Disclaimer:
All views, data, trading recommendations, opinion, speculation and information found on this forum exist solely for the purpose of discussion and debate amongst the members only. TeslaMotorsClub.com makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this forum and will not be liable for any errors, omissions, recommendations, opinion or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis. Submission of information to the forum assumes your agreement to, and understanding of these terms.
http://www.teslamotorsclub.com/announcement.php?f=119
Please find the attached financial model at the bottom of the post.
Note: All of my numbers are on a non-GAAP basis, which excludes stock-based compensation and reverses effects of lease accounting.
Q2:
5,200 cars delivered,
$568 million in revenue
$0.32 EPS
23.1% gross margin including all credit sales
FY13:
23,100 cars delivered,
$2,476 million in revenue
$1.38 EPS
24.9% gross margin including all credit sales
Analyst Consensus:
Q2:
$393 million in revenue
-$0.17 EPS
FY13:
$1,840 million in revenue
-$0.03 EPS
Highest Analyst’s Estimate:
Q2:
$478 million in revenue
-$0.05 EPS
FY13:
$2,160 million in revenue
$0.27 EPS
Q2 earnings release will be all about two items:
Demand – demand has been very strong and if you listen to Elon talk, it sounds like it is getting even stronger, “demand is not the problem, but rather supply is.” Specifically, battery production is holding Tesla back from producing even more than their current 25k – 30k annualized run rate. A new battery supply deal with Samsung will alleviate this issue. There are still many doubters that believe that demand is falling off and they will be caught by surprise on the earnings call.
Gross Margin – Will Tesla be able to achieve its 25% gross margin target by Q4? On Q3 2012 conference call, Elon mentioned that Tesla can achieve these margins with an annualized rate of 20,000 vehicles produced. At a 25,000+ run rate, Tesla should have no problems reaching this milestone. From Q1 conference call Elon said, “unless we really screwed the pooch, you'll see the 25% gross margin number in Q4.” Seems like everything is progressing a little quicker than Elon’s previous conservative guidance, which is extremely positive.
Modeling assumptions for Q2:
Vehicles Delivered – 5,200. Evidence points to 5,450 vehicles produced, so if you subtract loaners then 5,200 seems like a reasonable number.
Average Selling Price - $92,000. ASP for Q1 was just under $96k, and I expect a lower ASP in Q2 due to a higher mix of 60 kWh and 40kWh cars, partially offset by strong demand in Performance Plus models. This equates to $478m in auto sales for Q2.
GHG/CAFÉ credits – Same as Q1 at 3.6% of auto sales. This number is likely to increase in the near future. In June the Obama administration has increased the “social cost” of carbon emissions in federal regulations
ZEV Credits - Elon said in Q1 conference call:
"Yeah, so we’re expecting a decline in the credit revenue for Q2 and then probably fairly significant decline in Q3 and as I said back right now, we’re not expecting anything in Q4. That’s our – I mean, it might be some ZEV credit revenue in Q4, but we’re not accounting on it. I don’t have – I can’t give anymore precision than that at this time."
The expected decline in Q2 was probably due to three factors:
Since Tesla delivered significantly more vehicles than it guided for, I don’t expect the ZEV credit revenue drop-off to be significant in Q2.
Development Services – Slight increase from $6.6m in Q1 to $10m in Q2.
Gross Margins – I used 10% gross margin on auto sales excluding any credits (I have taken out the GHG/CAFÉ credits as well as ZEV credits). The pure auto sales gross margin for Q1 was at 1.8%, which was a 9% increase from Q4 2012. Elon on Q1 conference call:
It's worth noting that when you see the gross margin for Q1, we're giving you obviously the gross margin average over the quarter. And so the gross margin at the end of Q1 was significantly better than at the beginning of Q1.
Average Q4 gross margin was around -7%, so let’s assume that they ended Q4/started Q1 at about -2% gross margin run rate. We can then assume that Q1 gross margin ended at around 5% - 8% range. If Tesla is to reach 25% gross margin in Q4, then my 10% Q2 gross margin number may actually be conservative. Including GHG/CAFÉ credits my gross margin number is 13.1%. This sounds conservative to me, but maybe I am a bit too optimistic on ZEV credits; chances are that any differences will offset.
Research and Development Expense- From Q1 shareholder letter “slight increase”, therefore I modeled a 5% increase from Q1.
Selling, General and Administrative - From Q1 shareholder letter “moderate increase”, therefore I modeled a 10% increase from Q1.
Other Income - $6m of FX gain. The Yen has continued to weaken at a similar pace to Q1 and therefore modeled in a similar number.
Weighted average shares outstanding, fully diluted –This number has increased by almost 6 million due to recent round of capital raising done in the middle of Q2; the other 6 million will kick in in Q3.
Provision for Income Taxes – This amount is very minimal at 1%. US income will still be tax free for a while due to net operating loss carryforwards from previous years. International income will still be taxed. My estimate is probably on the high side, but it is immaterial.
GAAP Earnings
Stock-based compensation - Q2 expenses under GAAP will have an additional $15million of stock-based compensation if you follow the pattern from Q1. Note that TSLA’s share price has increased significantly and might weigh on this expense category possibly leading to a number higher than $15m.
Lease Accounting – On Q1 conference call Elon said that approximately 25% of cars sold are financed through Tesla. If we assume that 40% of those vehicles are returned to Tesla after three years, then 10% of all vehicles sold will fall under the lease accounting rules.
There could have been additional one-off GAAP items as well.
On a GAAP basis, I have modeled $514 million in revenue and $0.11 EPS.
Important Notes:
Net income in my financial model is most sensitive to gross margin and ASP does not affect net income as much (but will impact revenue significantly). It is important to note that lower ASP’s will also mean lower gross margins. A 6% change in ASP changes EPS by $0.02, while a 2% increase in gross margin will change EPS by $0.07.
The wildcard here are ZEV credits. There is downside risk to this number and every $1.3m equates to $0.01 EPS. As previously mentioned I still see upside risk to gross margin and these risks could hypothetically offset each other.
Other risks in my model include higher than expected R&D or SG&A expenses and lower FX gains.
Guidance:
In Q1 Tesla announced its arrival and in Q2 it will announce that it is here to stay!
Elon’s goal is to advance the production of EV’s around the world and the sooner the better. If you have listened to his interviews, you will hear that he is not entirely convinced that it is not too late to save the planet, hence the idea to colonize Mars. Every year that goes by is one year closer to getting to the point of no return. In order to get other auto manufacturers serious about EV development, Tesla has to show them how profitable it is. Therefore, this is not the time to low-ball guidance in order to under-promise and over-deliver. This is the time to make a statement.
I think that raising guidance to at least 23,000 deliveries for the full year will be a good start. But more importantly a $1.00 EPS guidance for the full year will certainly get the attention of other auto manufacturers. Tesla has not previously guided an EPS number, but it would be prudent to do so now that they have better visibility into the next couple of quarters.
Gross margin guidance excluding ZEV credits will be in the low 20’s for Q3 and Elon will give confirmation that Tesla will achieve an average gross margin over 25% in Q4; possibly higher due to new options pricing and popularity of Performance Plus models.
Feedback:
Please let me know what you guys think about the model and help me find weaknesses in my modeling assumptions. Your input is greatly appreciated and I will try to update the model if the TMC consensus is different from what I modeled in.
Cheers,
sleepyhead
All views, data, trading recommendations, opinion, speculation and information found on this forum exist solely for the purpose of discussion and debate amongst the members only. TeslaMotorsClub.com makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this forum and will not be liable for any errors, omissions, recommendations, opinion or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis. Submission of information to the forum assumes your agreement to, and understanding of these terms.
http://www.teslamotorsclub.com/announcement.php?f=119
Please find the attached financial model at the bottom of the post.
Note: All of my numbers are on a non-GAAP basis, which excludes stock-based compensation and reverses effects of lease accounting.
Q2:
5,200 cars delivered,
$568 million in revenue
$0.32 EPS
23.1% gross margin including all credit sales
FY13:
23,100 cars delivered,
$2,476 million in revenue
$1.38 EPS
24.9% gross margin including all credit sales
Analyst Consensus:
Q2:
$393 million in revenue
-$0.17 EPS
FY13:
$1,840 million in revenue
-$0.03 EPS
Highest Analyst’s Estimate:
Q2:
$478 million in revenue
-$0.05 EPS
FY13:
$2,160 million in revenue
$0.27 EPS
Q2 earnings release will be all about two items:
Demand – demand has been very strong and if you listen to Elon talk, it sounds like it is getting even stronger, “demand is not the problem, but rather supply is.” Specifically, battery production is holding Tesla back from producing even more than their current 25k – 30k annualized run rate. A new battery supply deal with Samsung will alleviate this issue. There are still many doubters that believe that demand is falling off and they will be caught by surprise on the earnings call.
Gross Margin – Will Tesla be able to achieve its 25% gross margin target by Q4? On Q3 2012 conference call, Elon mentioned that Tesla can achieve these margins with an annualized rate of 20,000 vehicles produced. At a 25,000+ run rate, Tesla should have no problems reaching this milestone. From Q1 conference call Elon said, “unless we really screwed the pooch, you'll see the 25% gross margin number in Q4.” Seems like everything is progressing a little quicker than Elon’s previous conservative guidance, which is extremely positive.
Modeling assumptions for Q2:
Vehicles Delivered – 5,200. Evidence points to 5,450 vehicles produced, so if you subtract loaners then 5,200 seems like a reasonable number.
Average Selling Price - $92,000. ASP for Q1 was just under $96k, and I expect a lower ASP in Q2 due to a higher mix of 60 kWh and 40kWh cars, partially offset by strong demand in Performance Plus models. This equates to $478m in auto sales for Q2.
GHG/CAFÉ credits – Same as Q1 at 3.6% of auto sales. This number is likely to increase in the near future. In June the Obama administration has increased the “social cost” of carbon emissions in federal regulations
ZEV Credits - Elon said in Q1 conference call:
"Yeah, so we’re expecting a decline in the credit revenue for Q2 and then probably fairly significant decline in Q3 and as I said back right now, we’re not expecting anything in Q4. That’s our – I mean, it might be some ZEV credit revenue in Q4, but we’re not accounting on it. I don’t have – I can’t give anymore precision than that at this time."
The expected decline in Q2 was probably due to three factors:
- 4,500 deliveries expected vs. 4,900 in Q1.
- Higher mix of 40 kWh and 60 kWh cars that generate less credits than 85 kWh models.
- Lower selling prices of credits.
Since Tesla delivered significantly more vehicles than it guided for, I don’t expect the ZEV credit revenue drop-off to be significant in Q2.
Development Services – Slight increase from $6.6m in Q1 to $10m in Q2.
Gross Margins – I used 10% gross margin on auto sales excluding any credits (I have taken out the GHG/CAFÉ credits as well as ZEV credits). The pure auto sales gross margin for Q1 was at 1.8%, which was a 9% increase from Q4 2012. Elon on Q1 conference call:
It's worth noting that when you see the gross margin for Q1, we're giving you obviously the gross margin average over the quarter. And so the gross margin at the end of Q1 was significantly better than at the beginning of Q1.
Average Q4 gross margin was around -7%, so let’s assume that they ended Q4/started Q1 at about -2% gross margin run rate. We can then assume that Q1 gross margin ended at around 5% - 8% range. If Tesla is to reach 25% gross margin in Q4, then my 10% Q2 gross margin number may actually be conservative. Including GHG/CAFÉ credits my gross margin number is 13.1%. This sounds conservative to me, but maybe I am a bit too optimistic on ZEV credits; chances are that any differences will offset.
Research and Development Expense- From Q1 shareholder letter “slight increase”, therefore I modeled a 5% increase from Q1.
Selling, General and Administrative - From Q1 shareholder letter “moderate increase”, therefore I modeled a 10% increase from Q1.
Other Income - $6m of FX gain. The Yen has continued to weaken at a similar pace to Q1 and therefore modeled in a similar number.
Weighted average shares outstanding, fully diluted –This number has increased by almost 6 million due to recent round of capital raising done in the middle of Q2; the other 6 million will kick in in Q3.
Provision for Income Taxes – This amount is very minimal at 1%. US income will still be tax free for a while due to net operating loss carryforwards from previous years. International income will still be taxed. My estimate is probably on the high side, but it is immaterial.
GAAP Earnings
Stock-based compensation - Q2 expenses under GAAP will have an additional $15million of stock-based compensation if you follow the pattern from Q1. Note that TSLA’s share price has increased significantly and might weigh on this expense category possibly leading to a number higher than $15m.
Lease Accounting – On Q1 conference call Elon said that approximately 25% of cars sold are financed through Tesla. If we assume that 40% of those vehicles are returned to Tesla after three years, then 10% of all vehicles sold will fall under the lease accounting rules.
There could have been additional one-off GAAP items as well.
On a GAAP basis, I have modeled $514 million in revenue and $0.11 EPS.
Important Notes:
Net income in my financial model is most sensitive to gross margin and ASP does not affect net income as much (but will impact revenue significantly). It is important to note that lower ASP’s will also mean lower gross margins. A 6% change in ASP changes EPS by $0.02, while a 2% increase in gross margin will change EPS by $0.07.
The wildcard here are ZEV credits. There is downside risk to this number and every $1.3m equates to $0.01 EPS. As previously mentioned I still see upside risk to gross margin and these risks could hypothetically offset each other.
Other risks in my model include higher than expected R&D or SG&A expenses and lower FX gains.
Guidance:
In Q1 Tesla announced its arrival and in Q2 it will announce that it is here to stay!
Elon’s goal is to advance the production of EV’s around the world and the sooner the better. If you have listened to his interviews, you will hear that he is not entirely convinced that it is not too late to save the planet, hence the idea to colonize Mars. Every year that goes by is one year closer to getting to the point of no return. In order to get other auto manufacturers serious about EV development, Tesla has to show them how profitable it is. Therefore, this is not the time to low-ball guidance in order to under-promise and over-deliver. This is the time to make a statement.
I think that raising guidance to at least 23,000 deliveries for the full year will be a good start. But more importantly a $1.00 EPS guidance for the full year will certainly get the attention of other auto manufacturers. Tesla has not previously guided an EPS number, but it would be prudent to do so now that they have better visibility into the next couple of quarters.
Gross margin guidance excluding ZEV credits will be in the low 20’s for Q3 and Elon will give confirmation that Tesla will achieve an average gross margin over 25% in Q4; possibly higher due to new options pricing and popularity of Performance Plus models.
Feedback:
Please let me know what you guys think about the model and help me find weaknesses in my modeling assumptions. Your input is greatly appreciated and I will try to update the model if the TMC consensus is different from what I modeled in.
Cheers,
sleepyhead
Last edited:
