Someone has written a Seeking Alpha piece regarding Q2 and Q3 guidance and upside potential: http://seekingalpha.com/article/148...uge-upside-potential-for-results-and-guidance
I feel we should have a thread here to discuss Q2 (and Q3), just as we did after luvb2b's excellent (and for some of us highly profitable) Q1 thread. So here we go!
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To start off:
I think the argument on the revenue per car is highly convincing. This is clearly a source of underestimating the top line. The big question is the impact on the bottom line. This depends on how the Street's Q2 projections have been done. If there are some sort of bottom-up analyses (which I doubt), then the impact will be very big, as the options have high margins. More probably, the estimates come from some sort of gross margin assumption. Q1 gross margins without ZEV credits were ~5% if I remember correctly, and the company has guided that they will rise to 25% in Q4. Add in the obligatory skepticism, and it seems reasonable that the Street would assume 10% GM. In that case, 10% of the increased earnings would go to the bottom line in the models. (Of course, we could also assume that they are underestimating the GM, in which case we could add some percentage points of the total revenues to the bottom line as well).
In terms of the possibly increased production, I would feel much more comfortable with this idea if there was any other source than just the VINs. It has been my very clear understanding that to get the GM up they need to streamline production by keeping it level and trying to do the 400 cars/week in one shift for all work stations. Ramping up the production beyond this point would probably to a certain extent upset this improvement process, and also increase unit costs by incurring more overtime. Also some of Tesla's suppliers would be likely to struggle to be fully efficient if the production volume keeps fluctuating. On the other hand, if demand is above expectations it would be very natural for Tesla to try to ramp up production ahead of schedule.
Then there seems to me to be a slip in the logic in the Q3 commentary in the article where it says: "This seems particularly confusing when adding in the European deliveries that will be carried over from Q2. If US demand stays constant in Q3 (at 4,500 units, despite management comments that it's growing) then Tesla should deliver between 5,000-5,500 vehicles in Q3." [My emphasis]. Unless there is no carry over from Q3 to Q4, you cannot simply add the goods-in-transit to Q3 deliveries. The only thing you could add would be a decline in this inventory, but that is not very likely. To the contrary, if EU demand grows, it is likely that there will be an increasing number of cars in transit at any point in time.
I feel we should have a thread here to discuss Q2 (and Q3), just as we did after luvb2b's excellent (and for some of us highly profitable) Q1 thread. So here we go!
- - - Updated - - -
To start off:
I think the argument on the revenue per car is highly convincing. This is clearly a source of underestimating the top line. The big question is the impact on the bottom line. This depends on how the Street's Q2 projections have been done. If there are some sort of bottom-up analyses (which I doubt), then the impact will be very big, as the options have high margins. More probably, the estimates come from some sort of gross margin assumption. Q1 gross margins without ZEV credits were ~5% if I remember correctly, and the company has guided that they will rise to 25% in Q4. Add in the obligatory skepticism, and it seems reasonable that the Street would assume 10% GM. In that case, 10% of the increased earnings would go to the bottom line in the models. (Of course, we could also assume that they are underestimating the GM, in which case we could add some percentage points of the total revenues to the bottom line as well).
In terms of the possibly increased production, I would feel much more comfortable with this idea if there was any other source than just the VINs. It has been my very clear understanding that to get the GM up they need to streamline production by keeping it level and trying to do the 400 cars/week in one shift for all work stations. Ramping up the production beyond this point would probably to a certain extent upset this improvement process, and also increase unit costs by incurring more overtime. Also some of Tesla's suppliers would be likely to struggle to be fully efficient if the production volume keeps fluctuating. On the other hand, if demand is above expectations it would be very natural for Tesla to try to ramp up production ahead of schedule.
Then there seems to me to be a slip in the logic in the Q3 commentary in the article where it says: "This seems particularly confusing when adding in the European deliveries that will be carried over from Q2. If US demand stays constant in Q3 (at 4,500 units, despite management comments that it's growing) then Tesla should deliver between 5,000-5,500 vehicles in Q3." [My emphasis]. Unless there is no carry over from Q3 to Q4, you cannot simply add the goods-in-transit to Q3 deliveries. The only thing you could add would be a decline in this inventory, but that is not very likely. To the contrary, if EU demand grows, it is likely that there will be an increasing number of cars in transit at any point in time.
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My article was published in Green Car Reports, and I don't expect to publish anything at SA in the future.
