Short-Term TSLA Price Movements - 2016

[Yggdrasill]

This doesn't sound right to me. For example... if I order $25 million dollar of parts in Q1, and due to 45 day payment terms, I leave $15 million in accounts payable. The next quarter, since I'm increase production by 50%, I order $37.5 million dollars of parts in Q2, and due to 45 day payment terms, I leave $22.5 million in accounts payable. In Q3, I am building another 50% increase in production, so I order $56.25 million in parts, and again, due to 45 day payment terms, I leave $33.75 million in accounts payable.

Sure, I could pay before the 45 day payment terms say I need to pay. I'm not stiffing these suppliers nor am I delaying their payments beyond the standard payment terms. As a function of my increased production, the amount of parts I'm ordering increases, and therefore the amount in accounts payable also increases.

Now in Q4, I'm increase production by 10% over Q3. So now I'm ordering $61.9 million in parts, and I leave $37 million in AP. The suppliers again get paid exactly by schedule. AP goes up as a function of the amount of parts being ordered for production. It would be a neat trick if Tesla could increase production by that much and not have a corresponding increase in AP. You can go back and see Tesla's AP as a function of automotive cost of revenues and the percentage in Q3 2016 doesn't seem outsized at all.

Of course, there's the actual variability that we can't actually see since we have only quarterly snapshots.

To frame it better for Tesla specifically, accounts payable went up $491 million from Q2 to Q3. Receivables went up $148 million, so the net effect is $343 million. The total automotive cost of revenues went from $909 million to $1,517 million, or up $608 million. Overall inventory levels remained relatively flat, with a decrease in raw materials but an increase in work in progress and finished goods. Subtracting out service parts, the rest of the inventory decreased by $6 million. So the net effect of $343 million more in payables has to framed by the increase in the cost of revenues of $608 million. It doesn't look like to me that they are delaying payment any more than would be expected by increasing production by this much.

First, your figure for increase in AP is wrong - it went from $1,673 million in Q2 to $2,301 million in Q3, which is an increase of $628 million. After adjusting for AR, the net effect is $480 million.

Second, I'm not saying anyone is getting stiffed. I'm just saying that scaling up production improves cash flow, as a one-time effect. And because the factory is shut down for 2-3 weeks in Q4, it's unlikely that Tesla will recieve these one-time improvements in cash flow in Q4. (And much smaller effects in Q1/Q2 than Q3, as further scaling of volume will be hard-fought.)

 

[Yggdrasill]

There seems to be a lot of talk of Model S/X generating cash for Model 3 cap ex. Not sure about that.

Here's what I'm seeing from the Q3 profit/loss statement.

1. $2.3 billion in revenue
2. $1.66 billion in cost of revenue
3. That leaves $636 million in gross profit
However, Q3 included $138 million in ZEV credit sales. So, assuming that following quarters won't have those ZEV credits (note: they might have some, but for argument sake let's ignore ZEV credits). Then, gross profit would be roughly $500 million.

Recap: $2.3 billion in revenue, gross profit $500 million.

4. $551 million in operating expenses (including R&D, and SG&A). (note: this includes stock-based compensation. we could exclude this and that would allow greater net profit, but stock-based compensation is not free as it dilutes stock and should be considered as expense. So, for argument's sake, let's leave the stock-based compensation expenses as part of operating expense).

So, you take gross profit of $500 million and minus $551 million in operating expenses, and you've got a loss of $51 million. And this is before interest expense, which last quarter was $46 million. If you include that, then it would be a $100 million loss.

Now these figures are for last quarter when they sold almost $25k vehicles.

If you assume in the next few quarters that they will sell roughly 25k vehicles per quarter, then I don't understand why some people here are saying that Model S/X will provide $1 billion+ in net profit over next few quarters. If you mean gross profit (before operating expenses), then sure, but that just keeps the company afloat and pays for R&D and SG&A but does not pay for any Model 3 cap ex, like equipment/tooling, GF, etc.

Now, if you're thinking Model S/X sales will increase substantially over the next few quarters, then maybe you have an argument but I'm not seeing how S/X will contribute to Model 3 cap ex. I can see S/X sales cover Tesla's R&D and SG&A but I don't see it contributing to Model 3 cap ex, even if Tesla is selling 26k vehicles in Q4, 28k vehicles in Q1 2017, 30k vehicles in Q2 2017, since Tesla's R&D and SG&A expenses are going to be increasing every quarter as well.

We did see an unique situation of significant positive cash flow in Q3 but quarterly cash flow is based on many factors and can be quite volatile. I think it's best to look at their quarterly profit/loss statement and see if what their operations are contributing after all operating expenses. And in this case, we've see that S/X sales cover Tesla's operating expenses but not much more. On the other hand, Tesla's R&D expenses include expenses for R&D for Model 3 and other initiatives so a lot of it is future growth-based.

Now, I've left out Tesla Energy here because of two reasons. We don't have a lot of clarity on the revenue and margin projections Tesla has for TE in 2017. Second, the point I'm making here is to address folks that are claiming that S/X sales are going to fund Model 3 cap ex.

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I'm certainly not talking about net profit or gross profit. I'm talking about cash flow, which as techmaven says involves a lot of GAAP/non-GAAP considerations.

I think the best way to assess cash flow is to take the cash flow, $597 million (before capex), then adjust for ZEV credits and AP. I arrive at a cash flow of something like $1-1.25 billion over the next three quarters.

 

[schonelucht]

Why is that diluted share count increased from ~140 mil in Q2 to ~157 mil in Q3? That is a very large increase!

Stock based compensation?

 

[MitchJi]

Second, I'm not saying anyone is getting stiffed. I'm just saying that scaling up production improves cash flow, as a one-time effect. And because the factory is shut down for 2-3 weeks in Q4, it's unlikely that Tesla will recieve these one-time improvements in cash flow in Q4. (And much smaller effects in Q1/Q2 than Q3, as further scaling of volume will be hard-fought.)

Not necessarily. That depends on how quickly they add the M3 production line innovations to the MS-MX line.

One example is redesigning the wiring harness so that it can be installed by robots rather than by hard.

Another is increasing the speed of the production lines, the speed of cars moving along the lines.

 

[MitchJi]

Two items that might increase the SP:

Is Tesla selling any Powerwalls and Powerpacks V2 now? Because Tesla's costs will drop by about 50% when they switch to cells produced at the GF. They will either increase their margins substantially or decrease their prices. I don't think that the market is expecting either of those things to happen.

Two things that will help put the negative short term impact of the SCTY merger behind us are a big majority of votes in favor of the merger.

So even if you are against the merger if you want to minimize the negative impact on the SP you should vote for the merger. It's going to pass, but if it barely squeaks through that will help prolong the ST pain. OTOH if it gets a huge majority that will tend to cause the negative short term impact to dissipate.

Of course we could hope that the market would figure out (highly unlikely in the short term), what Ron Barron said, that Tesla plus SCTY will be in a position to disrupt energy generation and distribution (the grid) and he points out that that's a much bigger market than cars.

The other thing that I believe will put the final nails in the coffin of it's a bad deal for Tesla is if SCTY can be either close to or actually cash flow positive in Q3-Q4.

 

[JBRR]

U.S. regulator found another cheat device in Audi car: report

 

[Mario Kadastik]

Stock based compensation?

I think it's more likely that the early closing of convertibles was the cause. I don't remember the details, but I do remember that Tesla had options to cover part of it and had a choice of emitting new stock or paying cash or a combination of both. So the large clearing of convertible debt in Q3 might have been the main impact on the large increase in shares outstanding. Not sure if anyone of the officers had an option that matured due to hitting milestones. Q2 would have seen alpha M3 prototype milestone, X was shipping already last year and they are still away from 30% GM ones though now they consider it possible as well as 100k annual rate and 300k total cars.

 

[JRP3]

Bump. Anybody have any guesses on this?

It really depends on how adjustable the machines are. 18650 to 2170 is a very small change so a large percentage of an existing line might be able to adapt. On the other hand they are likely going to want the newest and fastest machines available so probably everything other than maybe slurry mixers might be replaced.

 

[EinSV]

So... I've been meaning to reconcile the cash generation with the balance sheet. I suspect it has something to do with direct leasing, specifically the deferred revenue and expiration of resale value guarantees.

So the $2.3 billion in GAAP revenues has $231 million in automotive leasing, and cost of revenues as $162 million in automotive leasing. There was an increase of $224 million in RVG vehicles, and $191 million in leased vehicles. The deferred revenue was increased by $57 million.

Their cash flows from operating activities was a positive $424 million dollars in Q3, $597 million if you include the change in collateralized lease borrowing.

I'm not quite sure how to reconcile all of this, but I'm pretty sure that the calculations you made above do not fully reflect how Tesla has to account for leasing and RVG vehicles as opposed to the actual cash flow from those vehicles. In other words, while they can't account for all (or even most) of the revenue and the expense of those vehicles in the quarter they are sold or leased, there is actual cash that comes in from them. Plus, the ending of most of the RVG also has an effect.

I'm hoping someone smarter than me can sort this out and explain it... I've tried several times to sort through the various leasing and RVG items and how they interleave. It's the biggest source of error for my models.

@DaveT, how do you look at the cash flow versus GAAP net profit given the leasing, RVG, and overall deferred revenue?

BTW, the Q3 10-Q seems to only have 9 month data for cash flows, but the shareholder's letter does have 3 month data. Not sure why that is.

In addition to adjusting for RVG, adjustments for depreciation and amortization and stock-based compensation need to be made because they are counted on the expense side of the ledger but don't affect cash flow. So D&A and SBC need to be added back to income to calculate cash flow.

At the end of Q3, D&A expense for nine months was $620M and SBC expense was $246M for a total of $866M. At the end of Q2 these two items together were $497M, so Q3 cash flows should be adjusted upward by $369M ($866M-$497M) for D&A and SBC booked in Q3.

There are a bunch of other line items listed on the cash flow reconciliation worksheet in the 10Q, but I did not spot anything that suggested the $460M cash flow number reported in the shareholder letter (excluding ZEV credits) was not repeatable in Q4. I do agree with @DaveT that quarterly cash flows can be volatile, but the same is true of quarterly earnings, so for purposes of predicting future cash flows I prefer to start with the cash flow figures Tesla reported and adjust accordingly.

It will be interesting to see if Q4 results show a repeat performance of Q3's strong, positive cash flows to confirm this is a trend as opposed to a one-time occurrence. I think there is a good chance they will, and that S/X sales could provide a significant source of capital for the Model 3 ramp (in addition to contributions from TE).

 

[electracity]

Bump. Anybody have any guesses on this?

If you are referring to pack assembly, both car and Tesla Energy, I don't think they are interested in updating the 18650 lines. I think the 21700 are new lines, with eventual new pack design for the S/X. Tesla would want to make on car pack with multiple capacities if possible.

The model 3 is perhaps as long as it is to allow a technological roadmap that eventually produces one car pack. I also assume that Tesla did not produce significant powerwall 1 units because they put their production design effort towards a more sophisticated powerwall 2 line.

I would like to know the capacity of the first powerwall 2 line.

 

[AudubonB]

Stock price malaise:

TSLA is a long time in the $200 channel. A lot of factors of course, but I wonder if one of the more adept of some of you would like to run with the following.

First, tell me if you think these propositions are correct. I read through the Tesla Employee "Handbook" a year or so ago and definitely did not retain precise knowledge of the details:

• Tesla employees have the opportunity each month to purchase treasury shares.
  • All employees?
  • At a ___15%?___ discount to the ___/month-end/mean 5-day/month average/___price?
• Those shares are then available to sell
  • Immediately? After a ___-day waiting period?
• The amount of shares potentially taken out of treasury (i.e., created) is f(employee count,___?___,___?___)

All right, next assume you're such an employee. Under what circumstances would you -

• keep each period's shares, or
• buy the shares, sell them into the market and walk away with the approx. 15% profit
  • lather, rinse repeat
• What employees would most likely perform which kind of actions with his or her shares?

Next, what effect would such a trickling into the market have on TSLA price? We certainly can state it will not be positive, but if we can get something of a handle on the volumes, we can compare it to normal market activity. Are there specific periods when this may be occurring?

 

[winfield100]

U.S. regulator found another cheat device in Audi car: report

how many other shoes to drop...?

 

[TMSE]

I think it's more likely that the early closing of convertibles was the cause. I don't remember the details, but I do remember that Tesla had options to cover part of it and had a choice of emitting new stock or paying cash or a combination of both. So the large clearing of convertible debt in Q3 might have been the main impact on the large increase in shares outstanding. Not sure if anyone of the officers had an option that matured due to hitting milestones. Q2 would have seen alpha M3 prototype milestone, X was shipping already last year and they are still away from 30% GM ones though now they consider it possible as well as 100k annual rate and 300k total cars.

Good explanation. SBC was about ~$90 mil for Q3, which translates to only about 450k additional shares. So, are vast majority of additional 17 mil shares in Q3 must be due to converts? ~16.5 shares at $200 is worth $3.3 billion! Does it mean they reduced convertible debt by that huge amount?

 

[ggr]

Stock price malaise:

TSLA is a long time in the $200 channel. A lot of factors of course, but I wonder if one of the more adept of some of you would like to run with the following.

First, tell me if you think these propositions are correct. I read through the Tesla Employee "Handbook" a year or so ago and definitely did not retain precise knowledge of the details:

• Tesla employees have the opportunity each month to purchase treasury shares.
  • All employees?
  • At a ___15%?___ discount to the ___/month-end/mean 5-day/month average/___price?
• Those shares are then available to sell
  • Immediately? After a ___-day waiting period?
• The amount of shares potentially taken out of treasury (i.e., created) is f(employee count,___?___,___?___)

All right, next assume you're such an employee. Under what circumstances would you -

• keep each period's shares, or
• buy the shares, sell them into the market and walk away with the approx. 15% profit
  • lather, rinse repeat
• What employees would most likely perform which kind of actions with his or her shares?

Next, what effect would such a trickling into the market have on TSLA price? We certainly can state it will not be positive, but if we can get something of a handle on the volumes, we can compare it to normal market activity. Are there specific periods when this may be occurring?

It sounds like a fairly standard tech industry Employee Stock Purchase Plan. If it's the same as the one I had a few years ago:
. Employee contributes part of their pay check up to some maximum ($7.5k/6 months in my case). Amount must be decided in advance.
. All employees >30 hrs/week were eligible.
. At end of 6 months they buy stock at 85% of the lower stock price at the beginning and end of the period
. There is favorable tax treatment if the stock is held for 2 years from the beginning of the period (this is tax law, not company policy)
. If not held, all gains from the sale are taxed as income. No waiting period. Just shares, can be sold any time.
. The amount you can contribute is limited, but I don't think there's any other limit on how many new shares can be created.

 

[MitchJi]

Next, what effect would such a trickling into the market have on TSLA price? We certainly can state it will not be positive, but if we can get something of a handle on the volumes, we can compare it to normal market activity. Are there specific periods when this may be occurring?

Shooting from the hip, I think that the impact would be insignificant.

The worst case is something like 10k employees an average maximum (based on a percentage of their salaries)100 shares per year equals a million shares. Even if they all sold them on the same day it'd be negligible.

 

[EinSV]

Why is that diluted share count increased from ~140 mil in Q2 to ~157 mil in Q3? That is a very large increase!

Could you please provide a source for these numbers?

Tesla's Q2 10-Q says there were 148M shares outstanding on June 30, 2016, and Q3 10-Q says 149M shares outstanding on September 30, 2016.

Common stock; $0.001 par value; 2,000,000 shares authorized as of June 30, 2016 and​

December 31, 2015; 148,015 and 131,425 shares issued and outstanding as of​

June 30, 2016 and December 31, 2015.

Common stock; $0.001 par value; 2,000,000 shares authorized as of September 30, 2016 and

December 31, 2015; 149,825 and 131,425 shares issued and outstanding as of

September 30, 2016 and December 31, 2015
​

The 3Q 10-Q also says that "as of October 25, 2016, there were 149,891,190 shares of the registrant’s Common Stock outstanding."

SEC Filings | Tesla Motors

Edit: Found the diluted average share numbers. Since diluted average shares in Q2 were significantly lower than outstanding shares at the end of Q2 (148M v. 140M) I wonder whether most of the difference in diluted shares is attributable to the Q2 stock offering and option exercises in Q2 -- shares outstanding increased from 133M at the end of Q1 to 148M at the end of Q2. Maybe someone who understands the diluted average share calculation better can weigh in.

​

 

[dennis]

Weekend musings. I've been trying to figure out why I am more confident in Tesla's huge long term success than in any company I've ever invested in or been a part of. It comes down to three things:

1. The markets Tesla serves are vast and market trends now strongly favor Tesla. The EV space was seen as a small niche market until Tesla proved with the Model S that a long distance EV is not only possible but a much better experience than an ICE car. Aided by Dieselgate, market sentiment has now strongly switched to EV's being seen as the solution for meeting ever more stringent emissions requirements. The German automakers have capitulated, and my guess is that the looming Model 3 tsunami will cause the others, including Toyota, to eventually follow.

The same is becoming true in the market for utility scale battery storage. Forward thinking utilities are already installing battery systems instead of building new peaker plants. I have not picked up any sentiment that there is looming better solution to this or to smoothing out the delivery of energy from renewables.

The market sentiment in solar power is a little more muddled in the medium term until the future of residential net metering is sorted out, but again there are no alternate solutions to renewable power that have a chance of being a ubiquitous solution like solar.

2. Tesla has a compelling and defensible competitive advantage. This can be seen best in autos, where the unwillingness of the large competitors to embrace the long distance EV space for so long has allowed Tesla to innovate through multiple product cycles while the others are mostly just getting started. The resulting technological gap can't be closed just by throwing money at the problem, because it also requires focus and the time necessary to come up the learning curve. And what possible innovation can come from startups or the large auto makers that Tesla isn't already doing or could easily replicate with their engineering talent?

In the energy storage space, Tesla is beginning to reveal its competitive advantage as the low cost producer. But often overlooked is their vast experience with battery systems operating in real world environments and the reliability data that comes from this. This will provide comfort to the more conservative utilities as they are forced to adopt battery storage for regulatory and competitive reasons.

In the solar energy space, Tesla's main competitive advantage will be having a global, respected brand in what heretofore has been a very fragmented space. Solar City already has more residential systems installed in the U.S. than any other competitor. And combining battery storage with solar will be a necessity to be cost effective as retail net metering is gradually phased out. This same combo technology allows Tesla to offer an integrated solution at utility scale for solar power generation.

3. Execution. Many outsiders see this as a weakness of Tesla because of missed deadlines and the Model X production problems. But if you step back and look at the pace at which Tesla has engineered and delivered advanced product capabilities it is astounding. The fact is that, led by Elon, Tesla employees work longer, harder and smarter. And like Google, it is a place where smart young people want to work. In addition, Elon has been attracting executive talent such as in Finance and Manufacturing that are helping the company to mature its capabilities without slowing it down. And another advantage is that when Tesla has had execution missteps like the Model X it is willing to admit the issues and focus on fixing them. This builds confidence that Tesla can continue to out execute its competitors.

So what are the risks to this rosy scenario? I believe they mainly fall in the Acts of God category - something happening to Elon, massive earthquake damaging the Fremont factory, etc. There is still a short-term financing risk, but we have seen in the past 30 days how focused Musk and Wheeler are at mitigating this risk.

Putting my money where my mouth is, I added 25% to my long term Tesla holdings on Friday at $190. I invite @Value Ev, @myusername, @brian45011, @bonaire, @mmd and the other doubters to shoot holes in my thesis. Fire away!

 

[TMSE]

Could you please provide a source for these numbers?

Tesla's Q2 10-Q says there were 148M shares outstanding on June 30, 2016, and Q3 10-Q says 149M shares outstanding on September 30, 2016.

Common stock; $0.001 par value; 2,000,000 shares authorized as of June 30, 2016 and​

December 31, 2015; 148,015 and 131,425 shares issued and outstanding as of​

June 30, 2016 and December 31, 2015.

Common stock; $0.001 par value; 2,000,000 shares authorized as of September 30, 2016 and

December 31, 2015; 149,825 and 131,425 shares issued and outstanding as of

September 30, 2016 and December 31, 2015
​

The 3Q 10-Q also says that "as of October 25, 2016, there were 149,891,190 shares of the registrant’s Common Stock outstanding."

SEC Filings | Tesla Motors

​

I looked into Q3 letter, pages 6 and 9 http://files.shareholder.com/downlo...-ED9B0F912622/Q3_16_Update_Letter_-_final.pdf

Also, on page 3: "Our Q3 GAAP net income was $22 million, or $0.14 per share on 157 million diluted shares"

 

[racer26]

To me, the most obvious element of Tesla's moat is simply that no other competitors in any arena, be it auto, solar or storage, are building capacity to anywhere near the scale that Tesla is.

Tesla has been building the gigafactory since 2012. It's only just coming online now around the beginning of 2017. Even if you assume that by throwing huge piles of money at the problem, the competition could cut that time in half, and there's lots of reason to think that impossible, but even if they could, unless they announce intentions today, and start soon, such a factory won't be operational before 2020. GF is the largest factory of its kind anywhere, sized to produce more than all of the world's factories did in 2013 put together and Tesla already knows that even that won't be enough to satisfy demand, and is already looking to start working on gigafactory 2.

There is great value in being the brand that is immediately brought to mind when someone says electric car.

 

[Msjulie]

I've never really been a GM fan and I have to say the look of the Bolt is decidedly not for me but the various press outlets do seem to think the technology is solid. How do you factor in a GM dealer in every town where some folks with Tesla's have far fewer options?

I have a 3 on reserve but I admit to some trepidation about service; why did it take 2 days to code new keys for a roadster? The time to do the work certainly was not the reason, however tricky it might be (even a full hour doesn't explain the elapsed time). I more easily believe the service backlog at too few service facilities as root cause.

All that said, my emotional self does favor Tesla. I have a good friend who works there which sometimes provides little glimpses of reality. I just wondering if sleeping giants may actually get their acts together (which I believe is actually good for everyone) and how that will impact Tesla's lead and growth.