Short-Term TSLA Price Movements - 2016

[vgrinshpun]

As I posted in the "Demand" thread the reintroduction of the referral program could be seen as a bullish signal:
It may be a demand levers being pulled to increase demand right now because they know that within 4 weeks MX ramp talkes off and total production capability (S+X) increases significantly. And they want to stay at a point of optimum lead time.

Exactly. Just to add, the Q1 shareholders letter included guidance for production increased in second half of the year to above 2000 cars per week. The referral program is probably designed to increase the rate of incoming orders to match increased production output due to completion of the ramp in production.

"Importantly, now that supply chain constraints have been resolved, we plan to exit Q2 at a steady production rate of 2,000 vehicles per week, thus laying the foundation for a strong Q3 delivery number.

Looking out beyond Q2, we remain confident that we can deliver 80,000 to 90,000 new Model S and Model X vehicles in 2016. This
is due to the growing demand we are seeing for Model S and Model X, the improved rate of production that we project for Q2, and
the production increases planned for the back half of 2016."

 

[bookfast]

Although gross margin on cars sold through the referral program will indeed be reduced, it is totally conceivable that this program will be neutral as far as net profit is concerned, or even will lead to increased net profit, in line with the Company's statements.

For a fixed SG&A, higher quantity of cars sold will result in lower SG&A per car, and this could offset the reduction in gross margin in such a way that net profit per car will not be affected, or even goes up.

If they are production constrained, is it possible for this to increase net profit? Or do they book revenue prior to delivery?

 

[bookfast]

Exactly. Just to add, the Q1 shareholders letter included guidance for production increased in second half of the year to above 2000 cars per week. The referral program is probably designed to increase the rate of incoming orders to match increased production output due to completion of the ramp in production.

"Importantly, now that supply chain constraints have been resolved, we plan to exit Q2 at a steady production rate of 2,000 vehicles per week, thus laying the foundation for a strong Q3 delivery number.

Looking out beyond Q2, we remain confident that we can deliver 80,000 to 90,000 new Model S and Model X vehicles in 2016. This
is due to the growing demand we are seeing for Model S and Model X, the improved rate of production that we project for Q2, and
the production increases planned for the back half of 2016."

this makes sense, using the referral as a tool to match demand with increased production

 

[vgrinshpun]

If they are production constrained, is it possible for this to increase net profit? Or do they book revenue prior to delivery?

They book revenue upon delivery. in second half of 2016 Tesla is planning to increase production to above 2000 cars/week, per the guidance included in Q1shareholders letter, see my post up-thread

 

[CButterK]

They book revenue upon delivery. in second half of 2016 Tesla is planning to increase production to above 2000 cars/week, per the guidance included in Q1shareholders letter, see my post up-thread

Yup. Per their statement of "deliver more than 50K in 2H 2016", they will need to average 2084(50K/24 wks)/wk. My guess is that they will deliver more than 17K in Q2, to insure they don't have to average much more than 2K/week in 2H 2016 to meet the min 80K for 2016. Also assuming 17K delivery in Q2, they would need to average 2425/wk in 2H to get to their high goal of 90K, which could be possible, I suppose.

 

[MartinAustin]

It will produce more lithium cells than the current world's entire output.

It [the Gigafactory] won't.

The full statement from Tesla is that "its production will exceed all of the world's lithium ion battery production in 2012" - which I'm guessing were the latest figures at the time they said it.

Since then all sorts of companies and countries have boosted lithium ion production... the revolution is already happening.

For example - China's Lithium-Ion Battery Industry Tripled Output To 15.7 GWh In 2015

 

[vgrinshpun]

Tesla re-opened the referral program once again. It's running for 6 weeks and is worth slightly above 1% of ASP. Gross margins on car sales will therefore be negatively impacted by around 0.5% next quarter.

Although gross margin on cars sold through the referral program will indeed be reduced, it is totally conceivable that this program will be neutral as far as net profit is concerned, or even will lead to increased net profit, in line with the Company's statements.

For a fixed SG&A, higher quantity of cars sold will result in lower SG&A per car, and this could offset the reduction in gross margin in such a way that net profit per car will not be affected, or even goes up.

To clarify the impact of referral program on gross margin further, since Tesla was planning for the increase in production to above 2000 cars per week in 2H, the impact of the referral program on gross margin is likely already reflected in the GM guidance per the Q1 Shareholders letter (by the end of 2016: about 25% for MX, approaching 30% for MS)

 

[tanner]

It [the Gigafactory] won't.

The full statement from Tesla is that "its production will exceed all of the world's lithium ion battery production in 2012" - which I'm guessing were the latest figures at the time they said it.

Since then all sorts of companies and countries have boosted lithium ion production... the revolution is already happening.

For example - China's Lithium-Ion Battery Industry Tripled Output To 15.7 GWh In 2015

Ah, that makes sense. I just assumed they meant that vague figure to apply to the current level at the time of the factory's opening.

 

[tanner]

Certainly hope we can close around $225... That, I feel, is needed to continue this trend - even $224 would be nice though.

 

[MartinAustin]

Certainly hope we can close around $225... That, I feel, is needed to continue this trend - even $224 would be nice though.

Today isn't a normal day in terms of trends. It's a big after-hours news day for Tesla and most savvy investors will be doing nothing. Only the gambling types will be trading today - either selling because they think the Shareholder Meeting will have bad news, or buying because they think the Shareholder meeting will have good news.

The trading volume so far is quite light... even with pent-up demand for transactions that might have resulted from the Monday holiday, the volume is tracking towards about 2.5 million shares today.

I expect tomorrow will be heavier, one direction or the other

 

[drinkerofkoolaid]

JB Straubel's Keynote Speech at the International Transport Forum. I'm trying to find a link to the event info page. This event was on May 19th. However, I think he had another Keynote scheduled for sometime between May 31st and June 2nd.


Tesla CTO JB Straubel Hints At Upcoming Autonomous Driving & Battery Breakthroughs

 

[tanner]

Today isn't a normal day in terms of trends. It's a big after-hours news day for Tesla and most savvy investors will be doing nothing. Only the gambling types will be trading today - either selling because they think the Shareholder Meeting will have bad news, or buying because they think the Shareholder meeting will have good news.

The trading volume so far is quite light... even with pent-up demand for transactions that might have resulted from the Monday holiday, the volume is tracking towards about 2.5 million shares today.

I expect tomorrow will be heavier, one direction or the other

Yes, agreed. It would still be nice to close ~$225 - sadly I don't think it will happen based on macro.

 

[MitchJi]

They book revenue upon delivery. in second half of 2016 Tesla is planning to increase production to above 2000 cars/week, per the guidance included in Q1shareholders letter, see my post up-thread

I think that they're planning on 50% growth in MS MX production in 2017. I also think that as soon as they put the MX production issues behind them they will start reliably hitting their guidance. The combined effects of improved cash flow and minimizing the Tesla can't build cars mantra will provide a nice boost to the SP.

I'm not sure when that will happen. I think that with the combination of Elon and Peter Hochholdinger it should be soon.

It is one of the potential positive things that could come out of the SH Meeting.

 

[Fallenone]

Don't Expect Tesla's China Business To Ramp Anytime Soon

This is the fifth time I see this "news" being discussed. In reality, it's no more than bad journalism. The source of this "news" is during the Q&A section of the forum JB attended. Basically a reporter from China Daily asked about the charging standard and China factory questions. JB spent the most of the A time on the standard, and gave the typical blurry answer to the factory question in 30 sec, starting with "can't say very much about factory location". And the "production needs to be where demand is" thing Tesla has been saying for the past two years. He didn't say there is or not "critical mass" in China at all. And by all means, Model 3 is giving them the "critical mass" to justify the factory in China. The reporter from China Daily likely unintentionally misunderstood (apparently she wasn't familiar with Tesla at all, as she used Tesla S, Tesla X, and Tesla 3 when referring to the products) JB's respond and wrote a Chinese piece of news then other non-Chinese media followed by translating it.

Original context is here

https://youtu.be/n86xuCAauoc?t=1h16m9s

 

[schonelucht]

For a fixed SG&A, higher quantity of cars sold will result in lower SG&A per car, and this could offset the reduction in gross margin in such a way that net profit per car will not be affected, or even goes up.

Good point it will certainly make an impact. However historically Tesla has not been very good at exploiting this advantage of scale. SG&A has unfortunately grown quite linearly with deliveries. For example, in 2014 it was $19 000 per delivered car, while it was $18300 in 2015 despite deliveries jumping over 50% (for note, last quarter on a continued high delivery count it was even 21400k but that probably included some unique one-offs due to, for example, stock based compensation on reaching certain milestones related with the X and model 3). All this suggests the fixed part of SG&A is only 11% of the total while the remaining 89% just linearly follows the amount of deliveries. Maybe the new CFO can shift this balance a bit to 15% but anything more would be a surprise in such short time.

Last quarter, SG&A was $318M. A royal 15% of that gives around $50M in fixed costs and $18 095 variable cost per car delivered. Comparing two cases : 17k deliveries (along guidance) and 18k post referral (I am a bit skeptical the program in it's third iteration would still have such a big pull, to be honest). We get to total SG&A resp $359M and $376M or $21 100 versus $21 900 per car. This suggests at most a better margin of $200 per delivered car if the referral program truly boosts orders by 1000.

 

[Fallenone]

Good point it will certainly make an impact. However historically Tesla has not been very good at exploiting this advantage of scale. SG&A has unfortunately grown quite linearly with deliveries. For example, in 2014 it was $19 000 per delivered car, while it was $18300 in 2015 despite deliveries jumping over 50% (for note, last quarter on a continued high delivery count it was even 21400k but that probably included some unique one-offs due to, for example, stock based compensation on reaching certain milestones related with the X and model 3). All this suggests the fixed part of SG&A is only 11% of the total while the remaining 89% just linearly follows the amount of deliveries. Maybe the new CFO can shift this balance a bit to 15% but anything more would be a surprise in such short time.

Last quarter, SG&A was $318M. A royal 15% of that gives around $50M in fixed costs and $18 095 variable cost per car delivered. Comparing two cases : 17k deliveries (along guidance) and 18k post referral (I am a bit skeptical the program in it's third iteration would still have such a big pull, to be honest). We get to total SG&A resp $359M and $376M or $21 100 versus $21 900 per car. This suggests at most a better margin of $200 per delivered car if the referral program truly boosts orders by 1000.

Lots of the SG&A jump is due to depreciation on asset they bought not only for S and X but also 3. I did some calculations and the SG&A spent per car delivered, minus the total depreciation excluding depreciation in tooling (because this is COGS), is on a steady decline trend

 

[schonelucht]

Lots of the SG&A jump is due to depreciation on asset they bought not only for S and X but also 3. I did some calculations and the SG&A spent per car delivered, minus the total depreciation excluding depreciation in tooling (because this is COGS), is on a steady decline trend

I'd be grateful if you could share that calculation somewhere because it's very interesting. If you'd to it in a different thread, send me a PM since I follow only a select few on this board.

 

[mejojo]

So in balance I feel it will be slightly less but still close to half of the deliveries that benefit from it.

How did you come to "feel" that near half of deliveries would involve a referral? That seems wildly excessive.

Do you know what percentage of sales came from referrals in the previous, more lucrative, referral plan?

 

[Fallenone]

I'd be grateful if you could share that calculation somewhere because it's very interesting. If you'd to it in a different thread, send me a PM since I follow only a select few on this board.

It stemmed from the discussion with another member (who seems to be banned?) earlier this month

Short-Term TSLA Price Movements - 2016

Looking back, I see I did subtracted the depreciation of tooling in the calculation. And I did not allocate the depreciation associated with current production of S and X. But I think it won't alter the conclusion of increasing operation efficiency. Maybe not over 13% in two years, but something like 6%.

 

[Papafox]

Today's trading is back to tug-of-war status. We started with the usual Monday morning (in this case, Tuesday morning) rise is SP during the amateur hour, then we've seen several stabs downward, followed by recoveries. The shorts clearly do not want us going higher and try to knock the price down through moderately-sized sell orders, but buyers keep nibbling away and bringing the price back up to the starting point. Good news at the annual meeting could break the cycle as shorts lose the incentive to keep going deeper with TSLA in an effort to protect their current positions.