Near-future quarterly financial projections

[Reality]

This was really helpful. Thank you! Your charts showing the step function vs linear function of opex vs revenue is a great illustration of the two opposing perspectives about what is happening.

ya those two charts are seriously a perfect illustration of the bull vs bear case,i want to say they have the smallest amount of bull bias in there, because it corners off at the most favorable spot for a 'stepped' theory, but at the same time you could argue that is likely the most accurate spot to square off


the big flatline on model X scaling is what im curious about and how it relates to the SCTY assumptions.

so a key assumption you made is that all 135k who want the lr battery w/premium upgrades have been invited. a second key assumption is all premium wheel packages were done in one single batch, vs. multiple batches at different points in time (for example, they may have just run out of the special wheels and stopped delivering that option until they got more).

but i agree: *if* all 135k that want this combination lr + pup have been invited and configured, and assuming all premium wheel packages have been built already *then* the take rate is 6.75%.

but what if the number invited out of the population of reservations who want the lr+pup package is only 50k? take rate would jump to 40%.

you can review various sources and see virtually all non-owner reservations after the 1st day remain uninvited. 180k reservations were made on the first day. many of those by previous owners. so ballpark 250k reservations may yet remain uninvited.

alternatively, consider that out of the 135k of the total population you are using as wanting the package, you are only observing data for the subset which is north american (usa or canada). even if you assumed that 30% of reservations were international and 30% of the population wanted the lr+pup package (assuming no correlation between international and package), then you're math would become:

450k x 30% want lr+pup package x 70% domestic x 20% prem wheels x take rate = 4000.
take rate = 21%. error is a factor of 3+.

and what if you only observed one of two batches of such production b/c they didn't expect so many people to take premium wheels?

450k x 30% want lr+pup package x 70% domestic + 20% prem wheels x 50% x take rate = 4000. take rate = 42%. error is a factor of 6+.

basically there are so many possible grave errors in the methodology presented, i would not want to bet on it.

I agree 100%, huge assumptions involved there, i wouldnt put a huge bet on only that piece of information, but when you point to analysis like that AND Elon not answering questions about it AND the admittance that they cant produce the 35k model profitably yet.

Well the odds start stacking up against you.


Its a really fun stock to debate, ill give Musk credit for that. Very polarizing.

 

[mongo]

AND the admittance that they cant produce the 35k model profitably yet.

Not profitable enough to sustain the company is not the same as a not profitable product.
I see no issue with a company not being set up to be overall profitable while selling the lowest price point product at less than planned volumes.
If Apple could only build 100k iPhone8s, they would be unprofitable too.
If Boeing only sold 10 airplanes a year, they would be unprofitable.
If I only worked 5 hours a week, each hour would be profitable, but I'd go broke.

 

[Reality]

Not profitable enough to sustain the company is not the same as a not profitable product.
I see no issue with a company not being set up to be overall profitable while selling the lowest price point product at less than planned volumes.
If Apple could only build 100k iPhone8s, they would be unprofitable too.
If Boeing only sold 10 airplanes a year, they would be unprofitable.
If I only worked 5 hours a week, each hour would be profitable, but I'd go broke.

fair enough

 

[luvb2b]

ya those two charts are seriously a perfect illustration of the bull vs bear case,i want to say they have the smallest amount of bull bias in there, because it corners off at the most favorable spot for a 'stepped' theory, but at the same time you could argue that is likely the most accurate spot to square off

the big flatline on model X scaling is what im curious about and how it relates to the SCTY assumptions.

model x production quadrupled between 1q16 and 4q16 and was up nearly 50x from 4q15 to 1q16. no solarcity assumptions are required because there was full disclosure for 16q4 and no solarcity effect 15q4-16q3.

 

[Reality]

oh right, makes sense, that bodes well for your side

thanks


What a terrible acquisition

 

[neroden]

Luvb2b, thanks again for this, you do my favorite analytical work.

 

[brian45011]

fwiw i had estimated using inside ev's data about 177k deliveries thru march end: 164k s/x + 10k 3's and i added 3k for roadsters.
my interpretation may be incorrect but "8% of our deliveries in q1 were subject to lease accounting" to me means 8% of total deliveries. total deliveries were 29,997 (s/x + 3). 8% of that amount is ~2400. and 2400 / 21,815 (s/x deliveries) = 11%. that's why you see 11% up there.
on the credit revenue, i do have zev credits split, the remaining amount of other credits has been small enough that i didn't bother to do the split - but this does have the effect of perhaps artificially boosting calculated asp.

OK. Thanks. The % leased statement in the SH letter is at best ambiguous, and a 3% difference is probably not material; the effect on the Statement of Cash Flows of swapping Warehouse Line draws for Automotive asset-backed notes may be far more relevant.

My tracking shows the following revenue (and net income) from non-ZEV regulatory credits (in $MM) :

YEAR	Q1	Q2	Q3	Q4	TOTAL
2018	30.3	..	..	..	30.3
2017	15.9	24.5	21.6	19.3	81.3
2016	15.0	20.1	30.7	21.0	87.7
2015	15.0	13.0	16.0	12.7	56.7
2014	11.6	15.8	17.0	20.0	64.4
2013	17.1	17.9	14.8	14.8	64.6

I think Tesla reports all credit sales as Auto Sales Revenue rather than also allocating them to Auto Lease Revenue. (Who knows?) Regardless, I offer three observations:

1. While non-ZEV credits may be "mouse nuts," they are not inconsequential to the bottom line.

2. By reporting them in Auto Revenue rather than Other Income, what ever trend may be occurring in Auto %GM is obscured.

3. The historical data shows that non-ZEV regulatory credits do not increase proportionately (scale) with increases in deliveries or Auto Revenues.

Why not use guidance from the SH letter for OpEx?:

Quarterly non-GAAP operating expenses should grow sequentially at approximately the same rate as in the past four quarters,​

Shouldn't the denominator in the calculation of fully diluted EPS in quarters when positive net income is projected include the potentially dilutive shares?:

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

Three Months Ended March 31, 2018 2017
Stock-based awards 9,630,761 9,738,595
Convertible senior notes 1,527,584 2,370,788
Warrants 301,504 595,104


​

 

[K_Dizzle]

ya those two charts are seriously a perfect illustration of the bull vs bear case,i want to say they have the smallest amount of bull bias in there, because it corners off at the most favorable spot for a 'stepped' theory, but at the same time you could argue that is likely the most accurate spot to square off


the big flatline on model X scaling is what im curious about and how it relates to the SCTY assumptions.







I agree 100%, huge assumptions involved there, i wouldnt put a huge bet on only that piece of information, but when you point to analysis like that AND Elon not answering questions about it AND the admittance that they cant produce the 35k model profitably yet.

Well the odds start stacking up against you.


Its a really fun stock to debate, ill give Musk credit for that. Very polarizing.

Can I just jump in here and say that musk did not say that they can’t prodouce the 3 profitably yet.
You can interpret his words that way if you want but to me it seemed more like Tesla is in a lot of debt and needs all the money they can get, and taking smaller profit over bigger profit is a mistake that would kill Tesla.

 

[bdy0627]

oh right, makes sense, that bodes well for your side

thanks

What a terrible acquisition

are you referring to your short position?

 

[bonaire]

1) no if opex scales past a certain % with revenue, then you could have an unprofitable model at even the rosiest of demand assumptions. It doesnt need to be 1% to 1% if it scales anything close to that they are dead in the water.


2) You can financially engineer a lot of stuff within 1 quarter wrt cash, and to a lesser extent, profit. Q3 would be perfect for that for both. Hold back lots and lots of US deliverables (assuming you can produce that many) and dump all of them into Q3 to game the FIT credit. It's perfectly logical. Rec all that revenue in Q3 even tho you will take a huge bath in Q2.

In Q4 you have the last quarter of the FIT credit so I think its POSSIBLE that you get a big push (i do think Mission E/I-Pace/E-tron are going to take a toll on demand here though as it is natural human tendency is to want the 'newest' thing, this is especially true for the coastal elite* demographic Tesla plays to, and the MOdel S/X just arent that anymore). So it comes down to how deep is that high margin Model 3 book. Can you push hard enough and take advantage of just those 2 one time events to try and turn a profit? Maybe by the slimmest of margins.However after that what is left? Only a capital raise whcih just kicks the can down the road if the business model isnt profitable.


Cash flow is easier because you can just fluff cash or pull up a little bit on CAPEX/vendor payments, rollover contract terms, or not pay bonuses or any number of items that you need to make a cash number. I think they are probably out of luck on taking deposits other than model 3 config deposits.


*I consider myself part of this demographic so im not being prejudice here, im very pro environment and green energy

Q4 of this year is not the end of the ITC (Investment Tax Credit) - it runs out through 2019.
A buyer may get 3750 in Q1 2019 in all cases.
The plan seems to be sell #200,000 on January 2nd, sell as many cars as possible in Q3 (cover lease turn-backs from 2- and 3-year leases) and show a reasonably big cash flow. Even now, prepare loaners/demos in Q1,Q2 to get ready for this.

The ITC runs out either Q3 or Q4 of 2019, not Q4 of 2018.

Sell 200,000 th on July 2nd.
Buyers in 2018 Q3, Q4 get $7500. Buyers in 2019 Q1, Q2 get $3750, Q3, Q4 get $1875
sell 200,000 th on June 28th
Buyers in 2018 Q2,Q3 get $7500. Buyers in 2018 Q4, 2019 Q1 get $3750, Q2, Q3 get $1875

It works out better if it runs out the whole year of 2019. However, where people "put car into service" cannot be verified by IRS and so I suppose many may "fib" a little on their tax returns of when car bought was put into service. This is why it is not a great system with the run-out period.

What IRS should do is flatten the runout to be "3750 for whole calendar year following 200,000th unit sold". That lowers the chances of tax fraud.

 

[mongo]

However, where people "put car into service" cannot be verified by IRS and so I suppose many may "fib" a little on their tax returns of when car bought was put into service. This is why it is not a great system with the run-out period.

Vehicle title /registration/ insurance/ sales/ delivery dates are easily verifiable.

 

[defc0n]

Well, your model appears to be showing Tesla not quite being cash flow positive in Q3, which is what I also predict (and of course I caught some flak from uber-bulls as a result as usual). You went through a lot more work than I did, but it passes my sniff test. A lot of these assumptions are of course impossible to know, but your delivery numbers (especially model 3) seem pretty reasonable to me. S+X delivery predictions might be a little high, though.

As mentioned by others, energy storage is a big wildcard right now.

You deserve monetary compensation from members here for your effort put into this. Hopefully your predictions end up being close again!

 

[brian45011]

Why not use guidance from the SH letter for OpEx?:

Quarterly non-GAAP operating expenses should grow sequentially at approximately the same rate as in the past four quarters,​

As follow up data, from the 10K:

1. "R&D expenses increased $543.7 million, or 65%, during the year ended December 31, 2017 compared to the year ended December 31, 2016...
2. R&D expenses increased $116.5 million, or 16%, to $834.4 million during the year ended December 31, 2016 compared to the year ended December 31, 2015...
3. SG&A expenses increased $1.04 billion, or 73%, during the year ended December 31, 2017 compared to the year ended December 31, 2016.
4. SG&A expenses increased $510.0 million, or 55%, to $1.43 billion during the year ended December 31, 2016 compared to the year ended December 31, 2015.

Shouldn't the denominator in the calculation of fully diluted EPS in quarters when positive net income is projected include the potentially dilutive shares?:

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

Three Months Ended March 31, 2018 2017
Stock-based awards 9,630,761 9,738,595
Convertible senior notes 1,527,584 2,370,788
Warrants 301,504 595,104​

Again as a follow-up: Tesla last capital raise by selling equity was March 16,2017. Including the "greenshoe" the basic share count after that raise was stated as 163,097,130 shares. The last 10Q showed shares outstanding on April 30, 2018 as 169,793,685 (a ~4% increase). Is it not likely that shares outstanding (basic) will not increase similarly during the next three quarters when computing EPS?

 

[neroden]

OK, so there's no trend in R&D growth and no trend in SG&A growth. Just random changes.

The stock-based awards will probably stay constant because they've been close to constant. There will probably be no other significant dilution because Musk is incentivized not to.

The automatic dilution if the convertibles/warrants convert would be in Q1 2019 -- although I do tend to just use fully diluted shares for all my estimates anyway.

Parsing what Musk said, which was positive profit and cash flow in Q3 and Q4 -- note *cash flow*, not *operating cash flow*, not *free cash flow* -- I suspect cash flow in Q3 will be positive due to additional financing. Which is interesting, given that the ~$250 million SolarCity bond has to be repaid.

 

[luvb2b]

1. While non-ZEV credits may be "mouse nuts," they are not inconsequential to the bottom line.

2. By reporting them in Auto Revenue rather than Other Income, what ever trend may be occurring in Auto %GM is obscured.

3. The historical data shows that non-ZEV regulatory credits do not increase proportionately (scale) with increases in deliveries or Auto Revenues.

Why not use guidance from the SH letter for OpEx?:

Quarterly non-GAAP operating expenses should grow sequentially at approximately the same rate as in the past four quarters,​

Shouldn't the denominator in the calculation of fully diluted EPS in quarters when positive net income is projected include the potentially dilutive shares?:

The following table presents the potentially dilutive shares that were excluded from the computation of diluted net income (loss) per share of common stock attributable to common stockholders, because their effect was anti-dilutive:

Three Months Ended March 31, 2018 2017
Stock-based awards 9,630,761 9,738,595
Convertible senior notes 1,527,584 2,370,788
Warrants 301,504 595,104
​

regarding not-zev credits- yes is small. at around 1% of auto revenues there's some minimal obfuscation of gross margin. while your comments are probably correct on non-zev credits, i chose the easy road of ignoring it. most likely it's within the error bars of what i estimate anyway.

on opex, i think you're confusing sequential with year over year. sequential opex growth has been -2 to +9% for the last 4 quarters and total 14% over the last year. with some focus on cost control i took 4.5% annualized opex growth through end of year. but your comment does suggest it could be as high as 2-3% per quarter vs the 1-1.5% i modeled. will think about an adjustment.

denominator of share count, my instinct says you are right. will try to verify and adjust.

 

[EinSV]

Elon tweeted today that Tesla plans to start dual motors production with Performance before moving to AWD. Should help with cash flow and profitability in Q3 and Q4 as Tesla continues to ramp production.

@luvb2b – not sure if that affects your estimates but FYI.

Twitter

 

[generalenthu]

Probably relevant to this thread: Elon tweeted the 78k variant will have priority over the regular AWD. So the mix could skew the ASP higher in Q3

Edit: @EinSV beat me by a minute

 

[schonelucht]

Probably relevant to this thread: Elon tweeted the 78k variant will have priority over the regular AWD. So the mix could skew the ASP higher in Q3

True, but he also said they still need to do so because gross margins suffer with the introduction of new models in the mix. I think the 17.5% gross margin for the M3 in Q3 is a bit premature and will like be substantially lower. I adjusted them down in my own model from 16% to 14% and Q4 from 18% to 16%. As a consequence, I have much worse numbers than luv right now. I know this is significantly below guidance.

 

[mongo]

True, but he also said they still need to do so because gross margins suffer with the introduction of new models in the mix. I think the 17.5% gross margin for the M3 in Q3 is a bit premature and will like be substantially lower. I adjusted them down in my own model from 16% to 14% and Q4 from 18% to 16%. As a consequence, I have much worse numbers than luv right now. I know this is significantly below guidance.

I think Elon was referring the line as a new entity, not the addition of AWD. Which is not to say adding/ changing steps does not slow production for a time, but that his Tweet was directed at needing the high margin vehicles to pay off the line. The GM may be higher along with ASP. Gross profit for line definitely higher (whole point of P AWD)

Production costs are always high when line first gets going, so we have to sell higher price versions first or each car will have very negative margins. As production efficiency rises, we can make lower cost versions & not lose money.

 

[luvb2b]

thanks. i had already assumed p & awd production in q3. this is part of why i had the asp rising 4k from q2 to q3. from q3 to q4 i assume most of the p's will have been done in q3 and as some sr's come into the mix the asp should start to drop.

Elon tweeted today that Tesla plans to start dual motors production with Performance before moving to AWD. Should help with cash flow and profitability in Q3 and Q4 as Tesla continues to ramp production.

@luvb2b – not sure if that affects your estimates but FYI.

Twitter