Short-Term TSLA Price Movements - 2016

[jesselivenomore]

Fallenone, my hypothetical scenario with 4600 Q1 completed-but-unsold Model X vehicles was not intended to depict the actual condition. Rather, it was intended to show how much additional FCF Model X could have generated if all the planned 7,000 Model X vehicles could have been built.

The important part of the exercise is to demonstrate that costs of the Model X vehicles were being counted twice in the methodology used: once when the labor and parts costs were included in Q1 ER, and again when the revenue from Model X vehicles that could have been sold was discounted by multiplying by 20% (and thus counting the cost of manufacturing a second time).

Here's a simple example: You have a product that sells for $9 and plan to produce 100 of them during the quarter. The gross margin for that product is 20% if all 100 can be built. Unfortunately, due to manufacturing issues, only 40 are built and sold. The company realized 40x $9 = $360 revenue, but how much Free Cash Flow could have been generated if all 100 could have been built and sold?

Let us say that the quarterly earnings report contained the cost for producing all 100 of these products since labor was already hired and on the property, third-party parts companies had already delivered enough parts for 100 products, and the company had already bought enough aluminum and other basic ingredients to build those 100 products. The likely cost reflected in the earnings report would be 100 x $9 x .80 = $720. To figure how much FCF was lost by not producing and delivering the remaining 60 products, you multiply 60 x $9 = $540. That is your answer. You can double-check the figures by adding $540 to $360 = $900, which is the total revenue brought in if 100 products had been built and delivered. You have already accounted for the cost of producing those 100 unites in the Earnings report ($720), which would yield a GM of 20%. The point I'm trying to make is that you don't multiply the revenue from selling those units by 20% GM, because then you would be counting your costs twice.

If you're looking forward at a quarter and no numbers are already included in an earnings report, sure, go ahead and multiply potential products created by the GM to come up with a contribution to FCF, but if you're looking back on an earnings report AND THE COST OF PRODUCING THOSE PRODUCTS HAS ALREADY BEEN BAKED INTO THE ER, don't multiply the potential revenue by the GM because then you will be double-counting the costs.

I think the confusion may be because I am using 20% GM for Mode X. That is not from the overall GM of Q1, which also happens to be 20%. The 20% for Model X is just a made up number by me, assuming what it would be during a nominal Model X launch. So I don't think I am counting it twice.

Using your example, if only 40 are built and sold, realizing $360 in rev, but incurring the costs of 100 = $720, the gross profit would be -$360, and GM of -100%. This takes the idle materials and labor into account.

What I am saying is, to figure out what was lost, first figure out the nominal cash flow, assume a nominal production rate = 100, and a nominal GM = 20%. So cash flow = 180. Combine that with the actual cashflow of -360 and you can figure out the difference = 540. Which is the same number you got, no double counting.

I did the same thing with Tesla's Q1 numbers.

I backed out the actual Model X GM = -5.5%(we know this because we have the overall GP/GM, the Model S GM, and the Model X price difference) and the Model X gross profit of about -$15M.(this is the -360 in your example)
Then calculated the cash flow of a nominal Model X launch of 7000 = $166M. (this is the 180)
Then combined for the total for what was lost = around $180M. (this is the 540)

 

[Papafox]

CButterK, Fallenone, and Jesselivenomore, thanks for the explanations. I particularly found that your using my hypothetical example was helpful. I'm still digesting the concepts and ultimately I think the issue of double-counting of costs lies in my understanding of what numbers ultimately end up on the Consolidated Statement of Operations sheet under "Costs of revenues- Automotive".

 

[SPadival]

Nope. EM eluded during the recent CC that he's reluctant to use deposits for anything more than a cushion.

I never said they are going to use deposits instead of a cash raise. Increased M3 bookings should help calm the "markets" during a cash raise and also prod the suppliers and internal teams that they are in the race of their lifetime.

 

[Intl Professor]

There has been no such decline. Is this your personal perception or do you have some reputable reference for this claim?

As a regular user of Apple products, I see some great new stuff (e.g. Apple Watch software) and some continued badness (e.g. iTunes) that is not new. I see no decline in design or software quality, never mind a "precipitous" one.

Of course this isn't the place to discuss this, so why bring it up? You're just spreading misinformation. Don't we get enough "This is what will happen because [unsupported erroneous information]." on this thread?

I think we've had enough of speculation here about another company. Please refrain from more. Of course we would like to use their money for our purposes, but we can't decide nor influence the decision.

 

[Intl Professor]

My brother and I have the same wealth advisor who has put substantial portion of his stash into cash, but far less in my accounts because we do not want the income. We have different needs. The advisor thinks for my brother (income now + preservation of capital) the economic consequences of our politics this year are so problematical he thinks a massive swing of investment one way or another will happen. (That seems to be consistent with El-Erian's position I commented on earlier.)

Makes some sense to me and I may write something for the macro thread about implications of the election. Meanwhile I find it somewhat amusing that the 1998 movie, Bulworth, is now being shown on some streaming sources. However satirical in intent it's a pretty prescient description of our situation now with government even more out of touch with ordinary people and, alas, for many of the same reasons.

 

[FredTMC]

So Elon retweeted this MX review from CNET.

Tesla's Model X is the most amazing SUV on the road

Overall, the reviewer likes the car a lot... But...

The reviewer doesn't like the FWDs. Ok. I get that. Did he really need to repeat it over and over again in the review and the video? After all, it's just HIS opinion...
Says, they may be a warranty item down the road... Again, his opinion.

MY opinion is: it'll be a cold day in hell before tesla ever makes you pay to fix a busted FWD mechanism... why? It's Elons baby, and he wants to ensure they'll always be viewed as reliable. That's MY Humble opinion.

 

[generalenthu]

Not sure this has been mentioned upthread, but Tesla is building a growth team.

Now this is what they are expected to do.

A growth team within a company is generally a small data driven group tasked with figuring out how to scale the business. Most often, the day-to-day work will consist of planning growth models and running them in simulations in order to develop the best possible way to expand.

To be honest, I never thought Tesla needed a team like this. They have so much demand for M3 right now that they could build and the masses would come at least for the next 3 years. If they are thinking and planning about a derivative idea like managing and simulating growth, I am sure they are spending a couple of orders of magnitude more effort on planning for actual growth and financing said growth.

So, please folks, give Elon and team some credit for being able to run a tight and well planned shop and take a chill pill.

 

[nienco2]

Here's a comment made by one Model X customer today in the Model X, May deliveries thread: Model X May Deliveries

"Heard from the sales team that production is back up to full capacity, quality issues resolved and new orders are being quoted 6-8 weeks for delivery."

What the hell? Does that mean that all backlogged folks with reservations will have cars by mid July?

 

[hoang51]

What the hell? Does that mean that all backlogged folks with reservations will have cars by mid July?

This sounds like the number of backorders for Model X took a nose dive. Connecting the dots by allowing international orders to configure online recently is probably a tell tale sign of something is odd.

 

[Curt Renz]

Here's a comment made by one Model X customer today in the Model X, May deliveries thread: Model X May Deliveries

"Heard from the sales team that production is back up to full capacity, quality issues resolved and new orders are being quoted 6-8 weeks for delivery."

Not having to wait long should inspire more orders. Many if not most people want a new car when they discover problems with the old one. Rather than wait many months for a Tesla, they often simply drive away with something already in a dealer’s lot. If Tesla is now producing cars fast enough to significantly shorten the wait time for deliveries, that’s a welcome sign and should motivate more people to order a Tesla.

 

[vgrinshpun]

Wow, guys, chill!

There are two things playing out here, in a very similar way that they played out with MS back in 2013 (I have personal knowledge about it as I placed order for P85+ three years ago in May of 2013).

First, the pool of MX reservations that Tesla was manufacturing for was initially limited to US reservations only, which can be assumed about half of the total. Secondly, there a quite a few who defer their orders for MX due to variety of reasons (I currently belong to this category as well). As we know, it all worked out just fine with MS, with strong demand and eventually those who deferred placing their orders.

To illustrate the above point, when I was ordering my P85+ three years ago, because of a lot of US reservation orders being deferred, new orders just starting to come in, and Tesla not manufacturing yet for European reservation holders, I could have had it in three to four weeks, but chose to push it back because I was leaving for three weeks for a vacation.

The current situation with MX is actually more favorable, as currently delivery for US orders is being quoted at four to six weeks.

 

[steve3]

Not sure this has been mentioned upthread, but Tesla is building a growth team.

Now this is what they are expected to do.

To be honest, I never thought Tesla needed a team like this. They have so much demand for M3 right now that they could build and the masses would come at least for the next 3 years. If they are thinking and planning about a derivative idea like managing and simulating growth, I am sure they are spending a couple of orders of magnitude more effort on planning for actual growth and financing said growth.

So, please folks, give Elon and team some credit for being able to run a tight and well planned shop and take a chill pill.

This new team probably helps him find/confirm the sweet spot on most efficient way/when to deploy capex, something he emphasized on ER call.

 

[Papafox]

Wow, guys, chill!

There are two things playing out here, in a very similar way that they played out with MS back in 2013 (I have personal knowledge about it as I placed order for P85+ three years ago in May of 2013).

First, the pool of MX reservations that Tesla was manufacturing for was initially limited to US reservations only, which can be assumed about half of the total. Secondly, there a quite a few who defer their orders for MX due to variety of reasons (I currently belong to this category as well). As we know, it all worked out just fine with MS, with strong demand and eventually those who deferred placing their orders.

To illustrate the above point, when I was ordering my P85+ three years ago, because of a lot of US reservation orders being deferred, new orders just starting to come in, and Tesla not manufacturing yet for European reservation holders, I could have had it in three to four weeks, but chose to push it back because I was leaving for three weeks for a vacation.

The current situation with MX is actually more favorable, as currently delivery for US orders is being quoted at four to six weeks.

Demand for Model X cannot be a great concern to Tesla at this point because most store locations have yet to receive an X for the showroom floor and for demo rides. While early adapters might order a Tesla sight-unseen, the majority of buyers want to see one in person and drive it prior to placing an order. I won't believe we're past the early adapter stage until I see a majority of new Model X buyers being female.

I look at the shortened waiting time as an indication that at long last the X assembly line is cranking them out at full speed.

 

[dmckinstry]

Wow, guys, chill!

There are two things playing out here, in a very similar way that they played out with MS back in 2013 (I have personal knowledge about it as I placed order for P85+ three years ago in May of 2013).

The current situation with MX is actually more favorable, as currently delivery for US orders is being quoted at four to six weeks.

And I placed my order for an 85 about then, but didn't finalize until the last week in May. I received my Model S on June 28th 2013 (or whatever date was a Saturday).

P.S. It may be noted that I made my reservation in Feb. 2010, but deferred in 2012 because of lack of funds.

 

[vgrinshpun]

And I placed my order for an 85 about then, but didn't finalize until the last week in May. I received my Model S on June 28th 2013 (or whatever date was a Saturday).

P.S. It may be noted that I made my reservation in Feb. 2010, but deferred in 2012 because of lack of funds.

And just to clarify on my situation, I did not have reservation for MS before it was in production, just placed my order in May of 2013.

I would not worry about all these MX reservations that are being deferred at the moment. Great majority of them are captive, i.e. eventually will pull the trigger, and there will be enough demand from the new incoming orders from US, then Europe and Asia to fully fill production capacity in the meantime. Once again, this is similar to how it played out with MS, but quite a bit better, actually.

 

[SteveG3]

Really? Tell me how this is not relevant for the "all in" Model3 ramp...

Two Tesla Production Chiefs to Leave Ahead of Model 3 Ramp-Up

And look the high turn-over rate of other senior Tesla personnel:

Diogenes on Twitter

New hires in these senior positions need months to be found and to fit in / get up to speed.

The more turn-over, the more (additional) delays...also bad for company culture and morale when you have so much management churn. That's well-known in all large organizations.

Tesla will be burning out their employees left and right with the new 2017-2018 Model3 ramp strategy imho.

let's hope the next few years are not as brutal for us Tesla longs as the lean years we had to endure after the last time this happened in 2012

Tesla Falls After Executives Leave Before Electric Model S Debut

 

[Cattledog]

The last time we were at this price was two months ago, March 11th. Let's take a trip in the way back machine and play it forward:

Apparently Julian and Jesse were feuding, glad that's over with.
People were mad at the moderators, assume that's over with.
No plans had been leaked on Model 3 unveil yet other than 3/31, event was announced that next week.
Which means no one knew we'd have 400,000 reservations for Model 3 about a month after unveil.
Drinkerofcoolaid was pretty good with this bullish call, just not bullish enough - Short-Term TSLA Price Movements - 2016
Nobody knew 93% of them would be new customers - can you say 'aspirational brand'?
No one knew it would look so freaking awesome - lots of people thought we'd only see a photo 3/31.
Which also means everyone was still wondering how in the world would Tesla make 500,000 cars in 2020. Nobody knew yet of 500,000 in 2018.
The Model X ramp was still mysterious, hints of both progress and trouble. Much like DTU Model X was TTP, trouble then progress.
Great Model X reviews were trickling out.
No Model S facelift, no 75D for Model X or S.
People were talking about Model 3 cannibalizing Model S sales (umm, wrong)
No hint of higher prices (and margins) for Tesla Energy products.
No hint of accelerated Gigfactory.
No one knew that Fremont could crank out 900,000-1,000,000 cars.
Or that the Gigafactory could ultimately crank out > 50 GWh of batteries.
Price of oil was very low.
We didn't know Tesla would be short on Q1 deliveries.
TMC forum had also just gotten a new nosecone (like).
Adam Jonas issued a Buy recommendation.
Autopilot was learning daily (and still is).

OK, sarcastic comments above aside, Do we think the company is more valuable today than March 11th? Momentum is going in the opposite direction, but if you think Tesla is less valuable today, I'm guessing you were underwhelmed by: 400,000 reservations, doubling the target for 2020 production, doubling the output for Fremont, Model 3 design, Model X ramp (ok, legit), accelerated Gigafactory, Elon's predictions of 100K+ Model 3s strewn across the land H2 2017.

Bu if you believe in amazing reservation numbers, doubled car and battery output, accelerated schedules - and you didn't know them March 11 - and you believe 208 was a good price on March 11, then you think it's a great price today.

 

[geneclean55]

Going through the model X delivery threads, it looks like lots of folks are now getting there cars after initial delay/lack of communication from Tesla.
One car was in production last week, and will be delivered this Saturday in CA. Seems like the lengthy post-production inspections are no more. Bodes well I think.

 

[generalenthu]

Something interesting I found trawling the Tesla job boards. There are a few power train drive unit manufacturing positions at the gigafactory. This could be read in many ways, but my preferred interpretation is that Tesla found a way to manufacture the cells in a smaller footprint than initially assumed. If the fremont factory is going to be assembling cars, some of the other activities may be shifted to the gigafactory.

To be sure, there are similar openings in Fremont as well. May be the plan is to de-risk somewhat instead of having all manufacturing under one roof.

 

[hobbes]

Something interesting I found trawling the Tesla job boards. There are a few power train drive unit manufacturing positions at the gigafactory. This could be read in many ways, but my preferred interpretation is that Tesla found a way to manufacture the cells in a smaller footprint than initially assumed. If the fremont factory is going to be assembling cars, some of the other activities may be shifted to the gigafactory.

To be sure, there are similar openings in Fremont as well. May be the plan is to de-risk somewhat instead of having all manufacturing under one roof.

Just semantics, but what exactly is included in the drive train? Is the battery part of it and they are just looking for people manufacturing battery packs?