Q3 2013 results - projections and expectations

[sub]

This should help

Panasonic And Tesla Reach Agreement To Expand Supply Of Automotive-Grade Battery Cells - Yahoo Finance

 

[NStar]

I think that is exactly what it it. In the past they have guided (i think Q1 CC) that Q3 would be the start of the major decline in ZEV Credits. DB and Andrea have around 5500 cars so even if we get 5900, 400 cars does not make up the 10-15cents (20-25ish) over their 11 cents we are expecting here.

hey but i am not going to complain if they expect only 11 cents and we blow it out of the water.

I agree. the expected decrease in ZEV credit has huge impact on EPS. It was 51M for Q2 (dropped from 68M for Q1) and zero has been assumed for Q4 in the guidance. It seems not unreasonable for analysts to assume a 25M drop for Q3.

In Q2 shareholder letter it was also guided that “While we expect production to increase from Q2, a considerable number of vehicles produced during the quarter will be in transit to European markets at the end of Q3. As a result, we plan to deliver slightly over 5,000 Model S vehicles in Q3 …”.

If we assume $3K-4K ASP increase over say 5100 vehicles in Q3 it won’t be able to offset the 25M ZEV decrease yet. So the total auto sales revenues will actually be less in Q3 than Q2 if analysts really follow the guidance.

Then the Q2 shareholder letter also guided significantly higher R&D expense and higher SG&A expenses in Q3. According to the guidance the Q3 EPS really should drop from Q2 even the analysts expect moderate beat on the delivery.

 

[NStar]

I think some are inadvertently double-counting ZEV by using a higher ASP and then adding in ZEV revenue on top. I calculated last qtr ASP around $94k ex-ZEV, this quarter looks to rebound given 1) no 40kwh sales, 2) Sig sales in Europe, and 3)price increases flowing through. But I also think $100k+ ASP estimates are off base if they are meant to be ex-ZEV.

I don’t really think the ~$100K ASP estimate double-counted ZEV. For example, we know for Q2 the GAAP Auto Sales Revenues are $401,535 and Deferred Revenues due to lease accounting are $146,812. So total non-GAAP Auto Sales Revenues are $401,535 + $146,812 = $548,347. This includes $51,000 ZEV credits. So the estimated ASP in Q2 is ($548,347 - $51000)/5150 = $96.6K without knowing the details about other revenues not directly associated with car sales(mostly some other non-ZEV regulatory credits). Adding $3-4K expected ASP increase in Q3 we get $100K.

However I do see in Q2 ER call transcript that Deepak mentioned that these other regulatory credits were included in gross margin because of good visibility and in Q2 they were up roughly $18 Million. If I understand this correctly we should take the $18M out of the Q2 revenue and calculate the Q2 ASP as $93.1K instead of $96.6K. This is close to your $94K estimate.

I’m not sure how to accurately estimate these other regulatory credits for other quarters though. In Q2 shareholder letter it says ASP slightly declined during the quarter. If I can still assume $18M other credits in Q1, then Q1 ASP will be $95.8K which can be considered slightly higher than the $93.1K Q2 ASP.

If we also assume $18M other credits in Q3 then it effectively adds $3K-$3.6K per car for 5000-6000 deliveries. This is roughly the difference between the $96.6K and $93.1K ASP number (calculated without vs. with taking the $18M into account). So I think it’ll still be roughly correct if we just don’t differentiate the other regulatory credits from car sales, use the higher $96.6K number as estimated Q2 ASP, and add some to get ~$100K as estimated Q3 ASP.

 

[DonPedro]

So, I was just looking at the analyst expectations for the quarter on Yahoo Finance. The one thing I don't get is that it says the average EPS expectation is for $0.11. This seems too low given that last quarter EPS was $0.20. Am I missing something or do analysts on average really expect that a decrease in ZEV credits and increase in Superchargers/Service Centers will cut that much into their earnings?

I'm looking for something like $0.25-$0.30 EPS.

Remember that ZEV credits have 100% GM. We don't know whether ZEV will fall by $20M or $40M, but it will be very substantial. They have also guided a "significant" increase in R&D costs, which also hit the bottom line directly, as will possibly some other cost categories. To maintain last quarter's EPS, they would have to increase automotive GM by for instance $30-50M. That would be an impressive outcome.

- - - Updated - - -

Staple and others, can we assume that all foreign deliveries were averaging over 100k because they only ship the optioned out ones first?

I don't think they changed the order of shipping to get high-ASP cars delivered first. However, the cars delivered in the EU in Q3 had all been ordered several years ago, i.e. by hardcore TMS fans. Most were Sigs, and most were thoroughly optioned (P85+/P85). On the other hand, they would also have the pre-2013 discount ($2.5k).

 

[Citizen-T]

Remember that ZEV credits have 100% GM. We don't know whether ZEV will fall by $20M or $40M, but it will be very substantial. They have also guided a "significant" increase in R&D costs, which also hit the bottom line directly, as will possibly some other cost categories. To maintain last quarter's EPS, they would have to increase automotive GM by for instance $30-50M. That would be an impressive outcome.

I get that, but then how do you make the math work out so that the guidance holds? I mean, they said that the two would offset...I don't know how else to interpret that. Maybe ZEVs aren't going to drop that much after all?

 

[DonPedro]

I get that, but then how do you make the math work out so that the guidance holds? I mean, they said that the two would offset...I don't know how else to interpret that. Maybe ZEVs aren't going to drop that much after all?

They guided to non-GAAP profitability. That means $0.01 EPS or better. The street expects $0.11 as you pointed out, which beats the guidance.

My own projection currently shows $0.30 non-GAAP, based on $25M ZEV credits (half of Q2), 5,900 deliveries @ $101k ASP, 21% GM and $55M R&D costs.

 

[vgrinshpun]

I am much less skeptical that the majority on using the information from store employees as a data points. For example, there is an independent evidence that Tesla targets 800/week in Q4, 2013 and not by the end of 2014 as Elon mentioned prior to Q2 ER.

According to Jeff Howell, president of the Panasonic Industrial Devices Sales Company of America “Panasonic views Tesla as a very strategic customer.” He said the company was “committed to supplying and supporting Tesla business with the goal of providing 300 million battery cells by next year.” (see NYT Wheels Blog Article linked below)

According to report from Global Times linked below: "The electronics maker will resume operation of idled lines at the Suminoe Plant in Osaka Prefecture, which produces batteries for US automaker Tesla Motors Inc., as early as next January" Theses idled lines comprise Phase I of Suminoe plant which was built to produce 300 million cells per year - see the third link below

Since 300 million cells is enough to build more than 42,000 85kWh Model S, Tesla is set to achieve more than 800 cars/week production in Q4, as not all of the cars will be built with an 85kWh battery. This also means that target for for 2014 is at least 42,000 cars

Regarding the Craig's data on VIN assignment rates, I think that average rate for Q3 was above 600 cars/week. Review of the deliveries threads show that there was no increase wait time during the Q3. This could mean only one thing: that production rate kept pace with the rate of VIN assignment, i.e. on average, production was above 600 cars/week in Q3.

http://wheels.blogs.nytimes.com/201...tion-tesla-worries-about-battery-supply/?_r=0

Panasonic to increase lithium-ion battery production capacity - BUSINESS - Globaltimes.cn

Panasonic's New Lithium-Ion Battery Plant to Start Mass Production Next Month | Headquarters News | Panasonic Global

There is an additional data point on Model S/X production expansion over the next four years:

“With this agreement, the two companies update and expand their 2011 arrangement to now supply nearly 2 billion cells over the course of four years. The lithium-ion battery cells purchased from Panasonic will be used to power the award winning Model S as well as Model X, a performance utility vehicle that is scheduled to go into production by the end of 2014.”

http://www.benzinga.com/pressreleas...agreement-to-expand-supply-of-automotive-grad

Assuming 80% / 20% split between 85kWh / 60kWh modles, the 2 billion cells are enough to build approximately 300,000 Model S/X cars over four years (2,000,000,000 / (7104*0.8+5014*0.2) = 299,132)
To re-cap data points:

1. Panasonic restarting idled lines at Suminoe (Osaka Perfecture) plant by the beginning of 2014 with the corresponding annual production rate of 300M cells (equivalent to annual rate of more than 40,000 MS/year)
2. Elon stated that sometime in 2014 Panasonic will supply enough batteries to provide for production of at least 1200 MS/week (or approximately 60,000 MS/year.
3. The as designed maximum production capacity of the Model S/X line is 100,000 cars/year.
4. The total quantity of cells provided by Panasonic will be 2,000,000,000, enough for 300,000 Model S/X cars.

Based on the above, my prediction that Tesla has the following production plans:

2014: annual prod. rate in the beginning – 40,000 cars; end – 60,000 cars à 50,000 cars produced
2015: annual prod. rate in the beginning – 60,000 cars; end – 80,000 cars à 70,000 cars produced
2016: annual prod. rate in the beginning – 80,000 cars; end – 90,000 cars à 85,000 cars produced
2017: annual prod. rate in the beginning – 90,000 cars; end – 100,000 cars à 95,000 cars produced
Total 4 year production – 300,000 cars

Regarding the guidance during in the Q3 ER, it will likely to be understated at 40,000 cars, .

I am also looking forward for Elon to provide more details on increasing gross margin above 25% in future quarters. This is something that was hinted to in Q2 shareholder’s letter and should be achievable with greater certainty given improved production outlook.

“Further execution on our cost reduction roadmap is expected to continue to improve non-GAAP automotive gross margin to our target level of 25% (excluding ZEV credits) in Q4 this year. We are cautiously optimistic that a number above that level may be achievable in future quarters".

 

[Convert2013]

There is an additional data point on Model S/X production expansion over the next four years:

“With this agreement, the two companies update and expand their 2011 arrangement to now supply nearly 2 billion cells over the course of four years. The lithium-ion battery cells purchased from Panasonic will be used to power the award winning Model S as well as Model X, a performance utility vehicle that is scheduled to go into production by the end of 2014.”

http://www.benzinga.com/pressreleas...agreement-to-expand-supply-of-automotive-grad

Assuming 80% / 20% split between 85kWh / 60kWh modles, the 2 billion cells are enough to build approximately 300,000 Model S/X cars over four years (2,000,000,000 / (7104*0.8+5014*0.2) = 299,132)
To re-cap data points:

1. Panasonic restarting idled lines at Suminoe (Osaka Perfecture) plant by the beginning of 2014 with the corresponding annual production rate of 300M cells (equivalent to annual rate of more than 40,000 MS/year)
2. Elon stated that sometime in 2014 Panasonic will supply enough batteries to provide for production of at least 1200 MS/week (or approximately 60,000 MS/year.
3. The as designed maximum production capacity of the Model S/X line is 100,000 cars/year.
4. The total quantity of cells provided by Panasonic will be 2,000,000,000, enough for 300,000 Model S/X cars.

Based on the above, my prediction that Tesla has the following production plans:

2014: annual prod. rate in the beginning – 40,000 cars; end – 60,000 cars à 50,000 cars produced
2015: annual prod. rate in the beginning – 60,000 cars; end – 80,000 cars à 70,000 cars produced
2016: annual prod. rate in the beginning – 80,000 cars; end – 90,000 cars à 85,000 cars produced
2017: annual prod. rate in the beginning – 90,000 cars; end – 100,000 cars à 95,000 cars produced
Total 4 year production – 300,000 cars

Regarding the guidance during in the Q3 ER, it will likely to be understated at 40,000 cars, .

I am also looking forward for Elon to provide more details on increasing gross margin above 25% in future quarters. This is something that was hinted to in Q2 shareholder’s letter and should be achievable with greater certainty given improved production outlook.

“Further execution on our cost reduction roadmap is expected to continue to improve non-GAAP automotive gross margin to our target level of 25% (excluding ZEV credits) in Q4 this year. We are cautiously optimistic that a number above that level may be achievable in future quarters".

Good stuff and reasonable analysis. I still expect a deal with Samsung, LG, etc medium term for diversification purposes to get further price advantages and to reduce risk of production bottle necks due to various potential issues having a single source supplier for such high volume production. Those numbers you have are based on just the Panasonic contract and "mostly" US demand for Model S & X. The Europe and China (wild card) contributions can easily increase those numbers by end of 2014/early 2015 where they will need a 2nd supplier or modify the contract with Panasonic, IMO.

Here's the statement that leaves it open to another battery supplier contract which they will likely announce in the medium term future:

"Tesla is in talks with Samsung, LG, and other manufacturers, and will continue to discuss future supply with them and to evaluate their technology,"

 

[vgrinshpun]

Good stuff and reasonable analysis. I still expect a deal with Samsung, LG, etc medium term for diversification purposes to get further price advantages and to reduce risk of production bottle necks due to various potential issues having a single source supplier for such high volume production. Those numbers you have are based on just the Panasonic contract and "mostly" US demand for Model S & X. The Europe and China (wild card) contributions can easily increase those numbers by end of 2014/early 2015 where they will need a 2nd supplier or modify the contract with Panasonic, IMO.

The press release did not mention that the increase in Panasonic cell production will "mostly" cover US demand. Although I agree that some time in future there could be improvement in demand that will require further increase in production, the information as it stands right now indicates that this increase in production will address worldwide demand for Model S/X.

 

[tslafan123]

There is an additional data point on Model S/X production expansion over the next four years:

“With this agreement, the two companies update and expand their 2011 arrangement to now supply nearly 2 billion cells over the course of four years. The lithium-ion battery cells purchased from Panasonic will be used to power the award winning Model S as well as Model X, a performance utility vehicle that is scheduled to go into production by the end of 2014.”

http://www.benzinga.com/pressreleas...agreement-to-expand-supply-of-automotive-grad

Assuming 80% / 20% split between 85kWh / 60kWh modles, the 2 billion cells are enough to build approximately 300,000 Model S/X cars over four years (2,000,000,000 / (7104*0.8+5014*0.2) = 299,132)
To re-cap data points:

1. Panasonic restarting idled lines at Suminoe (Osaka Perfecture) plant by the beginning of 2014 with the corresponding annual production rate of 300M cells (equivalent to annual rate of more than 40,000 MS/year)
2. Elon stated that sometime in 2014 Panasonic will supply enough batteries to provide for production of at least 1200 MS/week (or approximately 60,000 MS/year.
3. The as designed maximum production capacity of the Model S/X line is 100,000 cars/year.
4. The total quantity of cells provided by Panasonic will be 2,000,000,000, enough for 300,000 Model S/X cars.

Based on the above, my prediction that Tesla has the following production plans:

2014: annual prod. rate in the beginning – 40,000 cars; end – 60,000 cars à 50,000 cars produced
2015: annual prod. rate in the beginning – 60,000 cars; end – 80,000 cars à 70,000 cars produced
2016: annual prod. rate in the beginning – 80,000 cars; end – 90,000 cars à 85,000 cars produced
2017: annual prod. rate in the beginning – 90,000 cars; end – 100,000 cars à 95,000 cars produced
Total 4 year production – 300,000 cars

Regarding the guidance during in the Q3 ER, it will likely to be understated at 40,000 cars, .

I am also looking forward for Elon to provide more details on increasing gross margin above 25% in future quarters. This is something that was hinted to in Q2 shareholder’s letter and should be achievable with greater certainty given improved production outlook.

“Further execution on our cost reduction roadmap is expected to continue to improve non-GAAP automotive gross margin to our target level of 25% (excluding ZEV credits) in Q4 this year. We are cautiously optimistic that a number above that level may be achievable in future quarters".

All these projections are NOT accounting for any improvements in cell technology though!

If cells are going from 3.1 Ah to 4.0 Ah right away, we can expect about
- 387K cars (if kWh is kept constant, getting more range)
- more than 387K cars (if EPA mileage is kept constant, kWh per car reduced)

 

[FluxCap]

DaveT, any thoughts old buddy?

 

[DonPedro]

It is hard to know whether the Panasonic deal covers all battery supply for the period, or just part of it. They could buy batteries from LG/Samsung as well. The number of cells could also be the agreed minimum number, with a potential to increase. As such, the number is more of a floor for expected demand than a "most likely" projection.

Having said that, I don't think this discussion belongs in the Q3 thread.

 

[vgrinshpun]

All these projections are NOT accounting for any improvements in cell technology though!

If cells are going from 3.1 Ah to 4.0 Ah right away, we can expect about
- 387K cars (if kWh is kept constant, getting more range)
- more than 387K cars (if EPA mileage is kept constant, kWh per car reduced)

Good point, but I do not think that there is currently any indication that increased capacity cells will be used in Model S/X before they are put in Gen III car.

- - - Updated - - -

It is hard to know whether the Panasonic deal covers all battery supply for the period, or just part of it. They could buy batteries from LG/Samsung as well. The number of cells could also be the agreed minimum number, with a potential to increase. As such, the number is more of a floor for expected demand than a "most likely" projection.

Having said that, I don't think this discussion belongs in the Q3 thread.

Agree that these production numbers are minimum, with potential to increase.

The point of posting it here was reiterating my prediction for guidance of 40,000 cars in 2014 during the Q3 ER Report.

 

[pfq1982]

Remember that ZEV credits have 100% GM. We don't know whether ZEV will fall by $20M or $40M, but it will be very substantial. They have also guided a "significant" increase in R&D costs, which also hit the bottom line directly, as will possibly some other cost categories. To maintain last quarter's EPS, they would have to increase automotive GM by for instance $30-50M. That would be an impressive outcome.

- - - Updated - - -



I don't think they changed the order of shipping to get high-ASP cars delivered first. However, the cars delivered in the EU in Q3 had all been ordered several years ago, i.e. by hardcore TMS fans. Most were Sigs, and most were thoroughly optioned (P85+/P85). On the other hand, they would also have the pre-2013 discount ($2.5k).

I wonder if they might have hit 25% gross margin in September. They had a lot of high ASP cars produced and on the boats in August for Sept. delivery. These hit (Norway etc.) at the same time as the quarter-end production push for US cars. And if you look at the wait time on P cars like Tex's, we saw ultra short wait times in order to squeeze them into Sept. (wait times which have now blown back out, so it's not a demand problem). Someone correct me if I'm wrong, but these cars also had the high-margin price increases. So Tesla should have massively levered their Sept. factory overhead with delivery count (conversely, August gross margin would be lower), and Sept. average ASP should be very high.

Unless shipping costs are very high, or we are still waiting for some part cost milestones to kick in, I'm starting to think Tesla might have a very nice surprise on the margin side.

 

[sub]

Take this info for what it's worth, but an owner posted in a thread that he ran into a tech servicing a supercharger and they tech implied they hit 25% GM for Q3. Posting invade anyone missed it. Yes I understand it's not the highest quality source.

 

[DaveT]

Take this info for what it's worth, but an owner posted in a thread that he ran into a tech servicing a supercharger and they tech implied they hit 25% GM for Q3. Posting invade anyone missed it. Yes I understand it's not the highest quality source.

I thought the tech might have implied 25% GM in Q4 (any day now) rather than Q3.

Here's the thread link fyi: Chat with a Tesla Supercharger repair tech

- - - Updated - - -

It is hard to know whether the Panasonic deal covers all battery supply for the period, or just part of it. They could buy batteries from LG/Samsung as well. The number of cells could also be the agreed minimum number, with a potential to increase. As such, the number is more of a floor for expected demand than a "most likely" projection.

I would imagine that Tesla would secure at least one or two secondary suppliers (ie., Samsung or LG) as well.

- - - Updated - - -

DaveT, any thoughts old buddy?

For Q3, I'm still sticking with my estimates from prior:
Q3 production is 520 cars/week (avg of 490 and 550) x 12 weeks = 6240 cars produced minus 200-500 on boat/transit to Europe minus 200 loaners/store cars minus 100 cars U.S./Canada transit = 5440-5740 cars delivered in Q3

I know I'm on the low side of people here for cars delivered, but I think Tesla has the chance to surprise of gross margin for Q3. Anything above 20% would be very, very good. Also, Tesla could surprise (or disappoint) with FY 2014 guidance. Right now, I'm hopeful that Tesla surprises with 20%+ gross margin and 35k cars delivered or higher on FY 2014 guidance, and that gives support to the stock price. I'm a bit cautious though. I got out of my aggressive short-term OTM calls and but I'm heavy in stock and deep ITM LEAPS (as well as deep ITM Dec/Jan calls bought a long time ago).

 

[clmason]

Do we know how many 40kWh S's were delivered in Q2?

If i recall correctly they were sold at negative margin. I'm not sure any of the Avg Sale price models have taken this into consideration. This along with the overall price increases, decoupling of options, and Performance+ addition, i think Average Sale price is underestimated by many and likewise Product Margin is being underestimated.

I'm optimistic that November and December will be good months for TSLA shares. Icing on the cake --> guidance towards 30% product margin.

 

[Convert2013]

Do we know how many 40kWh S's were delivered in Q2?

If i recall correctly they were sold at negative margin. I'm not sure any of the Avg Sale price models have taken this into consideration. This along with the overall price increases, decoupling of options, and Performance+ addition, i think Average Sale price is underestimated by many and likewise Product Margin is being underestimated.

I'm optimistic that November and December will be good months for TSLA shares. Icing on the cake --> guidance towards 30% product margin.

With FB and SPWR providing a mix of good and bad news on their ERs today, I don't see the same happening for Tesla for Q3 and Q4/ 2014 guidance. One potential negative: Warranty costs for Q3 and more for Q4 could be higher as there are more cars on the road now and not sure how that will affect their bottom line.

 

[StapleGun]

@StapleGun - Nitpick on the graphs.

The first graph references "P85 kWh" while the second references (P)"85+". These are different configurations.

Good catch. Just added a note to the original post, they both were meant to say P85.

Staple and others, can we assume that all foreign deliveries were averaging over 100k because they only ship the optioned out ones first?

I haven't done much research about absolute pricing but NStar's post earlier was a good summary. I can confidently say Q3 ASP will be considerably higher than Q2 though, probably 3%-5% higher. There was about 1400 EU deliveries, a good portion of these still have earlybird pricing, but that is trumped by the fact that they are all 85kwh and a higher than normal proportion will be P85/P85+ with lots of options.

 

[DonPedro]

Here is my spreadsheet that you can use to make your own non-GAAP and GAAP projections for Q3, based on your assumptions for deliveries, ASP, GM and so forth:

https://www.dropbox.com/s/1im2p7hrkfy1mb3/TSLA Q3 projection.xlsx

It is currently completed with the figures that come out of my latest swing of sentiment, which is down on deliveries and up on GM and ASP (5,750, 21.5% and $102k, respectively). Gives a non-GAAP EPS of $0.30 and GAAP of -$0.17.

Note that the non-GAAP ----> GAAP method involves a fair bit of guesswork. If you want to dig into those assumptions, here is the method I have employed:
* I have assumed that 35% of US sales are covered by lease accounting in Q3, up from 29.5% in Q2 (I expect an increase because the lease accounting did not exist at the start of Q2).
* I have further assumed that GM of the deferred sales was 0.9% less than the average, this will be the same in Q3.
* I have also assumed that recognition of deferred revenues from Q2 is still so small that it is covered by the two items above (there could be a little upside to the GAAP figures here)
* Stock based comp is guesstimated at $23m, just based on the optics of the three previous quarters: $12.5m - $15m - $19m
* Non-cash interest on the convertibles is assumed to be the same as in Q2 ($1.8m - this could be too low due to full-quarter effects)