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SA Q2/Q3 earnings article (not written by CapOp)

Discussion in 'TSLA Investor Discussions' started by DonPedro, Jun 6, 2013.

  1. DonPedro

    DonPedro Member

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    #1 DonPedro, Jun 6, 2013
    Last edited: Jun 7, 2013
    Someone has written a Seeking Alpha piece regarding Q2 and Q3 guidance and upside potential: http://seekingalpha.com/article/1484121-tesla-q2-preview-huge-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!

    - - - 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.
     
  2. CapitalistOppressor

    CapitalistOppressor Active Member

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    Naa, thats not me. He did write an article for SA on swapping a few days after I submitted mine to them. So we have that in common at least :) My article was published in Green Car Reports, and I don't expect to publish anything at SA in the future.

    This reply was originally a longer, detailed, takedown of his analysis. But then I realized that he will likely read this, so I'm going to let him figure out where he went wrong on his own.

    But a quick glance at his article shows numerous mistakes about very basic facts. And even bigger mistakes on not so basic (but fundamental) facts and methodology.

    If Seeking Alpha has nominated him to be me, he needs to work harder.

    - - - Updated - - -

    The problems go well beyond that.
     
  3. Bgarret

    Bgarret Model S ownin' Michigan scofflaw

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    I will wait for Cap Opp's more learned and detailed takedown, but a couple thoughts. DPedro mentioned a "conservative" assumption of 10% GM. According to the Q1 earnings call and Elon, they have already passed that:

    http://seekingalpha.com/article/1416891-tesla-motors-ceo-discusses-q1-2013-results-earnings-call-transcript?page=2&p=qanda&l=last


    "And so the gross margin at the end of Q1 was significantly better than at the beginning of Q1. So you may still think of we're starting from a base of 5% or 6%, but actually we're starting from a base that's better than that." - Elon

    I don't know what you call significant, but I would hazard starting Q2 at 10-12% and ending Q2 at 18-20%, for an average Q2 GM of about 15%. This would put them on track for their goal of 25% GM by the END OF Q3 - per Elon, same citation:

    "No, no change really. I'd say we're – we think we'll be at 25% on average for all of Q4. I'm fairly certain we'll be at 25% before the end of Q4 and I think it's likely that will be a 25% on average in Q4."

    There was also mention somewhere of the "conservative" booking of the 4900 for Q1, which leads me to believe there might be some holdovers of some of the late deliveries from Q1 into Q2. I'm not sure where 15% avg. margins on 5000-5500 cars would end up.....but it would not be an -11cent loss.
     
  4. DonPedro

    DonPedro Member

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    So sorry about the misattribution - and even in the thread title. I hope one of the mods can correct the title!
     
  5. CapitalistOppressor

    CapitalistOppressor Active Member

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  6. NigelM

    NigelM Recovering Member

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    Got it. Title amended.
     

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