Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Fact Checking]

It's out
Tesla Q1 2019 Vehicle Production & Deliveries
P 77100
D 63000

So these numbers are pretty bad and disappointing compared to the ueber-bullish VINology estimates here, including mine which were off massively , and Carsonight's GF1 and Bloomberg estimates were way off as well.

In a way we can probably be glad that Wall Street expected so low Model 3 deliveries.

Negatives from the report:

• Big drop in S/X deliveries to 12k, but in line with the elimination of the 75D - which was about 50% of S/X demand.
• 10.6k in-transit is a bit higher than the 10k guided.
• Model 3 production didn't ramp as much as expected - possibly related to the EU parts shortage and the 4 shutdown days in January reported by Alpha Hat.
• Revenue will drop QoQ.

Positives:

• Tesla apparently expected the S/X drop better than we did and didn't overproduce the S/X: they reduced shifts in January already and only 2k more were produced than delivered, with many probably in transit.
• Model 3 production actually grew slightly from Q4 QoQ, despite the tax cliff and Q1 seasonality. EU and China units should put ASPs to around Q4 levels.
• U.S. Model 3 demand apparently recovered in March: "US orders for Model 3 vehicles significantly outpaced what we were able to deliver in Q1." I'd guess it's mostly for SR and SR+ configurations, which they haven't ramped up the pack production for yet.
  
• Because the lowest margin configurations were eliminated (75D and MR), both S/X and Model 3 should contribute at least 0.5b-0.5b to cash from operations AFAICS - which should cover cash outflow. Should Tesla refresh the S/X there's now more space to grow to 100k high margin S/X units.
• This part would help Elon's courtroom arguments later today: "Given that Tesla vehicle production currently occurs entirely from one factory in the San Francisco Bay Area, but must be delivered to customers all around the world, production could be significantly higher than deliveries, as it was this quarter, when production exceeded deliveries by 22%". This directly refutes the argument made by the SEC that production and deliveries are close numbers.

AutoPilot and FSD take rates were not disclosed but could further improve margins over Q4 levels, despite the price drops.

Anyway, I'd expect FUD centered around the drop in S/X numbers - as the usual suspects have been attempting here already.

 

[carterm2]

I'd assume not much production the first week of January after the Q4 push, and a few other days there may have been shutdowns, so if we use 12 weeks of production that's 5,200+ per week.

It is 5900 /wk for 13 weeks, based upon 22% higher production than deliveries.... and EM quote

Your point about downtime is probably correct and that after refit, there were a few weeks of record production, leading EM to gloat on Feb 19th.

 

[mongo]

5k per week is still quite disappointing. I don’t think many of us here are expecting profitable SR+ at these production rates.

Wasn't 5k the threshold Elon called out to make SR last year?

 

[neroden]

So with my tax credit hangover model apparently working, I can predict the same boom bust in Q2/Q3 in the US. Should pullforward most US Model 3 sales from July and August to June and most S/X sales from July to June. Q2 will look better, Q3 worse.

Also S and X should have seen pullforward from Q2 to Q1. I don't think China is out of early reservation fulfilment for Model 3 yet but if it is same would apply. Planned expirations which are cancelled at the last minute have the same effect as real expiraions IMO.

Any other tax credit or tarriff changes coming up?

So we don't dispute there is a US demand problem now.

For model S I do not dispute this and have not for many months. For Model 3 I dispite it. I do think sustainable US model 3 demand was never higher than 5000/week and that that includes SR but I do not consider that a problem. I do not consider tax credit demand pullforward a problem either, though it is an annoyance.

 

[capster]

Very real chance we drop big. These numbers are absolutely brutal.

Very real chance we don’t, despite the shorts’ on-going circle jerk (if you’ll excuse the French).

Will there be an attempt at drama in the morning? Of course. Can they make it stick? We’ll see. There’s been so much FUD, I’m not convinced this will make much difference.

Tesla will be fine and the SP is still relatively low especially given the short volume.

The shorts can disagree here, if it makes them feel better. They’re the ones who need the shares to buy, hence the poison posts. I’ll be keeping my shares for a looong time, thanks all the same.

For "absolutely brutal" numbers look to the “Tesla killers." That will help you keep things in perspective.

 

[ZeApelido]

Feel like I got punched in the stomach.

Still don't see why production was so low. If because of days off, why have them?

 

[JRP3]

It is 5900 /wk for 13 weeks, based upon 22% higher production than deliveries.... and EM quote

I was using the 62,950 figure for Model 3's produced that was mentioned in the report. 50,900 Model 3's were delivered.

 

[JRP3]

So with my tax credit hangover model apparently working, I can predict the same boom bust in Q2/Q3 in the US. Should pullforward most US Model 3 sales from July and August to June and most S/X sales from July to June.

Should be a smaller effect since the tax credit price difference is much smaller.

 

[Fact Checking]

5k per week is still quite disappointing. I don’t think many of us here are expecting profitable SR+ at these production rates.

Depends on the AutoPilot and FSD take rates - which were not disclosed by the delivery report, but which are very high percentages in all the online surveys. (Caveat: they are self-selecting, non-representative samples, so they could overestimate.)

• AutoPilot ($3k) take rate was over 80-90% in the EU tracker,
• color ($1.5k) take rates were over ~75%,
• FSD ($5k) take rate crossed 40%.

These percentages would add about $5.5k to the SR/SR+ ASP, most of which is profit margin.

I.e. even if there's a lot of SR/SR+'s delivered in Q2, margins should still be good.

 

[Beltsbear]

It's not technically feasible now without compromising interior space and significantly increasing vehicle weight.

I don’t agree with that. You can get 10% by changing the electronics and at least one motor to model 3 level technology. The remaining 10% is certainly possible without enlarging the battery physically or going to 2170’s.

 

[Pras]

It is interesting there’s no breakdown for S&X. I wouldn't be surprised if Model X has held up fairly well with some seasonal drops but that it's Model S demand that's cratered. If I was in the market for a high end Tesla, I’m not sure I would pull the trigger on a Model S right now either, given it doesn’t have v3 supercharging, has a fairly dated interior relative to the Model 3, is more expensive and the 3 is getting better reviews for driveability. To put this quarter of S&X into perspective:

View attachment 393488

I will be called reactionary by some. But the long awaited update to the S is an imperative right now if they want that cashflow back. Otherwise you have to wonder how much longer it's worth even selling the product.

What was odd about the v3 supercharging event was that it only served to highlight that the S is no longer the shining halo product, always with the newest tech. So why do it now, when v.3. won't be a real world experience for almost anyone for who knows how long? It's hard to avoid the conclusion that it was a North America demand lever for Model 3. Why would I think that? Because we've heard so much about how Fremont is running sweet as a nut and can get up to 7k a week without too much extra cash or hassle, that Pana have expanded capacity at GF1 and that's no longer the bottle neck it once was. And yet we're still stubbornly stuck under 5k a week average production:

View attachment 393504

Perhaps this is because fitting international charging ports or the change for SR+ slowed down production for some period. The optimist might also say Tesla chose a seasonally weak quarter (just before SR roll-out) to try and iron out any factory kinks and really get gross margins for Model 3 where they need to be (let's see when the Q1 results come out). But I would caution for two reasons. This report could have included a statement that Tesla are now running at 6k+ per week, now that SR is in the mix but it doesn't.

Further, we should look at what management are giving as the reason for the guided loss in Q1. Both today's release and prior statements have been designed ahead of all else to draw attention to the lower delivery numbers due to vehicles in transit. So let's look at that:

View attachment 393507

Vehicles in Transit is actually at a historically good level against total production and in absolute terms is lower than the knock-out Q3 quarter!!

Now I don't want to jump to any firm conclusions based just off this Q1 data. But.... we might be looking at a situation where there is very high (possibly insatiable) demand for Tesla's products, but with that demand now being relatively price elastic given the launch of the lower cost SR/SR+. People want to go electric but they no longer need the high cost (higher margin) product to do so. Heck, even Sheryl Crow seems to have only bought a standard range. We should also bear in mind the state of the global economy and weak demand across the sector. German numbers disappointed some here? Well just look at the economic indicators there right now. The liquidity squeeze in China has also been very real, far more so than casual observers will have realised (though I have to say that I am risk-on in China for the rest of 2019 given government policy actions).

All of which means that the proportion of SR/SR+ Model 3 will need to do most of the heavy lifting, if Tesla is to hit their guidance for 360-400k total deliveries. And perhaps it's with that in mind that they are doing this FSD event. If they're to get good enough margins from those models than up-selling to AP/FSD looks like it might be quite important, given it has a marginal cost of zero and doesn't slow down production even a little bit.

There's no hiding from it, this was a bad quarter. Musk has been jolly on Twitter because he saw it slowly unfolding and it ended better than it might have. And because he has the info to see further ahead than the rest of us. I personally will try to use quarter as a lesson in patience, humility and confirmation bias. And will be keeping a razor focus on the pathway for SR/SR+ gross margins, which seems to me the only question truly worth asking on the call this quarter.

So 7k inventory build up this quarter vs 8k inventory draws in Q4 and 3k draws in Q3. That explains the delivery drop. Regarding production drop, it is kind of flat QoQ for Model 3, but mostly lower due to S and X.

The other way to say is we can assume that Q4 EoQ push pulled forward 7k deliveries. So 63k should be seen as 70k. Now add to this to the fact that Q1 is a lower sales quarter, there was trade issue with China which prevented orders from coming in, the price reduction was only late in quarter, etc. All this means that so many issues impacted this number.

TLDR: don’t pinpoint low delivery too much to low demand. Other factors have also played here.

 

[Artful Dodger]

My concern is Model 3 production was practically unchanged from last Q. Production should not be affected by lack of know-how in delivering the cars overseas for the first time. Are we at capacity in Fremont? I doubt it, so then why?

Production for EU started late due to supplier problems. The first ship didn't start loading until Jan 11, and according to Alpha Hat, was only half full when it loaded.

It's not like Elon to blame his suppliers, but look forward to Tesla taking more production in house in the future.

Redo the numbers w/o the ~10 odd days of lost production if it comforts you. This is one time issue, solved now. Going forward production for Q2 will be around 6K/wk with fewer down days.

Remember, Tesla is profitable whenever they're making over 4K Model 3s per wk. It'll be fine.

Cheers!

 

[neroden]

Think about this. 62950 produced. How many shutdown days? We know at least 5 from the Jan leaks, out of a 90 day quarter.

At 7000/wk when the factory is functioning, it would be 27. Too high, we know they are not there yet an yway.

At 6500/wk, it would be 22 days down... Possible but horrible.

At 6000/wk it would be 16 or 17. With 5 in Jan, that many in Q1 is plausible... Linear projectiom would guess 15. This is my guess.

Not good but consistent with Carsonight. Tesla seems to both be struggling with factory downtime (hopefully for valuable retooling) and to still have bottlenecks keeping steady state limited to 6k/week. Not really out of production hell yet?

 

[Pras]

Given revenue will be lower, are there any cost drivers that may still create respectable gaap loss (def not profit) numbers?

 

[dmckinstry]

Is there some expectation that production will increase dramatically next 3 quarters?

It depends on what happens in China by the end of year.

 

[Fact Checking]

Vehicles in Transit is actually at a historically good level against total production and in absolute terms is lower than the knock-out Q3 quarter!!

I believe this is probably because in Q3 they were pushing hard at the end of September to reach a "6k" Model 3 peak production week.

In the final week of Q1 they probably ramped down to prepare for the HW3 switch and EU/China production. Since they haven't made EU/China units in the final week of March there's no growth in vehicles in transit. At the end of Q3 they kept the factory running making Q4 units.

But it's still true that there's a significant international delivery delays effect in Q1'19, compared to Q3'18.

 

[neroden]

Should be a smaller effect since the tax credit price difference is much smaller.

My model looks at tax credit / list price as a percent. So smaller effect for S, X, LR model 3.... But since SR and SR+ have lower starting price, ends up being 2 months pullforward for them in my model

 

[bdy0627]

Closer to $2B

With the big S/X and model 3 delivery drops, I'm getting a revenue drop of about $2.4B from Q4 2018. The total auto revenue is roughly what Tesla had in Q2 2018. Here are the numbers I'm seeing. I'm just guessing on ASP.

Q2 2018
model 3 deliveries: 18,440
ASP: $56,000
Revenue: $1.6B
model S/X deliveries: 22,319
ASP: $105,000
Revenue: $2.3B
Total Revenue: $4B

Q3 2018
model 3 deliveries: 55,840
ASP: $57,000
Revenue: $3.2B
model S/X deliveries: 27,710
ASP: $104,000
Revenue: $2.9B
Total Revenue: $6B

Q4 2018
model 3 deliveries: 63,150
ASP: $56,000
Revenue: $3.5B
model S/X deliveries: 27,550
ASP: $104,000
Revenue: $2.8B
Total Revenue: $6.4B

Q1 2019
model 3 deliveries: 50,900
ASP: $54,000
Revenue: $2.8B
model S/X deliveries: 12,100
ASP: $102,000
Revenue: $1.2B
Total Revenue: $4B

 

[Antares Nebula]

So what was the breakdown on M3s?

~ 25k US/Canada-(3k C), 15k EU, 11K China ???

 

[bdy0627]

Well I have been wanting to put more of my retirement into TSLA. Tomorrow likely will be the best time this year.

Might want to wait a few days. I wouldn't expect the bottom tomorrow. This delivery report is pretty bad and will likely lead to further downgrades, etc. It's enough negative ammo that we will probably see 3-5 days of red candles. That's my feeling anyway.