U.S. VIN's separated by European VIN's (not shown on the graph).

It could also mean those are the cars that went to service Centers for loaners etc...the villa park , IL location had many. I didn't count but looked like at least 12. Plus two roadsters. Also keep in mind I got a car in two weeks.....someone canceled or whatever so was sitting on lot. It just happened to have the colors and equipment t I wanted. That could be part as well. In addition to cars going to Europe which could be a large portion of that missing data. Just a thought.

 

[Bgarret]

Margins exclusive of credits are probably in the 15-19% range, though I'm willing to accept any number from 10-20% as long as it doesn't include any credits. With credits, I see the clear possibility of some absurdly high number that will make the NASDAQ 100 sit up and giggle like a little girl does the first time she see's Mr. Snuffleupagus on Sesame Street.

By the way, I think the new gold standard for reactions to outsized TESLA accomplishments should be "sit up and giggle like a little girl does the first time she see's Mr. Snuffleupagus on Sesame Street" (or the nearly as ridiculously cumbersome abbreviation of SUAGLLG1TSSSSS).....here's to hoping for a chorus of little girl laughter on the afternoon on August 7th.

 

[sleepyhead]

I've never seen how lessors account for it, but my recollection is that as the lessee we depreciate the down payment over the life of the lease. I'd assume it's the same from the lessor (Tesla in this case) standpoint.

This sounds right. Whether you put a downpayment on the car or not, Tesla still gets 100% of the vehicle's price in cash from the bank. Your downpayment will have no influence on the Income Statement. The exact opposite is true too: if Tesla received the cash in installments (instead of up front) it would still recognize revenue in the same way. This would affect B/S and Cash Flows though.

 

[GenIIIBuyer]

Not sure if this has been stated on forums before, but from talking with a 60 owner that got delivered Q1 (VIN 3XXX). Tesla did not make him pay the extra $2K for supercharger ability.

If this was true of all 60's delivered in Q1, and not true from Q2 forward, that could provide a small margin improvement, 25-50 basis points.

 

[sleepyhead]

Not sure if this has been stated on forums before, but from talking with a 60 owner that got delivered Q1 (VIN 3XXX). Tesla did not make him pay the extra $2K for supercharger ability.

If this was true of all 60's delivered in Q1, and not true from Q2 forward, that could provide a small margin improvement, 25-50 basis points.

Some guys in Q1 got the supercharger activation for free because of the confusing information that Tesla was releasing. It was only temporary though.

 

[GenIIIBuyer]

Some guys in Q1 got the supercharger activation for free because of the confusing information that Tesla was releasing. It was only temporary though.

Thanks sleepyhead, so more like 0-1 basis point. Rats.

 

[sleepyhead]

Thanks sleepyhead, so more like 0-1 basis point. Rats.

I think it was something like "everyone who ordered a 60 kWh before xx/xx/xxxx received the upgrade for free. The Tesla website had contradicting or confusing information on this topic out for a while, so Elon decided to give supercharging for free to anyone who order before a certain date. It should have some positive impact on Q2 as well.

http://www.teslamotors.com/it_IT/forum/forums/update-supercharging-and-60-kwh-model-s-orders

 

[vgrinshpun]

I disagree that VIN data are junky. Back on 6/11 I've posted my theory on VIN "data craziness". Recognizing that theory and realizing that Tesla now assigns VINs immediately after order is finalized, including the European delivery cars (although they are not entering production with the "same" speed), I've came up with the estimate of 5,200 to 5,500 cars delivered in Q2 (conservatively posted my estimate 5,200 while back, although that was met with great skepticism because of prevailing opinion back than that Tesla will deliver LESS than 5,000 in Q2). I have made my investing moves based on this VIN theory (went in deeply on margin + some hedging using puts) and now patiently waiting for stock to take off post Q2 call.

2Q 2013 Model S Deliveries Potential Surprise - Page 7

 

[kevin99]

I can't keep up with all the excellent post! Man how special this investment group is!

I've seen some comment on the recent DB report. I want to echo that it is by far the best report from the professional analysts. First time they put in some content that shows they did the homework and gain some visibility into Tesla' value. All other report or price target changes just show they are clueless or playing catch-up. Even that their finding and number still lags behind what this group is seeing!

Is there any more or less comprehensive Q2 modeling post somewhere? Anyone plan to do modeling before the earning?

 

[CapitalistOppressor]

I disagree that VIN data are junky. Back on 6/11 I've posted my theory on VIN "data craziness". Recognizing that theory and realizing that Tesla now assigns VINs immediately after order is finalized, including the European delivery cars (although they are not entering production with the "same" speed), I've came up with the estimate of 5,200 to 5,500 cars delivered in Q2 (conservatively posted my estimate 5,200 while back, although that was met with great skepticism because of prevailing opinion back than that Tesla will deliver LESS than 5,000 in Q2). I have made my investing moves based on this VIN theory (went in deeply on margin + some hedging using puts) and now patiently waiting for stock to take off post Q2 call.

2Q 2013 Model S Deliveries Potential Surprise - Page 7

I call the data junky because it defies statistical analysis. The fact that you can use it to make a more or less educated WAG doesn't change the fact that its a WAG, and thus only as credible as the assumptions you put into it.

As to your hypothesis on VIN assignment, I am doubtful for a variety of process efficiency reasons. But if I understand what you are saying, then I would expect a random distribution in VIN production order when they get assigned to batches. That is not what the data shows. There is underlying order where production is occurring in more or less predictable bands with wide intervals interlevened by unused blocks (some of which have large numbers of European VIN's assigned).

This seems more consistent with VIN's being assigned during batch creation, with production batches being mapped across arbitrary VIN blocks.

 

[TSLAopt]

Other than the potential for hinky lease accounting and the possibility of reduced regulatory income, Tesla handily outperformed Q1 in Q2. More sales (probably), continued low proportion of 60kWh sales (highly probable according to my admittedly problematic data), and continued high margins from the actual automotive business.

However, if the lease accounting works the way I've heard it does (I've spoken to Adam Jonas at Morgan Stanley, and also to a source at TM, not to mention the clear language of their regulatory filings), a large uptake of the lease offer can really hammer Q2 results. Over the long term its a big positive for Tesla, but initially it has the possibility of making a good report look bad to low information investors (which often includes some big players when it comes to Tesla) if it turns out leasing was uber popular.

- - - Updated - - -

CO,
don't you think Wall Street normally reacts to adjusted earnings more than GAAP earnings? If so, wouldn't the 'adjusted earnings' represent the earnings as if the leases were cash purchases?

 

[sleepyhead]

CO,
don't you think Wall Street normally reacts to adjusted earnings more than GAAP earnings? If so, wouldn't the 'adjusted earnings' represent the earnings as if the leases were cash purchases?

Yes and yes. Nobody cares about GAAP earnings. Only Motley Fool writers use GAAP earnings.

 

[TSLAopt]

Yes and yes. Nobody cares about GAAP earnings. Only Motley Fool writers use GAAP earnings.

Thanks sleepyhead

 

[CapitalistOppressor]

CO,
don't you think Wall Street normally reacts to adjusted earnings more than GAAP earnings? If so, wouldn't the 'adjusted earnings' represent the earnings as if the leases were cash purchases?

I'm hoping so. A high lease uptake seems like the main risk at this point. All of the shorts will lean hard on their information channels to spin the "decline" stories. That should be drowned out by the legit analysts who know that more leases is actually a good thing for Tesla.

But I could see some real bad days happening if a major player takes an opportunity to downgrade in an attempt to spike the stock. Any number of big money interests have the juice to engineer a flash crash as it is. A big reduction in revenue just makes that kind of manipulation easier, and makes it more likely to stick.

 

[dirkhh]

I'm hoping so. A high lease uptake seems like the main risk at this point. All of the shorts will lean hard on their information channels to spin the "decline" stories. That should be drowned out by the legit analysts who know that more leases is actually a good thing for Tesla.

But I could see some real bad days happening if a major player takes an opportunity to downgrade in an attempt to spike the stock. Any number of big money interests have the juice to engineer a flash crash as it is. A big reduction in revenue just makes that kind of manipulation easier, and makes it more likely to stick.

But short term stock movement is completely irrelevant, right? If you actually believe in the investment story and believe that Tesla will sell a million cars in 2023, then any sell-off is an ideal buying opportunity.

For me the stock is WAY to rich in its valuation. It prices in everything going perfectly for the next decade. So while I believe in the company (and love my car), at a forward PE of 130... too crazy for me.

 

[sleepyhead]

But short term stock movement is completely irrelevant, right? If you actually believe in the investment story and believe that Tesla will sell a million cars in 2023, then any sell-off is an ideal buying opportunity.

For me the stock is WAY to rich in its valuation. It prices in everything going perfectly for the next decade. So while I believe in the company (and love my car), at a forward PE of 130... too crazy for me.

Who said the forward P/E is 130x? I expect 2014 earnings to be at a minimum $3/share and possibly more.

 

[dirkhh]

Who said the forward P/E is 130x? I expect 2014 earnings to be at a minimum $3/share and possibly more.

Yahoo finance says so. Ten analysts with an average $1.02 and a high estimate of $1.70. So you are assuming about 2x the high estimate. And even then that's a forward P/E of 40+.
I repeat. Great company. The stock price already assumes everything will go perfectly.

 

[MikeC]

Yahoo finance says so. Ten analysts with an average $1.02 and a high estimate of $1.70. So you are assuming about 2x the high estimate. And even then that's a forward P/E of 40+.
I repeat. Great company. The stock price already assumes everything will go perfectly.

I've been following TSLA long enough to know that P/E is meaningless and most of the analysts are worse than that.