Short-Term TSLA Price Movements - 2016

[Fallenone]

I'd expect OpEx per revenue going down as economies of scale kick in but for now we haven't yet seen it happening. There is still some more work to do here for the new CFO. OpEx expenditures were a consistent 20% of automotive revenue last year. This quarter that grew to 23% IIRC (I don't have my analysis spreadsheet with me at the moment but it's a fairly trivial exercise based on the financial reports). And that's after already taking stock based compensation into account wrt to hitting some unique milestones this quarter.

It's a bit hard to predict stock based compensations for the next three quarters, but hitting the numbers as guided (and in your table) will likely mean shooting for an OpEx before stock based incentives to automotive revenue percentage of 18% or cutting about 10% in operational fat compared to 2015. Should be very doable on the one hand, but it must be done on the other hand! And preferably without too much damage to brand perception on service, customer experience etc.

Yes, the constant % of OpEx to Rev worries me the most. Tesla does not need to cut their profit for dealership but OpEx is doing the same thing. But I just looked into the number for depreciation and amortization, it takes about 50% for the past two years but has a slight trend of rising, which make sense because of the GF/X/3 CapEx rising. So, the money they actually spend on delivery, services, etc. is falling as a % of cars sold. So I think they are OK on this front.

 

[Fallenone]

I have a cynical take on deliveries vs production guidance.

A delivery has a hard black-and-white definition. The car has to be full and complete with no/minimal issues to be deliverable.

Now what counts as produced? Hypothetically, lets say if the entire car is produced but Tesla ran out of led headlights. Tesla sends the car to SC for storage. Would that car be counted as produced or not? Clearly it is un-deliverable and will not count towards a delivery. So who draws the line in defining what is considered produced or not? My sense is, if something makes it out of the factory it will be considered produced however incomplete it might be. Tesla has repeatedly stated shortage of parts with regards to X. So I think the gap of 3K vehicles is the expected number of cars sitting in SCs waiting for final parts and/or tweaks. Sure Tesla might be able to do better than that. But that buffer is to accommodate that situation.

Happy to hear counter arguments.

Unless they are not using the same definition of "produced", they 85% delivery/production rate is a historical low and I think it is sand bagging the delivery number in prep for an upward surprise. People pay more attention to delivery number than production number.

 

[aznt1217]

Yes, the constant % of OpEx to Rev worries me the most. Tesla does not need to cut their profit for dealership but OpEx is doing the same thing. But I just looked into the number for depreciation and amortization, it takes about 50% for the past two years but has a slight trend of rising, which make sense because of the GF/X/3 CapEx rising. So, the money they actually spend on delivery, services, etc. is falling as a % of cars sold. So I think they are OK on this front.

I keep an eye on this metric too but the tricky part is we don't know how many projects Tesla is actually working on. So for example let's say you look at SG&A which has pretty much been fine since inception. The issue is let's say they are working on a top secret project that won't materialize in a couple years. It's going to skew the KPI.

 

[aznt1217]

Unless they are not using the same definition of "produced", they 85% delivery/production rate is a historical low and I think it is sand bagging the delivery number in prep for an upward surprise. People pay more attention to delivery number than production number.

Pretty simple in my mind. Delivery = when customer takes delivery. That's clean cut
Produced = Finished Goods

 

[electracity]

Great news on the X production!

I guess this means S demand is down, but luckily X demand is picking up the slack ?

They seem to have pushed back a number of S orders. So perhaps their strategy is to build a lot of X this month. It is going to take a couple of quarters to get some insight on demand between the two models.

 

[electracity]

Did he mention how many pre-orders they have?

On a selfish note, I hope this will force Tesla's hand on announcing the Model Y so I can trade in my Q5 for it.

I expect the Audi to compete with MX. Audi likely isn't ready to build a $50K full EV.

 

[Fallenone]

So, in a typical Mfg environment, you would utilize an ERP system to track cost/movement of the product you are building(Tesla developed their own system). Typical ERP systems use "Work Orders" to capture parts going into the product, along with a physical traveller packet that moves with the product being built. Tesla cars are individually serialized, so each car will have it's own "Work Order" where you would issue the required parts to capture the cost. If an LED Headlight is out of stock, the car could still move out of the factory, but the Work Order could still stay open under "Work In Progress" status in a "Service Center" inventory location, with an exception note "Operation out of sequence" within that Work Order/Traveller. As long as it stays in "WIP", the material/labor cost does not get transacted into "Finished Goods" bucket within accounting, which is when you would consider the car "Built".

There are ways to close the Work order short, meaning Missing parts/quantity etc, but you would not want to do that on a single unit workflow, and you would certainly not want to count it as "built", since you would have to open a rework order to back it out of "FG inventory" anyway.

My belief is, given the huge spike of deliveries at the end of 2015 and the unexpected slow ramp of X in Q4/15 & Q1/16, Tesla had to drain the pipeline and demo inventory as much as possible just to deliver what they did in Q1/16. Now that X is finally ramping up, they are using Q2 to build the transit/demo pipeline back up. Also remember, all the stores and Galleries and Service centers now ideally need twice the demo/loaner cars with 2 different models to show/demo/sell/service as opposed to just 1 model. Hence the wider gap of Built/Delivered IMHO...

They started to hoard Model S to compensate Model X since Q3 2015. The total delivery for Q2, Q3, Q4 2015 (can't find Q1 2015 number) and Q1 2014 was 55423, total production was 55475. Also IIRC, Tesla rarely rarely deliver more than they produce in any quarter (except for Q4 2015). So I don't think restocking the stores and service centers would need a lot from Q2 production. They have a little more than 200 stores now. Even if there are no cars and need an S and an X each, that's only 400. Loaner cars during service time may be in short supply, but I doubt it would take as much as 2000 of them in Q2 to replenish.

 

[McRat]

Dude. Their automotive gross margins are great. The definitely will MAKE more as quantity rises.

The losses you are talking about comes from investment in growth. Companies in aggressive growth mode are supposed to "lose" money in total, i.e. don't turn a profit, for many years. What in God's name would they do if every quarter they ended up with a profit at this stage of growth - pay dividends???

If Tesla Motors would restructure so they go in the black for 1 quarter, their stock would break 500.

What would it take?

Monetize the SC network. Lots of ways to do this.
Lobby and get more tax assist.
Drop the X.
License dealerships. Use Other People's Money to build infrastructure.
Move future production to a cheaper location.
Outsource MORE not vertical integration. Not even the cheapest companies use VI anymore. You can't be an expert at everything.
2 current Models: The Model S, nicely equipped, Under $79k. The GT-V - A high end Grand Touring / High Performance luxury car. You know the GT-V as the P90DL.
Adjust pricing to what the market will bear based on market studies of independent dealers.

But a lot of the damage was done by early decisions, Elon needs a scape goat to fall on their sword, then roll back.

The Roadster was actually going in the right direction from a business standpoint. After that, Tesla Motors acted like capital was free. It's not. It's a tool, but it has a cost.

 

[Fallenone]

I keep an eye on this metric too but the tricky part is we don't know how many projects Tesla is actually working on. So for example let's say you look at SG&A which has pretty much been fine since inception. The issue is let's say they are working on a top secret project that won't materialize in a couple years. It's going to skew the KPI.

I think secret project has more to do with RND than SG&A. Aside from running their offices, stores, service, SC stations, SG&A is basically depreciation and amortization of their previous CapEx. And whey they do some new CapEx, it's pretty well noticed.

 

[CButterK]

Audi CEO Stadler at the Annual General Meeting: “Our model and technology initiative will ensure further growth”

Shorters are jumping up and down about this. But I think they don't realize that 2018 is 2 years away and time or technology does not stand still.

Someone should ask those Jumping Bean shorts if they were doing the same thing, when Audi showed off EV concepts and promised production a few years ago... Where are those EVs now???

 

[vgrinshpun]

I have a cynical take on deliveries vs production guidance.

A delivery has a hard black-and-white definition. The car has to be full and complete with no/minimal issues to be deliverable.

Now what counts as produced? Hypothetically, lets say if the entire car is produced but Tesla ran out of led headlights. Tesla sends the car to SC for storage. Would that car be counted as produced or not? Clearly it is un-deliverable and will not count towards a delivery. So who draws the line in defining what is considered produced or not? My sense is, if something makes it out of the factory it will be considered produced however incomplete it might be. Tesla has repeatedly stated shortage of parts with regards to X. So I think the gap of 3K vehicles is the expected number of cars sitting in SCs waiting for final parts and/or tweaks. Sure Tesla might be able to do better than that. But that buffer is to accommodate that situation.

Happy to hear counter arguments.

This is a good point, as it is entirely possible, given that this is exactly what Tesla did in Q4. Generally speaking, with the passing of time, as they are ramping production of X, however, the likelihood of Tesla pushing MX out of the factory with missing parts should be going down. So you would expect this phenomenon going down as far as percentage of the cars "in transit" (or "in limbo" depending on the level of cynicism ) is concerned. So this percentage should decrease Q4 --> Q1 --> Q2.

The thing is that Tesla actually gave us all the production and delivery breakdowns for both Model S and Model X in Q1. So we can conservatively extrapolate Q1 production/delivery ratio to Q2 production/delivery, and figure out what this would mean for deliveries in Q2.

The numbers in the table below come from the Q1 Shareholders letter and Tesla Press Release on Q1 deliveries.

I assumed:

• Q1 MS Production = Q2 MS Production
• total production is 20K per the guidance
• Q1 in transit = Q2 in transit (conservative assumption)

As seen from the table below, even if we conservatively assume that factory in Q2 going to push incomplete MX at the same rate as in Q1, the total estimated deliveries come to 18,873, i.e. very close to my original assumption of 19K.

So in conclusion, the scenario that you outlined is possible but is not likely. I still think that the main reason for giving production/delivery estimate was to ensure that "winning feels like winning".

 

[SPadival]

I think they were excited by the 500km range of the Audi's 2018 vapour ware. However, its a large number in kilometres. Its actually 310 miles.

 

[Jayjs20]

Even I know Tesla's primary goal is not to maximize immediate profit.

That said, my money is finally available for me to use today, but what a boring day for stocks

 

[techmaven]

If Tesla Motors would restructure so they go in the black for 1 quarter, their stock would break 500.

What would it take?

Monetize the SC network. Lots of ways to do this.
Lobby and get more tax assist.
Drop the X.
License dealerships. Use Other People's Money to build infrastructure.
Move future production to a cheaper location.
Outsource MORE not vertical integration. Not even the cheapest companies use VI anymore. You can't be an expert at everything.
2 current Models: The Model S, nicely equipped, Under $79k. The GT-V - A high end Grand Touring / High Performance luxury car. You know the GT-V as the P90DL.
Adjust pricing to what the market will bear based on market studies of independent dealers.

But a lot of the damage was done by early decisions, Elon needs a scape goat to fall on their sword, then roll back.

The Roadster was actually going in the right direction from a business standpoint. After that, Tesla Motors acted like capital was free. It's not. It's a tool, but it has a cost.

I would advise against doing any of that. Literally none of it. They are all short term ways to possibly juice some finances but are likely long term strangleholds that weaken the company.

All they need to do is fix the issues with the X. That's it for the short term. Maybe fix the music player, the built in one really needs some attention.

Right now the market has a crisis of confidence in Tesla's production execution and the only real fix is to fix production execution. The X has to exist as we don't know if the S alone can carry 100,000 units a year volume. Plus, the X is awesome. Now, they can also solve the crisis in confidence with concrete Model 3 production milestone achievements, like Gigafactory progress or finalizing Model 3 design. If Tesla needs to juice the stock, all they need is to set a date for the next phase of the Model 3 reveal.

 

[techmaven]

I think they were excited by the 500km range of the Audi's 2018 vapour ware. However, its a large number in kilometres. Its actually 310 miles.

310 miles on NEDC standard. More like 250 miles on EPA 5 cycle standard. We will then see how Tesla's design and engineering prowess stacks up against Audi. Right now, Tesla is fighting vaporware FUD so the Audi Q6 e-tron can be magical.

 

[McRat]

Even I know Tesla's primary goal is not to maximize immediate profit.

That said, my money is finally available for me to use today, but what a boring day for stocks

It's easier and faster to grow with profits than debt. And the risk is far less.

Ford in 1908 did not grow using pure debt. SunEdison tried to grow with debt. Many other examples exist.

The number #1 reason for startups to fail is poor management. Elon is a proven manager. The number #2 is over capitalization.

Capital costs all the time.

 

[McRat]

I would advise against doing any of that. Literally none of it. They are all short term ways to possibly juice some finances but are likely long term strangleholds that weaken the company.

All they need to do is fix the issues with the X. That's it for the short term. Maybe fix the music player, the built in one really needs some attention.

Right now the market has a crisis of confidence in Tesla's production execution and the only real fix is to fix production execution. The X has to exist as we don't know if the S alone can carry 100,000 units a year volume. Plus, the X is awesome. Now, they can also solve the crisis in confidence with concrete Model 3 production milestone achievements, like Gigafactory progress or finalizing Model 3 design. If Tesla needs to juice the stock, all they need is to set a date for the next phase of the Model 3 reveal.

Name 10 successful US manufacturing businesses in 2016 that use the Vertical Integration Model. They taught us that in the 1970's when the USA had the killer manufacturing infrastructure and huge numbers of middle class skilled workers. Today is is not 1977.

 

[madodel]

Great news on the X production!

I guess this means S demand is down, but luckily X demand is picking up the slack ?

Bummer. Means I won't have such a rare car any more. I live in the middle of nowhere but even so there is at least one other Model X in the neighborhood. At least mine is Sig Red.

 

[madodel]

310 miles on NEDC standard. More like 250 miles on EPA 5 cycle standard. We will then see how Tesla's design and engineering prowess stacks up against Audi. Right now, Tesla is fighting vaporware FUD so the Audi Q6 e-tron can be magical.

Aren't all the Tesla killers "magical"? Powered by unicorn poop and sparkles. Hopefully it is a real competitor and not yet another ugly little compliance golf cart thing like the Bolt and i3.

 

[vgrinshpun]

Name 10 successful US manufacturing businesses in 2016 that use the Vertical Integration Model. They taught us that in the 1970's when the USA had the killer manufacturing infrastructure and huge numbers of middle class skilled workers. Today is is not 1977.

I'll give you two: Tesla Motors and Space X.