Following up on
@DaveT's post, I don't believe the Q4 delivery miss of about 3,000 vehicles (I had assumed guidance of 25.2K v. 22.2K actual) will have a material impact on Tesla's ability to generate cash for the Model 3 ramp since it will basically shift cash generation from Q4 2016 to early Q1 2017.
Tesla reported that production was about 25K but that 2750 deliveries were delayed in transport or the customer was unable to take delivery. Production delays were also attributed to the switch from AP1 to AP2. For Q4 numbers, worst case scenario is that Tesla incurred all of the costs for the delayed deliveries and collected nothing from customers. If that were the case, the hit on operating cash generation (operating cash flow plus cash generated from sales to leasing partners) for Q4 would be somewhere in the neighborhood of $280M using
@Fallenone's estimated ASPs of $87K for Model S and $104K for Model X.
It will probably be somewhat less than that because Tesla appears to have collected payment for some of these vehicles in Q4 (I have no idea what percentage). Also, it seems likely that one of the root causes of the shortfall -- production delays from the AP2 switchover -- means that many of the expenses associated with these vehicles were incurred late in the quarter so may show up in Accounts Payable rather than as a hit to cash flow. Overall, my WAG is that this will result in $150M to $225M in operating cash flow/cash generation being shifted from Q4 2016 to Q1 2017.
This would reduce my estimate of cash generation from my $485M estimate in November to $260M-$335M, not including ZEV credits and Powerwall deposits.
To reiterate, I think this will have little or no impact on Tesla's ability to generate cash for Model 3 production. For example, if as has been reported the December China shipment was delayed because of a port shutdown due to pollution, Tesla's payment for those vehicles presumably should be delayed by just a few weeks or less.
Cash flows will also likely be reduced somewhat due to the strengthening dollar. Since Tesla has recently made price adjustments overseas hopefully this problem has been addressed to some extent going forward, although Tesla will continue to have currency risk. Unlike the delivery miss, however, this lost cash flow will not be recovered unless the dollar weakens.
From September 30, 2016 to December 31, 2016 the dollar gained 6.39% compared to a basket of major currencies, with most of the change occurring after the election.
Trade Weighted U.S. Dollar Index: Major Currencies (This is slightly lower than the figure in my December 26, 2016 post because the dollar dropped a bit at the end of the year).
As
@Turing suggests, using end of year data to assess the impact on cash flow from operations is probably not the right metric (although if we have any accountants who want to weigh in please do!). Using the FRED's monthly data and weighting the months toward the end of the quarter more heavily to reflect Tesla's delivery cycle (50% December/September 33% November/August and 17% October/September) results in a rough estimated exchange rate difference of about 4.1% over Q3.
This will only apply to overseas sales. Using insideEVs US Q4 delivery numbers (13,675) the Q4 split should be about 61.5%US/38.5% overseas. This is tilted toward US sales, but that is consistent with the bulk of the delayed deliveries being to Europe and China.
A rough estimate of operating cash generation reduction due to the change in the exchange rate is .041*.385*$2.1B or $33M. This should be a conservative number since as
@Turing notes Tesla sources batteries and other parts from overseas and will get the benefit of the exchange rate changes on the production side, which I have not included.
I should note that Tesla's disclosure of up to a $259M hit on earnings with a maximum expected 10% currency fluctuation suggests that the foreign exchange hit on
earnings (versus operating cash flow) could be higher, possibly significantly higher.
Short-Term TSLA Price Movements - 2016
Since a significant part of this hit apparently has to do with reconciling foreign accounts rather than operational cash flows, it is possible that the higher end of quarter exchange rate difference (6.39%) will be in play for a significant portion of the currency adjustments. I have not had time to put together earnings estimates but I would encourage people who are to look into this, since at first blush it has the potential to have a major impact on earnings.
The strengthening dollar may also negatively impact cash flow from financing activities and investing activities. This is a complex area both in terms of accounting and Tesla's finances and financial instruments and I have not had the chance to dig into how the currency changes will affect these cash flows, but perhaps someone with accounting expertise or more knowledge on this issue can weigh in.
As mentioned in my earlier posts, cash flow numbers are based on many variables and can also vary significantly from quarter to quarter so these numbers should be taken with a huge grain of salt. They also don't include cash flows from the solar business, although others have discussed that. Also, my main interest is in Tesla's ability to generate cash over the medium and long-term, so quarterly variations are not only not of great concern to me but expected. Since the delivery miss is presumably already priced in, I don't know whether the market will care about cash flow numbers one way or another, unless they are extreme in either direction, or Tesla provides further detail on capital needs and whether a cap raise is needed or not.
